[Title 17 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2011 Edition]
[From the U.S. Government Printing Office]



[[Page 1]]

          

          Title 17

Commodity and Securities Exchanges


________________________

Parts 1 to 199

                         Revised as of April 1, 2011

          Containing a codification of documents of general 
          applicability and future effect

          As of April 1, 2011
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 17:
          Chapter I--Commodity Futures Trading Commission            3
  Finding Aids:
      Table of CFR Titles and Chapters........................     723
      Alphabetical List of Agencies Appearing in the CFR......     743
      List of CFR Sections Affected...........................     753

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                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 17 CFR 1.1 refers to 
                       title 17, part 1, section 
                       1.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
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    To determine whether a Code volume has been amended since its 
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Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
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EFFECTIVE AND EXPIRATION DATES

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OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
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OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
the cover of each volume are not carried. Code users may find the text 
of provisions in effect on a given date in the past by using the 
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1963, 1964-1972, 1973-1985, or 1986-2000, published in eleven separate 
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Sections Affected'' is published at the end of each CFR volume.

``[RESERVED]'' TERMINOLOGY

    The term ``[Reserved]'' is used as a place holder within the Code of 
Federal Regulations. An agency may add regulatory information at a 
``[Reserved]'' location at any time. Occasionally ``[Reserved]'' is used 
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This material, like any other properly issued regulation, has the force 
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    What is a proper incorporation by reference? The Director of the 
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    (a) The incorporation will substantially reduce the volume of 
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    (b) The matter incorporated is in fact available to the extent 
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    (c) The incorporating document is drafted and submitted for 
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that volume.

[[Page vii]]

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the revision dates of the 50 CFR titles.

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    Raymond A. Mosley,
    Director,
    Office of the Federal Register.
    April 1, 2011.







[[Page ix]]



                               THIS TITLE

    Title 17--Commodity and Securities Exchanges is composed of three 
volumes. The first volume containing parts 1--199, comprises Chapter I--
Commodity Futures Trading Commission. The second volume contains Chapter 
II--Securities and Exchange Commission, parts 200--239. The third 
volume, comprising part 240 to end, contains the remaining regulations 
of the Securities and Exchange Commission, and Chapter IV--Department of 
the Treasury. The contents of these volumes represent all current 
regulations issued by the Commodity Futures Trading Commission, the 
Securities and Exchange Commission, and the Department of the Treasury 
as of April 1, 2011.

    The OMB control numbers for the Securities and Exchange Commission 
appear in Sec.  200.800 of chapter II. For the convenience of the user, 
Sec.  200.800 is reprinted in the Finding Aids section of the volume 
containing part 240 to end.

    For this volume, Jonn V. Lilyea was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of 
Michael L. White, assisted by Ann Worley.

[[Page 1]]



              TITLE 17--COMMODITY AND SECURITIES EXCHANGES




                   (This book contains parts 1 to 199)

  --------------------------------------------------------------------
                                                                    Part

chapter i--Commodity Futures Trading Commission.............           1

[[Page 3]]



             CHAPTER I--COMMODITY FUTURES TRADING COMMISSION




  --------------------------------------------------------------------
Part                                                                Page
1               General regulations under the Commodity 
                    Exchange Act............................           5
2               Official seal...............................         122
3               Registration................................         123
4               Commodity pool operators and commodity 
                    trading advisors........................         165
5               Off-exchange foreign currency transactions..         219
7               Contract market rules altered or 
                    supplemented by the Commission..........         250
8               Exchange procedures for disciplinary, 
                    summary, and membership denial actions..         250
9               Rules relating to review of exchange 
                    disciplinary, access denial or other 
                    adverse actions.........................         257
10              Rules of practice...........................         268
11              Rules relating to investigations............         300
12              Rules relating to reparations...............         304
13              Public rulemaking procedures................         344
14              Rules relating to suspension or disbarment 
                    from appearance and practice............         345
15              Reports--general provisions.................         348
16              Reports by reporting markets................         355
17              Reports by reporting markets, futures 
                    commission merchants, clearing members, 
                    and foreign brokers.....................         358
18              Reports by traders..........................         363
19              Reports by persons holding bona fide hedge 
                    positions pursuant to Sec. 1.3(z) of 
                    this chapter and by merchants and 
                    dealers in cotton.......................         366
20

[Reserved]

21              Special calls...............................         368
30              Foreign futures and foreign options 
                    transactions............................         371
31              Leverage transactions.......................         388
32              Regulation of commodity option transactions.         421
33              Regulation of domestic exchange-traded 
                    commodity option transactions...........         435

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34              Regulation of hybrid instruments............         445
35              Exemption of swap agreements................         446
36              Exempt markets..............................         448
37              Derivatives transaction execution facilities         464
38              Designated contract markets.................         475
39              Derivatives clearing organizations..........         488
40              Provisions common to registered entities....         496
41              Security futures products...................         510
42              Anti-money laundering, terrorist financing..         536
44              Interim final rule for pre-enactment swap 
                    transactions............................         536
100             Delivery period required....................         538
140             Organization, functions, and procedures of 
                    the Commission..........................         538
141             Salary offset...............................         563
142             Indemnification of CFTC employees...........         567
143             Collection of claims owed the United States 
                    arising from activities under the 
                    Commission's jurisdiction...............         568
144             Procedures regarding the disclosure of 
                    information and the testimony of present 
                    or former officers and employees in 
                    response to subpoenas or other demands 
                    of a court..............................         572
145             Commission records and information..........         574
146             Records maintained on individuals...........         588
147             Open Commission meetings....................         597
148             Implementation of the Equal Access to 
                    Justice Act in covered adjudicatory 
                    proceedings before the Commission.......         604
149             Enforcement of nondiscrimination on the 
                    basis of handicap in programs or 
                    activities conducted by the Commodity 
                    Futures Trading Commission..............         611
150             Limits on positions.........................         617
155             Trading standards...........................         623
156             Broker Associations.........................         626
160             Privacy of consumer financial information...         628
166             Customer protection rules...................         656
170             Registered futures associations.............         660
171             Rules relating to review of National Futures 
                    Association decisions in disciplinary, 
                    membership denial, registration and 
                    member responsibility actions...........         663
190             Bankruptcy..................................         677
191-199

[Reserved]

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PART 1_GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT--Table of Contents



                               Definitions

Sec.
1.1 [Reserved]
1.2 Liability of principal for act of agent.
1.3 Definitions.
1.4 Use of electronic signatures.

          Minimum Financial and Related Reporting Requirements

1.10 Financial reports of futures commission merchants and introducing 
          brokers.
1.11 [Reserved]
1.12 Maintenance of minimum financial requirements by futures commission 
          merchants and introducing brokers.
1.13 [Reserved]
1.14 Risk assessment recordkeeping requirements for futures commission 
          merchants.
1.15 Risk assessment reporting requirements for futures commission 
          merchants.
1.16 Qualifications and reports of accountants.
1.17 Minimum financial requirements for futures commission merchants and 
          introducing brokers.
1.18 Records for and relating to financial reporting and monthly 
          computation by futures commission merchants and introducing 
          brokers.

                 Prohibited Trading in Commodity Options

1.19 Prohibited trading in certain ``puts'' and ``calls''.

               Customers' Money, Securities, and Property

1.20 Customer funds to be segregated and separately accounted for.
1.21 Care of money and equities accruing to customers.
1.22 Use of customer funds restricted.
1.23 Interest of futures commission merchant in segregated funds; 
          additions and withdrawals.
1.24 Segregated funds; exclusions therefrom.
1.25 Investment of customer funds.
1.26 Deposit of instruments purchased with customer funds.
1.27 Record of investments.
1.28 Appraisal of instruments purchased with customer funds.
1.29 Increment or interest resulting from investment of customer funds.
1.30 Loans by futures commission merchants; treatment of proceeds.

                              Recordkeeping

1.31 Books and records; keeping and inspection.
1.32 Segregated account; daily computation and record.
1.33 Monthly and confirmation statements.
1.34 Monthly record, ``point balance''.
1.35 Records of cash commodity, futures, and option transactions.
1.36 Record of securities and property received from customers and 
          option customers.
1.37 Customer's or option customer's name, address, and occupation 
          recorded; record of guarantor or controller of account.
1.38 Execution of transactions.
1.39 Simultaneous buying and selling orders of different principals; 
          execution of, for and between principals.

                              Miscellaneous

1.40 Crop, market information letters, reports; copies required.
1.41-1.43 [Reserved]
1.44 Records and reports of warehouses, depositories, and other similar 
          entities; visitation of premises.
1.45 [Reserved]
1.46 Application and closing out of offsetting long and short positions.
1.47 Requirements for classification of purchases or sales of contracts 
          for future delivery as bona fide hedging under Sec. 1.3(z)(3) 
          of the regulations.
1.48 Requirements for classification of sales or purchases for future 
          delivery as bona fide hedging of unsold anticipated production 
          or unfilled anticipated requirements under Sec. 1.3(z)(2) 
          (i)(B) or (ii)(C) of the regulations.
1.49 Denomination of customer funds and location of depositories.
1.50-1.51 [Reserved]
1.52 Self-regulatory organization adoption and surveillance of minimum 
          financial requirements.
1.53 Enforcement of contract market bylaws, rules, regulations, and 
          resolutions.
1.54 Contract market rules submitted to and approved or not disapproved 
          by the Secretary of Agriculture.
1.55 Distribution of ``Risk Disclosure Statement'' by futures commission 
          merchants and introducing brokers.
1.56 Prohibition of guarantees against loss.
1.57 Operations and activities of introducing brokers.
1.58 Gross collection of exchange-set margins.
1.59 Activities of self-regulatory organization employees, governing 
          board members, committee members, and consultants.
1.60 Pending legal proceedings.
1.61 [Reserved]

[[Page 6]]

1.62 Contract market requirement for floor broker and floor trader 
          registration.
1.63 Service on self-regulatory organization governing boards or 
          committees by persons with disciplinary histories.
1.64 Composition of various self-regulatory organization governing 
          boards and major disciplinary committees.
1.65 Notice of bulk transfers and disclosure obligations to customers.
1.66 No-action positions with respect to floor traders.
1.67 Notification of final disciplinary action involving financial harm 
          to a customer.
1.68 Customer election not to have funds, carried by a futures 
          commission merchant for trading on a registered derivatives 
          transaction execution facility, separately accounted for and 
          segregated.
1.69 Voting by interested members of self-regulatory organization 
          governing boards and various committees.
1.70 Notification of State enforcement actions brought under the 
          Commodity Exchange Act.

Appendix A to Part 1 [Reserved]
Appendix B to Part 1--Fees for Contract Market Rule Enforcement Reviews 
          and Financial Reviews

    Authority: 7 U.S.C. 1a, 2, 5, 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, as amended by the Commodity Futures 
Modernization Act of 2000, Appendix E of Pub. L. 106-554, 114 Stat. 2763 
(2000).

    Source: 41 FR 3194, Jan. 21, 1976, unless otherwise noted.

                               Definitions



Sec. 1.1  [Reserved]

[66 FR 42269, Aug. 10, 2001]



Sec. 1.2  Liability of principal for act of agent.

    The act, omission, or failure of any official, agent, or other 
person acting for any individual, association, partnership, corporation, 
or trust, within the scope of his employment or office, shall be deemed 
the act, omission, or failure of such individual, association, 
partnership, corporation, or trust as well as of such official, agent, 
or other person.



Sec. 1.3  Definitions.

    Words used in the singular form in the rules and regulations in this 
chapter shall be deemed to import the plural and vice versa, as the 
context may require. The following terms, as used in the Commodity 
Exchange Act, or in the rules and regulations in this chapter, shall 
have the meanings hereby assigned to them, unless the context otherwise 
requires:
    (a) Board of Trade. This term means any exchange or association, 
whether incorporated or unincorporated, of persons who shall be engaged 
in the business of buying or selling any commodity or receiving the same 
for sale on consignment.
    (b) Business day. This term means any day other than a Sunday or 
holiday. In all notices required by the act or by the rules and 
regulations in this chapter to be given in terms of business days the 
rule for computing time shall be to exclude the day on which notice is 
given and include the day on which shall take place the act of which 
notice is given.
    (c) Clearing member. This term means any person who is a member of, 
or enjoys the privilege of clearing trades in his own name through, the 
clearing organization of a designated contract market or registered 
derivatives transaction execution facility.
    (d) Clearing organization. This term means the person or 
organization which acts as a medium for clearing transactions in 
commodities for future delivery or commodity option transactions, or for 
effecting settlements of contracts for future delivery or commodity 
option transactions, for and between members of any designated contract 
market or registered derivatives transaction execution facility.
    (e) Commodity. This term means and includes wheat, cotton, rice, 
corn, oats, barley, rye, flaxseed, grain sorghums, millfeeds, butter, 
eggs, Irish potatoes, wool, wool tops, fats and oils (including lard, 
tallow, cottonseed oil, peanut oil, soybean oil, and all other fats and 
oils), cottonseed meal, cottonseed, peanuts, soybeans, soybean meal, 
livestock, livestock products, and frozen concentrated orange juice, and 
all other goods and articles, except onions as provided in Pub. L. 85-
839, and all services, rights and interests in which contracts for 
future delivery are presently or in the future dealt in.

(Sec. 2(a)(1), 88 Stat. 1395; 7 U.S.C. 2(1))


[[Page 7]]


    (f) Commodity Exchange Act; the Act. These terms mean the Commodity 
Exchange Act, as amended, 7 U.S.C. 1 et seq.
    (g) Institutional customer. This term has the same meaning as 
``eligible contract participant'' as defined in section 1a(12) of the 
Act.
    (h) Contract market. This term means a board of trade designated by 
the Commission as a contract market under the Commodity Exchange Act or 
in accordance with the provisions of part 33 of this chapter.
    (i) Contract of sale. This term includes sales, purchases, 
agreements of sale or purchase and agreements to sell or purchase.
    (j) Controlled account. An account shall be deemed to be controlled 
by a person if such person by power of attorney or otherwise actually 
directs trading for such account.
    (k) Customer; commodity customer. These terms have the same meaning 
and refer to a customer trading in any commodity named in the definition 
of commodity herein: Provided, however, An owner or holder of a 
proprietary account as defined in paragraph (y) of this section shall 
not be deemed to be a customer within the meaning of section 4d of the 
Act, the regulations that implement sections 4d and 4f of the Act and 
Sec. 1.35, and such an owner or holder of such a proprietary account 
shall otherwise be deemed to be a customer within the meaning of the Act 
and Sec. Sec. 1.37 and 1.46 and all other sections of these rules, 
regulations and orders which do not implement sections 4d and 4f.
    (l) Delivery month. This term means the month of delivery specified 
in a contract of sale of any commodity for future delivery.
    (m) [Reserved]
    (n) Floor broker. This term means any person who, in or surrounding 
any pit, ring, post or other place provided by a contract market for the 
meeting of persons similarly engaged, shall purchase or sell for any 
other person any commodity for future delivery on or subject to the 
rules of any contract market and shall include any person required to 
register as a floor broker under the Act by virtue of part 33 of this 
chapter.
    (o) Future delivery. This term does not include any sale of a cash 
commodity for deferred shipment or delivery.
    (p) Futures commission merchant. This term means:
    (1) Individuals, associations, partnerships, corporations, and 
trusts engaged in soliciting or in accepting orders for the purchase or 
sale of any commodity for future delivery on or subject to the rules of 
any contract market and that, in or in connection with such solicitation 
or acceptance of orders, accepts any money, securities, or property (or 
extends credit in lieu thereof) to margin, guarantee or secure any 
trades or contracts that result or may result therefrom; and
    (2) Shall include any person required to register as a futures 
commission merchant under the Act by virtue of part 32 or part 33 of 
this chapter.
    (q) Member of a contract market. This term means and includes 
individuals, associations, partnerships, corporations, and trusts owning 
or holding membership in, or admitted to membership representation on, a 
contract market or given members' trading privileges thereon.
    (r) Net equity. This term means the credit balance which would be 
obtained by combining the commodity margin balance of any person with 
the net profit or loss, if any, accruing on the open trades or contracts 
or commodity option transactions of such person.
    (s) Net deficit. This term means the debit balance which would be 
obtained by combining the commodity margin balance of any person with 
the net profit or loss, if any, accruing on the open trades or contracts 
or commodity option transactions of such person.
    (t) Open contracts. This term means contracts of purchase or sale of 
any commodity made by or for any person on or subject to the rules of a 
board of trade for future delivery during a specified month or delivery 
period which have not been fulfilled by delivery nor offset by other 
contracts of sale or purchase in the same commodity and delivery month.
    (u) Person. This term includes individuals, associations, 
partnerships, corporations, and trusts.
    (v) [Reserved]

[[Page 8]]

    (w) Secretary of Agriculture. This term means the Secretary of 
Agriculture or any person to whom authority has heretofore lawfully been 
delegated or to whom authority may hereafter lawfully be delegated to 
act in his stead.
    (x) Floor trader. This term means any person who, in our surrounding 
any pit, ring, post, or other place provided by a contract market for 
the meeting of persons similarly engaged, purchases or sells solely for 
such person's own account, or has been authorized by a contract market 
to purchase or sell for such person's own account, any commodity for 
future delivery on or subject to the rules of any contract market and 
shall include any person required to register as a floor trader under 
the Act by virtue of part 33 of this chapter or by rule or regulation of 
the Commission pertaining to the operation of an electronic trading 
system.
    (y) Proprietary account. This term means a commodity futures or 
commodity option trading account carried on the books and records of an 
individual, a partnership, corporation or other type association (1) for 
one of the following persons, or (2) of which ten percent or more is 
owned by one of the following persons, or an aggregate of ten percent or 
more of which is owned by more than one of the following persons:
    (i) Such individual himself, or such partnership, corporation or 
association itself;
    (ii) In the case of a partnership, a general partner in such 
partnership;
    (iii) In the case of a limited partnership, a limited or special 
partner in such partnership whose duties include:
    (A) The management of the partnership business or any part thereof,
    (B) The handling of the trades or customer funds of customers or 
option customers of such partnership,
    (C) The keeping of records pertaining to the trades or customer 
funds of customers or option customers of such partnership, or
    (D) The signing or co-signing of checks or drafts on behalf of such 
partnership;
    (iv) In the case of a corporation or association, an officer, 
director or owner of ten percent or more of the capital stock, of such 
organization;
    (v) An employee of such individual, partnership, corporation or 
association whose duties include:
    (A) The management of the business of such individual, partnership, 
corporation or association or any part thereof,
    (B) The handling of the trades or customer funds of customers or 
option customers of such individual, partnership, corporation or 
association,
    (C) The keeping of records pertaining to the trades or customer 
funds of customers or option customers of such individual, partnership, 
corporation or association, or
    (D) The signing or co-signing of checks or drafts on behalf of such 
individual, partnership, corporation or association;
    (vi) A spouse or minor dependent living in the same household of any 
of the foregoing persons;
    (vii) A business affiliate that directly or indirectly controls such 
individual, partnership, corporation or association.
    (viii) A business affiliate that, directly or indirectly is 
controlled by or is under common control with, such individual, 
partnership, corporation or association. Provided, however, That an 
account owned by any shareholder or member of a cooperative association 
of producers, within the meaning of sections 5(5) and 6a of the Act, 
which association is registered as a futures commission merchant and 
carries such account on its records, shall be deemed to be an account of 
a customer or option customer and not a proprietary account of such 
association, unless the shareholder or member is an officer, director or 
manager of the association.
    (z) Bona fide hedging transactions and positions--(1) General 
definition. Bona fide hedging transactions and positions shall mean 
transactions or positions in a contract for future delivery on any 
contract market, or in a commodity option, where such transactions or 
positions normally represent a substitute for transactions to be made or 
positions to be taken at a later time in a physical marketing channel, 
and where they are economically appropriate to the reduction of risks in 
the conduct and management of a commercial enterprise, and where they 
arise from:

[[Page 9]]

    (i) The potential change in the value of assets which a person owns, 
produces, manufactures, processes, or merchandises or anticipates 
owning, producing, manufacturing, processing, or merchandising,
    (ii) The potential change in the value of liabilities which a person 
owns or anticipates incurring, or
    (iii) The potential change in the value of services which a person 
provides, purchases, or anticipates providing or purchasing.

Notwithstanding the foregoing, no transactions or positions shall be 
classified as bona fide hedging unless their purpose is to offset price 
risks incidental to commercial cash or spot operations and such 
positions are established and liquidated in an orderly manner in 
accordance with sound commercial practices and, for transactions or 
positions on contract markets subject to trading and position limits in 
effect pursuant to section 4a of the Act, unless the provisions of 
paragraphs (z) (2) and (3) of this section and Sec. Sec. 1.47 and 1.48 
of the regulations have been satisfied.
    (2) Enumerated hedging transactions. The definitions of bona fide 
hedging transactions and positions in paragraph (z)(1) of this section 
includes, but is not limited to, the following specific transactions and 
positions:
    (i) Sales of any commodity for future delivery on a contract market 
which do not exceed in quantity:
    (A) Ownership or fixed-price purchase of the same cash commodity by 
the same person; and
    (B) Twelve months' unsold anticipated production of the same 
commodity by the same person provided that no such position is 
maintained in any future during the five last trading days of that 
future.
    (ii) Purchases of any commodity for future delivery on a contract 
market which do not exceed in quantity.
    (A) The fixed-price sale of the same cash commodity by the same 
person.
    (B) The quantity equivalent of fixed-price sales of the cash 
products and by-products of such commodity by the same person; and
    (C) Twelve months' unfilled anticipated requirements of the same 
cash commodity for processing, manufacturing, or feeding by the same 
person, provided that such transactions and positions in the five last 
trading days of any one future do not exceed the person's unfilled 
anticipated requirements of the same cash commodity for that month and 
for the next succeeding month.
    (iii) Offsetting sales and purchases for future delivery on a 
contract market which do not exceed in quantity that amount of the same 
cash commodity which has been bought and sold by the same person at 
unfixed prices basis different delivery months of the contract market, 
provided that no such position is maintained in any future during the 
five last trading days of that future.
    (iv) Sales and purchases for future delivery described in paragraphs 
(z)(2) (i), (ii), and (iii) of this section may also be offset other 
than by the same quantity of the same cash commodity, provided that the 
fluctuations in value of the position for future delivery are 
substantially related to the fluctuations in value of the actual or 
anticipated cash position, and provided that the positions in any one 
future shall not be maintained during the five last trading days of that 
future.
    (3) Non-enumerated cases. Upon specific request made in accordance 
with Sec. 1.47 of the regulations, the Commission may recognize 
transactions and positions other than those enumerated in paragraph 
(z)(2) of this section as bona fide hedging in such amount and under 
such terms and conditions as it may specify in accordance with the 
provisions of Sec. 1.47. Such transactions and positions may include, 
but are not limited to, purchases or sales for future delivery on any 
contract market by an agent who does not own or who has not contracted 
to sell or purchase the offsetting cash commodity at a fixed price, 
provided That the person is responsible for the merchandising of the 
cash position which is being offset.
    (aa) Associated person. This term means any natural person who is 
associated in any of the following capacities with:
    (1) A futures commission merchant as a partner, officer, or employee 
(or any natural person occupying a similar

[[Page 10]]

status or performing similar functions), in any capacity which involves 
(i) the solicitation or acceptance of customers' or option customers' 
orders (other than in a clerical capacity) or (ii) the supervision of 
any person or persons so engaged;
    (2) An introducing broker as a partner, officer, employee, or agent 
(or any natural person occupying a similar status or performing similar 
functions), in any capacity which involves (i) the solicitation or 
acceptance of customers' or option customers' orders (other than in a 
clerical capacity) or (ii) the supervision of any person or persons so 
engaged;
    (3) A commodity pool operator as a partner, officer, employee, 
consultant, or agent (or any natural person occupying a similar status 
or performing similar functions), in any capacity which involves (i) the 
solicitation of funds, securities, or property for a participation in a 
commodity pool or (ii) the supervision of any person or persons so 
engaged; or
    (4) A commodity trading advisor as a partner, officer, employee, 
consultant, or agent (or any natural person occupying a similar status 
or performing similar functions), in any capacity which involves: (i) 
The solicitation of a client's or prospective client's discretionary 
account, or (ii) the supervision of any person or persons so engaged; 
and
    (5) A leverage transaction merchant as a partner, officer, employee, 
consultant, or agent (or any natural person occupying a similar status 
or performing similar functions), in any capacity which involves: (i) 
The solicitation or acceptance of leverage customers' orders (other than 
in a clerical capacity) for leverage transactions as defined in Sec. 
31.4(x) of this chapter, or (ii) the supervision of any person or 
persons so engaged.
    (bb)(1) Commodity trading advisor. This term means any person who, 
for compensation or profit, engages in the business of advising others, 
either directly or through publications, writings or electronic media, 
as to the value of or the advisability of trading in any contract of 
sale of a commodity for future delivery made or to be made on or subject 
to the rules of a contract market or derivatives transaction execution 
facility, any commodity option authorized under section 4c of the Act, 
or any leverage transaction authorized under section 19 of the Act, or 
who, for compensation or profit, and as part of a regular business, 
issues or promulgates analyses or reports concerning any of the 
foregoing; but such term does not include (i) Any bank or trust company 
or any person acting as an employee thereof, (ii) any news reporter, 
news columnist, or news editor of the print or electronic media, or any 
lawyer, accountant, or teacher, (iii) any floor broker or futures 
commission merchant, (iv) the publisher or producer of any print or 
electronic data of general and regular dissemination, including its 
employees, (v) the named fiduciary, or trustee, of any defined benefit 
plan which is subject to the provisions of the Employee Retirement 
Income Security Act of 1974, or any fiduciary whose sole business is to 
advise that plan, (vi) any contract market or derivatives transaction 
execution facility, and (vii) such other persons not within the intent 
of this definition as the Commission may specify by rule, regulation or 
order: Provided, That the furnishing of such services by the foregoing 
persons is solely incidental to the conduct of their business or 
profession: Provided further, That the Commission, by rule or 
regulation, may include within this definition, any person advising as 
to the value of commodities or issuing reports or analyses concerning 
commodities, if the Commission determines that such rule or regulation 
will effectuate the purposes of this provision.
    (2) Client. This term, as it relates to a commodity trading advisor, 
means any person (i) to whom a commodity trading advisor provides 
advice, for compensation or profit, either directly or through 
publications, writings, or electronic media, as to the value of, or the 
advisability of trading in, any contract of sale of a commodity for 
future delivery made or to be made on or subject to the rules of a 
contract market or derivatives transaction execution facility, any 
commodity option authorized under section 4c of the Act, or any leverage 
transaction authorized under section 19 of the Act; or (ii) to whom,

[[Page 11]]

for compensation or profit, and as part of a regular business, the 
commodity trading advisor issues or promulgates analyses or reports 
concerning any of the activities referred to in paragraph (bb)(2)(i) of 
this section. The term ``client'' includes, without limitation, any 
subscriber of a commodity trading advisor.
    (cc) Commodity pool operator. This term means any person engaged in 
a business which is of the nature of an investment trust, syndicate, or 
similar form of enterprise, and who, in connection therewith, solicits, 
accepts, or receives from others, funds, securities, or property, either 
directly or through capital contributions, the sale of stock or other 
forms of securities, or otherwise, for the purpose of trading in any 
commodity for future delivery or commodity option on or subject to the 
rules of any contract market, but does not include such persons not 
within the intent of this definition as the Commission may specify by 
rule or regulation or by order.
    (dd) Commission. This term means the Commodity Futures Trading 
Commission.
    (ee) Self-regulatory organization. This term means a contract market 
(as defined in Sec. 1.3(h)), or a registered futures association under 
section 17 of the Act.
    (ff) Designated self-regulatory organization. This term means:
    (1) Self-regulatory organization of which a futures commission 
merchant, an introducing broker or a leverage transaction merchant is a 
member; or
    (2) If a futures commission merchant or an introducing broker is a 
member of more than one self-regulatory organization and such futures 
commission merchant or introducing broker is the subject of an approved 
plan under Sec. 1.52 of this part, then a self-regulatory organization 
delegated the responsibility by such a plan for monitoring and auditing 
such futures commission merchant or introducing broker for compliance 
with the minimum financial and related reporting requirements of the 
self-regulatory organizations of which the futures commission merchant 
or introducing broker is a member, and for receiving the financial 
reports necessitated by such minimum financial and related reporting 
requirements from such futures commission merchant or introducing 
broker; or
    (3) If a leverage transaction merchant is a member of more than one 
self-regulatory organization and such leverage transaction merchant is 
the subject of an approved plan under Sec. 31.28 of this chapter, then 
a self-regulatory organization delegated the responsibility by such a 
plan for monitoring and auditing such leverage transaction merchant for 
compliance with the minimum financial, cover, segregation and sales 
practice, and related reporting requirements of the self-regulatory 
organizations of which the leverage transaction merchant is a member, 
and for receiving the reports necessitated by such minimum financial, 
cover, segregation and sales practice, and related reporting 
requirements from such leverage transaction merchant.
    (gg) Customer funds. This term means all money, securities, and 
property received by a futures commission merchant or by a clearing 
organization from, for, or on behalf of, customers or option customers:
    (1) In the case of commodity customers, to margin, guarantee, or 
secure contracts for future delivery on or subject to the rules of a 
contract market and all money accruing to such customers as the result 
of such contracts; and
    (2) In the case of option customers, in connection with a commodity 
option transaction on or subject to the rules of a contract market:
    (i) To be used as a premium for the purchase of a commodity option 
for an option customer;
    (ii) As a premium payable to an option customer;
    (iii) To guarantee or secure performance of a commodity option by an 
option customer; or
    (iv) Representing accruals (including, for purchasers of a commodity 
option for which the full premium has been paid, the market value of 
such commodity option) to an option customer.
    (3) Notwithstanding paragraphs (gg)(1) and (2) of this section, the 
term customer funds shall exclude money, securities or property received 
to margin, guarantee or secure the trades or contracts of opt-out 
customers, and all

[[Page 12]]

money accruing to opt-out customers as the result of such trades or 
contracts, to the extent that such trades or contracts are made on or 
subject to the rules of any registered derivatives transaction execution 
facility that has authorized opting out in accordance with Sec. 37.7 of 
this chapter.
    (4) Notwithstanding paragraphs (gg)(1), (2) and (3) of this section, 
the term customer funds shall exclude money, securities or property held 
to margin, guarantee or secure security futures products held in a 
securities account, and all money accruing as the result of such 
security futures products.
    (hh) Commodity option transaction; commodity option. These terms 
each mean any transaction or agreement in interstate commerce which is 
or is held out to be of the character of, or is commonly known to the 
trade as, an ``option,'' ``privilege,'' ``indemnity,'' ``bid,'' 
``offer,'' ``call,'' ``put.'' ``advance guaranty,'' or ``decline 
guaranty,'' and which is subject to regulation under the Act and these 
regulations.
    (ii) Premium. This term means the amount agreed upon between the 
purchaser and seller, or their agents, for the purchase or sale of a 
commodity option on or subject to the rules of a contract market.
    (jj) Option customer. This term means any person who directly or 
indirectly, purchases or grants (sells), or otherwise acquires or 
disposes of any interest in a commodity option for value, but does not 
include:
    (1) For purposes of Sec. Sec. 1.16, 1.17, 1.20-1.30, 1.32, 1.36, 
33.3 and 33.7 of this chapter, the owner or holder of a proprietary 
account; and
    (2) Option customers whose option transactions are conducted in 
accordance with the requirements of part 32 of this chapter.
    (kk) Strike price. This term means the price, per unit, at which a 
person may purchase or sell the contract of sale of a commodity for 
future delivery or the physical which is the subject of a commodity 
option: Provided, That for purposes of Sec. 1.17, the term ``strike 
price'' means the total price at which a person may purchase or sell the 
contract of sale of a commodity for future delivery or the physical 
which is the subject of a commodity option (i.e., price per unit times 
the number of units).
    (ll) Physical. This term means any good, article, service, right or 
interest upon which a commodity option may be traded in accordance with 
the Act and these regulations.
    (mm) Introducing broker. This term means:
    (1) Any person who, for compensation or profit, whether direct or 
indirect, is engaged in soliciting or in accepting orders (other than in 
a clerical capacity) for the purchase or sale of any commodity for 
future delivery on or subject to the rules of any contract market who 
does not accept any money, securities, or property (or extend credit in 
lieu thereof) to margin, guarantee, or secure any trades or contracts 
that result or may result therefrom; and
    (2) Includes any person required to register as an introducing 
broker by virtue of part 33 of this chapter: Provided, That the term 
``introducing broker'' shall not include:
    (i) Any futures commission merchant, floor broker, or associated 
person, acting in its capacity as such, regardless of whether that 
futures commission merchant, floor broker, or associated person is 
registered or exempt from registration in such capacity;
    (ii) Any commodity trading advisor, which, acting in its capacity as 
a commodity trading advisor, is not compensated on a per-trade basis or 
which solely manages discretionary accounts pursuant to a power of 
attorney, regardless of whether that commodity trading advisor is 
registered or exempt from registration in such capacity; and
    (iii) Any commodity pool operator which, acting in its capacity as a 
commodity pool operator, solely operates commodity pools, regardless of 
whether that commodity pool operator is registered or exempt from 
registration in such capacity.
    (nn) Guarantee agreement. This term means an agreement of guaranty 
in the form set forth in part B or C of Form 1-FR, executed by a 
registered futures commission merchant or retail foreign exchange 
dealer, as appropriate, and by an introducing broker or applicant for 
registration as an introducing broker on behalf of an introducing broker 
or

[[Page 13]]

applicant for registration as an introducing broker in satisfaction of 
the alternative adjusted net capital requirement set forth in Sec. 
1.17(a)(1)(iii).
    (oo) Leverage transaction merchant. Means and includes any 
individual, association, partnership, corporation, trust or other person 
that is engaged in the business of offering to enter into, entering into 
or confirming the execution of leverage contracts, or soliciting or 
accepting orders for leverage contracts, and who accepts leverage 
customer funds (or extends credit in lieu thereof) in connection 
therewith.
    (pp) Leverage customer funds. Means all money, securities and 
property received, directly or indirectly by a leverage transaction 
merchant from, for, or on behalf of leverage customers to margin, 
guarantee or secure leverage contracts and all money, securities and 
property accruing to such customers as the result of such contracts, or 
the customers' leverage equity. In the case of a long leverage 
transaction, profit or loss accruing to a leverage customer is the 
difference between the leverage transaction merchant's current bid price 
for the leverage contract and the ask price of the leverage contract 
when entered into. In the case of a short leverage transaction, profit 
or loss accruing to a leverage customer is the difference between the 
bid price of the leverage contract when entered into and the leverage 
transaction merchant's current ask price for the leverage contract.
    (qq) Leverage contract. Shall have the same meaning as that set 
forth in Sec. 31.4(w) of this chapter.
    (rr) Foreign futures or foreign options secured amount. This term 
means all money, securities and property held by or held for or on 
behalf of a futures commission merchant from, for, or on behalf of 
foreign futures or foreign options customers as defined in Sec. 30.1 of 
this chapter:
    (1) In the case of foreign futures customers, money, securities and 
property required by a futures commission merchant to margin, guarantee, 
or secure open foreign futures contracts plus or minus any unrealized 
gain or loss on such contracts; and
    (2) In the case of foreign options customers in connection with open 
foreign options transactions money, securities and property representing 
premiums paid or received, plus any other funds required to guarantee or 
secure open transactions plus or minus any unrealized gain or loss on 
such transactions.
    (ss) Foreign board of trade. This term means any board of trade, 
exchange or market located outside the United States, its territories or 
possessions, whether incorporated or unincorporated, where foreign 
futures or foreign options transactions are entered into.
    (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 to sign the record.
    (uu) Opt-out customer. This term means a customer that is an 
eligible contract participant, as defined in section 1a(12) of the Act, 
and that, in accordance with Sec. 1.68, has elected not to have funds 
that are being carried for purposes of trading on or through the 
facilities of a registered derivatives transaction execution facility, 
separately accounted for and segregated by the futures commission 
merchant pursuant to section 4d of the Act and Sec. Sec. 1.20-1.30, 
1.32 and 1.36. A customer is an opt-out customer solely with respect to 
agreements, contracts or transactions, and the money, securities or 
property received by a futures commission merchant to margin, guarantee 
or secure such agreements, contracts or transactions, made on or subject 
to the rules of any derivatives transaction execution facility that has 
adopted rules permitting a customer to elect to be an opt-out customer 
and with respect to which the customer has made such an election. For 
all other purposes under the Act and the rules thereunder, except where 
otherwise provided, an opt-out customer shall be a customer as defined 
in Sec. 1.3(k).
    (vv) Futures account. This term means an account that is maintained 
in accordance with the segregation requirements of section 4d of the 
Commodity Exchange Act and the rules thereunder.
    (ww) Securities account. This term means an account that is 
maintained in accordance with the requirements of

[[Page 14]]

section 15(c)(3) of the Securities Exchange Act of 1934 and Rule 15c3-3 
thereunder.
    (xx) Foreign broker. This term means any person located outside the 
United States, its territories or possessions who is engaged in 
soliciting or in accepting orders only from persons located outside the 
United States, its territories or possessions for the purchase or sale 
of any commodity interest transaction on or subject to the rules of any 
designated contract market or derivatives transaction execution facility 
and that, in or in connection with such solicitation or acceptance of 
orders, accepts any money, securities or property (or extends credit in 
lieu thereof) to margin, guarantee, or secure any trades or contracts 
that result or may result therefrom.
    (yy) Commodity interest. This term means:
    (1) Any contract for the purchase or sale of a commodity for future 
delivery;
    (2) Any contract, agreement or transaction subject to Commission 
regulation under section 4c or 19 of the Act; and
    (3) Any contract, agreement or transaction subject to Commission 
jurisdiction under section 2(c)(2) of the Act.

[41 FR 3194, Jan. 21, 1976]

    Editorial Note: For Federal Register citations affecting Sec. 1.3, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec. 1.4  Use of electronic signatures.

    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 retail forex customer of a retail foreign 
exchange dealer or futures commission merchant, 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, retail foreign exchange dealer, introducing 
broker, commodity pool operator or commodity trading advisor elects 
generally to accept electronic signatures; Provided, however, That the 
electronic signature must comply with applicable Federal laws and other 
Commission rules; And, Provided further, That the futures commission 
merchant, retail foreign exchange dealer, 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 safeguards employed to prevent alteration of the 
electronic record with which the electronic signature is associated, 
after such record has been electronically signed.

[75 FR 55418, Sept. 10, 2010]

          Minimum Financial and Related Reporting Requirements



Sec. 1.10  Financial reports of futures commission merchants and introducing brokers.

    (a) Application for registration. (1) Except as otherwise provided, 
a futures commission merchant or an applicant for registration as a 
futures commission merchant, in order to satisfy any requirement in this 
part that it file a Form 1-FR, must file a Form 1-FR-FCM, and any 
reference in this part to Form 1-FR with respect to a futures commission 
merchant or applicant therefor shall be deemed to be a reference to Form 
1-FR-FCM. Except as otherwise provided, an introducing broker or an 
applicant for registration as an introducing broker, in order to satisfy 
any requirement in this part that it file a Form 1-FR, must file a Form 
1-FR-IB, and any reference in this part to Form 1-FR with respect to an 
introducing broker or applicant therefor shall be deemed to be a 
reference to Form 1-FR-IB.
    (2) (i) (A) Except as provided in paragraphs (a)(3) and (h) of this 
section, each person who files an application for registration as a 
futures commission merchant and who is not so registered at the time of 
such filing, must, concurrently with the filing of such application, 
file either:
    (1) A Form 1-FR-FCM certified by an independent public accountant in 
accordance with Sec. 1.16 as of a date not more than 45 days prior to 
the date on which such report is filed; or

[[Page 15]]

    (2) A Form 1-FR-FCM as of a date not more than 17 business days 
prior to the date on which such report is filed and a Form 1-FR-FCM 
certified by an independent public accountant in accordance with Sec. 
1.16 as of a date not more than one year prior to the date on which such 
report is filed.
    (B) Each such person must include with such financial report a 
statement describing the source of his current assets and representing 
that his capital has been contributed for the purpose of operating his 
business and will continue to be used for such purpose.
    (ii) (A) Except as provided in paragraphs (a)(3) and (h) of this 
section, each person who files an application for registration as an 
introducing broker and who is not so registered at the time of such 
filing, must, concurrently with the filing of such application, file 
either:
    (1) A Form 1-FR-IB certified by an independent public accountant in 
accordance with Sec. 1.16 as of a date not more than 45 days prior to 
the date on which such report is filed;
    (2) A Form 1-FR-IB as of a date not more than 17 business days prior 
to the date on which such report is filed and a Form 1-FR-IB certified 
by an independent public accountant in accordance with Sec. 1.16 as of 
a date not more than one year prior to the date on which such report is 
filed;
    (3) A Form 1-FR-IB as of a date not more than 17 business days prior 
to the date on which such report is filed, Provided, however, that such 
applicant shall be subject to a review by the applicant's designated 
self-regulatory organization within six months of registration; or
    (4) A guarantee agreement.
    (B) Each person filing in accordance with paragraphs (a)(2)(ii)(A) 
(1), (2) or (3) of this section must include with such financial report 
a statement describing the source of his current assets and representing 
that his capital has been contributed for the purpose of operating his 
business and will continue to be used for such purpose.
    (3)(i) The provisions of paragraph (a)(2) of this section do not 
apply to any person succeeding to and continuing the business of another 
futures commission merchant. Each such person who files an application 
for registration as a futures commission merchant and who is not so 
registered in that capacity at the time of such filing must file a Form 
1-FR-FCM as of the first month end following the date on which his 
registration is approved. Such report must be filed with the National 
Futures Association, the Commission and the designated self-regulatory 
organization, if any, not more than 17 business days after the date for 
which the report is made.
    (ii) The provisions of paragraph (a)(2) of this section do not apply 
to any person succeeding to and continuing the business of another 
introducing broker.
    (A) Each such person who succeeds to and continues the business of 
an introducing broker which was not operating pursuant to a guarantee 
agreement, or which was operating pursuant to a guarantee agreement and 
was also a securities broker or dealer at the time of succession, who 
files an application for registration as an introducing broker, and who 
is not so registered in that capacity at the time of such filing, must 
file with the National Futures Association either a guarantee agreement 
with his application for registration or a Form 1-FR-IB as of the first 
month end following the date on which his registration is approved. Such 
Form 1-FR-IB must be filed not more than 17 business days after the date 
for which the report is made.
    (B) Each such person who succeeds to and continues the business of 
an introducing broker which was operating pursuant to a guarantee 
agreement and which was not also a securities broker or dealer at the 
time of succession, who files an application for registration as an 
introducing broker, and who is not so registered in that capacity at the 
time of such filing, must file with the National Futures Association 
either a guarantee agreement or a Form 1-FR-IB with his application for 
registration. If such person files a Form 1-FR-IB with his application 
for registration, such person must also file a Form 1-FR-IB, certified 
by an independent public accountant, as of a date no later than the end 
of the month registration is granted. The Form 1-FR-IB certified by an 
independent public accountant

[[Page 16]]

must be filed with the National Futures Association not more than 45 
days after the date for which the report is made.
    (b) Filing of financial reports. (1)(i) Except as provided in 
paragraphs (b)(3) and (h) of this section, each person registered as a 
futures commission merchant must file a Form 1-FR-FCM as of the close of 
business each month. Each Form 1-FR-FCM must be filed no later than 17 
business days after the date for which the report is made.
    (ii) In addition to the monthly financial reports required by 
paragraph (b)(1)(i) of this section, each person registered as a futures 
commission merchant must file a Form 1-FR-FCM as of the close of its 
fiscal year, which must be certified by an independent public accountant 
in accordance with Sec. 1.16, and must be filed no later than 90 days 
after the close of the futures commission merchant's fiscal year: 
Provided, however, that a registrant which is registered with the 
Securities and Exchange Commission as a securities broker or dealer must 
file this report not later than the time permitted for filing an annual 
audit report under Sec. 240.17a-5(d)(5) of this title.
    (2)(i) Except as provided in paragraphs (b)(3) and (h) of this 
section, and except for an introducing broker operating pursuant to a 
guarantee agreement which is not also a securities broker or dealer, 
each person registered as an introducing broker must file a Form 1-FR-IB 
semiannually as of the middle and the close of each fiscal year. Each 
Form 1-FR-IB must be filed no later than 17 business days after the date 
for which the report is made.
    (ii)(A) In addition to the financial reports required by paragraph 
(b)(2)(i) of this section, each person registered as an introducing 
broker must file a Form 1-FR-IB as of the close of its fiscal year which 
must be certified by an independent public accountant in accordance with 
Sec. 1.16 no later than 90 days after the close of each introducing 
broker's fiscal year: Provided, however, that a registrant which is 
registered with the Securities and Exchange Commission as a securities 
broker or dealer must file this report not later than the time permitted 
for filing an annual audit report under Sec. 240.17a-5(d)(5) of this 
title.
    (B) If an introducing broker has filed previously a Form 1-FR-IB, 
certified by an independent public accountant in accordance with the 
provisions of paragraphs (a)(2)(ii) or (j)(8) of this section and Sec. 
1.16 of this part, as of a date not more than one year prior to the 
close of such introducing broker's fiscal year, it need not have 
certified by an independent public accountant the Form 1-FR-IB filed as 
of the introducing broker's first fiscal year-end following the as of 
date of its initial certified Form 1-FR-IB. In such a case, the 
introducing broker's Form 1-FR-IB filed as of the close of the second 
fiscal year-end following the as of date of its initial certified Form 
1-FR-IB must cover the period of time between those two dates and must 
be certified by an independent public accountant in accordance with 
Sec. 1.16 of this part.
    (3) The provisions of paragraphs (b)(1) and (b)(2) of this section 
may be met by any person registered as a futures commission merchant or 
as an introducing broker who is a member of a designated self-regulatory 
organization and conforms to minimum financial standards and related 
reporting requirements set by such designated self-regulatory 
organization in its bylaws, rules, regulations, or resolutions and 
approved by the Commission pursuant to Section 4f(b) of the Act and 
Sec. 1.52: Provided, however, That each such registrant shall promptly 
file with the Commission a true and exact copy of each financial report 
which it files with such designated self-regulatory organization.
    (4) Upon receiving written notice from any representative of the 
National Futures Association, the Commission or any self-regulatory 
organization of which it is a member, an applicant or registrant, except 
an applicant for registration as an introducing broker which has filed 
concurrently with its application for registration a guarantee agreement 
and which is not also a securities broker or dealer, must, monthly or at 
such times as specified, furnish the National Futures Association, the 
Commission or the self-regulatory organization requesting such 
information a Form 1-FR or such

[[Page 17]]

other financial information as requested by the National Futures 
Association, the Commission or the self-regulatory organization. Each 
such Form 1-FR or such other information must be furnished within the 
time period specified in the written notice, and in accordance with the 
provisions of paragraph (c) of this section.
    (c) Where to file reports. (1) Form 1-FR filed by an introducing 
broker pursuant to paragraph (b)(2) of this section need be filed only 
with, and will be considered filed when received by, the National 
Futures Association. Other reports or information provided for in this 
section will be considered filed when received by the regional office of 
the Commission with jurisdiction over the state in which the 
registrant's principal place of business is located and by the 
designated self-regulatory organization, if any; and reports or other 
information required to be filed by this section by an applicant for 
registration will be considered filed when received by the National 
Futures Association. Any report or information 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.
    (2)(i) Except as provided in the last sentence of this subparagraph, 
all filings or other notices prepared by a futures commission merchant 
pursuant to this section may be submitted to the Commission in 
electronic form using a form of user authentication assigned in 
accordance with procedures established by or approved by the Commission, 
and otherwise in accordance with instructions issued by or approved by 
the Commission, if the futures commission merchant or a designated self-
regulatory organization has provided the Commission with the means 
necessary to read and to process the information contained in such 
report. A Form 1-FR required to be certified by an independent public 
accountant in accordance with Sec. 1.16 which is filed by a futures 
commission merchant must be filed in paper form and may not be filed 
electronically.
    (ii) Except as provided in paragraph (h) of this section, all 
filings or other notices or applications prepared by an introducing 
broker or applicant for registration as an introducing broker or futures 
commission merchant pursuant to this section must be filed 
electronically in accordance with electronic filing procedures 
established by the National Futures Association. In the case of a Form 
1-FR-IB that is required to be certified by an independent public 
accountant in accordance with Sec. 1.16, a paper copy of any such 
filing with the original manually signed certification must be 
maintained by the introducing broker or applicant for registration as an 
introducing broker in accordance with Sec. 1.31.
    (3) Any information required of a registrant by a self-regulatory 
organization pursuant to paragraph (b)(4) of this section need be 
furnished only to such self-regulatory organization and the Commission, 
and any information required of an applicant by the National Futures 
Association pursuant to paragraph (b)(4) of this section need be 
furnished only to the National Futures Association and the Commission.
    (4) Any guarantee agreement entered into between a futures 
commission merchant and an introducing broker in accordance with the 
provisions of this section need be filed only with, and will be 
considered filed when received by, the National Futures Association.
    (d) Contents of financial reports. (1) Each Form 1-FR filed pursuant 
to this Sec. 1.10 which is not required to be certified by an 
independent public accountant must be completed in accordance with the 
instructions to the form and contain:
    (i) A statement of financial condition as of the date for which the 
report is made;
    (ii) Statements of income (loss) and a statement of changes in 
ownership equity for the period between the date of the most recent 
statement of financial condition filed with the Commission and the date 
for which the report is made;
    (iii) A statement of changes in liabilities subordinated to claims 
of general creditors for the period between the date of the most recent 
statement of financial condition filed with the Commission and the date 
for which the report is made;

[[Page 18]]

    (iv) A statement of the computation of the minimum capital 
requirements pursuant to Sec. 1.17 as of the date for which the report 
is made;
    (v) For a futures commission merchant only, the statements of 
segregation requirements and funds in segregation for customers trading 
on U.S. commodity exchanges and for customers' dealer options accounts, 
and the statement of secured amounts and funds held in separate accounts 
for foreign futures and foreign options customers in accordance with 
Sec. 30.7 of this chapter as of the date for which the report is made; 
and
    (vi) In addition to the information expressly required, such futher 
material information as may be necessary to make the required statements 
and schedules not misleading.
    (2) Each Form 1-FR filed pursuant to this Sec. 1.10 which is 
required to be certified by an independent public accountant must be 
completed in accordance with the instructions to the form and contain:
    (i) A statement of financial condition as of the date for which the 
report is made;
    (ii) Statements of income (loss), cash flows, changes in ownership 
equity, and changes in liabilities subordinated to claims of general 
creditors, for the period between the date of the most recent certified 
statement of financial condition filed with the Commission and the date 
for which the report is made: Provided, That for an applicant filing 
pursuant to paragraph (a)(2) of this section the period must be the year 
ending as of the date of the statement of financial condition;
    (iii) A statement of the computation of the minimum capital 
requirements pursuant to Sec. 1.17 as of the date for which the report 
is made;
    (iv) For a futures commission merchant only, the statements of 
segregation requirements and funds in segregation for customers trading 
on U.S. commodity exchanges and for customers' dealer options accounts, 
and the statement of secured amounts and funds held in separate accounts 
for foreign futures and foreign options customers in accordance with 
Sec. 30.7 of this chapter as of the date for which the report is made;
    (v) Appropriate footnote disclosures;
    (vi) A reconciliation, including appropriate explanations, of the 
statement of the computation of the minimum capital requirements 
pursuant to Sec. 1.17 and, for a futures commission merchant only, the 
statements of segregation requirements and funds in segregation for 
customers trading on U.S. commodity exchanges and for customers' dealer 
option accounts, and the statement of secured amounts and funds held in 
separate accounts for foreign futures and foreign options customers in 
accordance with Sec. 30.7 of this chapter, in the certified Form 1-FR 
with the applicant's or registrant's corresponding uncertified most 
recent Form 1-FR filing when material differences exist or, if no 
material differences exist, a statement so indicating; and
    (vii) In addition to the information expressly required, such 
further material information as may be necessary to make the required 
statements not misleading.
    (3) The statements required by paragraphs (d)(2)(i) and (d)(2)(ii) 
of this section may be presented in accordance with generally accepted 
accounting principles in the certified reports filed as of the close of 
the registrant's fiscal year pursuant to paragraphs (b)(1)(ii) or 
(b)(2)(ii) of this section or accompanying the application for 
registration pursuant to paragraph (a)(2) of this section, rather than 
in the format specifically prescribed by these regulations: Provided, 
the statement of financial condition is presented in a format as 
consistent as possible with the Form 1-FR and a reconciliation is 
provided reconciling such statement of financial condition to the 
statement of the computation of the minimum capital requirements 
pursuant to Sec. 1.17. Such reconciliation must be certified by an 
independent public accountant in accordance with Sec. 1.16.
    (4) Attached to each Form 1-FR filed pursuant to this section must 
be an oath or affirmation that to the best knowledge and belief of the 
individual making such oath or affirmation the information contained in 
the Form 1-FR is true and correct. The individual making such oath or 
affirmation must be:

[[Page 19]]

    (i) If the registrant or applicant is a sole proprietorship, the 
proprietor; if a partnership, any general partner; if a corporation, the 
chief executive officer or chief financial officer; and, if a limited 
liability company or limited liability partnership, the chief executive 
officer, the chief financial officer, the manager, the managing member, 
or those members vested with the management authority for the limited 
liability company or limited liability partnership; or
    (ii) If the registrant or applicant is registered with the 
Securities and Exchange Commission as a securities broker or dealer, the 
representative authorized under Sec. 240.17a-5 of this title to file 
for the securities broker or dealer its Financial and Operational 
Combined Uniform Single Report under the Securities Exchange Act of 
1934, part II, part IIA, or part II CSE.
    (iii) In the case of a Form 1-FR filed via electronic transmission 
in accordance with procedures established by or approved by the 
Commission, such transmission must be accompanied by the user 
authentication assigned to the authorized signer under such procedures, 
and the use of such user authentication will constitute and become a 
substitute for the manual signature of the authorized signer for the 
purpose of making the oath or affirmation referred to in this paragraph.
    (e) Election of fiscal year. (1) An applicant wishing to establish a 
fiscal year other than the calendar year may do so by notifying the 
National Futures Association of its election of such fiscal year, in 
writing, concurrently with the filing of the Form 1-FR pursuant to 
paragraph (a)(2) of this section, but in no event may such fiscal year 
end more than one year from the date of the Form 1-FR filed pursuant to 
paragraph (a)(2) of this section. An applicant that does not so notify 
the National Futures Association will be deemed to have elected the 
calendar year as its fiscal year.
    (2) (i) A registrant must continue to use its elected fiscal year, 
calendar or otherwise, unless a change in such fiscal year has been 
approved pursuant to this paragraph (e)(2).
    (ii) Futures commission merchant registrants. (A) A futures 
commission merchant may file with its designated self-regulatory 
organization an application to change its fiscal year, a copy of which 
the registrant must file with the Commission. The application shall be 
approved or denied in writing by the designated self-regulatory 
organization. The registrant must file immediately with the Commission a 
copy of any notice it receives from the designated self-regulatory 
organization to approve or deny the registrant's application to change 
its fiscal year. A written notice of approval shall become effective 
upon the filing by the registrant of a copy with the Commission, and a 
written notice of denial shall be effective as of the date of the 
notice.
    (B) A futures commission merchant that is registered with the 
Securities and Exchange Commission as a securities broker or dealer may 
file with its designated self-regulatory organization copies of any 
notice or application filed with its designated examining authority, 
pursuant to Sec. 240.17a-5(d)(1)(i) of this title, for a change in 
fiscal year or ``as of'' date for its annual audited financial 
statement. The registrant must also file immediately with the designated 
self-regulatory organization and the Commission copies of any notice it 
receives from its designated examining authority to approve or deny the 
registrant's request for change in fiscal year or ``as of'' date. Upon 
the receipt by the designated self-regulatory organization and the 
Commission of copies of any such notice of approval, the change in 
fiscal year or ``as of'' date referenced in the notice shall be deemed 
approved under this paragraph (e)(2).
    (C) Any copy that under this paragraph (e)(2) is required to be 
filed with the Commission shall be filed with the regional office of the 
Commission with jurisdiction over the state in which the registrant's 
principal place of business is located, and any copy or application to 
be filed with the designated self-regulatory organization shall be filed 
at its principal place of business.
    (iii) Introducing broker registrants. (A) An introducing broker may 
file with the National Futures Association an application to change its 
fiscal year, which shall be approved or denied in writing.

[[Page 20]]

    (B) An introducing broker that is registered with the Securities and 
Exchange Commission as a securities broker or dealer may file with the 
National Futures Association copies of any notice or application filed 
with its designated examining authority, pursuant to Sec. 240.17a-
5(d)(1)(i) of this title, for a change in fiscal year or ``as of'' date 
for its annual audited financial statement. The registrant must also 
file immediately with the National Futures Association copies of any 
notice it receives from its designated examining authority to approve or 
deny the registrant's request for change in fiscal year or ``as of'' 
date. Upon the receipt by the National Futures Association of copies of 
any such notice of approval, the change in fiscal year or ``as of'' date 
referenced in the notice shall be deemed approved under this paragraph 
(e)(2).
    (f) Extension of time for filing uncertified reports. (1) In the 
event a registrant finds that it cannot file its Form 1-FR, or, in 
accordance with paragraph (h) of this section, its Financial and 
Operational Combined Uniform Single Report under the Securities Exchange 
Act of 1934, part II, part IIA, or part II CSE (FOCUS report), for any 
period within the time specified in paragraphs (b)(1)(i) or (b)(2)(i) of 
this section without substantial undue hardship, it may request approval 
for an extension of time, as follows:
    (i) Futures commission merchant registrants. (A) A futures 
commission merchant may file with its designated self-regulatory 
organization an application for extension of time, a copy of which the 
registrant must file with the Commission. The application shall be 
approved or denied in writing by the designated self-regulatory 
organization. The registrant must file immediately with the Commission a 
copy of any notice it receives from the designated self-regulatory 
organization to approve or deny the registrant's request for extension 
of time. A written notice of approval shall become effective upon the 
filing by the registrant of a copy with the Commission, and a written 
notice of denial shall be effective as of the date of the notice.
    (B) A futures commission merchant that is registered with the 
Securities and Exchange Commission as a securities broker or dealer may 
file with its designated self-regulatory organization a copy of any 
application that the registrant has filed with its designated examining 
authority, pursuant to Sec. 240.17-a5(l)(5) of this title, for an 
extension of time to file its FOCUS report. The registrant must also 
file immediately with the designated self-regulatory organization and 
the Commission copies of any notice it receives from its designated 
examining authority to approve or deny the requested extension of time. 
Upon receipt by the designated self-regulatory organization and the 
Commission of copies of any such notice of approval, the requested 
extension of time referenced in the notice shall be deemed approved 
under this paragraph (f)(1).
    (C) Any copy that under this subparagraph (f)(1)(i) is required to 
be filed with the Commission shall be filed with the regional office of 
the Commission with jurisdiction over the state in which the 
registrant's principal place of business is located.
    (ii) Introducing broker registrants. (A) An introducing broker may 
file with the National Futures Association an application for extension 
of the time, which shall be approved or denied in writing.
    (B) An introducing broker that is registered with the Securities and 
Exchange Commission as a securities broker or dealer may file with the 
National Futures Association copies of any application that the 
registrant has filed with its designated examining authority, pursuant 
to Sec. 240.17-a5(l)(5) of this title, for an extension of time to file 
its FOCUS report. The registrant must also file immediately with the 
National Futures Association copies of any notice it receives from its 
designated examining authority to approve or deny the requested 
extension of time. Upon the receipt by the National Futures Association 
of a copy of any such notice of approval, the requested extension of 
time referenced in the notice shall be deemed approved under this 
paragraph (f)(1)(ii).

[[Page 21]]

    (2) In the event an applicant finds that it cannot file its report 
for any period within the time specified in paragraph (b)(4) of this 
section without substantial undue hardship, it may file with the 
National Futures Association an application for an extension of time to 
a specified date which may not be more than 90 days after the date as of 
which the financial statements were to have been filed. The application 
must state the reasons for the requested extension and must contain an 
agreement to file the report on or before the specified date. The 
application must be received by the National Futures Association before 
the time specified in paragraph (b)(4) of this section for filing the 
report. Notice of such application must be filed with the regional 
office of the Commission with jurisdiction over the state in which the 
applicant's principal place of business is located concurrently with the 
filing of such application with the National Futures Association. Within 
ten calendar days after receipt of the application for an extension of 
time, the National Futures Association shall:
    (i) Notify the applicant of the grant or denial of the requested 
extension; or
    (ii) Indicate to the applicant that additional time is required to 
analyze the request, in which case the amount of time needed will be 
specified.
    (g) Public availability of reports. (1) Forms 1-FR filed pursuant to 
this section, and FOCUS reports filed in lieu of Forms 1-FR pursuant to 
paragraph (h) of this section, will be treated as exempt from mandatory 
public disclosure for purposes of the Freedom of Information Act and the 
Government in the Sunshine Act and parts 145 and 147 of this chapter, 
except for the information described in paragraph (g)(2) of this 
section.
    (2) The following information in Forms 1-FR, and the same or 
equivalent information in FOCUS reports filed in lieu of Forms 1-FR, 
will be publicly available:
    (i) The amount of the applicant's or registrant's adjusted net 
capital; the amount of its minimum net capital requirement under Sec. 
1.17 of this chapter; and the amount of its adjusted net capital in 
excess of its minimum net capital requirement; and
    (ii) The following statements and footnote disclosures thereof: the 
Statement of Financial Condition in the certified annual financial 
reports of futures commission merchants and introducing brokers; the 
Statements (to be filed by a futures commission merchant only) of 
Segregation Requirements and Funds in Segregation for customers trading 
on U.S. commodity exchanges and for customers' dealer options accounts, 
and the Statement (to be filed by a futures commission merchant only) of 
Secured Amounts and Funds held in Separate Accounts for foreign futures 
and foreign options customers in accordance with Sec. 30.7 of this 
chapter.
    (3) [Reserved]
    (4) All information that is exempt from mandatory public disclosure 
under paragraph (g)(1) of this section will, however, be available for 
official use by any official or employee of the United States or any 
State, by any self-regulatory organization of which the person filing 
such report is a member, by the National Futures Association in the case 
of an applicant, and by any other person to whom the Commission believes 
disclosure of such information is in the public interest. Nothing in 
this paragraph (g) will limit the authority of any self-regulatory 
organization to request or receive any information relative to its 
members' financial condition.
    (5) The independent accountant's opinion and a guarantee agreement 
filed pursuant to this section will be deemed public information.
    (h) Filing option available to a futures commission merchant or an 
introducing broker that is also a securities broker or dealer. Any 
applicant or registrant which is registered with the Securities and 
Exchange Commission as a securities broker or dealer may comply with the 
requirements of this section by filing (in accordance with paragraphs 
(a), (b), (c), and (j) of this section) a copy of its Financial and 
Operational Combined Uniform Single Report under the Securities Exchange 
Act of 1934, Part II, Part IIA, or Part II CSE (FOCUS Report), in lieu 
of Form 1-FR; Provided, however, That all information which is required 
to be furnished on and submitted with Form 1-FR is provided

[[Page 22]]

with such FOCUS Report; and Provided, further, That a certified FOCUS 
Report filed by an introducing broker or applicant for registration as 
an introducing broker in lieu of a certified Form 1-FR-IB must be filed 
according to National Futures Association rules, either in paper form or 
electronically, in accordance with procedures established by the 
National Futures Association, and if filed electronically, a paper copy 
of such filing with the original manually signed certification must be 
maintained by such introducing broker or applicant in accordance with 
Sec. 1.31.
    (i) Filing option available to an introducing broker or applicant 
for registration as an introducing broker which is also a country 
elevator. Any introducing broker or applicant for registration as an 
introducing broker which is also a country elevator but which is not 
also a securities broker or dealer may comply with the requirements of 
this section by filing (in accordance with paragraphs (a), (b) and (c) 
of this section) a copy of a financial report prepared by a grain 
commission firm which has been authorized by the Deputy Vice President 
of the Commodity Credit Corporation of the United States Department of 
Agriculture to provide a compilation report of financial statements of 
warehousemen for purposes of Uniform Grain Storage Agreements, and which 
complies with the standards for independence set forth in Sec. 
1.16(b)(2) with respect to the registrant or applicant: Provided, 
however, That all information which is required to be furnished on and 
submitted with Form 1-FR is provided with such financial report, 
including a statement of the computation of the minimum capital 
requirements pursuant to Sec. 1.17: And, provided further, That the 
balance sheet is presented in a format as consistent as possible with 
the Form 1-FR and a reconciliation is provided reconciling such balance 
sheet to the statement of the computation of the minimum capital 
requirements pursuant to Sec. 1.17. Attached to each financial report 
filed pursuant to this paragraph (i) must be an oath or affirmation that 
to the best knowledge and belief of the individual making such oath or 
affirmation the information contained therein is true and correct. If 
the applicant or registrant is a sole proprietorship, then the oath or 
affirmation must be made by the proprietor; if a partnership, by a 
general partner; or if a corporation, by the chief executive officer or 
chief financial officer.
    (j) Requirements for guarantee agreement. (1) A guarantee agreement 
filed pursuant to this section must be signed in a manner sufficient to 
be a binding guarantee under local law by an appropriate person on 
behalf of the futures commission merchant or retail foreign exchange 
dealer and the introducing broker, and each signature must be 
accompanied by evidence that the signatory is authorized to enter the 
agreement on behalf of the futures commission merchant, retail foreign 
exchange dealer, or introducing broker and is such an appropriate 
person. For purposes of this paragraph (j), an appropriate person shall 
be the proprietor, if the firm is a sole proprietorship; a general 
partner, if the firm is a partnership; and either the chief executive 
officer or the chief financial officer, if the firm is a corporation; 
and, if the firm is a limited liability company or limited liability 
partnership, either the chief executive officer, the chief financial 
officer, the manager, the managing member, or those members vested with 
the management authority for the limited liability company or limited 
liability partnership.
    (2) No futures commission merchant or retail foreign exchange dealer 
may enter into a guarantee agreement if:
    (i) It knows or should have known that its adjusted net capital is 
less than the amount set forth in Sec. 1.12(b) of this part or Sec. 
5.6(b) of this chapter, as applicable; or
    (ii) There is filed against the futures commission merchant or 
retail foreign exchange dealer an adjudicatory proceeding brought by or 
before the Commission pursuant to the provisions of sections 6(c), 6(d), 
6c, 6d, 8a or 9 of the Act or Sec. Sec. 3.55, 3.56 or 3.60 of this 
chapter.
    (3) A retail foreign exchange dealer may enter into a guarantee 
agreement only with an introducing broker as defined in Sec. 5.1(f)(1) 
of this chapter. A retail foreign exchange dealer may not enter into a 
guarantee agreement with

[[Page 23]]

an introducing broker as defined in Sec. 1.3(mm) of this part.
    (4) A guarantee agreement filed in connection with an application 
for initial registration as an introducing broker in accordance with the 
provisions of Sec. 3.10(a) of this chapter shall become effective upon 
the granting of registration or, if appropriate, a temporary license, to 
the introducing broker. A guarantee agreement filed other than in 
connection with an application for initial registration as an 
introducing broker shall become effective as of the date agreed to by 
the parties.
    (5)(i) If the registration of the introducing broker is suspended, 
revoked, or withdrawn in accordance with the provisions of this chapter, 
the guarantee agreement shall expire as of the date of such suspension, 
revocation or withdrawal.
    (ii) If the registration of the futures commission merchant or 
retail foreign exchange dealer is suspended or revoked, the guarantee 
agreement shall expire 30 days after such suspension or revocation, or 
at such earlier time as may be approved by the Commission, the 
introducing broker, and the introducing broker's designated self-
regulatory organization.
    (6) A guarantee agreement may be terminated at any time during the 
term thereof:
    (i) By mutual written consent of the parties, signed by an 
appropriate person on behalf of each party, with prompt written notice 
thereof, signed by an appropriate person on behalf of each party, to the 
Commission and to the designated self-regulatory organizations of the 
futures commission merchant or retail foreign exchange dealer and the 
introducing broker;
    (ii) For good cause shown, by either party giving written notice of 
its intention to terminate the agreement, signed by an appropriate 
person, to the other party to the agreement, to the Commission, and to 
the designated self-regulatory organizations of the futures commission 
merchant or retail foreign exchange dealer and the introducing broker; 
or
    (iii) By either party giving written notice of its intention to 
terminate the agreement, signed by an appropriate person, at least 30 
days prior to the proposed termination date, to the other party to the 
agreement, to the Commission, and to the designated self-regulatory 
organizations of the futures commission merchant or retail foreign 
exchange dealer and the introducing broker.
    (7) The termination of a guarantee agreement by a futures commission 
merchant, retail foreign exchange dealer or an introducing broker, or 
the expiration of such an agreement, shall not relieve any party from 
any liability or obligation arising from acts or omissions which 
occurred during the term of the agreement.
    (8) An introducing broker may not simultaneously be a party to more 
than one guarantee agreement: Provided, however, That the provisions of 
this paragraph (j)(8) shall not be deemed to preclude an introducing 
broker from entering into a guarantee agreement with another futures 
commission merchant or retail foreign exchange dealer if the introducing 
broker, futures commission merchant or retail foreign exchange dealer 
which is a party to the existing agreement has provided notice of 
termination of the existing agreement in accordance with the provisions 
of paragraph (j)(6) of this section, and the new guarantee agreement 
does not become effective until the day following the date of 
termination of the existing agreement: And, provided further, That the 
provisions of this paragraph (j)(8) shall not be deemed to preclude an 
introducing broker from entering into a guarantee agreement with another 
futures commission merchant or retail foreign exchange dealer if the 
futures commission merchant or retail foreign exchange dealer which is a 
party to the existing agreement ceases to remain registered and the 
existing agreement would therefore expire in accordance with the 
provisions of paragraph (j)(6)(ii) of this section.
    (9)(i)(A) An introducing broker that is a party to a guarantee 
agreement that has been terminated in accordance with the provisions of 
paragraph (j)(6) of this section, or that is due to expire in accordance 
with the provisions of paragraph (j)(5)(ii) of this section, must cease 
doing business as an introducing broker on or before the effective date

[[Page 24]]

of such termination or expiration unless, on or before 10 days prior to 
the effective date of such termination or expiration or such other 
period of time as the Commission or the designated self-regulatory 
organization may allow for good cause shown, the introducing broker 
files with its designated self-regulatory organization either a new 
guarantee agreement effective as of the day following the date of 
termination of the existing agreement, or, in the case of a guarantee 
agreement that is due to expire in accordance with the provisions of 
paragraph (j)(4)(ii) of this section, a new guarantee agreement 
effective on or before such expiration, or either:
    (1) A Form 1-FR-IB certified by an independent public accountant in 
accordance with Sec. 1.16 as of a date not more than 45 days prior to 
the date on which the report is filed; or
    (2) A Form 1-FR-IB as of a date not more than 17 business days prior 
to the date on which the report is filed and a Form 1-FR-IB certified by 
an independent public accountant in accordance with Sec. 1.16 as of a 
date not more than one year prior to the date on which the report is 
filed: Provided, however, that an introducing broker as defined in Sec. 
5.1(f)(1) of this chapter that is party to a guarantee agreement that 
has been terminated or that has expired must cease doing business as an 
introducing broker on or before the effective date of such termination 
or expiration unless, on or before 10 days prior to the effective date 
of such termination or expiration or such other period of time as the 
Commission or the designated self-regulatory organization may allow for 
good cause shown, the introducing broker files with its designated self-
regulatory organization a new guarantee agreement effective on or before 
the termination or expiration date of the terminating or expiring 
guarantee agreement.
    (B) Each person filing a Form 1-FR-IB in accordance with this 
section must include with the financial report a statement describing 
the source of his current assets and representing that his capital has 
been contributed for the purpose of operating his business and will 
continue to be used for such purpose.
    (ii)(A) Notwithstanding the provisions of paragraph (j)(9)(i) of 
this section or of Sec. 1.17(a), an introducing broker that is a party 
to a guarantee agreement that has been terminated in accordance with the 
provisions of paragraph (j)(6)(ii) of this section shall not be deemed 
to be in violation of the minimum adjusted net capital requirement of 
Sec. 1.17(a)(1)(iii) or (a)(2) for 30 days following such termination. 
Such an introducing broker must cease doing business as an introducing 
broker on or after the effective date of such termination, and may not 
resume doing business as an introducing broker unless and until it files 
a new agreement or either:
    (1) A Form 1-FR-IB certified by an independent public accountant in 
accordance with Sec. 1.16 as of a date not more than 45 days prior to 
the date on which the report is filed; or
    (2) A Form 1-FR-IB as of a date not more than 17 business days prior 
to the date on which the report is filed and a Form 1-FR-IB certified by 
an independent public accountant in accordance with Sec. 1.16 as of a 
date not more than one year prior to the date on which the report is 
filed: Provided, however, that an introducing broker as defined in Sec. 
5.1(f)(1) of this chapter that is party to a guarantee agreement that 
has been terminated must cease doing business as an introducing broker 
from and after the effective date of such termination, and may not 
resume doing business as an introducing broker as defined in Sec. 
5.1(f)(1) of this chapter unless and until it files a new guarantee 
agreement.
    (B) Each person filing a Form 1-FR-IB in accordance with this 
section must include with the financial report a statement describing 
the source of his current assets and representing that his capital has 
been contributed for the purpose of operating his business and will 
continue to be used for such purpose.
    (k) Filing option available to an introducing broker. (1) Any 
introducing broker or applicant for registration as an introducing 
broker which is not operating or intending to operate pursuant to a 
guarantee agreement may comply with the requirements of this section by 
filing (in accordance with

[[Page 25]]

paragraphs (a), (b) and (c) of this section) a Form 1-FR-IB in lieu of a 
Form 1-FR-FCM.
    (2) If an introducing broker or applicant therefor avails itself of 
the filing option available under paragraph (k)(1) of this section, the 
report required to be filed in accordance with Sec. 1.16(c)(5) of this 
part must be filed as of the date of the Form 1-FR-IB being filed, and 
such an introducing broker or applicant therefor must maintain its 
financial records and make its monthly formal computation of its 
adjusted net capital, as required by Sec. 1.18 of this part, in a 
manner consistent with Form 1-FR-IB.

(The information collection requirements contained in Sec. 1.10 were 
approved by the Office of Management and Budget under control number 
3038-0024; in paragraphs (a) and (b) under control number 3038-0023; and 
in paragraph (f) under control number 3038-0003.)

[43 FR 39967, Sept. 8, 1978]

    Editorial Note: For Federal Register citations affecting Sec. 1.10, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec. 1.11  [Reserved]



Sec. 1.12  Maintenance of minimum financial requirements by futures commission 

merchants and introducing brokers.

    (a) Each person registered as a futures commission merchant or who 
files an application for registration as a futures commission merchant, 
and each person registered as an introducing broker or who files an 
application for registration as an introducing broker (except for an 
introducing broker or applicant for registration as an introducing 
broker operating pursuant to, or who has filed concurrently with its 
application for registration, a guarantee agreement and who is not also 
a securities broker or dealer), who knows or should have known that its 
adjusted net capital at any time is less than the minimum required by 
Sec. 1.17 or by the capital rule of any self-regulatory organization to 
which such person is subject, if any, must:
    (1) Give telephonic notice, to be confirmed in writing by 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
    (2) Provide together with such notice documentation in such form as 
necessary to adequately reflect the applicant's or registrant's capital 
condition as of any date such person's adjusted net capital is less than 
the minimum required. The applicant or registrant must provide similar 
documentation for other days as the Commission may request.
    (b) Each person registered as a futures commission merchant, or who 
files an application for registration as a futures commission merchant, 
who knows or should have known that its adjusted net capital at any time 
is less than the greatest of:
    (1) 150 percent of the minimum dollar amount required by Sec. 
1.17(a)(1)(i)(A);
    (2) 110 percent of the amount required by Sec. 1.17(a)(1)(i)(B);
    (3) 150 percent of the amount of adjusted net capital required by a 
registered futures association of which it is a member, unless such 
amount has been determined by a margin-based capital computation set 
forth in the rules of the registered futures association, and such 
amount meets or exceeds the amount of adjusted net capital required 
under the margin-based capital computation set forth in Sec. 
1.17(a)(1)(i)(B), in which case the required percentage is 110 percent, 
or
    (4) For securities brokers or dealers, the amount of net capital 
specified in Rule 17a-11(c) of the Securities and Exchange Commission 
(17 CFR 240.17a-11(c)), must file written notice to that effect as set 
forth in paragraph (i) of this section within twenty-four (24) hours of 
such event.
    (c) If an applicant or registrant at any time fails to make or keep 
current the books and records required by these regulations, such 
applicant or registrant must, on the same day such event occurs, provide 
facsimile notice of such fact, specifying the books and

[[Page 26]]

records which have not been made or which are not current, and within 
forty-eight (48) hours after giving such notice file a written report 
stating what steps have been and are being taken to correct the 
situation.
    (d) Whenever any applicant or registrant discovers or is notified by 
an independent public accountant, pursuant to Sec. 1.16(e)(2) of this 
chapter, of the existence of any material inadequacy, as specified in 
Sec. 1.16(d)(2) of this chapter, such applicant or registrant must give 
facsimile notice of such material inadequacy within twenty-four (24) 
hours, and within forty-eight (48) hours after giving such notice file a 
written report stating what steps have been and are being taken to 
correct the material inadequacy.
    (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 facsimile 
notice, as provided in paragraph (i) of this section.
    (f)(1) Whenever a clearing organization determines that any position 
it carries for one of its clearing members which is registered as a 
futures commission merchant or as a leverage transaction merchant must 
be liquidated immediately, transferred immediately or that the trading 
of any account of such futures commission merchant or such leverage 
transaction merchant shall be only for the purposes of liquidation, 
because that clearing member has failed to meet a call for margin or to 
make other required deposits, the clearing organization must immediately 
give telephonic notice, confirmed in writing immediately by facsimile 
notice, of such a determination to the principal office of the 
Commission at Washington, DC.
    (2) Whenever a registered futures commission merchant determines 
that any position it carries for another registered futures commission 
merchant or for a registered leverage transaction merchant must be 
liquidated immediately, transferred immediately or that the trading of 
any account of such futures commission merchant or leverage transaction 
merchant shall be only for purposes of liquidation, because the other 
futures commission merchant or the leverage transaction merchant has 
failed to meet a call for margin or to make other required deposits, the 
carrying futures commission merchant must immediately give telephonic 
notice, confirmed in writing immediately by facsimile notice, of such a 
determination to the principal office of the Commission at Washington, 
DC.
    (3) Whenever a registered futures commission merchant determines 
that an account which it is carrying is undermargined by an amount which 
exceeds the futures commission merchant's adjusted net capital 
determined in accordance with Sec. 1.17, the futures commission 
merchant must immediately give telephonic notice, confirmed in writing 
immediately by facsimile notice, of such a determination to the 
designated self-regulatory organization and the principal office of the 
Commission at Washington, DC. This paragraph (f)(3) shall apply to any 
account carried by the futures commission merchant, whether a customer, 
noncustomer, omnibus or proprietary account. For purposes of this 
paragraph (f)(3), if any person has an interest of 10 percent or more in 
ownership or equity in, or guarantees, more than one account, or has 
guaranteed an account in addition to his own account, all such accounts 
shall be combined. A designated self-regulatory organization may grant 
an exemption from the provisions of this paragraph to a futures 
commission merchant with respect to any particular account on a 
continuous basis provided the designated self-regulatory organization 
documents the reasons for granting such an exemption and continues to 
monitor any such account.
    (4) A futures commission merchant shall report immediately by 
telephone, confirmed immediately in writing by facsimile notice, 
whenever any commodity interest account it carries is subject to a 
margin call, or call for other deposits required by the futures 
commission merchant, that exceeds the futures commission merchant's 
excess adjusted net capital, determined in accordance with Sec. 1.17, 
and such call has not been answered by the close of business on the day 
following the issuance

[[Page 27]]

of the call. This applies to all accounts carried by the futures 
commission merchant, whether customer, noncustomer, or omnibus, that are 
subject to margining, including commodity futures and options. In 
addition to actual margin deposits by an account owner, a futures 
commission merchant may also take account of favorable market moves in 
determining whether the margin call is required to be reported under 
this paragraph.
    (5)(i) A futures commission merchant shall report immediately by 
telephone, confirmed immediately in writing by facsimile notice, 
whenever its excess adjusted net capital is less than six percent of the 
maintenance margin required by the futures commission merchant on all 
positions held in accounts of a noncustomer other than a noncustomer who 
is subject to the minimum financial requirements of:
    (A) A futures commission merchant, or
    (B) The Securities and Exchange Commission for a securities broker 
and dealer.
    (ii) For purposes of paragraph (f)(5)(i) of this section, 
maintenance margin shall include all deposits which the futures 
commission merchant requires the noncustomer to maintain in order to 
carry its positions at the futures commission merchant.
    (g) A futures commission merchant shall provide written notice of a 
substantial reduction in capital as compared to that last reported in a 
financial report filed with the Commission pursuant to Sec. 1.10. This 
notice shall be provided as follows:
    (1) If any event or series of events, including any withdrawal, 
advance, loan or loss cause, on a net basis, a reduction in net capital 
(or, if the futures commission merchant is qualified to use the filing 
option available under Sec. 1.10(h), tentative net capital as defined 
in the rules of the Securities and Exchange Commission) of 20 percent or 
more, notice must be provided within two business days of the event or 
series of events causing the reduction; and
    (2) If equity capital of the futures commission merchant or a 
subsidiary or affiliate of the futures commission merchant consolidated 
pursuant to Sec. 1.17(f) (or 17 CFR 240.15c3-1e) would be withdrawn by 
action of a stockholder or a partner or a limited liability company 
member or by redemption or repurchase of shares of stock by any of the 
consolidated entities or through the payment of dividends or any similar 
distribution, or an unsecured advance or loan would be made to a 
stockholder, partner, sole proprietor, limited liability company member, 
employee or affiliate, such that the withdrawal, advance or loan would 
cause, on a net basis, a reduction in excess adjusted net capital (or, 
if the futures commission merchant is qualified to use the filing option 
available under Sec. 1.10(h), excess net capital as defined in the 
rules of the Securities and Exchange Commission) of 30 percent or more, 
notice must be provided at least two business days prior to the 
withdrawal, advance or loan that would cause the reduction: Provided, 
however, That the provisions of paragraphs (g)(1) and (g)(2) of this 
section do not apply to any futures or securities transaction in the 
ordinary course of business between a futures commission merchant and 
any affiliate where the futures commission merchant makes payment to or 
on behalf of such affiliate for such transaction and then receives 
payment from such affiliate for such transaction within two business 
days from the date of the transaction.
    (3) Upon receipt of such notice from a futures commission merchant, 
the Director of the Division of Clearing and Intermediary Oversight or 
the Director's designee may require that the futures commission merchant 
provide or cause a Material Affiliated Person (as that term is defined 
in Sec. 1.14(a)(2)) to provide, within three business days from the 
date of request or such shorter period as the Division Director or 
designee may specify, such other information as the Division Director or 
designee determines to be necessary based upon market conditions, 
reports provided by the futures commission merchant, or other available 
information.
    (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

[[Page 28]]

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 such deficiency immediately by telephone notice, confirmed 
immediately in writing by facsimile notice, to the registrant's 
designated self-regulatory organization and the principal office of the 
Commission in Washington, DC, to the attention of the Director and the 
Chief Accountant of the Division of Clearing and Intermediary Oversight.
    (i)(1) Every notice and written report required to be given or filed 
by this section (except for notices required by paragraph (f) of this 
section) by a futures commission merchant or a self-regulatory 
organization must be filed with the regional office of the Commission 
with jurisdiction over the state in which the registrant's principal 
place of business is located, with the principal office of the 
Commission in Washington, DC, with the designated self-regulatory 
organization, if any; and with the Securities and Exchange Commission, 
if such registrant is a securities broker or dealer. Every notice and 
written report required to be given or filed by this section by an 
applicant for registration as a futures commission merchant must be 
filed with the National Futures Association (on behalf of the 
Commission), with the designated self-regulatory organization, if any, 
and with the Securities and Exchange Commission, if such applicant is a 
securities broker or dealer. 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.
    (2) Every notice and written report which an introducing broker or 
applicant for registration as an introducing broker is required to give 
or file by paragraphs (a), (c) and (d) of this section must be filed 
with the National Futures Association (on behalf of the Commission), 
with the designated self-regulatory organization, if any, and with every 
futures commission merchant carrying or intending to carry customer 
accounts for the introducing broker or applicant for registration as an 
introducing broker. 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.
    (3) Every notice or report required to be provided in writing to the 
Commission under this section may, in lieu of facsimile, be filed via 
electronic transmission using a form of user authentication assigned in 
accordance with procedures established by or approved by the Commission, 
and otherwise in accordance with instructions issued by or approved by 
the Commission. Any such electronic submission must clearly indicate the 
registrant or applicant on whose behalf such filing is made and the use 
of such user authentication in submitting such filing will constitute 
and become a substitute for the manual signature of the authorized 
signer.

(Approved by the Office of Management and Budget under control number 
3038-0024)

[43 FR 39969, Sept. 8, 1978]

    Editorial Note: For Federal Register citations affecting Sec. 1.12, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec. 1.13  [Reserved]



Sec. 1.14  Risk assessment recordkeeping requirements for futures commission merchants.

    (a) Requirement to maintain and preserve information. (1) Each 
futures commission merchant registered with the Commission pursuant to 
Section 4d of the Act, unless exempt pursuant to paragraph (d) of this 
section, shall prepare, maintain and preserve the following information:
    (i) An organizational chart which includes the futures commission 
merchant and each of its affiliated persons. Included in the 
organizational chart shall be a designation of which affiliated persons 
are ``Material Affiliated Persons'' as that term is used in paragraph 
(a)(2) of this section, which Material Affiliated Persons file routine 
financial or risk exposure reports with the Securities and Exchange 
Commission, a federal banking agency, an insurance commissioner or other 
similar

[[Page 29]]

official or agency of a state, or a foreign regulatory authority, and 
which Material Affiliated Persons are dealers in financial instruments 
with off-balance sheet risk and, if a Material Affiliated Person is such 
a dealer, whether it is also an end-user of such instruments;
    (ii) Written policies, procedures, or systems concerning the futures 
commission merchant's:
    (A) Method(s) for monitoring and controlling financial and 
operational risks to it resulting from the activities of any of its 
affiliated persons;
    (B) Financing and capital adequacy, including information regarding 
sources of funding, together with a narrative discussion by management 
of the liquidity of the material assets of the futures commission 
merchant, the structure of debt capital, and sources of alternative 
funding;
    (C) Establishing and maintaining internal controls with respect to 
market risk, credit risk, and other risks created by the futures 
commission merchant's proprietary and noncustomer clearing activities, 
including systems and policies for supervising, monitoring, reporting 
and reviewing trading activities in securities, futures contracts, 
commodity options, forward contracts and financial instruments; policies 
for hedging or managing risks created by trading activities or 
supervising accounts carried for noncustomer affiliates, including a 
description of the types of reviews conducted to monitor positions; and 
policies relating to restrictions or limitations on trading activities: 
Provided, however, that if the futures commission merchant has no such 
written policies, procedures or systems, it must so state in writing;
    (iii) Fiscal year-end consolidated and consolidating balance sheets 
for the highest level Material Affiliated Person within the futures 
commission merchant's organizational structure, which shall include the 
futures commission merchant and its other Material Affiliated Persons, 
prepared in accordance with generally accepted accounting principles, 
which consolidated balance sheets shall be audited by an independent 
certified public accountant if an annual audit is performed in the 
ordinary course of business, but which otherwise may be unaudited, and 
which shall include appropriate explanatory notes. The consolidating 
balance sheets may be those prepared by the futures commission 
merchant's highest level Material Affiliated Person as part of its 
internal financial reporting process. Any additional information 
required to be filed under Sec. 1.15(a)(2)(iii) shall also be 
maintained and preserved; and
    (iv) Fiscal year-end consolidated and consolidating income 
statements and consolidated cash flow statements for the highest level 
Material Affiliated Person within the futures commission merchant's 
organizational structure, which shall include the futures commission 
merchant and its other Material Affiliated Persons, prepared in 
accordance with generally accepted accounting principles, which 
consolidated statements shall be audited by an independent certified 
public accountant if an annual audit is performed in the ordinary course 
of business, but which otherwise may be unaudited, and which shall 
include appropriate explanatory notes. The consolidating statements may 
be those prepared by the futures commission merchant's highest level 
Material Affiliated Person as part of its internal financial reporting 
process. Any additional information required to be filed under Sec. 
1.15(a)(2)(iii) shall also be maintained and preserved.
    (2) The determination of whether an affiliated person of a futures 
commission merchant is a Material Affiliated Person shall involve 
consideration of all aspects of the activities of, and the relationship 
between, both entities, including without limitation, the following 
factors:
    (i) The legal relationship between the futures commission merchant 
and the affiliated person;
    (ii) The overall financing requirements of the futures commission 
merchant and the affiliated person, and the degree, if any, to which the 
futures commission merchant and the affiliated person are financially 
dependent on each other;
    (iii) The degree, if any, to which the futures commission merchant 
or its customers rely on the affiliated person

[[Page 30]]

for operational support or services in connection with the futures 
commission merchant's business;
    (iv) The level of market, credit or other risk present in the 
activities of the affiliated person; and
    (v) The extent to which the affiliated person has the authority or 
the ability to cause a withdrawal of capital from the futures commission 
merchant.
    (3) For purposes of this section and Sec. 1.15, the term Material 
Affiliated Person does not include a natural person.
    (4) The information, reports and records required by this section 
shall be maintained and preserved, and made readily available for 
inspection, in accordance with the provisions of Sec. 1.31.
    (b) Special provisions with respect to Material Affiliated Persons 
subject to the supervision of certain domestic regulators. A futures 
commission merchant shall be deemed to be in compliance with the 
recordkeeping requirements of paragraphs (a)(1)(i), (a)(1)(iii) and 
(a)(1)(iv) of this section with respect to a Material Affiliated Person 
if:
    (1) The futures commission merchant is required, or that Material 
Affiliated Person is required, to maintain and preserve information, or 
such information is maintained and preserved by the futures commission 
merchant on behalf of the Material Affiliated Person, pursuant to Sec. 
240.17h-1T of this title, or such other risk assessment regulations as 
the Securities and Exchange Commission may adopt, and maintains and 
makes available for inspection by the Commission in accordance with the 
provisions of this section copies of the records and reports maintained 
and filed on Form 17-H (or such other forms or reports as may be 
required) by such futures commission merchant or its Material Affiliated 
Person with the Securities and Exchange Commission pursuant to 
Sec. Sec. 240.17h-1T and 240.17h-2T of this title, or such other risk 
assessment regulations as the Securities and Exchange Commission may 
adopt;
    (2) In the case of a Material Affiliated Person (including a foreign 
banking organization) that is subject to examination by, or the 
reporting requirements of, a Federal banking agency, the futures 
commission merchant or such Material Affiliated Person maintains and 
makes available for inspection by the Commission in accordance with the 
provisions of this section copies of all reports submitted by such 
Material Associated Person to the Federal banking agency pursuant to 
section 5211 of the Revised Statutes, section 9 of the Federal Reserve 
Act, section 7(a) of the Federal Deposit Insurance Act, section 10(b) of 
the Home Owners' Loan Act, or section 5 of the Bank Holding Company Act 
of 1956; or
    (3) In the case of a Material Affiliated Person that is subject to 
the supervision of an insurance commissioner or other similar official 
or agency of a state, the futures commission merchant or such Material 
Affiliated Person maintains and makes available for inspection by the 
Commission in accordance with the provisions of this section copies of 
the annual statements with schedules and exhibits prepared by the 
Material Affiliated Person on forms prescribed by the National 
Association of Insurance Commissioners or by a state insurance 
commissioner.
    (c) Special provisions with respect to Material Affiliated Persons 
subject to the supervision of a Foreign Regulatory Authority. A futures 
commission merchant shall be deemed to be in compliance with the 
recordkeeping requirements of paragraphs (a)(1)(iii) and (a)(1)(iv) of 
this section with respect to a Material Affiliated Person if such 
futures commission merchant maintains and makes available, or causes 
such Material Affiliated Person to make available, for inspection by the 
Commission in accordance with the provisions of this section copies of 
any financial or risk exposure reports filed by such Material Affiliated 
Person with a foreign futures authority or other foreign regulatory 
authority, provided that: (1) the futures commission merchant agrees to 
use its best efforts to obtain from the Material Affiliated Person and 
to cause the Material Affiliated Person to provide, directly or through 
its foreign futures authority or other foreign regulatory authority, any 
supplemental information the Commission may request and there is no 
statute or other bar in the foreign jurisdiction that would preclude the 
futures commission merchant, the Material Affiliated Person,

[[Page 31]]

the foreign futures authority or other foreign regulatory authority from 
providing such information to the Commission; or (2) the foreign futures 
authority or other foreign regulatory authority with whom the Material 
Affiliated Person files such reports has entered into an information-
sharing agreement with the Commission which is in effect as of the 
futures commission merchant's fiscal year-end and which will allow the 
Commission to obtain the type of information required herein. The 
futures commission merchant shall maintain a copy of the original report 
and a copy translated into the English language. For the purposes of 
this section, the term ``Foreign Futures Authority'' shall have the 
meaning set forth in section 1a(10) of the Act.
    (d) Exemptions. (1) The provisions of this section shall not apply 
to any futures commission merchant which holds funds or property of or 
for futures customers of less than $6,250,000 and has less than 
$5,000,000 in adjusted net capital as of the futures commission 
merchant's current fiscal year-end; provided, however, that such futures 
commission merchant is not a clearing member of an exchange.
    (2) The Commission may, upon written application by a Reporting 
Futures Commission Merchant, exempt from the provisions of this section, 
other than paragraph (a)(1)(ii) of this section, either unconditionally 
or on specified terms and conditions, any futures commission merchant 
affiliated with such Reporting Futures Commission Merchant. The term 
``Reporting Futures Commission Merchant'' shall mean, in the case of a 
futures commission merchant that is affiliated with another registered 
futures commission merchant, the futures commission merchant which 
maintains the greater amount of adjusted net capital as last reported on 
financial reports filed with the Commission pursuant to Sec. 1.10 
unless another futures commission merchant is acting as the Reporting 
Broker or Dealer under Sec. 240.17h-2T of this title, or the Commission 
permits another futures commission merchant to act as the Reporting 
Futures Commission Merchant. In granting exemptions under this section, 
the Commission shall consider, among other factors, whether the records 
required by this section concerning the Material Affiliated Persons of 
the futures commission merchant affiliated with the Reporting Futures 
Commission Merchant will be available to the Commission pursuant to this 
section or Sec. 1.15. A request for exemption filed under this 
paragraph (d)(2) shall explain the basis for the designation of a 
particular futures commission merchant as the Reporting Futures 
Commission Merchant and will become effective on the thirtieth day after 
receipt of such request by the Commission unless the Commission objects 
to the request by that date.
    (3) The Commission may exempt any futures commission merchant from 
any provision of this section if it finds that the exemption is not 
contrary to the public interest and the purposes of the provisions from 
which the exemption is sought. The Commission may grant the exemption 
subject to such terms and conditions as it may find appropriate.
    (e) Location of records. A futures commission merchant required to 
maintain records concerning Material Affiliated Persons pursuant to this 
section may maintain those records either at the principal office of the 
Material Affiliated Person or at a records storage facility, provided 
that, except as set forth in paragraph (c) of this section, the records 
are located within the boundaries of the United States and the records 
are kept and available for inspection in accordance with Sec. 1.31. If 
such records are maintained at a place other than the futures commission 
merchant's principal place of business, the Material Affiliated Person 
or other entity maintaining the records shall file with the Commission a 
written undertaking, in a form acceptable to the Commission, signed by a 
duly authorized person, to the effect that the records will be treated 
as if the futures commission merchant were maintaining the records 
pursuant to this section and that the entity maintaining the records 
will permit examination of such records at any time, or from time to 
time during business hours, by representatives or designees of the 
Commission and promptly furnish the Commission representative or its 
designee

[[Page 32]]

true, correct, complete and current hard copy of all or any part of such 
records. The election to maintain records at the principal place of 
business of the Material Affiliated Person or at a records storage 
facility pursuant to the provisions of this paragraph shall not relieve 
the futures commission merchant required to maintain and preserve such 
records from any of its responsibilities under this section or Sec. 
1.15.
    (f) Confidentiality. All information obtained by the Commission 
pursuant to the provisions of this section from a futures commission 
merchant concerning a Material Affiliated Person shall be deemed 
confidential information for the purposes of section 8 of the Act.
    (g) Implementation schedule. (1) Each futures commission merchant 
registered as of December 31, 1994 and subject to the requirements of 
this section shall maintain and preserve the information required by 
paragraphs (a)(1)(i) and (a)(1)(ii) of this section commencing April 30, 
1995 and the information required by paragraphs (a)(1)(iii) and 
(a)(1)(iv) of this section commencing May 15, 1995 or, if December 31, 
1994 is not the futures commission merchant's fiscal year-end, 135 
calendar days following the first fiscal year-end occurring after 
December 31, 1994.
    (2) Each futures commission merchant whose registration becomes 
effective after December 31, 1994 and is subject to the requirements of 
this section shall maintain and preserve the information required by 
paragraphs (a)(1)(i) and (a)(1)(ii) of this section commencing 60 
calendar days after registration become effective and the information 
required by paragraphs (a)(1)(iii) and (a)(1)(iv) of this section 
commencing 105 calendar days following the first fiscal year-end 
occurring after registration becomes effective.

[59 FR 66688, Dec. 28, 1994]



Sec. 1.15  Risk assessment reporting requirements for futures commission merchants.

    (a) Reporting requirements with respect to information required to 
be maintained by Sec. 1.14. (1) Each futures commission merchant 
registered with the Commission pursuant to Section 4d of the Act, unless 
exempt pursuant to paragraph (c) of this section, shall file the 
following with the regional office with which it files periodic 
financial reports by no later than April 30, 1995, provided that in the 
case of a futures commission merchant whose registration becomes 
effective after December 31, 1994, such futures commission merchant 
shall file the following within 60 calendar days after the effective 
date of such registration, or by April 30, 1995, whichever comes later:
    (i) A copy of the organizational chart maintained by the futures 
commission merchant pursuant to paragraph (a)(l)(i) of Sec. 1.14. Where 
there is a material change in information provided, an updated 
organizational chart shall be filed within sixty calendar days after the 
end of the fiscal quarter in which the change has occurred; and
    (ii) Copies of the financial, operational, and risk management 
policies, procedures and systems maintained by the futures commission 
merchant pursuant to paragraph (a)(l)(ii) of Sec. 1.14. If the futures 
commission merchant has no such written policies, procedures or systems, 
it must file a statement so indicating. Where there is a material change 
in information provided, such change shall be reported within sixty 
calendar days after the end of the fiscal quarter in which the change 
has occurred.
    (2) Each futures commission merchant registered with the Commission 
pursuant to Section 4d of the Act, unless exempt pursuant to paragraph 
(c) of this section, shall file the following with the regional office 
with which it files periodic financial reports within 105 calendar days 
after the end of each fiscal year or, if a filing is made pursuant to a 
written notice issued under paragraph (a)(2)(iii) of this section, 
within the time period specified in the written notice:
    (i) Fiscal year-end consolidated and consolidating balance sheets 
for the highest level Material Affiliated Person within the futures 
commission merchant's organizational structure,

[[Page 33]]

which shall include the futures commission merchant and its other 
Material Affiliated Persons, prepared in accordance with generally 
accepted accounting principles, which consolidated balance sheets shall 
be audited by an independent certified public accountant if an annual 
audit is performed in the ordinary course of business, but which 
otherwise may be unaudited, and which consolidated balance sheets shall 
include appropriate explanatory notes. The consolidating balance sheets 
may be those prepared by the futures commission merchant's highest level 
Material Affiliated Person as part of its internal financial reporting 
process;
    (ii) Fiscal year-end annual consolidated and consolidating income 
statements and consolidated cash flow statements for the highest level 
Material Affiliated Person within the futures commission merchant's 
organizational structure, which shall include the futures commission 
merchant and its other Material Affiliated Persons, prepared in 
accordance with generally accepted accounting principles, which 
consolidated statements shall be audited by an independent certified 
public accountant if an annual audit is performed in the ordinary course 
of business, but which otherwise may be unaudited, and which 
consolidated statements shall include appropriate explanatory notes. The 
consolidating statements may be those prepared by the futures commission 
merchant's highest level Material Affiliated Person as part of its 
internal financial reporting process; and
    (iii) Upon receiving written notice from any representative of the 
Commission and within the time period specified in the written notice, 
such additional information which the Commission determines is necessary 
for a complete understanding of a particular affiliate's financial 
impact on the futures commission merchant's organizational structure.
    (3) For the purposes of this section, the term Material Affiliated 
Person shall have the meaning used in Sec. 1.14.
    (4) The reports required to be filed pursuant to paragraphs (a)(1) 
and (a)(2) of this section shall be considered filed when received by 
the regional office of the Commission with whom the futures commission 
files financial reports pursuant to Sec. 1.10.
    (b) [Reserved]
    (c) Exemptions. (1) The provisions of this section shall not apply 
to any futures commission merchant which holds funds or property of or 
for futures customers of less than $6,250,000 and has less than 
$5,000,000 in adjusted net capital as of the futures commission 
merchant's fiscal year-end; provided, however, that such futures 
commission merchant is not a clearing member of an exchange.
    (2) The Commission may, upon written application by a Reporting 
Futures Commission Merchant, exempt from the provisions of this section, 
other than paragraph (a)(1)(ii) of this section, either unconditionally 
or on specified terms and conditions, any futures commission merchant 
affiliated with such Reporting Futures Commission Merchant. The term 
``Reporting Futures Commission Merchant'' shall mean, in the case of a 
futures commission merchant that is affiliated with another registered 
futures commission merchant, the futures commission merchant which 
maintains the greater amount of net capital as last reported on its 
financial reports filed with the Commission pursuant to Sec. 1.10 
unless another futures commission merchant is acting as the Reporting 
Broker or Dealer under Sec. 240.17h-2T of this title or the Commission 
permits another futures commission merchant to act as the Reporting 
Futures Commission Merchant. In granting exemptions under this section, 
the Commission shall consider, among other factors, whether the records 
and other information required to be maintained pursuant to Sec. 1.14 
concerning the Material Affiliated Persons of the futures commission 
merchant affiliated with the Reporting Futures Commission Merchant will 
be available to the Commission pursuant to the provisions of this 
section. A request for exemption filed under this paragraph (c)(2) shall 
explain the basis for the designation of a

[[Page 34]]

particular futures commission merchant as the Reporting Futures 
Commission Merchant and will become effective on the thirtieth day after 
receipt of such request by the Commission unless the Commission objects 
to the request by that date. The Reporting Futures Commission Merchant 
must submit the information required by paragraph (a)(1)(ii) of this 
section on behalf of its affiliated futures commission merchants.
    (3) The Commission may exempt any futures commission merchant from 
any provision of this section if it finds that the exemption is not 
contrary to the public interest and the purposes of the provisions from 
which the exemption is sought. The Commission may grant the exemption 
subject to such terms and conditions as it may find appropriate.
    (d) Special provisions with respect to Material Affiliated Persons 
subject to the supervision of certain domestic regulators. (1) In the 
case of a futures commission merchant which is required to file, or has 
a Material Affiliated Person which is required to file, Form 17-H (or 
such other forms or reports as may be required) with the Securities and 
Exchange Commission pursuant to Sec. 240.17h-2T of this title, or such 
other risk assessment regulations as the Securities and Exchange 
Commission may adopt, such futures commission merchant shall be deemed 
to be in compliance with the reporting requirements of paragraphs 
(a)(1)(i) and (a)(2) of this section if the futures commission merchant 
furnishes, in accordance with paragraph (a)(2) of this section, a copy 
of the most recent Form 17-H filed by the futures commission merchant or 
its Material Affiliated Person with the Securities and Exchange 
Commission, provided however, that if the futures commission merchant 
has designated any of its affiliated persons as Material Affiliated 
Persons for purposes of this section and Sec. 1.14 which are not 
designated as Material Associated Persons for purposes of the Form 17-H 
filed pursuant to Sec. Sec. 240.17h-1T and 240.17h-2T of this title, 
the futures commission must also designate any such affiliated person as 
a Material Affiliated Person on the organizational chart required as 
Item 1 of part I of Form 17-H. To comply with paragraphs (a)(1)(i) and 
(a)(2) of this section, such futures commission merchant may, at its 
option, file Form 17-H in its entirety or file such form without the 
information required under part II of Form 17-H.
    (2) In the case of a Material Affiliated Person (including a foreign 
banking organization) that is subject to examination by, or the 
reporting requirements of, a Federal banking agency, the futures 
commission merchant shall be deemed to be in compliance with the 
reporting requirements of paragraph (a)(2) of this section with respect 
to such Material Affiliated Person if the futures commission merchant or 
such Material Affiliated Person maintains in accordance with Sec. 1.14 
copies of all reports filed by the Material Affiliated Person with the 
Federal banking agency pursuant to section 5211 of the Revised Statutes, 
section 9 of the Federal Reserve Act, section 7(a) of the Federal 
Deposit Insurance Act, section 10(b) of the Home Owners' Loan Act, or 
section 5 of the Bank Holding Company Act of 1956.
    (3) In the case of a futures commission merchant that has a Material 
Affiliated Person that is subject to the supervision of an insurance 
commissioner or other similar official or agency of a state, such 
futures commission merchant shall be deemed to be in compliance with the 
reporting requirements of paragraph (a)(2) of this section with respect 
to the Material Affiliated Person if:
    (i) With respect to a Material Affiliated Person organized as a 
mutual insurance company or a non-public stock company, the futures 
commission merchant or such Material Affiliated Person maintains in 
accordance with Sec. 1.14 copies of the annual statements with 
schedules and exhibits prepared by the Material Affiliated Person on 
forms prescribed by the National Association of Insurance Commissioners 
or by a state insurance commissioner; and
    (ii) With respect to a Material Affiliated Person organized as a 
public stock company, the futures commission merchant or such Material 
Affiliated Person maintains, in addition to the annual statements with 
schedules and exhibits required to be maintained pursuant to Sec. 1.14, 
copies of the filings made

[[Page 35]]

by the Material Affiliated Person pursuant to sections 13 or 15 of the 
Securities Exchange Act of 1934 and the Investment Company Act of 1940.
    (4) No futures commission merchant shall be required to furnish to 
the Commission any examination report of any Federal banking agency or 
any supervisory recommendations or analyses contained therein with 
respect to a Material Affiliated Person that is subject to the 
regulation of a Federal banking agency. All information received by the 
Commission pursuant to this section concerning a Material Affiliated 
Person that is subject to examination by or the reporting requirements 
of a Federal banking agency shall be deemed confidential for the 
purposes of section 8 of the Act.
    (5) The furnishing of any information or documents by a futures 
commission merchant pursuant to this section shall not constitute an 
admission for any purpose that a Material Affiliated Person is otherwise 
subject to the Act.
    (e) Special provisions with respect to Material Affiliated Persons 
subject to the supervision of a Foreign Regulatory Authority. A futures 
commission merchant shall be deemed to be in compliance with the 
reporting requirements of paragraph (a)(2) of this section with respect 
to a Material Affiliated Person if such futures commission merchant 
furnishes, or causes such Material Affiliated Person to make available, 
in accordance with the provisions of this section, copies of any 
financial or risk exposure reports filed by such Material Affiliated 
Person with a foreign futures authority or other foreign regulatory 
authority, provided that:
    (1) The futures commission merchant agrees to use its best efforts 
to obtain from the Material Affiliated Person and to cause the Material 
Affiliated Person to provide, directly or through its foreign futures 
authority or other foreign regulatory authority, any supplemental 
information the Commission may request and there is no statute or other 
bar in the foreign jurisdiction that would preclude the futures 
commission merchant, the Material Affiliated Person, the foreign futures 
authority or other foreign regulatory authority from providing such 
information to the Commission; or
    (2) The foreign futures authority or other foreign regulatory 
authority with whom the Material Affiliated Person files such reports 
has entered into an information sharing agreement with the Commission 
which is in effect as of the futures commission merchant's fiscal year-
end and which will allow the Commission to obtain the type of 
information required herein. The futures commission merchant shall file 
a copy of the original report and a copy translated into the English 
language. For the purposes of this section, the term ``Foreign Futures 
Authority'' shall have the meaning set forth in section 1a(10) of the 
Act.
    (f) Confidentiality. All information obtained by the Commission 
pursuant to the provisions of this section from a futures commission 
merchant concerning a Material Associated Person shall be deemed 
confidential information for the purposes of section 8 of the Act.
    (g) Implementation schedule. Each futures commission merchant 
registered as of December 31, 1994 and subject to the requirements of 
this section shall file the information required by paragraph (a)(1) of 
this section no later than April 30, 1995 and the information required 
by paragraph (a)(2) of this section no later than May 15, 1995. Each 
futures commission merchant whose registration becomes effective after 
December 31, 1994 and is subject to the requirements of this section 
shall file the information required by paragraph (a)(1) of this section 
within 60 calendar days after registration is granted, or by April 30, 
1995, whichever comes later and the information required by paragraph 
(a)(2) of this section within 105 calendar days after registration is 
granted or by May 15, 1995, whichever comes later.

[59 FR 66690, Dec. 28, 1994; 60 FR 13901, Mar. 15, 1995]



Sec. 1.16  Qualifications and reports of accountants.

    (a) Definitions--(1) Accountant's report. The term ``accountant's 
report,'' when used in regard to financial statements and schedules, 
means a document in which an independent licensed or certified public 
accountant indicates the scope of the audit (or examination) which he 
has made and sets forth his

[[Page 36]]

opinion regarding the financial statements and schedules taken as a 
whole or an assertion to the fact that an overall opinion cannot be 
expressed. When an overall opinion cannot be expressed, the reasons 
therefore must be stated.
    (2) Audit or examination. The terms ``audit'' and ``examination,'' 
when used in regard to financial statements and schedules, mean an 
examination of the statements and schedules by an accountant in 
accordance with generally accepted auditing standards for the purposes 
of expressing an opinion thereon.
    (3) Certified. The term ``certified,'' when used in regard to 
financial statements and schedules, means audited and reported upon with 
an opinion expressed by an independent certified public accountant or 
independent licensed public accountant.
    (4) Customer. The term ``customer'' means customer (as defined in 
Sec. 1.3(k)) and option customer (as defined in Sec. 1.3(jj) of this 
part and in Sec. 32.1(c) of this chapter) and includes a foreign 
futures and foreign options customer (as defined in Sec. 30.1(c) of 
this chapter).
    (b) Qualifications of accountants. (1) The Commission will recognize 
any person as a certified public accountant who is duly registered and 
in good standing as such under the laws of the place of his residence or 
principal office. The Commission will recognize any person as a licensed 
public accountant who was duly licensed on or before December 31, 1970, 
and is in good standing as such under the laws of the place of his 
residence or principal office.
    (2) The Commission will not recognize any certified public 
accountant or licensed public accountant as independent who is not in 
fact independent. For example, an accountant will not be considered 
independent with respect to any applicant or registrant or any parent, 
subsidiary, or other affiliate of such applicant or registrant (i) in 
which, during the period of his professional engagement to examine the 
financial statements and schedules being reported on or at the date of 
his report, he or his firm or a member thereof had, or was committed to 
acquire, any direct financial interest or any material indirect 
financial interest, or (ii) with which, during the period of his 
professional engagement to examine the financial statements and 
schedules being reported on, at the date of his report or during the 
period covered by the financial statements, he or his firm or a member 
thereof was connected as a promoter, underwriter, voting trustee, 
director, officer, or employee, except that a firm will be deemed 
independent with respect to an applicant or registrant and its 
affiliates if a former employee or officer of such applicant or 
registrant or any such affiliate is employed by the firm and such 
individual has completely disassociated himself from the applicant or 
registrant and its affiliates and does not participate in auditing 
financial statements and schedules of the applicant or registrant or its 
affiliates covering any period of his employment by the applicant or 
registrant or its affiliates. An accountant will not be considered 
independent if he or his firm or a member thereof performs manual or 
automated bookkeeping services or assumes responsibility for maintenance 
of the accounting records, including accounting classification 
decisions, of such applicant or registrant or any of its affiliates. For 
the purposes of this Sec. 1.16(b), the term ``member'' means all 
partners in the firm and all professional employees participating in the 
audit or located in the office of the firm participating in a 
significant portion of the audit.
    (3) In determining whether an accountant may in fact not be 
independent with respect to a particular applicant or registrant, the 
Commission will give appropriate consideration to all relevant 
circumstances, including evidence bearing on all relationships between 
the accountant and that applicant or registrant or any affiliate 
thereof, and will not confine itself to the relationship existing in 
connection with the filing of reports with the Commission.
    (c) Accountant's reports--(1) Technical requirements. The 
accountant's report (i) must be dated, (ii) must be signed manually, 
(iii) must indicate the city and State where issued and (iv) must 
identify without detailed enumeration

[[Page 37]]

the financial statements covered by the report.
    (2) Representations as to the audit. The accountant's report (i) 
must state whether the audit was made in accordance with generally 
accepted auditing standards, and (ii) must designate any auditing 
procedures deemed necessary by the accountant under the circumstances of 
the particular case which have been omitted and the reasons for their 
omission. However, nothing in this paragraph (c)(2) shall be construed 
to imply authority for the omission of any procedure which independent 
accountants would ordinarily employ in the course of an audit made for 
the purposes of expressing the opinion required by paragraph (c)(3) of 
this section.
    (3) Opinion to be expressed. The accountant's report must state 
clearly: (i) The opinion of the accountant with respect to the financial 
statements and schedules covered by the report and the accounting 
principles and practices reflected therein and (ii) the opinion of the 
accountant as to the consistency of the application of the accounting 
principles, or as to any changes in such principles which have material 
effect on the financial statements and schedules.
    (4) Exceptions. Any matters to which the accountant takes exception 
must be clearly identified, such exceptions specifically and clearly 
stated, and to the extent practicable, the effect of each exception on 
related financial statements and schedules given.
    (5) Accountant's report on material inadequacies. A registrant must 
file concurrently with the annual audit report a supplemental report by 
the accountant describing any material inadequacies found to exist or 
found to have existed since the date of the previous audit. An applicant 
must file concurrently with the audit report a supplemental report by 
the accountant describing any material inadequacies found to exist as of 
the date of the Form 1-FR being filed: Provided, however, That if such 
applicant is registered with the Securities and Exchange Commission as a 
securities broker or dealer, and it files (in accordance with Sec. 
1.10(h)) a copy of its Financial and Operational Combined Uniform Single 
Report under the Securities Exchange Act of 1934, Part II, Part IIA, or 
Part II CSE, in lieu of Form 1-FR, the accountant's supplemental report 
must be made as of the date of such report. The supplemental report must 
indicate any corrective action taken or proposed by the applicant or 
registrant in regard thereto. If the audit did not disclose any material 
inadequacies, the supplemental report must so state.
    (d) Audit objectives. (1) The audit must be made in accordance with 
generally accepted auditing standards and must include a review and 
appropriate tests of the accounting system, the internal accounting 
control, and the procedures for safeguarding customer and firm assets in 
accordance with the provisions of the Act and the regulations 
thereunder, since the prior examination date. The audit must include all 
procedures necessary under the circumstances to enable the independent 
licensed or certified public accountant to express an opinion on the 
financial statements and schedules. The scope of the audit and review of 
the accounting system, the internal controls, and procedures for 
safeguarding customer and firm assets must be sufficient to provide 
reasonable assurance that any material inadequacies existing at the date 
of the examination in (i) the accounting system, (ii) the internal 
accounting controls, and (iii) the procedures for safeguarding customer 
and firm assets (including, in the case of a futures commission 
merchant, the segregation requirements of section 4d(a)(2) of the Act 
and these regulations and the secured amount requirements of the Act and 
these regulations) will be discovered. Additionally, as specified 
objectives the audit must include reviews of the practices and 
procedures followed by the registrant in making (A) periodic 
computations of the minimum financial requirements pursuant to Sec. 
1.17 and (B) in the case of a futures commission merchant, daily 
computations of the segregation requirements of section 4d(a)(2) of the 
Act and these regulations and the secured amount requirements of the Act 
and these regulations.

[[Page 38]]

    (2) A material inadequacy in the accounting system, the internal 
accounting controls, the procedures for safeguarding customer and firm 
assets, and the practices and procedures referred to in paragraph (d)(1) 
of this section which is to be reported in accordance with paragraph 
(e)(2) of this section includes any conditions which contributed 
substantially to or, if appropriate corrective action is not taken, 
could reasonably be expected to:
    (i) Inhibit an applicant or registrant from promptly completing 
transactions or promptly discharging his responsibilities to customers 
or other creditors;
    (ii) Result in material financial loss;
    (iii) Result in material misstatement of the applicant's or 
registrant's financial statements and schedules; or
    (iv) Result in violations of the Commission's segregation or secured 
amount (in the case of a futures commission merchant), recordkeeping or 
financial reporting requirements to the extent that could reasonably be 
expected to result in the conditions described in paragraph (d)(2) (i), 
(ii), or (iii) of this section.
    (e) Extent and timing of audit procedures. (1) The extent and timing 
of audit procedures are matters for the independent public accountant to 
determine on the basis of his review and evaluation of existing internal 
controls and other audit procedures performed in accordance with 
generally accepted auditing standards and the audit objectives set forth 
in paragraph (d) of this section. In determining the extent of testing, 
consideration must be given to the materiality of an area and to the 
possible effect on the financial statements and schedules of a material 
misstatement in a related account.
    (2) If during the course of an audit or interim work, the 
independent public accountant determines that any material inadequacies 
exist in the accounting system, in the internal accounting control, in 
the procedures for safeguarding customer or firm assets, or as otherwise 
defined in paragraph (d) of this section, he must call such inadequacies 
to the attention of the applicant or registrant, which has the 
responsibility to give notice to the National Futures Association and, 
if an applicant, or the Commission and the designated self-regulatory 
organization, if any, if a registrant, in accordance with paragraphs (d) 
and (g) of Sec. 1.12: Provided, however, That if the applicant or 
registrant is an introducing broker or applicant for registration as an 
introducing broker, it also has the responsibility to give notice to the 
National Futures Association, the designated self-regulatory 
organization, if any, and every futures commission merchant carrying or 
intending to carry customer accounts for the introducing broker or 
applicant for registration as an introducing broker. The applicant or 
registrant must also furnish the accountant with a copy of said notice 
within three (3) business days. If the accountant fails to receive such 
notice from the applicant or registrant within three (3) business days, 
or if he disagrees with the statements contained in the notice of the 
applicant or registrant, the accountant must inform the National Futures 
Association, in the case of an applicant, or the Commission and the 
designated self-regulatory organization, if any, in the case of a 
registrant, by reporting the material inadequacy and, in the case of an 
applicant or registrant which is an introducing broker or applicant for 
registration as in introducing broker, the accountant must also inform 
the National Futures Association, the designated self-regulatory 
organization, if any, and every futures commission merchant carrying or 
intending to carry customer accounts for the introducing an introducing 
broker, within three (3) business days thereafter. Such report from the 
accountant must, if the applicant or registrant failed to file a notice, 
describe the material inadequacies found to exist. If the applicant or 
registrant filed a notice, the accountant must file a report detailing 
the aspects, if any, of the applicant's or registrant's notice with 
which the accountant does not agree.
    (f)(1) Extension of time for filing audited reports. In the event a 
registered futures commission merchant or a registered introducing 
broker finds that it cannot file, without substantial undue hardship, 
its certified financial statements and schedules for any year within the 
time specified in Sec. 1.10 (b)(1)(ii)

[[Page 39]]

or Sec. 1.10 (b)(2)(ii) of this part, as applicable, such registrants 
may request approval for an extension of time, as follows:
    (i) Futures commission merchant registrants. (A) A futures 
commission merchant may file with its designated self-regulatory 
organization an application for an extension of time, a copy of which 
the registrant must file with the Commission. The application shall be 
approved or denied in writing by the designated self-regulatory 
organization. The registrant must file immediately with the Commission a 
copy of any notice it receives from the designated self-regulatory 
organization to approve or deny the registrant's request for extension 
of time. A written notice of approval shall become effective upon the 
filing by the registrant of a copy with the Commission, and a written 
notice of denial shall be effective as of the date of the notice.
    (B) A futures commission merchant that is registered with the 
Securities and Exchange Commission as a securities broker or dealer may 
file with its designated self-regulatory organization a copy of any 
application that the registrant has filed with its designated examining 
authority, pursuant to Sec. 240.17-a5(l)(1)of this title, for an 
extension of time to file audited annual financial statements. The 
registrant must also file immediately with the designated self-
regulatory organization and the Commission copies of any notice it 
receives from its designated examining authority to approve or deny the 
requested extension of time. Upon receipt by the designated self-
regulatory organization and the Commission of copies of any such notice 
of approval, the requested extension of time referenced in the notice 
shall be deemed approved under this paragraph (f)(1)(i).
    (C) Any copy that under this paragraph (f)(1)(i) is required to be 
filed with the Commission shall be filed with the regional office of the 
Commission with jurisdiction over the state in which the registrant's 
principal place of business is located.
    (ii) Introducing broker registrants. (A) An introducing broker may 
file with the National Futures Association an application for extension 
of time, which shall be approved or denied in writing.
    (B) An introducing broker that is registered with the Securities and 
Exchange Commission as a securities broker or dealer may file with the 
National Futures Association copies of any application that the 
registrant has filed with its designated examining authority, pursuant 
to Sec. 240.17-a5(l)(1) of this title, for an extension of time to file 
audited annual financial statements. The registrant must also file 
immediately with the National Futures Association copies of any notice 
it receives from its designated examining authority to approve or deny 
the requested extension of time. Upon the receipt by the National 
Futures Association of a copy of any such notice of approval, the 
requested extension of time referenced in the notice shall be deemed 
approved under this paragraph (f)(1)(ii).
    (2) Exemption requests. On the written request of any designated 
self-regulatory organization or registrant, or on its own motion, the 
Commission may grant an extension of time or an exemption from any of 
the certified financial reporting requirements of this chapter either 
unconditionally or on specified terms and conditions.
    (g) Replacement of accountant. (1) In the event (i) the independent 
public accountant who was previously engaged as the principal accountant 
to audit an applicant's or registrant's financial statements resigns (or 
indicates he declines to stand for re-election after the completion of 
the current audit) or is dismissed as the applicant's or registrant's 
principal accountant, (ii) another independent accountant is engaged as 
principal accountant, or (iii) an independent accountant on whom the 
principal accountant expresses reliance in his report regarding a 
subsidiary resigns (or formally indicates he declines to stand for re-
election after completion of the current audit) or is dismissed or 
another independent public accountant is engaged to audit that 
subsidiary, an applicant shall file written notice of such occurrence 
with the National Futures Association, and a registrant shall file 
written notice of such occurrence with the Commission at its principal 
office in Washington,

[[Page 40]]

DC, and with the designated self-regulatory organization, if any, not 
more than 15 business days after such occurrence.
    (2) Such notice must state (i) the date of such resignation (or 
declination to stand for re-election, dismissal or engagement) and (ii) 
whether, in connection with the audit of the two most recent fiscal 
years and any subsequent interim period preceding such resignation, 
dismissal or engagement, there were any disagreements with the former 
accountant on any matter of accounting principles or practices, 
financial statements disclosure, auditing scope or procedures, or 
compliance with the applicable rules of the Commission, which, if not 
resolved to the satisfaction of the former accountant, would have caused 
him to make reference in connection with his report to the subject 
matter of the disagreements (if so, describe such disagreements). The 
disagreements required to be reported in this paragraph (g)(2) include 
both those resolved to the former accountant's satisfaction and those 
not resolved to the former accountant's satisfaction. Disagreements 
contemplated by this paragraph (g)(2) are those which occur at the 
decision-making level, i.e., between personnel of the applicant or 
registrant responsible for presentation of its financial statements and 
schedules and personnel of the accounting firm responsible for rendering 
its report. The notice must also state whether the accountant's report 
on the financial statements and schedules for any of the past two years 
contained an adverse opinion or a disclaimer of opinion or was qualified 
as to uncertainties, audit scope, or accounting principles (if so, 
describe the nature of each such adverse opinion, disclaimer of opinion, 
or qualification). An applicant must also request the former accountant 
to furnish the applicant with a letter addressed to the National Futures 
Association, and a registrant must also request the former accountant to 
furnish the registrant with a letter addressed to the Commission, 
stating whether he agrees with the statements contained in the notice of 
the applicant or registrant and, if not, stating the respects in which 
he does not agree. Each copy of the notice and accountant's letter must 
be manually signed by the sole proprietor or a general partner or a duly 
authorized corporate officer of the applicant or registrant, as 
appropriate, and by the accountant.
    (3) If (i) within the 24 months prior to the date of the most recent 
audited financial statement, a notice has been filed pursuant to 
paragraph (g)(1) of this section reporting a change of accountants, (ii) 
included in such filing there is a reported disagreement on any matters 
of accounting principles or practices, financial statements disclosure, 
auditing scope, or noncompliance with the applicable rules of the 
Commission, (iii) during the fiscal year in which the change in 
accountants took place or during the subsequent fiscal year, there have 
been any transactions or events similar to those which involved a 
reported disagreement, and (iv) such transactions or events are material 
and were accounted for or disclosed in a manner different from that 
which the former accountant apparently would have concluded was 
required, the existence and nature of the disagreements and also the 
effect on the financial statements must be stated in a written notice to 
the National Futures Association, in the case of an applicant, or to the 
Commission at its principal office in Washington, DC, and the designated 
self-regulatory organization, if any, in the case of a registrant, if 
the method which the former accountant apparently would have concluded 
was required had been followed. These disclosures need not be made if 
the method asserted by the former accountant ceases to be generally 
accepted because of authoritative standards or interpretations 
subsequently issued. The notice required by this paragraph (g)(3) must 
be filed by the applicant or registrant concurrently with the financial 
statements and schedules to which it pertains.
    (h) Exemption for introducing broker or applicant therefor. The 
provisions of this section do not apply to an introducing broker which 
is operating pursuant to a guarantee agreement, nor do such provisions 
apply to an applicant for registration as an introducing broker who 
files concurrently with

[[Page 41]]

such application a guarantee agreement, provided such introducing broker 
or applicant therefor is not also a securities broker or dealer.

(Approved by the Office of Management and Budget under control numbers 
3038-0007, 3038-0024)

[43 FR 39970, Sept. 8, 1978, as amended at 46 FR 54516, Nov. 3, 1981; 46 
FR 63035, Dec. 30, 1981; 48 FR 35284, Aug. 3, 1983; 49 FR 39526, Oct. 9, 
1984; 52 FR 28995, Aug. 5, 1987; 53 FR 4612, Feb. 17, 1988; 69 FR 41426, 
July 9, 2004; 69 FR 49798, Aug. 12, 2004; 71 FR 5593, Feb. 2, 2006]



Sec. 1.17  Minimum financial requirements for futures commission merchants and introducing brokers.

    (a)(1)(i) Except as provided in paragraph (a)(2)(i) of this section, 
each person registered as a futures commission merchant must maintain 
adjusted net capital equal to or in excess of the greatest of:
    (A) $1,000,000;
    (B) The futures commission merchant's risk-based capital 
requirement, computed as eight percent of the total risk margin 
requirement for positions carried by the futures commission merchant in 
customer accounts and noncustomer accounts.
    (C) The amount of adjusted net capital required by a registered 
futures association of which it is a member; or
    (D) For securities brokers and dealers, the amount of net capital 
required by Rule 15c3-1(a) of the Securities and Exchange Commission (17 
CFR 240.15c3-1(a)).
    (ii) Each person registered as a futures commission merchant engaged 
in soliciting or accepting orders and customer funds related thereto for 
the purchase or sale of any commodity for future delivery or any 
commodity option on or subject to the rules of a registered derivatives 
transaction execution facility from any customer who does not qualify as 
an ``institutional customer'' as defined in Sec. 1.3(g) must:
    (A) Be a clearing member of a derivatives clearing organization and 
maintain net capital in the amount of the greater of $20,000,000 or the 
amounts otherwise specified in paragraph (a)(1)(i) of this section; or
    (B) Receive orders on behalf of the customer from a commodity 
trading advisor acting in accordance with Sec. 4.32 of this chapter.
    (iii) Except as provided in paragraph (a)(2) of this section, each 
person registered as an introducing broker must maintain adjusted net 
capital equal to or in excess of the greatest of:
    (A) $45,000;
    (B) The amount of adjusted net capital required by a registered 
futures association of which it is a member; or
    (C) For securities brokers and dealers, the amount of net capital 
required by Rule 15c3-1(a) of the Securities and Exchange Commission (17 
CFR 240.15c3-1(a)).
    (2)(i) The requirements of paragraph (a)(1) of this section shall 
not be applicable if the registrant is a member of a designated self-
regulatory organization and conforms to minimum financial standards and 
related reporting requirements set by such designated self-regulatory 
organization in its bylaws, rules, regulations or resolutions approved 
by the Commission pursuant to section 4f(b) of the Act and Sec. 1.52.
    (ii) The minimum requirements of paragraph (a)(1)(iii) of this 
section shall not be applicable to an introducing broker which elects to 
meet the alternative adjusted net capital requirement for introducing 
brokers by operation pursuant to a guarantee agreement which meets the 
requirements set forth in Sec. 1.10(j). Such an introducing broker 
shall be deemed to meet the adjusted net capital requirement under this 
section so long as such agreement is binding and in full force and 
effect, and, if the introducing broker is also a securities broker or 
dealer, it maintains the amount of net capital required by Rule 15c3-
1(a) of the Securities and Exchange Commission (17 CFR 240.15c3-1(a)).
    (3) No person applying for registration as a futures commission 
merchant or as an introducing broker shall be so registered unless such 
person affirmatively demonstrates to the satisfaction of the National 
Futures Association that it complies with the financial requirements of 
this section. Each registrant must be in compliance with this section at 
all times and must be able to demonstrate such compliance to the 
satisfaction of the Commission

[[Page 42]]

or the designated self-regulatory organization.
    (4) A futures commission merchant who is not in compliance with this 
section, or is unable to demonstrate such compliance as required by 
paragraph (a)(3) of this section, must transfer all customer accounts 
and immediately cease doing business as a futures commission merchant 
until such time as the firm is able to demonstrate such compliance: 
Provided, however, The registrant may trade for liquidation purposes 
only unless otherwise directed by the Commission and/or the designated 
self-regulatory organization: And, Provided further, That if such 
registrant immediately demonstrates to the satisfaction of the 
Commission or the designated self-regulatory organization the ability to 
achieve compliance, the Commission or the designated self-regulatory 
organization may in its discretion allow such registrant up to a maximum 
of 10 business days in which to achieve compliance without having to 
transfer accounts and cease doing business as required above. Nothing in 
this paragraph (a)(4) shall be construed as preventing the Commission or 
the designated self-regulatory organization from taking action against a 
registrant for non-compliance with any of the provisions of this 
section.
    (5) An introducing broker who is not in compliance with this 
section, or is unable to demonstrate such compliance as required by 
paragraph (a)(3) of this section, must immediately cease doing business 
as an introducing broker until such time as the registrant is able to 
demonstrate such compliance: Provided, however, That if such registrant 
immediately demonstrates to the satisfaction of the Commission or the 
designated self-regulatory organization the ability to achieve 
compliance, the Commission or the designated self-regulatory 
organization may in its discretion allow such registrant up to a maximum 
of 10 business days in which to achieve compliance without having to 
cease doing business as required above. If the introducing broker is 
required to cease doing business in accordance with this paragraph 
(a)(5), the introducing broker must immediately notify each of its 
customers and the futures commission merchants carrying the account of 
each customer that it has ceased doing business. Nothing in this 
paragraph (a)(5) shall be construed as preventing the Commission or the 
designated self-regulatory organization from taking action against a 
registrant for non-compliance with any of the provisions of this 
section.
    (b) For the purposes of this section:
    (1) Where the applicant or registrant has an asset or liability 
which is defined in Securities Exchange Act Rule 15c3-1 (Sec. 240.15c3-
1 of this title) the inclusion or exclusion of all or part of such asset 
or liability for the computation of adjusted net capital shall be in 
accordance with Sec. 240.15c3-1 of this title, unless specifically 
stated otherwise in this section.
    (2) Customer means customer (as defined in Sec. 1.3(k)), option 
customer (as defined in Sec. 1.3(jj) and in Sec. 32.1(c) of this 
chapter), cleared over the counter customer (as defined in Sec. 
1.17(b)(10)), and includes a foreign futures, foreign options customer 
(as defined in Sec. 30.1(c) of this chapter).
    (3) Proprietary account means an account in which commodity futures, 
options or cleared over the counter derivative positions are carried on 
the books of the applicant or registrant for the applicant or registrant 
itself, or for general partners in the applicant or registrant.
    (4) Noncustomer account means an account in which commodity futures, 
options or cleared over the counter derivative positions are carried on 
the books of the applicant or registrant which is either:
    (i) An account that is not included in the definition of customer 
(as defined in Sec. 1.17(b)(2)) or proprietary account (as defined in 
Sec. 1.17(b)(3)), or
    (ii) An account for a foreign-domiciled person trading futures or 
options on a foreign board of trade, and such account is a proprietary 
account as defined in Sec. 1.3(y) of this title, but is not a 
proprietary account as defined in Sec. 1.17(b)(3).
    (5) Clearing organization means clearing organization (as defined in 
Sec. 1.3(d)) and includes a clearing organization of any board of 
trade.
    (6) Business day means any day other than a Sunday, Saturday, or 
holiday.

[[Page 43]]

    (7) Customer account means an account in which commodity futures, 
options or cleared over the counter derivative positions are carried on 
the books of the applicant or registrant which is either:
    (i) An account that is included in the definition of customer (as 
defined in Sec. 1.17(b)(2)), or
    (ii) An account for a foreign-domiciled person trading on a foreign 
board of trade, where such account for the foreign-domiciled person is 
not a proprietary account (as defined in Sec. 1.17(b)(3)) or a 
noncustomer account (as defined in Sec. 1.17(b)(4)(ii)).
    (8) Risk margin for an account means the level of maintenance margin 
or performance bond required for the customer or noncustomer positions 
by the applicable exchanges or clearing organizations, and, where margin 
or performance bond is required only for accounts at the clearing 
organization, for purposes of the FCM's risk-based capital calculations 
applying the same margin or performance bond requirements to customer 
and noncustomer positions in accounts carried by the FCM, subject to the 
following.
    (i) Risk margin does not include the equity component of short or 
long option positions maintained in an account;
    (ii) The maintenance margin or performance bond requirement 
associated with a long option position may be excluded from risk margin 
to the extent that the value of such long option position does not 
reduce the total risk maintenance or performance bond requirement of the 
account that holds the long option position;
    (iii) The risk margin for an account carried by a futures commission 
merchant which is not a member of the exchange or the clearing 
organization that requires collection of such margin should be 
calculated as if the futures commission merchant were such a member; and
    (iv) If a futures commission merchant does not possess sufficient 
information to determine what portion of an account's total margin 
requirement represents risk margin, all of the margin required by the 
exchange or the clearing organization that requires collection of such 
margin for that account, shall be treated as risk margin.
    (9) Cleared over the counter derivative positions means ``over the 
counter derivative instrument'' (as defined in 12 U.S.C. 4421) positions 
of any person in accounts carried on the books of the futures commission 
merchant and cleared by any organization permitted to clear such 
instruments under the laws of the relevant jurisdiction.
    (10) Cleared over the counter customer means any person that is not 
a proprietary person as defined in Sec. 1.3(y) and for whom the futures 
commission merchant carries on its books one or more accounts for the 
over the counter-cleared derivative positions of such person.
    (c) Definitions: For the purposes of this section:
    (1) Net capital means the amount by which current assets exceed 
liabilities. In determining ``net capital'':
    (i) Unrealized profits shall be added and unrealized losses shall be 
deducted in the accounts of the applicant or registrant, including 
unrealized profits and losses on fixed price commitments and forward 
contracts;
    (ii) All long and all short positions in commodity options which are 
traded on a contract market and listed security options shall be marked 
to their market value and all long and all short securities and 
commodities positions shall be marked to their market value;
    (iii) The value attributed to any commodity option which is not 
traded on a contract market shall be the difference between the option's 
strike price and the market value for the physical or futures contract 
which is the subject of the option. In the case of a call commodity 
option which is not traded on a contract market, if the market value for 
the physical or futures contract which is the subject of the option is 
less than the strike price of the option, it shall be given no value. In 
the case of a put commodity option which is not traded on a contract 
market, if the market value for the physical or futures contract which 
is the subject of the option is more than the strike price of the 
option, it shall be given no value; and

[[Page 44]]

    (iv) The value attributed to any unlisted security option shall be 
the difference between the option's exercise value or striking value and 
the market value of the underlying security. In the case of an unlisted 
call, if the market value of the underlying security is less than the 
exercise value or striking value of such call, it shall be given no 
value; and, in the case of an unlisted put, if the market value of the 
underlying security is more than the exercise value or striking value of 
the unlisted put, it shall be given no value.
    (2) The term current assets means cash and other assets or resources 
commonly identified as those which are reasonably expected to be 
realized in cash or sold during the next 12 months. ``Current assets'' 
shall:
    (i) Exclude any unsecured commodity futures or option account 
containing a ledger balance and open trades, the combination of which 
liquidates to a deficit or containing a debit ledger balance only: 
Provided, however, Deficits or debit ledger balances in unsecured 
customers', non-customers', and proprietary accounts, which are the 
subject of calls for margin or other required deposits may be included 
in current assets until the close of business on the business day 
following the date on which such deficit or debit ledger balance 
originated providing that the account had timely satisfied, through the 
deposit of new funds, the previous day's debit or deficits, if any, in 
its entirety.
    (ii) Exclude all unsecured receivables, advances and loans except 
for:
    (A) Receivables resulting from the marketing of inventories commonly 
associated with the business activities of the applicant or registrant 
and advances on fixed price purchases commitments: Provided, Such 
receivables or advances are outstanding no longer than 3 calendar months 
from the date that they are accrued;
    (B) Interest receivable, floor brokerage receivable, commissions 
receivable from other brokers or dealers (other than syndicate profits), 
mutual fund concessions receivable and management fees receivable from 
registered investment companies and commodity pools: Provided, Such 
receivables are outstanding no longer than thirty (30) days from the 
date they are due; and dividends receivable outstanding no longer than 
thirty (30) days from the payable date;
    (C) Receivables from clearing organizations and securities clearing 
organizations;
    (D) Receivables from registered futures commission merchants or 
brokers, resulting from commodity futures or option transactions, except 
those specifically excluded under paragraph (c)(2)(i) of this section;
    (E) Insurance claims which arise from a reportable segment of the 
applicant's or registrant's overall business activities, as defined in 
generally accepted accounting principles, other than in the commodity 
futures, commodity option, security and security option segments of the 
applicant's or registrant's business activities which are not 
outstanding more than 3 calendar months after the date they are recorded 
as a receivable;
    (F) All other insurance claims not subject to paragraph 
(c)(2)(ii)(E) of this section, which are not older than seven (7) 
business days from the date the loss giving rise to the claim is 
discovered; insurance claims which are not older than twenty (20) 
business days from the date the loss giving rise to the claim is 
discovered and which are covered by an option of outside counsel that 
the claim is valid and is covered by insurance policies presently in 
effect; insurance claims which are older than twenty (20) business days 
from the date the loss giving rise to the claim is discovered and which 
are covered by an opinion of outside counsel that the claim is valid and 
is covered by insurance policies presently in effect and which have been 
acknowledged in writing by the insurance carrier as due and payable: 
Provided, Such claims are not outstanding longer than twenty (20) 
business days from the date they are so acknowledged by the carrier;
    (iii) Exclude all prepaid expenses and deferred charges;
    (iv) Exclude all inventories except for:
    (A) Readily marketable spot commodities; or spot commodities which 
``adequately collateralize'' indebtedness under paragraph (c)(7) of this 
section;

[[Page 45]]

    (B) Securities which are considered ``readily marketable'' (as 
defined in Sec. 240.15c3-1(c)(11) of this title) or which ``adequately 
collateralize'' indebtedness under paragraph (c)(7) of this section;
    (C) Work in process and finished goods which result from the 
processing of commodities at market value;
    (D) Raw materials at market value which will be combined with spot 
commodities to produce a finished proc- essed commodity; and
    (E) Inventories held for resale commonly associated with the 
business activities of the applicant or registrant;
    (v) Include fixed assets and assets which otherwise would be 
considered noncurrent to the extent of any long-term debt adequately 
collateralized by assets acquired for use in the ordinary course of the 
trade or business of an applicant or registrant and any other long-term 
debt adequately collateralized by assets of the applicant or registrant 
if the sole recourse of the creditor for nonpayment of such liability is 
to such asset: Provided, Such liabilities are not excluded from 
liabilities in the computation of net capital under paragraph (c)(4)(vi) 
of this section;
    (vi) Exclude all assets doubtful of collection or realization less 
any reserves established therefor;
    (vii) Include, in the case of future income tax benefits arising as 
a result of unrealized losses, the amount of such benefits not exceeding 
the amount of income tax liabilities accrued on the books and records of 
the applicant or registrant, but only to the extent such benefits could 
have been applied to reduce accrued tax liabilities on the date of the 
capital computation, had the related unrealized losses been realized on 
that date;
    (viii) Include guaranteee deposits with clearing organizations and 
stock in clearing organizations to the extent of its margin value;
    (ix) In the case of an introducing broker or an applicant for 
registration as an introducing broker, include 50 percent of the value 
of a guarantee or security deposit with a futures commission merchant 
which carries or intends to carry accounts for the customers of the 
introducing broker; and
    (x) Exclude exchange memberships.
    (3) A loan or advance or any other form of receivable shall not be 
considered ``secured'' for the purposes of paragraph (c)(2) of this 
section unless the following conditions exist:
    (i) The receivable is secured by readily marketable collateral which 
is otherwise unencumbered and which can be readily converted into cash: 
Provided, however, That the receivable will be considered secured only 
to the extent of the market value of such collateral after application 
of the percentage deductions specified in paragraph (c)(5) of this 
section; and
    (ii)(A) The readily marketable collateral is in the possession or 
control of the applicant or registrant; or
    (B) The applicant or registrant has a legally enforceable, written 
security agreement, signed by the debtor, and has a perfected security 
interest in the readily marketable collateral within the meaning of the 
laws of the State in which the readily marketable collateral is located.
    (4) The term liabilities means the total money liabilities of an 
applicant or registrant arising in connection with any transaction 
whatsoever, including economic obligations of an applicant or registrant 
that are recognized and measured in conformity with generally accepted 
accounting principles. ``Liabilities'' also include certain deferred 
credits that are not obligations but that are recognized and measured in 
conformity with generally accepted accounting principles. For the 
purposes of computing ``net capital'', the term ``liabilities'':
    (i) Excludes liabilities of an applicant or registrant which are 
subordi- nated to the claims of all general creditors of the applicant 
or registrant pursuant to a satisfactory subordination agreement, as 
defined in paragraph (h) of this section;
    (ii) Excludes, in the case of a futures commission merchant, the 
amount of money, securities and property due to commodity futures or 
option customers which is held in segregated accounts in compliance with 
the requirements of the Act and these regulations: Provided, however, 
That such exclusion may be taken only if such money, securities and 
property held in segregated

[[Page 46]]

accounts have been excluded from current assets in computing net 
capital;
    (iii) Includes, in the case of an applicant or registrant who is a 
sole proprietor, the excess of liabilities which have not been incurred 
in the course of business as a futures commission merchant or as an 
introducing broker over assets not used in the business;
    (iv) Excludes the lesser of any deferred income tax liability 
related to the items in paragraphs (c)(4)(i) (A), (B), and (C) below, or 
the sum of paragraphs (c)(4)(i) (A), (B), and (C) below:
    (A) The aggregate amount resulting from applying to the amount of 
the deductions computed in accordance with paragraph (c)(5) of this 
section the appropriate Federal and State tax rate(s) applicable to any 
unrealized gain on the asset on which the deduction was computed;
    (B) Any deferred tax liability related to income accrued which is 
directly related to an asset otherwise deducted pursuant to this 
section;
    (C) Any deferred tax liability related to unrealized appreciation in 
value of any asset(s) which has been otherwise excluded from current 
assets in accordance with the provisions of this section;
    (v) Excludes any current tax liability related to income accrued 
which is directly related to an asset otherwise deducted pursuant to 
this section; and
    (vi) Excludes liabilities which would be classified as long term in 
accordance with generally accepted accounting principles to the extent 
of the net book value of plant, property and equipment which is used in 
the ordinary course of any trade or business of the applicant or 
registrant which is a reportable segment of the applicant's or 
registrant's overall business activities, as defined in generally 
accepted accounting principles, other than in the commodity futures, 
commodity option, security and security option segments of the 
applicant's or registrant's business activities: Provided, That such 
plant, property and equipment is not included in current assets pursuant 
to paragraph (c)(2)(v) of this section.
    (5) The term adjusted net capital means net capital less:
    (i) The amount by which any advances paid by the applicant or 
registrant on cash commodity contracts and used in computing net capital 
exceeds 95 percent of the market value of the commodities covered by 
such contracts;
    (ii) In the case of all inventory, fixed price commitments and 
forward contracts, the applicable percentage of the net position 
specified below:
    (A) Inventory which is currently registered as deliverable on a 
contract market and covered by an open futures contract or by a 
commodity option on a physical.--No charge.
    (B) Inventory which is covered by an open futures contract or 
commodity option.--5 percent of the market value.
    (C) Inventory which is not covered.--20 percent of the market value.
    (D) Inventory and forward contracts in those foreign currencies that 
are purchased or sold for future delivery on or subject to the rules of 
a contract market, and which are covered by an open futures contract.--
No charge
    (E) Inventory and forward contracts in euros, British pounds, 
Canadian dollars, Japanese yen, or Swiss francs, and which are not 
covered by an open futures contract or commodity option.--6 percent of 
the market value.
    (F) Fixed price commitments (open purchases and sales) and forward 
contracts which are covered by an open futures contract or commodity 
option.--10 percent of the market value.
    (G) Fixed price commitments (open purchases and sales) and forward 
contracts which are not covered by an open futures contract or commodity 
option.--20 percent of the market value.
    (iii)--(iv) [Reserved]
    (v) In the case of securities and obligations used by the applicant 
or registrant in computing net capital, and in the case of a futures 
commission merchant with securities in segregation pursuant to section 
4d(2) of the Act and the regulations in this chapter which were not 
deposited by customers, the percentages specified in Rule 240.15c3-
1(c)(2)(vi) of the Securities and Exchange Commission (17 CFR 240.15c3-
1(c)(2)(vi)) (``securities haircuts'') and 100 percent of the value of 
``nonmarketable securities'' as specified

[[Page 47]]

in Rule 240.15c3-1(c)(2)(vii) of the Securities and Exchange Commission 
(17 CFR 240.15c3-1(c)(2)(vii));
    (vi) In the case of securities options and/or other options for 
which a haircut has been specified for the option or for the underlying 
instrument in Sec. 240.15c3-1 appendix A of this title, the treatment 
specified in, or under, Sec. 240.15c3-1 appendix A, after effecting 
certain adjustments to net capital for listed and unlisted options as 
set forth in such appendix;
    (vii) In the case of an applicant or registrant who has open 
contractual commitments, as hereinafter defined, the deductions 
specified in Sec. 240.15c3-1(c)(2)(viii) of this title;
    (viii) In the case of a futures commission merchant, for 
undermargined customer commodity futures accounts and commodity option 
customer accounts the amount of funds required in each such account to 
meet maintenance margin requirements of the applicable board of trade or 
if there are no such maintenance margin requirements, clearing 
organization margin requirements applicable to such positions, after 
application of calls for margin or other required deposits which are 
outstanding three business days or less. If there are no such 
maintenance margin requirements or clearing organization margin 
requirements, then the amount of funds required to provide margin equal 
to the amount necessary after application of calls for margin or other 
required deposits outstanding three business days or less to restore 
original margin when the original margin has been depleted by 50 percent 
or more: Provided, To the extent a deficit is excluded from current 
assets in accordance with paragraph (c)(2)(i) of this section such 
amount shall not also be deducted under this paragraph (c)(5)(viii). In 
the event that an owner of a customer account has deposited an asset 
other than cash to margin, guarantee or secure his account, the value 
attributable to such asset for purposes of this subparagraph shall be 
the lesser of (A) the value attributable to the asset pursuant to the 
margin rules of the applicable board of trade, or (B) the market value 
of the asset after application of the percentage deductions specified in 
this paragraph (c)(5);
    (ix) In the case of a futures commission merchant, for undermargined 
commodity futures and commodity option noncustomer and omnibus accounts 
the amount of funds required in each such account to meet maintenance 
margin requirements of the applicable board of trade or if there are no 
such maintenance margin requirements, clearing organization margin 
requirements applicable to such positions, after application of calls 
for margin or other required deposits which are outstanding two business 
days or less. If there are no such maintenance margin requirements or 
clearing organization margin requirements, then the amount of funds 
required to provide margin equal to the amount necessary after 
application of calls for margin or other required deposits outstanding 
two business days or less to restore original margin when the original 
margin has been depleted by 50 percent or more: Provided, To the extent 
a deficit is excluded from current assets in accordance with paragraph 
(c)(2)(i) of this section such amount shall not also be deducted under 
this paragraph (c)(5)(ix). In the event that an owner of a noncustomer 
or omnibus account has deposited an asset other than cash to margin, 
guarantee or secure his account the value attributable to such asset for 
purposes of this subparagraph shall be the lesser of (A) the value 
attributable to such asset pursuant to the margin rules of the 
applicable board of trade, or (B) the market value of such asset after 
application of the percentage deductions specified in this paragraph 
(c)(5);
    (x) In the case of open futures contracts or cleared OTC derivative 
positions and granted (sold) commodity options held in proprietary 
accounts carried by the applicant or registrant which are not covered by 
a position held by the applicant or registrant or which are not the 
result of a ``changer trade'' made in accordance with the rules of a 
contract market:
    (A) For an applicant or registrant which is a clearing member of a 
clearing organization for the positions cleared by such member, the 
applicable margin requirement of the applicable clearing organization;

[[Page 48]]

    (B) For an applicant or registrant which is a member of a self-
regulatory organization 150 percent of the applicable maintenance margin 
requirement of the applicable board of trade, or clearing organization, 
whichever is greater;
    (C) For all other applicants or registrants, 200 percent of the 
applicable maintenance margin requirements of the applicable board of 
trade or clearing organization, whichever is greater; or
    (D) For open contracts or granted (sold) commodity options for which 
there are no applicable maintenance margin requirements, 200 percent of 
the applicable initial margin requirement: Provided, The equity in any 
such proprietary account shall reduce the deduction required by this 
paragraph (c)(5)(x) if such equity is not otherwise includable in 
adjusted net capital;
    (xi) In the case of an applicant or registrant which is a purchaser 
of a commodity option not traded on a contract market which has value 
and such value is used to increase adjusted net capital, ten percent of 
the market value of the physical or futures contract which is the 
subject of such option but in no event more than the value attributed to 
such option;
    (xii) In the case of an applicant or registrant which is a purchaser 
of a commodity option which is traded on a contract market the same 
safety factor as if the applicant or registrant were the grantor of such 
option in accordance with paragraph (c)(5)(x) of this section, but in no 
event shall the safety factor be greater than the market value 
attributed to such option;
    (xiii) Five percent of all unsecured receivables includable under 
paragraph (c)(2)(ii)(D) of this section used by the applicant or 
registrant in computing ``net capital'' and which are not due from:
    (A) A registered futures commission merchant;
    (B) A broker or dealer that is registered as such with the 
Securities and Exchange Commission; or
    (C) A foreign broker that has been granted comparability relief 
pursuant to Sec. 30.10 of this chapter, Provided, however, that the 
amount of the unsecured receivable not subject to the five percent 
capital charge is no greater than 150 percent of the current amount 
required to maintain futures and option positions in accounts with the 
foreign broker, or 100 percent of such greater amount required to 
maintain futures and option positions in the accounts at any time during 
the previous six-month period, and Provided, that, in the case of 
customer funds, such account is treated in accordance with the special 
requirements of the applicable Commission order issued under Sec. 30.10 
of this chapter.
    (xiv) For securities brokers and dealers, all other deductions 
specified in Sec. 240.15c3-1 of this title.
    (6) Election of alternative capital deductions that have received 
approval of Securities and Exchange Commission pursuant to Sec. 
240.15c3-1(a)(7) of this title.
    (i) Any futures commission merchant that is also registered with the 
Securities and Exchange Commission as a securities broker or dealer, and 
who also satisfies the other requirements of this paragraph (c)(6), may 
elect to compute its adjusted net capital using the alternative capital 
deductions that, under Sec. 240.15c3-1(a)(7) of this title, the 
Securities and Exchange Commission has approved by written order. To the 
extent that a futures commission merchant is permitted by the Securities 
and Exchange Commission to use alternative capital deductions for its 
unsecured receivables from over-the-counter transactions in derivatives, 
or for its proprietary positions in securities, forward contracts, or 
futures contracts, the futures commission merchant may use these same 
alternative capital deductions when computing its adjusted net capital, 
in lieu of the deductions that would otherwise be required by paragraph 
(c)(2)(ii) of this section for its unsecured receivables from over-the-
counter derivatives transactions; by paragraph (c)(5)(ii) of this 
section for its proprietary positions in forward contracts; by paragraph 
(c)(5)(v) of this section for its proprietary positions in securities; 
and by paragraph (c)(5)(x) of this section for its proprietary positions 
in futures contracts.
    (ii) Notifications of election or of changes to election. (A) No 
election to

[[Page 49]]

use the alternative market risk and credit risk deductions referenced in 
paragraph (c)(6)(i) of this section shall be effective unless and until 
the futures commission merchant has filed with the Commission, addressed 
to the Director of the Division of Clearing and Intermediary Oversight, 
a notice that is to include a copy of the approval order of the 
Securities and Exchange Commission referenced in paragraph (c)(6)(i) of 
this section, and to include also a statement that identifies the amount 
of tentative net capital below which the futures commission merchant is 
required to provide notice to the Securities and Exchange Commission, 
and which also provides the following information: a list of the 
categories of positions that the futures commission merchant holds in 
its proprietary accounts, and, for each such category, a description of 
the methods that the futures commission merchant will use to calculate 
its deductions for market risk and credit risk, and also, if calculated 
separately, deductions for specific risk; a description of the value at 
risk (VaR) models to be used for its market risk and credit risk 
deductions, and an overview of the integration of the models into the 
internal risk management control system of the futures commission 
merchant; a description of how the futures commission merchant will 
calculate current exposure and maximum potential exposure for its 
deductions for credit risk; a description of how the futures commission 
merchant will determine internal credit ratings of counterparties and 
internal credit risk weights of counterparties, if applicable; and a 
description of the estimated effect of the alternative market risk and 
credit risk deductions on the amounts reported by the futures commission 
merchant as net capital and adjusted net capital.
    (B) A futures commission merchant must also, upon the request of the 
Commission at any time, supplement the statement described in paragraph 
(c)(6)(ii)(A) of this section, by providing any other explanatory 
information regarding the computation of its alternative market risk and 
credit risk deductions as the Commission may require at its discretion.
    (C) A futures commission merchant must also file the following 
supplemental notices with the Director of the Division and Clearing and 
Intermediary Oversight:
    (1) A notice advising that the Securities and Exchange Commission 
has imposed additional or revised conditions for the approval evidenced 
by the order referenced in paragraph (c)(6)(i) of this section, and 
which describes the new or revised conditions in full, and
    (2) A notice which attaches a copy of any approval by the Securities 
and Exchange Commission of amendments that a futures commission merchant 
has requested for its application, filed under 17 CFR 240.15c3-1e, to 
use alternative market risk and credit risk deductions approved by the 
Securities and Exchange Commission.
    (D) A futures commission merchant may voluntarily change its 
election to use the alternative market risk and credit risk deductions 
referenced in paragraph (c)(6)(i) of this section, by filing with the 
Director of the Division of Clearing and Intermediary Oversight a 
written notice specifying a future date as of which it will no longer 
use the alternative market risk and credit risk deductions, and will 
instead compute such deductions in accordance with the requirements 
otherwise applicable under paragraph (c)(2)(ii) of this section for 
unsecured receivables from over-the-counter derivatives transactions; by 
paragraph (c)(5)(ii) of this section for proprietary positions in 
forward contracts; by paragraph (c)(5)(v) of this section for 
proprietary positions in securities; and by paragraph (c)(5)(x) of this 
section for proprietary positions in futures contracts.
    (iii) Conditions under which election terminated. A futures 
commission merchant may no longer elect to use the alternative market 
risk and credit risk deductions referenced in paragraph (c)(6)(i) of 
this section, and shall instead compute the deductions otherwise 
required under paragraph (c)(2)(ii) of this section for unsecured 
receivables from over-the-counter derivatives transactions; by paragraph 
(c)(5)(ii) of this section for proprietary positions in forward 
contracts; by paragraph (c)(5)(v) of this section for proprietary

[[Page 50]]

positions in securities; and by paragraph (c)(5)(x) of this section for 
proprietary positions in futures contracts, upon the occurrence of any 
of the following:
    (A) The Securities and Exchange Commission revokes its approval of 
the market risk and credit risk deductions for such futures commission 
merchant;
    (B) A futures commission merchant fails to come into compliance with 
its filing requirements under this paragraph (c)(6), after having 
received from the Director of the Division of Clearing and Intermediary 
Oversight written notification that the firm is not in compliance with 
its filing requirements, and must cease using alternative capital 
deductions permitted under this paragraph (c)(6) if it has not come into 
compliance by a date specified in the notice; or
    (C) The Commission by written order finds that permitting the 
futures commission merchant to continue to use such alternative market 
risk and credit risk deductions is no longer necessary or appropriate 
for the protection of customers of the futures commission merchant or of 
the integrity of the futures or options markets.
    (iv) Additional filing requirements. Any futures commission merchant 
that elects to use the alternative market risk and credit risk 
deductions referenced in paragraph (c)(6)(i) of this section must file 
with the Commission, in addition to the filings required by paragraph 
(c)(6)(ii) of this section, copies of any and all of the following 
documents, at such time as the originals are filed with the Securities 
and Exchange Commission:
    (A) Information that the futures commission merchant files on a 
monthly basis with its designated examining authority or the Securities 
and Exchange Commission, whether by way of schedules to its FOCUS 
reports or by other filings, in satisfaction of 17 CFR 240.17a-
5(a)(5)(i);
    (B) The quarterly reports required by 17 CFR 240.17a-5(a)(5)(ii);
    (C) The supplemental annual filings as required by 17 CFR 240.17a-
5(k);
    (D) Any notification to the Securities and Exchange Commission or 
the futures commission merchant's designated examining authority of 
planned withdrawals of excess net capital; and
    (E) Any notification that the futures commission merchant is 
required to file with the Securities and Exchange Commission when its 
tentative net capital is below an amount specified by the Securities and 
Exchange Commission.
    (7) Liabilities are ``adequately collateralized'' when, pursuant to 
a legally enforceable written instrument, such liabilities are secured 
by identified assets that are otherwise unencumbered and the market 
value of which exceeds the amount of such liabilities.
    (8) The term contractual commitments shall include underwriting, 
when issued, when distributed, and delayed delivery contracts; and the 
writing or endorsement of security puts and calls and combinations 
thereof; but shall not include uncleared regular way purchases and sales 
of securities. A series of contracts of purchase or sale of the same 
security, conditioned, if at all, only upon issuance, may be treated as 
an individual commitment.
    (d) Each applicant or registrant shall have equity capital 
(inclusive of satisfactory subordination agreements which qualify under 
this paragraph (d) as equity capital) of not less than 30 percent of the 
debt-equity total, provided, an applicant or registrant may be exempted 
from the provisions of this paragraph (d) for a period not to exceed 90 
days or for such longer period which the Commission may, upon 
application of the applicant or registrant, grant in the public interest 
or for the protection of investors. For the purposes of this paragraph 
(d):
    (1) Equity capital means a satisfactory subordination agreement 
entered into by a partner or stockholder or limited liability company 
member which has an initial term of at least 3 years and has a remaining 
term of not less than 12 months if:
    (i) It does not have any of the provisions for accelerated maturity 
provided for by paragraphs (h)(2) (ix)(A), (x)(A), or (x)(B) of this 
section, or the provisions allowing for special prepayment provided for 
by paragraph (h)(2)(vii)(B) of this section, and is maintained as

[[Page 51]]

capital subject to the provisions restricting the withdrawal thereof 
required by paragraph (e) of this section; or
    (ii) The partnership agreement provides that capital contributed 
pursuant to a satisfactory subordination agreement as defined in 
paragraph (h) of this section shall in all respects be partnership 
capital subject to the provisions restricting the withdrawal thereof 
required by paragraph (e) of this section, and
    (A) In the case of a corporation, the sum of its par or stated value 
of capital stock, paid in capital in excess of par, retained earnings, 
unrealized profit and loss, and other capital accounts.
    (B) In the case of a partnership, the sum of its capital accounts of 
partners (inclusive of such partners' commodities, options and 
securities accounts subject to the provisions of paragraph (e) of this 
section), and unrealized profit and loss.
    (C) In the case of a sole proprietorship, the sum of its capital 
accounts of the sole proprietorship and unrealized profit and loss.
    (D) In the case of a limited liability company, the sum of its 
capital accounts of limited liability company members, and unrealized 
profit and loss.
    (2) Debt-equity total means equity capital as defined in paragraph 
(d)(1) of this section plus the outstanding principal amount of 
satisfactory subordination agreements.
    (e) No equity capital of the applicant or registrant or a 
subsidiary's or affiliate's equity capital consolidated pursuant to 
paragraph (f) of this section, whether in the form of capital 
contributions by partners (including amounts in the commodities, options 
and securities trading accounts of partners which are treated as equity 
capital but excluding amounts in such trading accounts which are not 
equity capital and excluding balances in limited partners' capital 
accounts in excess of their stated capital contributions), par or stated 
value of capital stock, paid-in capital in excess of par or stated 
value, retained earnings or other capital accounts, may be withdrawn by 
action of a stockholder or partner or limited liability company member 
or by redemption or repurchase of shares of stock by any of the 
consolidated entities or through the payment of dividends or any similar 
distribution, nor may any unsecured advance or loan be made to a 
stockholder, partner, sole proprietor, limited liability company member, 
or employee if, after giving effect thereto and to any other such 
withdrawals, advances, or loans and any payments of payment obligations 
(as defined in paragraph (h) of this section) under satisfactory 
subordination agreements and any payments of liabilities excluded 
pursuant to paragraph (c)(4)(vi) of this section which are scheduled to 
occur within six months following such withdrawal, advance or loan:
    (1) Either adjusted net capital of any of the consolidated entities 
would be less than the greatest of:
    (i) 120 percent of the appropriate minimum dollar amount required by 
paragraphs (a)(1)(i)(A) or (a)(1)(iii)(A) of this section;
    (ii) For a futures commission merchant or applicant therefor, 120 
percent of the amount required by paragraph (a)(1)(i)(B) of this 
section;
    (iii) 120 percent of the amount of adjusted net capital required by 
a registered futures association of which it is a member; or
    (iv) For an applicant or registrant which is also a securities 
broker or dealer, the amount of net capital specified in Rule 15c3-1(e) 
of the Securities and Exchange Commission (17 CFR 240.15c3-1(e)); or
    (2) In the case of any applicant or registrant included within such 
consolidation, if equity capital of the applicant or registrant 
(inclusive of satisfactory subordination agreements which qualify as 
equity under paragraph (d) of this section) would be less than 30 
percent of the required debt-equity total as defined in paragraph (d) of 
this section.

Provided, That this paragraph (e) shall not preclude an applicant or 
registrant from making required tax payments or preclude the payment to 
partners of reasonable compensation. The Commission may, upon 
application of the applicant or registrant, grant relief from this 
paragraph (e) if the Commission deems it to be in the public interest or

[[Page 52]]

for the protection of nonproprietary accounts.
    (f)(1) Every applicant or registrant, in computing its net capital 
pursuant to this section must, subject to the provisions of paragraphs 
(f)(2) and (f)(4) of this section, consolidate in a single computation, 
assets and liabilities of any subsidiary or affiliate for which it 
guarantees, endorses, or assumes directly or indirectly the obligations 
or liabilities. The assets and liabilities of a subsidiary or affiliate 
whose liabilities and obligations have not been guaranteed, endorsed, or 
assumed directly or indirectly by the applicant or registrant may also 
be so consolidated if an opinion of counsel is obtained as provided for 
in paragraph (f)(2) of this section.
    (2)(i) If the consolidation, provided for in paragraph (f)(1) of 
this section, of any such subsidiary or affiliate results in the 
increase of the applicant's or registrant's adjusted net capital or 
decreases the minimum adjusted net capital requirement, and an opinion 
of counsel called for in paragraph (f)(2)(ii) of this section has not 
been obtained, such benefits shall not be recognized in the applicant's 
or registrant's computation required by this section.
    (ii) Except as provided for in paragraph (f)(2)(i) of this section, 
consolidation shall be permitted with respect to any subsidiaries or 
affiliates which are majority owned and controlled by the applicant or 
registrant, and for which the applicant can demonstrate to the 
satisfaction of the National Futures Association, or for which the 
registrant can demonstrate to the satisfaction of the Commission and the 
designated self-regulatory organization, if any, by an opinion of 
counsel, that the net asset values or the portion thereof related to the 
parent's ownership interest in the subsidiary or affiliate, may be 
caused by the applicant or registrant or an appointed trustee to be 
distributed to the applicant or registrant within 30 calendar days. Such 
opinion must also set forth the actions necessary to cause such a 
distribution to be made, identify the parties having the authority to 
take such actions, identify and describe the rights of other parties or 
classes of parties, including but not limited to customers, general 
creditors, subordinated lenders, minority shareholders, employees, 
litigants, and governmental or regulatory authorities, who may delay or 
prevent such a distribution and such other assurances as the National 
Futures Association, the Commission or the designated self-regulatory 
organization by rule or interpretation may require. Such opinion must be 
current and periodically renewed in connection with the applicant's or 
registrant's annual audit pursuant to Sec. 1.10 or upon any material 
change in circumstances.
    (3) In preparing a consolidated computation of adjusted net capital 
pursuant to this section, the following minimum and non-exclusive 
requirements shall be observed;
    (i) Consolidated adjusted net capital shall be reduced by the 
estimated amount of any tax reasonably anticipated to be incurred upon 
distribution of the assets of the subsidiary or affiliate.
    (ii) Liabilities of a consolidated subsidiary or affiliate which are 
subordinated to the claims of present and future creditors pursuant to a 
satisfactory subordination agreement shall be deducted from consolidated 
adjusted net capital unless such subordination extends also to the 
claims of present or future creditors of the parent applicant or 
registrant and all consolidated subsidiaries.
    (iii) Subordinated liabilities of a consolidated subsidiary or 
affiliate which are consolidated in accordance with paragraph (f)(3)(ii) 
of this section may not be prepaid, repaid, or accelerated if any of the 
entities included in such consolidation would otherwise be unable to 
comply with the provisions of paragraph (h) of this section.
    (iv) Each applicant or registrant included within the consolidation 
shall at all times be in compliance with the adjusted net capital 
requirement to which it is subject.
    (4) No applicant or registrant shall guarantee, endorse, or assume 
directly or indirectly any obligation or liability of a subsidiary or 
affiliate unless the obligation or liability is reflected in the 
computation of adjusted net capital pursuant to this section except as 
provided in paragraph (f)(2)(i) of this section.

[[Page 53]]

    (g)(1) The Commission may by order restrict, for a period up to 
twenty business days, any withdrawal by a futures commission merchant of 
equity capital, or any unsecured advance or loan to a stockholder, 
partner, limited liability company member, sole proprietor, employee or 
affiliate, if:
    (i) Such withdrawal, advance or loan would cause, when aggregated 
with all other withdrawals, advances or loans during a 30 calendar day 
period from the futures commission merchant or a subsidiary or affiliate 
of the futures commission merchant consolidated pursuant to Sec. 
1.17(f) (or 17 CFR 240.15c3-1e), a net reduction in excess adjusted net 
capital (or, if the futures commission merchant is qualified to use the 
filing option available under Sec. 1.10(h), excess net capital as 
defined in the rules of the Securities and Exchange Commission) of 30 
percent or more, and
    (ii) The Commission, based on the facts and information available, 
concludes that any such withdrawal, advance or loan may be detrimental 
to the financial integrity of the futures commission merchant, or may 
unduly jeopardize its ability to meet customer obligations or other 
liabilities that may cause a significant impact on the markets.
    (2) The futures commission merchant may file with the Secretary of 
the Commission a written petition to request rescission of the order 
issued under paragraph (g)(1) of this section. The petition filed by the 
futures commission merchant must specify the facts and circumstances 
supporting its request for rescission. The Commission shall respond in 
writing to deny the futures commission merchant's petition for 
rescission, or, if the Commission determines that the order issued under 
paragraph (g)(1) of this section should not remain in effect, the order 
shall be rescinded.
    (h) The term satisfactory subordination agreement (``subordination 
agreement'') means an agreement which contains the minimum and 
nonexclusive requirements set forth below.
    (1) Certain definitions for purposes of this section:
    (i) A subordination agreement may be either a subordinated loan 
agreement or a secured demand note agreement.
    (ii) The term subordinated loan agreement means the agreement or 
agreements evidencing or governing a subordinated borrowing of cash.
    (iii) The term ``collateral value'' of any securities pledged to 
secure a secured demand note means the market value of such securities 
after giving effect to the percentage deductions specified in Rule 
240.15c3-1d(a)(2)(iii) of the Securities and Exchange Commission (17 CFR 
240.15c3-1d(a)(2)(iii)).
    (iv) The term payment obligation means the obligation of an 
applicant or registrant in respect to any subordination agreement:
    (A) To repay cash loaned to the applicant or registrant pursuant to 
a subordinated loan agreement; or
    (B) To return a secured demand note contributed to the applicant or 
registrant or to reduce the unpaid principal amount thereof and to 
return cash or securities pledged as collateral to secure the secured 
demand note; and (C) ``payment'' shall mean the performance by an 
applicant or registrant of a payment obligation.
    (v)(A) The term secured demand note agreement means an agreement 
(including the related secured demand note) evidencing or governing the 
contribution of a secured demand note to an applicant or registrant and 
the pledge of securities and/or cash with the applicant or registrant as 
collateral to secure payment of such secured demand note. The secured 
demand note agreement may provide that neither the lender, his heirs, 
executors, administrators, or assigns shall be personally liable on such 
note and that in the event of default the applicant or registrant shall 
look for payment of such note solely to the collateral then pledged to 
secure the same.
    (B) The secured demand note shall be a promissory note executed by 
the lender and shall be payable on the demand of the applicant or 
registrant to which it is contributed: Provided, however, That the 
making of such demand may be conditioned upon the occurrence of any of 
certain events which are acceptable to the designated self-regultory 
organization and the Commission.

[[Page 54]]

    (C) If such note is not paid upon presentment and demand as provided 
for therein, the applicant or registrant shall have the right to 
liquidate all or any part of the securities then pledged as collateral 
to secure payment of the same and to apply the net proceeds of such 
liquidation, together with any cash then included in the collateral, in 
payment of such note. Subject to the prior rights of the applicant or 
registrant as pledgee, the lender, as defined in paragraph (h)(i)(v)(F) 
of this section may retain ownership of the collateral and have the 
benefit of any increases and bear the risks fo any decreases in the 
value of the collateral and may retain the right to vote securities 
contained within the collateral and any right to income therefrom or 
distributions thereon, except the applicant or registrant shall have the 
right to receive and hold as pledgee all dividends payable in securities 
and all partial and complete liquidating dividends.
    (D) Subject to the prior rights of the applicant or registrant as 
pledgee, the lender may have the right to direct the sale of any 
securities included in the collateral, to direct the purchase of 
securities with any cash included therein, to withdraw excess collateral 
or to substitute cash or other securities as collateral: Provided, That 
the net proceeds of any such sale and the cash so substituted and the 
securities so purchased or substituted are held by the applicant or 
registrant as pledgee, and are included within the collateral to secure 
payment of the secured demand note: And provided further, That no such 
transaction shall be permitted, if, after giving effect therto, the sum 
of the amount of any cash, plus the collateral value of the securities, 
then pledged as collateral to secure the secured demand note would be 
less than the unpaid principal amount of the secured demand note.
    (E) Upon payment by the lender, as distinguished from a reduction by 
the lender which is provided for in paragraph (h)(2)(vi)(C) of this 
section or reduction by the applicant or registrant as provided for in 
paragraph (h)(2)(vii) of this section, of all or any part of the unpaid 
principal amount of the secured demand note, the applicant or registrant 
shall issue to the lender a subordinated loan agreement in the amount of 
such payment (or in the case of an applicant or registrant that is a 
partnership, credit a capital account of the lender), or issue preferred 
or common stock of the applicant or registrant in the amount of such 
payment, or any combination of the foregoing, as provided for in the 
secured demand note agreement.
    (F) The term lender means the person who lends cash to an applicant 
or registrant pursuant to a subordinated loan agreement and the person 
who contributes a secured demand note to an applicant or registrant 
pursuant to a secured demand note agreement.
    (2) Minimum requirements for subordination agreements:
    (i) Subject to paragraph (h)(1) of this section, a subordination 
agreement shall mean a written agreement between the applicant or 
registrant and the lender, which:
    (A) Has a minimum term of 1 year, except for temporary subordination 
agreements provided for in paragraph (h)(3)(v) of this section, and
    (B) Is a valid and binding obligation enforceable in accordance with 
its terms (subject as to enforcement to applicable bankruptcy, 
insolvency, reorganization, moratorium, and other similar laws) against 
the applicant or registrant and the lender and their respective heirs, 
executors, administrators, successors, and assigns.
    (ii) Specific amount. All subordination agreements shall be for a 
specific dollar amount which shall not be reduced for the duration of 
the agreement except by installments as specifically provided for 
therein and except as otherwise provided in this paragraph (h)(2) of 
this section.
    (iii) Effective subordination. The subordination agreement shall 
effectively subordinate any right of the lender to receive any payment 
with respect thereto, together with accrued interest or compensation, to 
the prior payment or provision for payment in full of all claims of all 
present and future creditors of the applicant or registrant arising out 
of any matter occurring prior to the date on which the related payment 
obligation matures, except for

[[Page 55]]

claims which are the subject of subordination agreements which rank on 
the same priority as or junior to the claim of the lender under such 
subordination agreements.
    (iv) Proceeds of subordinated loan agreements. The subordinated loan 
agreement shall provide that the cash proceeds thereof shall be used and 
dealt with by the applicant or registrant as part of its capital and 
shall be subject to the risks of the business.
    (v) Certain rights of the borrower. The subordination agreement 
shall provide that the applicant or registrant shall have the right to:
    (A) Deposit any cash proceeds of a subordinated loan agreement and 
any cash pledged as collateral to secure a secured demand note in an 
account or accounts in its own name in any bank or trust company;
    (B) Pledge, repledge, hypothecate and rehypothecate, any or all of 
the securities pledged as collateral to secure a secured demand note, 
without notice, separately or in common with other securities or 
property for the purpose of securing any indebtedness of the applicant 
or registrant; and
    (C) Lend to itself or others any or all of the securities and cash 
pledged as collateral to secure a secured demand note.
    (vi) Collateral for secured demand notes. Only cash and securities 
which are fully paid for and which may be publicly offered or sold 
without registration under the Securities Act of 1933, and the offer, 
sale, and transfer of which are not otherwise restricted, may be pledged 
as collateral to secure a secured demand note. The secured demand note 
agreement shall provide that if at any time the sum of the amount of any 
cash, plus the collateral value of any securities, then pledged as 
collateral to secure the secured demand note is less than the unpaid 
principal amount of the secured demand note, the applicant or registrant 
must immediately transmit written notice to that effect to the lender. 
The secured demand note agreement shall also provide that if the 
borrower is an applicant, such notice must also be transmitted 
immediately to the National Futures Association, and if the borrower is 
a registrant, such notice must also be transmitted immediately to the 
designated self-regulatory organization, if any, and the Commission. The 
secured demand note agreement shall also require that following such 
transmittal:
    (A) The lender, prior to noon of the business day next succeeding 
the transmittal of such notice, may pledge as collateral additional cash 
or securities sufficient, after giving effect to such pledge, to bring 
the sum of the amount of any cash plus the collateral value of any 
securities, then pledged as collateral to secure the secured demand 
note, up to an amount not less than the unpaid principal amount of the 
secured demand note; and
    (B) Unless additional cash or securities are pledged by the lender 
as provided in paragraph (h)(2)(vi)(A) above, the applicant or 
registrant at noon on the business day next succeeding the transmittal 
of notice to the lender must commence sale, for the account of the 
lender, of such of the securities then pledged as collateral to secure 
the secured demand note and apply so much of the net proceeds thereof, 
together with such of the cash then pledged as collateral to secure the 
secured demand note as may be necessary to eliminate the unpaid 
principal amount of the secured demand note: Provided, however, That the 
unpaid principal amount of the secured demand note need not be reduced 
below the sum of the amount of any remaining cash, plus the collateral 
value of the remaining securities, then pledged as collateral to secure 
the secured demand note. The applicant or registrant may not purchase 
for its own account any securities subject to such a sale; and
    (C) The secured demand note agreement may also provide that, in lieu 
of the procedures specified in the provisions required by paragraph 
(h)(2)(vi)(B) of this section, the lender, with the prior written 
consent of the applicant and the National Futures Association, or with 
the prior written consent of the registrant and the designated self-
regulatory organization or, if the registrant is not a member of a 
designated self-regulatory organization, the Commission, may reduce the 
unpaid principal amount of the secured

[[Page 56]]

demand note: Provided, That after giving effect to such reduction the 
adjusted net capital of the applicant or registrant would not be less 
than the greatest of:
    (1) 120 percent of the appropriate minimum dollar amount required by 
paragraphs (a)(1)(i)(A) or (a)(1)(iii)(A) of this section;
    (2) For a futures commission merchant or applicant therefor, 120 
percent of the amount required by paragraph (a)(1)(i)(B) of this 
section;
    (3) 120 percent of the amount of adjusted net capital required by a 
registered futures association of which it is a member; or
    (4) For an applicant or registrant which is also a securities broker 
or dealer, the amount of net capital specified in Rule 15c3-
1d(b)(6)(iii) of the Securities and Exchange Commission (17 CFR 
240.15c3-1d(b)(6)(iii)): Provided, further, That no single secured 
demand note shall be permitted to be reduced by more than 15 percent of 
its original principal amount and after such reduction no excess 
collateral may be withdrawn.
    (vii) Permissive prepayments and special prepayments. (A) An 
applicant or registrant at its option, but not at the option of the 
lender, may, if the subordination agreement so provides, make a payment 
of all or any portion of the payment obligation thereunder prior to the 
scheduled maturity date of such payment obligation (hereinafter referred 
to as a ``prepayment''), but in no event may any prepayment be made 
before the expiration of one year from the date such subordination 
agreement became effective: Provided, however, That the foregoing 
restriction shall not apply to temporary subordination agreements which 
comply with the provisions of paragraph (h)(3)(v) of this section nor 
shall it apply to ``special prepayments'' made in accordance with the 
provisions of paragraph (h)(2)(vii)(B) of this section. No prepayment 
shall be made if, after giving effect thereto (and to all payments of 
payment obligations under any other subordination agreements then 
outstanding, the maturity or accelerated maturities of which are 
scheduled to fall due within six months after the date such prepayment 
is to occur pursuant to this provision, or on or prior to the date on 
which the payment obligation in respect to such prepayment is scheduled 
to mature disregarding this provision, whichever date is earlier) 
without reference to any projected profit or loss of the applicant or 
registrant, the adjusted net capital of the applicant or registrant is 
less than the greatest of:
    (1) 120 percent of the appropriate minimum dollar amount required by 
paragraphs (a)(1)(i)(A) or (a)(1)(iii)(A) of this section;
    (2) For a futures commission merchant or applicant therefor, 120 
percent of the amount required by paragraph (a)(1)(i)(B) of this 
section;
    (3) 120 percent of the amount of adjusted net capital required by a 
registered futures association of which it is a member; or
    (4) For an applicant or registrant which is also a securities broker 
or dealer, the amount of net capital specified in Rule 15c3-1d(b)(7) of 
the Securities and Exchange Commission (17 CFR 240.15c3-1d(b)(7)).
    (B) An applicant or registrant at its option, but not at the option 
of the lender, may, if the subordination agreement so provides, make a 
payment at any time of all or any portion of the payment obligation 
thereunder prior to the scheduled maturity date of such payment 
obligation (hereinafter referred to as a ``special prepayment''). No 
special prepayment shall be made if, after giving effect thereto (and to 
all payments of payment obligations under any other subordination 
agreements then outstanding, the maturity or accelerated maturities of 
which are scheduled to fall due within six months after the date such 
special prepayment is to occur pursuant to this provision, or on or 
prior to the date on which the payment obligation in respect to such 
special prepayment is scheduled to mature disregarding this provision, 
whichever date is earlier) without reference to any projected profit or 
loss of the applicant or registrant, the adjusted net capital of the 
applicant or registrant is less than the greatest of:
    (1) 200 percent of the appropriate minimum dollar amount required by 
paragraphs (a)(1)(i)(A) or (a)(1)(iii)(A) of this section;

[[Page 57]]

    (2) For a futures commission merchant or applicant therefor, 125 
percent of the amount required by paragraph (a)(1)(i)(B) of this 
section;
    (3) 120 percent of the amount of adjusted net capital required by a 
registered futures association of which it is a member; or
    (4) For an applicant or registrant which is also a securities broker 
or dealer, the amount of net capital specified in Rule 15c3-1d(c)(5)(ii) 
of the Securities and Exchange Commission (17 CFR 240.15c3-
1d(c)(5)(ii)): Provided, however, That no special prepayment shall be 
made if pre-tax losses during the latest three-month period were greater 
than 15 percent of current excess adjusted net capital.
    (C)(1) Notwithstanding the provisions of paragraphs (h)(2)(vii)(A) 
and (h)(2)(vii)(B) of this section, in the case of an applicant, no 
prepayment or special prepayment shall occur without the prior written 
approval of the National Futures Association; in the case of a 
registrant, no prepayment or special prepayment shall occur without the 
prior written approval of the designated self-regulatory organization, 
if any, or of the Commission if the registrant is not a member of a 
self-regulatory organization.
    (2) A registrant may make a prepayment or special prepayment without 
the prior written approval of the designated self-regulatory 
organization: Provided, That the registrant: Is a securities broker or 
dealer registered with the Securities and Exchange Commission; files a 
request to make a prepayment or special prepayment with its applicable 
securities designated examining authority, as defined in Rule 15c3-
1(c)(12) of the Securities and Exchange Commission (17 CFR 240.15c3-
1(c)(12)), in the form and manner prescribed by the designated examining 
authority; files a copy of the prepayment request or special prepayment 
request with the designated self-regulatory organization at the time it 
files such request with the designated examining authority in the form 
and manner prescribed by the designated self-regulatory organization; 
and files a copy of the designated examining authority's approval of the 
prepayment or special prepayment with the designated self-regulatory 
organization immediately upon receipt of such approval. The approval of 
the prepayment or special prepayment by the designated examining 
authority will be deemed approval by the designated self-regulatory 
organization, unless the designated self-regulatory organization 
notifies the registrant that the designated examining authority's 
approval shall not constitute designated self-regulatory organization 
approval.
    (3) The designated self-regulatory organization shall immediately 
provide the Commission with a copy of any notice of approval issued 
where the requested prepayment or special prepayment will result in the 
reduction of the registrant's net capital by 20 percent or more or the 
registrant's excess adjusted net capital by 30 percent or more.
    (viii) Suspended repayment. (A) The payment obligation of the 
applicant or registrant in respect of any subordination agreement shall 
be suspended and shall not mature if, after giving effect to payment of 
such payment obligation (and to all payments of payment obligations of 
the applicant or registrant under any other subordination agreement(s) 
then outstanding which are scheduled to mature on or before such payment 
obligation), the adjusted net capital of the applicant or registrant 
would be less than the greatest of:
    (1) 120 percent of the appropriate minimum dollar amount required by 
paragraphs (a)(1)(i)(A) or (a)(1)(iii)(A) of this section;
    (2) For a futures commission merchant or applicant therefor, 120 
percent of the amount required by paragraph (a)(1)(i)(B) of this 
section;
    (3) 120 percent of the amount of adjusted net capital required by a 
registered futures association of which it is a member; or
    (4) For an applicant or registrant which is also a securities broker 
or dealer, the amount of net capital specified in Rule 15c3-1d(b)(8)(i) 
of the Securities and Exchange Commission (17 CFR 240.15c3-1d(b)(8)(i)): 
Provided, That the subordination agreement may provide that if the 
payment obligation of the applicant or registrant thereunder does not 
mature and is suspended as a

[[Page 58]]

result of the requirement of this paragraph (h)(2)(viii) for a period of 
not less than six months, the applicant or registrant shall then 
commence the rapid and orderly liquidation of its business, but the 
right of the lender to receive payment, together with accrued interest 
or compensation, shall remain subordinate as required by the provisions 
of this section.
    (B) [Reserved]
    (ix) Accelerated maturity. Obligation to repay to remain 
subordinate:
    (A) Subject to the provisions of paragraph (h)(2)(viii) of this 
section, a subordination agreement may provide that the lender may, upon 
prior written notice to the applicant and the National Futures 
Association, or upon prior written notice to the registrant and the 
designated self-regulatory organization or, if the registrant is not a 
member of a designated self-regulatory organization, the Commission, 
given not earlier than six months after the effective date of such 
subordination agreement, accelerate the date on which the payment 
obligation of the borrower, together with accrued interest or 
compensation, is scheduled to mature to a date not earlier than six 
months after giving of such notice, but the right of the lender to 
receive payment, together with accrued interest or compensation, shall 
remain subordinate as required by the provisions of this paragraph 
(h)(2) of this section.
    (B) Notwithstanding the provisions of paragraph (h)(2)(viii) of this 
section, the payment obligation of the applicant or registrant with 
respect to a subordination agreement, together with accrued interest and 
compensation, shall mature in the event of any receivership, insolvency, 
liquidation pursuant to the Securities Investor Protection Act of 1970 
or otherwise, bankruptcy, assignment for the benefit of creditors, 
reorganization whether or not pursuant to the bankruptcy laws, or any 
other marshalling of the assets and liabilities of the applicant or 
registrant, but the right of the lender to receive payment, together 
with accrued interest or compensation, shall remain subordinate as 
required by the provisions of paragraph (h)(2) of this section.
    (x) Accelerated maturity of subordination agreements on event of 
default and event of acceleration. Obligation to repay to remain 
subordinate:
    (A) A subordination agreement may provide that the lender may, upon 
prior written notice to the applicant and the National Futures 
Association, or upon prior written notice to the registrant and the 
designated self-regulatory organization or, if the registrant is not a 
member of a designated self-regulatory organization, the Commission, of 
the occurrence of any event of acceleration (as hereinafter defined) 
given no sooner than six months after the effective date of such 
subordination agreement, accelerate the date on which the payment 
obligation of the applicant or registrant, together with accrued 
interest or compensation, is scheduled to mature, to the last business 
day of a calendar month which is not less than six months after notice 
of acceleration is received by the applicant and by the National Futures 
Association, or by the registrant and the designated self-regulatory 
organization or, if the registrant is not a member of a designated self-
regulatory organization, the Commission. Any subordination agreement 
containing such events of acceleration may also provide that, if upon 
such accelerated maturity date the payment obligation of the applicant 
or registrant is suspended as required by paragraph (h)(2)(viii) of this 
section and liquidation of the applicant or registrant has not commenced 
on or prior to such accelerated maturity date, notwithstanding paragraph 
(h)(2)(viii) of this section, the payment obligation of the applicant or 
registrant with respect to such subordination agreement shall mature on 
the day immediately following such accelerated maturity date and in any 
such event the payment obligations of the applicant or registrant with 
respect to all other subordination agreements then outstanding shall 
also mature at the same time but the rights of the respective lenders to 
receive payment, together with accrued interest or compensation, shall 
remain subordinate as required by the provisions of paragraph (h)(2) of 
this section. Events of acceleration which may be included in a 
subordination agreement complying

[[Page 59]]

with this paragraph (h)(2)(x) of this section shall be limited to:
    (1) Failure to pay interest or any installment of principal on a 
subordination agreement as scheduled;
    (2) Failure to pay when due other money obligations of a specified 
material amount;
    (3) Discovery that any material, specified representation or 
warranty of the applicant or registrant which is included in the 
subordination agreement and on which the subordination agreement was 
based or continued was inaccurate in a material respect at the time 
made;
    (4) Any specified and clearly measurable event which is included in 
the subordination agreement and which the lender and the applicant or 
registrant agree, (a) is a significant indication that the financial 
position of the applicant or registrant has changed materially and 
adversely from agreed upon specified norms; or (b) could materially and 
adversely affect the ability of the applicant or registrant to conduct 
its business as conducted on the date the subordination agreement was 
made; or (c) is a significant change in the senior management of the 
applicant or registrant or in the general business conducted by the 
applicant or registrant from that which obtained on the date the 
subordination agreement became effective;
    (5) Any continued failure to perform agreed covenants included in 
the subordination agreement relating to the conduct of the business of 
the applicant or registrant or relating to the maintenance and reporting 
of its financial position; and
    (B) Notwithstanding the provisions of paragraph (h)(2)(viii) of this 
section, a subordination agreement may provide that, if liquidation of 
the business of the applicant or registrant has not already commenced, 
the payment obligation of the applicant or registrant shall mature, 
together with accrued interest or compensation, upon the occurrence of 
an event of default (as hereinafter defined). Such agreement may also 
provide that, if liquidation of the business of the applicant or 
registrant has not already commenced, the rapid and orderly liquidation 
of the business of the applicant or registrant shall then commence upon 
the happening of an event of default. Any subordination agreement which 
so provides for maturity of the payment obligation upon the occurrence 
of an event of default shall also provide that the date on which such 
event of default occurs shall, if liquidation of the applicant or 
registrant has not already commenced, be the date on which the payment 
obligation of the applicant or registrant with respect to all other 
subordination agreements then outstanding shall mature but the rights of 
the respective lenders to receive payment, together with accrued 
interest or compensation, shall remain subordinate as required by the 
provisions of paragraph (h)(2) of this section. Events of default which 
may be included in a subordination agreement shall be limited to:
    (1) The making of an application by the Securities Investor 
Protection Corporation for a decree adjudicating that customers of the 
applicant or registrant are in need of protection under the Securities 
Investor Protection Act of 1970 and the failure of the applicant or 
registrant to obtain the dismissal of such application within 30 days;
    (2) Failure to meet the minimum capital requirements of the 
designated self-regulatory organization, or of the Commission, 
throughout a period of 15 consecutive business days, commencing on the 
day the borrower first determines and notifies the designated self-
regulatory organization, if any, of which he is a member and the 
Commission, in the case of a registrant, or the National Futures 
Association, in the case of an applicant, or commencing on the day any 
self-regulatory organization, the Commission or the National Futures 
Association first determines and notifies the applicant or registrant of 
such fact;
    (3) The Commission shall revoke the registration of the applicant or 
registrant;
    (4) The self-regulatory organization shall suspend (and not 
reinstate within 10 days) or revoke the applicant or registrant's status 
as a member thereof;
    (5) Any receivership, insolvency, liquidation pursuant to the 
Securities Investor Protection Act of 1970 or otherwise, bankruptcy, 
assignment for the benefit of creditors, reorganization

[[Page 60]]

whether or not pursuant to bankruptcy laws, or any other marshalling of 
the assets and liabilities of the applicant or registrant. A 
subordination agreement which contains any of the provisions permitted 
by this subparagraph (2)(x) shall not contain the provision otherwise 
permitted by paragraph (h)(2)(ix)(A) of this section.
    (3) Miscellaneous provisions--(i) Prohibited cancellation. The 
subordination agreement shall not be subject to cancellation by either 
party; no payment shall be made with respect thereto and the agreement 
shall not be terminated, rescinded or modified by mutual consent or 
otherwise if the effect thereof would be inconsistent with the 
requirements of paragraph (h) of this section.
    (ii) Notice of maturity or accelerated maturity. Every applicant or 
registrant shall immediately notify the National Futures Association, 
and the registrant shall immediately notify the designated self-
regulatory organization, if any, and the Commission if, after giving 
effect to all payments of payment obligations under subordination 
agreements then outstanding which are then due or mature within the 
following six months without reference to any projected profit or loss 
of the applicant or registrant, its adjusted net capital would be less 
than:
    (A) 120 percent of the appropriate minimum dollar amount required by 
paragraphs (a)(1)(i)(A) or (a)(1)(iii)(A) of this section;
    (B) For a futures commission merchant or applicant therefor, 120 
percent of the amount required by paragraph (a)(1)(i)(B) of this 
section;
    (C) 120 percent of the amount of adjusted net capital required by a 
registered futures association of which it is a member; or
    (D) For an applicant or registrant which is also a securities broker 
or dealer, the amount of net capital specified in Rule 15c3-1d(c)(2) of 
the Securities and Exchange Commission (17 CFR 240.15c3-1d(c)(2)).
    (iii) Certain legends. If all the provisions of a satisfactory 
subordination agreement do not appear in a single instrument, then the 
debenture or other evidence of indebtedness shall bear on its face an 
appropriate legend stating that it is issued subject to the provisions 
of a satisfactory subordination agreement which shall be adequately 
referred to and incorporated by reference.
    (iv) Legal title to securities. All securities pledged as collateral 
to secure a secured demand note must be in bearer form, or registered in 
the name of the applicant or registrant or the name of its nominee or 
custodian.
    (v) Temporary subordinations. To enable an applicant or registrant 
to participate as an underwriter of securities or undertake other 
extraordinary activities and remain in compliance with the adjusted net 
capital requirements of this section, an applicant or registrant shall 
be permitted, on no more than three occasions in any 12-month period, to 
enter into a subordination agreement on a temporary basis which has a 
stated term of no more than 45 days from the date the subordination 
agreement became effective: Provided, That this temporary relief shall 
not apply to any applicant or registrant if the adjusted net capital of 
the applicant or registrant is less than the greatest of:
    (A) 120 percent of the appropriate minimum dollar amount required by 
paragraphs (a)(1)(i)(A) or (a)(1)(iii)(A) of this section;
    (B) For a futures commission merchant or applicant therefor, 120 
percent of the amount required by paragraph (a)(1)(i)(B) of this 
section;
    (C) 120 percent of the amount of adjusted net capital required by a 
registered futures association of which it is a member;
    (D) For an applicant or registrant which is also a securities broker 
or dealer, the amount of net capital specified in Rule 15c3-1d(c)(5)(i) 
of the Securities and Exchange Commission (17 CFR 240.15c3-1d(c)(5)(i)); 
or
    (E) The amount of equity capital as defined in paragraph (d) of this 
section is less than the limits specified in paragraph (d) of this 
section. Such temporary subordination agreement shall be subject to all 
the other provisions of this section.
    (vi) Filing. An applicant shall file a signed copy of any proposed 
subordination agreement (including nonconforming subordination 
agreements) with the National Futures Association

[[Page 61]]

at least ten days prior to the proposed effective date of the agreement 
or at such other time as the National Futures Association for good cause 
shall accept such filing. A registrant that is not a member of any 
designated self-regulatory organization shall file two signed copies of 
any proposed subordination agreement (including nonconforming 
subordination agreements) with the regional office of the Commission 
nearest the principal place of business of the registrant at least ten 
days prior to the proposed effective date of the agreement or at such 
other time as the Commission for good cause shall accept such filing. A 
registrant that is a member of a designated self-regulatory organization 
shall file signed copies of any proposed subordination agreement 
(including nonconforming subordination agreements) with the designated 
self-regulatory organization in such quantities and at such time as the 
designated self-regulatory organization may require prior to the 
effective date. The applicant or registrant shall also file with said 
parties a statement setting forth the name and address of the lender, 
the business relationship of the lender to the applicant or registrant 
and whether the applicant or registrant carried funds or securities for 
the lender at or about the time the proposed agreement was so filed. A 
proposed agreement filed by an applicant with the National Futures 
Association shall be reviewed by the National Futures Association, and 
no such agreement shall be a satisfactory subordination agreement for 
the purposes of this section unless and until the National Futures 
Association has found the agreement acceptable and such agreement has 
become effective in the form found acceptable. A proposed agreement 
filed by a registrant shall be reviewed by the designated self-
regulatory organization with whom such an agreement is required to be 
filed prior to its becoming effective or, if the registrant is not a 
member of any designated self-regulatory organization, by the regional 
office of the Commission where the agreement is required to be filed 
prior to its becoming effective. No proposed agreement shall be a 
satisfactory subordination agreement for the purposes of this section 
unless and until the designated self-regulatory organization or, if a 
registrant is not a member of any designated self-regulatory 
organization, the Commission, has found the agreement acceptable and 
such agreement has become effective in the form found acceptable: 
Provided, however, That a proposed agreement shall be a satisfactory 
subordination agreement for purpose of this section if the registrant: 
is a securities broker or dealer registered with the Securities and 
Exchange Commission; files signed copies of the proposed subordination 
agreement with the applicable securities designated examining authority, 
as defined in Rule 15c3-1(c)(12) of the Securities and Exchange 
Commission (17 CFR 240.15c3-1(c)(12)), in the form and manner prescribed 
by the designated examining authority; files signed copies of the 
proposed subordination agreement with the designated self-regulatory 
organization at the time it files such copies with the designated 
examining authority in the form and manner prescribed by the designated 
self-regulatory organization; and files a copy of the designated 
examining authority's approval of the proposed subordination agreement 
with the designated self-regulatory organization immediately upon 
receipt of such approval. The designated examining authority's 
determination that the proposed subordination agreement satisfies the 
requirements for a satisfactory subordination agreement will be deemed a 
like finding by the designated self-regulatory organization, unless the 
designated self-regulatory organization notifies the registrant that the 
designated examining authority's determination shall not constitute a 
like finding by the designated self-regulatory organization.
    (vii) Subordination agreements that incorporate adjusted net capital 
requirements in effect prior to September 30, 2004. Any subordination 
agreement that incorporates the adjusted net capital requirements in 
paragraphs (h)(2)(vi)(C)(2), (h)(2)(vii)(A)(2) and (B)(2), 
(h)(2)(viii)(A)(2), (h)(3)(ii)(B), and (h)(3)(v)(B) of this section, as 
in effect prior to September 30, 2004, and which has been deemed to be 
satisfactorily subordinated pursuant to this section

[[Page 62]]

prior to September 30, 2004, shall continue to be deemed a satisfactory 
subordination agreement until the maturity of such agreement. In the 
event, however, that such agreement is amended or renewed for any 
reason, then such agreement shall not be deemed a satisfactory 
subordination agreement unless the amended or renewed agreement meets 
the requirements of this section.
    (4) A designated self-regulatory organization and the Commission may 
allow debt with a maturity date of 1 year or more to be treated as 
meeting the provisions of this paragraph (h): Provided, (i) Such 
exemption shall only be given when the registrant's adjusted net capital 
is less than the minimum required by this section or by the capital rule 
of the designated self-regulatory organization to which such registrant 
is subject;
    (ii) That such debt did not exist prior to its use under this 
paragraph (h)(4);
    (iii) Such exemption shall be for a period of 30 days or such lesser 
period as the designated self-regulatory organization and the Commission 
may determine;
    (iv) Such exemption shall not be allowed more than once in any 12 
month period; and
    (v) At all times during such exemption the registrant shall make a 
good faith effort to comply with the provisions of this section or the 
capital rule of the designated self-regulatory organization to which 
such registrant is subject exclusive of any benefits derived from this 
paragraph (h)(4).
    (i) [Reserved]
    (j) For the purposes of this section cover is defined as follows:
    (1) General definition. Cover shall mean transactions or positions 
in a contract for future delivery on a board of trade or a commodity 
option where such transactions or positions normally represent a 
substitute for transactions to be made or positions to be taken at a 
later time in a physical marketing channel, and where they are 
economically appropriate to the reduction of risks in the conduct and 
management of a commercial enterprise, and where they arise from:
    (i) The potential change in the value of assets which a person owns, 
produces, manufactures, processes, or merchandises or anticipates 
owning, producing, manufacturing, processing, or merchandising.
    (ii) The potential change in the value of liabilities which a person 
owes or anticipates incurring, or
    (iii) The potential change in the value of services which a person 
provides, purchases or anticipates providing or purchasing. 
Notwithstanding the foregoing, no transactions or positions shall be 
classified as cover for the purposes of this section unless their 
purpose is to offset price risks incidental to commercial cash or spot 
operations and such positions are established and liquidated in 
accordance with sound commercial practices and unless the provisions of 
paragraphs (j) (2) and (3) of this section have been satisfied.
    (2) Enumerated cover transactions. The definition of covered 
transactions and positions in paragraph (j)(1) of this section includes, 
but is not limited to, the following specific transactions and 
positions:
    (i) Ownership or fixed-price purchase of any commodity which does 
not exceed in quantity (A) the sales of the same commodity for future 
delivery on a board of trade or (B) the purchase of a put commodity 
option of the same commodity for which the market value for the actual 
commodity or futures contract which is the subject of the option is less 
than the strike price of the option or (C) the ownership of a commodity 
option position established by the sale (grant) of a call commodity 
option of the same commodity for which the market value for the actual 
commodity or futures contract which is the subject of the option is more 
than the strike price of the option: Provided, That for purposes of 
paragraph (c)(5)(x) of this section the market value for the actual 
commodity or futures contract which is the subject of such option need 
not be more than the strike price of that option;
    (ii) Fixed-price sale of any commodity which does not exceed in 
quantity (A) the purchase of the same commodity for future delivery on a 
board of trade or (B) the purchase of a call commodity option of the 
same commodity for which the market value for

[[Page 63]]

the actual commodity or futures contract which is the subject of such 
option is more than the strike price of the option or (C) ownership of a 
commodity option position established by the sale (grant) of a put 
commodity option of the same commodity for which the market value for 
the actual commodity or futures comtract which is the subject of the 
option is less than the strike price of the option: Provided, That for 
purposes of paragraph (c)(5)(x) of this section the market value for the 
actual commodity or futures contract which is the subject of such option 
need not be less than the strike price of that option; and
    (iii) Ownership or fixed-price contracts of a commodity described in 
paragraphs (j)(2)(i) and (j)(2)(ii) of this section may also be covered 
other than by the same quantity of the same cash commodity, provided 
that the fluctuations in value of the position for future delivery or 
commodity option are substantially related to the fluctuations in value 
of the actual cash position.
    (3) Nonenumerated cases. Upon specific request, the Commission may 
recognize transactions and positions other than those enumerated in 
paragraph (j)(2) of this section as cover in amounts and under the terms 
and conditions as it may specify. Any applicant or registrant who wishes 
to avail itself of the provisions of this paragraph (j)(3) must apply to 
the Commission in writing at its principal office in Washington, DC 
giving full details of the transaction including detailed information 
which will demonstrate that the transaction is economically appropriate 
to the reduction of risk exposure attendant to the conduct and 
management of a commercial enterprise.

(Approved by the Office of Management and Budget under control number 
3038-0024)

[43 FR 39972, Sept. 8, 1978]

    Editorial Note: For Federal Register citations affecting Sec. 1.17, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec. 1.18  Records for and relating to financial reporting and 

monthly computation by futures commission merchants and introducing brokers.

    (a) No person shall be registered as a futures commission merchant 
or as an introducing broker under the Act unless, commencing on the date 
his application for such registration is filed, he prepares and keeps 
current ledgers or other similar records which show or summarize, with 
appropriate references to supporting documents, each transaction 
affecting his asset, liability, income, expense and capital accounts, 
and in which (except as otherwise permitted in writing by the 
Commission) all his asset, liability and capital accounts are classified 
into either the account classification subdivisions specified on Form 1-
FR-FCM or Form 1-FR-IB, respectively, or, if such person is registered 
with the Securities and Exchange Commission as a securities broker or 
dealer and he files (in accordance with Sec. 1.10(h)) a copy of his 
Financial and Operational Combined Uniform Single Report under the 
Securities Exchange Act of 1934, Part II, Part IIA, or Part II CSE 
(FOCUS report) in lieu of Form 1-FR-FCM or Form 1-FR-IB, the account 
classification subdivisions specified on such FOCUS report, or 
categories that are in accord with generally accepted accounting 
principles. Each person so registered shall prepare and keep current 
such records.
    (b)(1) Each applicant or registrant must make and keep as a record 
in accordance with Sec. 1.31 formal computations of its adjusted net 
capital and of its minimum financial requirements pursuant to Sec. 1.17 
or the requirements of the designated self-regulatory organization to 
which it is subject as of the close of business each month. Such 
computations must be completed and made available for inspection by any 
representative of the National Futures Association, in the case of an 
applicant, or of the Commission or designated self-regulatory 
organization, if any, in the case of a registrant, within 17 business 
days after the date for which the computations are made, commencing the 
first month end after the date the application for registration is 
filed.

[[Page 64]]

    (2) An applicant or registrant that has filed a monthly Form 1-FR or 
Statement of Financial and Operational Combined Uniform Single Report 
under the Securities Exchange Act of 1934, Part II, Part IIA, or Part II 
CSE (FOCUS report) in accordance with the requirements of Sec. 1.10(b) 
will be deemed to have satisfied the requirements of paragraph (b)(1) of 
this section for such month.
    (c) The provisions of this section do not apply to an introducing 
broker which is operating pursuant to a guarantee agreement, nor do such 
provisions apply to an applicant for registration as an introducing 
broker who files concurrently with such application a guarantee 
agreement, provided such introducing broker or applicant therefor is not 
also a securities broker or dealer.

[48 FR 35288, Aug. 3, 1983, as amended at 49 FR 39530, Oct. 9, 1984; 62 
FR 4641, Jan. 31, 1997; 69 FR 49800, Aug. 12, 2004; 71 FR 5594, Feb. 2, 
2006]

                 Prohibited Trading in Commodity Options



Sec. 1.19  Prohibited trading in certain ``puts'' and ``calls''.

    No futures commission merchant or introducing broker may make, 
underwrite, issue, or otherwise assume any financial responsibility for 
the fulfillment of, any commodity option except:
    (a) Commodity options traded on or subject to the rules of a 
contract market in accordance with the requirements of part 33 of this 
chapter;
    (b) Commodity options traded on or subject to the rules of a foreign 
board of trade in accordance with the requirements of part 30 of this 
chapter; or
    (c) For futures commission merchants, any option permitted under 
Sec. 32.4 of this chapter, provided however, that a capital treatment 
for such options is referenced in Sec. 1.17(c)(5)(vi).

[52 FR 28997, Aug. 5, 1987, as amended at 58 FR 68520, Dec. 28, 1993]

               Customers' Money, Securities, and Property



Sec. 1.20  Customer funds to be segregated and separately accounted for.

    (a) All customer funds shall be separately accounted for and 
segregated as belonging to commodity or option customers. Such customer 
funds when deposited with any bank, trust company, clearing organization 
or another futures commission merchant shall be deposited under an 
account name which clearly identifies them as such and shows that they 
are segregated as required by the Act and this part. Each registrant 
shall obtain and retain in its files for the period provided in Sec. 
1.31 a written acknowledgment from such bank, trust company, clearing 
organization, or futures commission merchant, that it was informed that 
the customer funds deposited therein are those of commodity or option 
customers and are being held in accordance with the provisions of the 
Act and this part: Provided, however, that an acknowledgment need not be 
obtained from a clearing organization that has adopted and submitted to 
the Commission rules that provide for the segregation as customer funds, 
in accordance with all relevant provisions of the Act and the rules and 
orders promulgated thereunder, of all funds held on behalf of customers. 
Under no circumstances shall any portion of customer funds be obligated 
to a clearing organization, any member of a contract market, a futures 
commission merchant, or any depository except to purchase, margin, 
guarantee, secure, transfer, adjust or settle trades, contracts or 
commodity option transactions of commodity or option customers. No 
person, including any clearing organization or any depository, that has 
received customer funds for deposit in a segregated account, as provided 
in this section, may hold, dispose of, or use any such funds as 
belonging to any person other than the option or commodity customers of 
the futures commission merchant which deposited such funds.
    (b) All customer funds received by a clearing organization from a 
member of the clearing organization to purchase, margin, guarantee, 
secure or

[[Page 65]]

settle the trades, contracts or commodity options of the clearing 
member's commodity or option customers and all money accruing to such 
commodity or option customers as the result of trades, contracts or 
commodity options so carried shall be separately accounted for and 
segregated as belonging to such commodity or option customers, and a 
clearing organization shall not hold, use or dispose of such customer 
funds except as belonging to such commodity or option customers. Such 
customer funds when deposited in a bank or trust company shall be 
deposited under an account name which clearly shows that they are the 
customer funds of the commodity or option customers of clearing members, 
segregated as required by the Act and these regulations. The clearing 
organization shall obtain and retain in its files for the period 
provided by Sec. 1.31 an acknowledgment from such bank or trust company 
that it was informed that the customer funds deposited therein are those 
of commodity or option customers of its clearing members and are being 
held in accordance with the provisions of the Act and these regulations.
    (c) Each futures commission merchant shall treat and deal with the 
customer funds of a commodity customer or of an option customer as 
belonging to such commodity or option customer. All customer funds shall 
be separately accounted for, and shall not be commingled with the money, 
securities or property of a futures commission merchant or of any other 
person, or be used to secure or guarantee the trades, contracts or 
commodity options, or to secure or extend the credit, of any person 
other than the one for whom the same are held: Provided, however, That 
customer funds treated as belonging to the commodity or option customers 
of a futures commission merchant may for convenience be commingled and 
deposited in the same account or accounts with any bank or trust 
company, with another person registered as a futures commission 
merchant, or with a clearing organization, and that such share thereof 
as in the normal course of business is necessary to purchase, margin, 
guarantee, secure, transfer, adjust, or settle the trades, contracts or 
commodity options of such commodity or option customers or resulting 
market positions, with the clearing organization or with any other 
person registered as a futures commission merchant, may be withdrawn and 
applied to such purposes, including the payment of premiums to option 
grantors, commissions, brokerage, interest, taxes, storage and other 
fees and charges, lawfully accruing in connection with such trades, 
contracts or commodity options: Provided, further, That customer funds 
may be invested in instruments described in Sec. 1.25.

(Approved by the Office of Management and Budget under control numbers 
3038-0007, and 3038-0024)

[46 FR 54518, Nov. 3, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 50 
FR 36051, Sept. 5, 1985; 65 FR 78009, Dec. 13, 2000]



Sec. 1.21  Care of money and equities accruing to customers.

    All money received directly or indirectly by, and all money and 
equities accruing to, a futures commission merchant from any clearing 
organization or from any clearing member or from any member of a 
contract market incident to or resulting from any trade, contract or 
commodity option made by or through such futures commission merchant on 
behalf of any commodity or option customer shall be considered as 
accruing to such commodity or option customer within the meaning of the 
Act and these regulations. Such money and equities shall be treated and 
dealt with as belonging to such commodity or option customer in 
accordance with the provisions of the Act and these regulations. Money 
and equities accruing in connection with commodity or option customers' 
open trades, contracts, or commodity options need not be separately 
credited to individual accounts but may be treated and dealt with as 
belonging undivided to all commodity or option customers having open 
trades, contracts, or commodity option positions which if closed would 
result in a credit to such commodity or option customers.

[46 FR 54519, Nov. 3, 1981]

[[Page 66]]



Sec. 1.22  Use of customer funds restricted.

    No futures commission merchant shall use, or permit the use of, the 
customer funds of one commodity and/or option customer to purchase, 
margin, or settle the trades, contracts, or commodity options of, or to 
secure or extend the credit of, any person other than such customer or 
option customer. Customer funds shall not be used to carry trades or 
positions of the same commodity and/or option customer other than in 
commodities or commodity options traded throught the facilities of a 
contract market.

[47 FR 57007, Dec. 22, 1982]



Sec. 1.23  Interest of futures commission merchant in segregated funds; additions 

and withdrawals.

    The provision in section 4d(a)(2) of the Act and the provision in 
Sec. 1.20(c), which prohibit the commingling of customer funds with the 
funds of a futures commission merchant, shall not be construed to 
prevent a futures commission merchant from having a residual financial 
interest in the customer funds, segregated as required by the Act and 
the rules in this part and set apart for the benefit of commodity or 
option customers; nor shall such provisions be construed to prevent a 
futures commission merchant from adding to such segregated customer 
funds such amount or amounts of money, from its own funds or 
unencumbered securities from its own inventory, of the type set forth in 
Sec. 1.25, as it may deem necessary to ensure any and all commodity or 
option customers' accounts from becoming undersegregated at any time. 
The books and records of a futures commission merchant shall at all 
times accurately reflect its interest in the segregated funds. A futures 
commission merchant may draw upon such segregated funds to its own 
order, to the extent of its actual interest therein, including the 
withdrawal of securities held in segregated safekeeping accounts held by 
a bank, trust company, contract market clearing organization or other 
futures commission merchant. Such withdrawal shall not result in the 
funds of one commodity and/or option customer being used to purchase, 
margin or carry the trades, contracts or commodity options, or extend 
the credit of any other commodity customer, option customer or other 
person.

[62 FR 42400, Aug. 7, 1997, as amended at 69 FR 41426, July 9, 2004]



Sec. 1.24  Segregated funds; exclusions therefrom.

    Money held in a segregated account by a futures commission merchant 
shall not include: (a) Money invested in obligations or stocks of any 
clearing organization or in memberships in or obligations of any 
contract market; or (b) money held by any clearing organization which it 
may use for any purpose other than to purchase, margin, guarantee, 
secure, transfer, adjust, or settle the contracts, trades, or commodity 
options of the commodity or option customers of such futures commission 
merchant.

[46 FR 54519, Nov. 3, 1981]



Sec. 1.25  Investment of customer funds.

    (a) Permitted investments. (1) Subject to the terms and conditions 
set forth in this section, a futures commission merchant or a 
derivatives clearing organization may invest customer money in the 
following instruments (permitted investments):
    (i) Obligations of the United States and obligations fully 
guaranteed as to principal and interest by the United States (U.S. 
government securities);
    (ii) General obligations of any State or of any political 
subdivision thereof (municipal securities);
    (iii) General obligations issued by any enterprise sponsored by the 
United States (government sponsored enterprise securities);
    (iv) Certificates of deposit issued by a bank (certificates of 
deposit) as defined in section 3(a)(6) of the Securities Exchange Act of 
1934, or a domestic branch of a foreign bank that carries deposits 
insured by the Federal Deposit Insurance Corporation;
    (v) Commercial paper;
    (vi) Corporate notes or bonds;
    (vii) General obligations of a sovereign nation; and
    (viii) Interests in money market mutual funds.
    (2)(i) In addition, a futures commission merchant or derivatives 
clearing

[[Page 67]]

organization may buy and sell the permitted investments listed in 
paragraphs (a)(1)(i) through (viii) of this section pursuant to 
agreements for resale or repurchase of the instruments, in accordance 
with the provisions of paragraph (d) of this section.
    (ii) A futures commission merchant or a derivatives clearing 
organization may sell securities deposited by customers as margin 
pursuant to agreements to repurchase subject to the following:
    (A) Securities subject to such repurchase agreements must be 
``readily marketable'' as defined in Sec. 240.15c3-1 of this title.
    (B) Securities subject to such repurchase agreements must not be 
``specifically identifiable property'' as defined in Sec. 190.01(kk) of 
this chapter.
    (C) The terms and conditions of such an agreement to repurchase must 
be in accordance with the provisions of paragraph (d) of this section.
    (D) Upon the default by a counterparty to a repurchase agreement, 
the futures commission merchant or derivatives clearing organization 
shall act promptly to ensure that the default does not result in any 
direct or indirect cost or expense to the customer.
    (3) In addition, subject to the provisions of paragraph (e) of this 
section, a futures commission merchant that is also registered with the 
Securities and Exchange Commission as a securities broker or dealer 
pursuant to section 15(b)(1) of the Securities Exchange Act of 1934 may 
enter into transactions in which:
    (i) Customer money is exchanged for securities that are permitted 
investments and are held by the futures commission merchant in 
connection with its securities broker or dealer activities;
    (ii) Securities deposited by customers as margin are exchanged for 
securities that are permitted investments and are held by the futures 
commission merchant in connection with its securities broker or dealer 
activities; or
    (iii) Securities deposited by customers as margin are exchanged for 
cash that is held by the futures commission merchant in connection with 
its securities broker or dealer activities.
    (b) General terms and conditions. A futures commission merchant or a 
derivatives clearing organization is required to manage the permitted 
investments consistent with the objectives of preserving principal and 
maintaining liquidity and according to the following specific 
requirements:
    (1) Marketability. Except for interests in money market mutual 
funds, investments must be ``readily marketable'' as defined in Sec. 
240.15c3-1 of this title.
    (2) Ratings. (i) Initial requirement. Instruments that are required 
to be rated by this section must be rated by a nationally recognized 
statistical rating organization (NRSRO), as that term is defined in 
Securities and Exchange Commission rules or regulations, or in any 
applicable statute. For an investment to qualify as a permitted 
investment, ratings are required as follows:
    (A) U.S. government securities and money market mutual funds need 
not be rated;
    (B) Municipal securities, government sponsored enterprise 
securities, commercial paper, and corporate notes or bonds, except notes 
or bonds that are asset-backed, must have the highest short-term rating 
of an NRSRO or one of the two highest long-term ratings of an NRSRO;
    (C) Corporate notes or bonds that are asset-backed must have the 
highest ratings of an NRSRO;
    (D) Sovereign debt must be rated in the highest category by at least 
one NRSRO; and
    (E) With respect to certificates of deposit, the commercial paper or 
long-term debt instrument of the issuer of a certificate of deposit or, 
if the issuer is part of a holding company system, its holding company's 
commercial paper or long-term debt instrument, must have the highest 
short-term rating of an NRSRO or one of the two highest long-term 
ratings of an NRSRO.
    (ii) Effect of downgrade. If an NRSRO lowers the rating of an 
instrument that was previously a permitted investment on the basis of 
that rating to below the minimum rating required under this section, the 
value of the instrument recognized for segregation purposes will be the 
lesser of:

[[Page 68]]

    (A) The current market value of the instrument; or
    (B) The market value of the instrument on the business day preceding 
the downgrade, reduced by 20 percent of that value for each business day 
that has elapsed since the downgrade.
    (3) Restrictions on instrument features. (i) With the exception of 
money market mutual funds, no permitted investment may contain an 
embedded derivative of any kind, except as follows:
    (A) The issuer of an instrument otherwise permitted by this section 
may have an option to call, in whole or in part, at par, the principal 
amount of the instrument before its stated maturity date; or
    (B) An instrument that meets the requirements of paragraph 
(b)(3)(iv) of this section may provide for a cap, floor, or collar on 
the interest paid; provided, however, that the terms of such instrument 
obligate the issuer to repay the principal amount of the instrument at 
not less than par value upon maturity.
    (ii) No instrument may contain interest-only payment features.
    (iii) No instrument may provide payments linked to a commodity, 
currency, reference instrument, index, or benchmark except as provided 
in paragraph (b)(3)(iv) of this section, and it may not otherwise 
constitute a derivative instrument.
    (iv)(A) Adjustable rate securities are permitted, subject to the 
following requirements:
    (1) The interest payments on variable rate securities must correlate 
closely and on an unleveraged basis to a benchmark of either the Federal 
Funds target or effective rate, the prime rate, the three-month Treasury 
Bill rate, the one-month or three-month LIBOR rate, or the interest rate 
of any fixed rate instrument that is a permitted investment listed in 
paragraph (a)(1) of this section.;
    (2) The interest payment, in any period, on floating rate securities 
must be determined solely by reference, on an unleveraged basis, to a 
benchmark of either the Federal Funds target or effective rate, the 
prime rate, the three-month Treasury Bill rate, the one-month or three-
month LIBOR rate, or the interest rate of any fixed rate instrument that 
is a permitted investment listed in paragraph (a)(1) of this section;
    (3) Benchmark rates must be expressed in the same currency as the 
adjustable rate securities that reference them; and
    (4) No interest payment on an adjustable rate security, in any 
period, can be a negative amount.
    (B) For purposes of this paragraph, the following definitions shall 
apply:
    (1) The term adjustable rate security means, a floating rate 
security, a variable rate security, or both.
    (2) The term floating rate security means a security, the terms of 
which provide for the adjustment of its interest rate whenever a 
specified interest rate changes and that, at any time until the final 
maturity of the instrument or the period remaining until the principal 
amount can be recovered through demand, can reasonably be expected to 
have a market value that approximates its amortized cost.
    (3) The term variable rate security means a security, the terms of 
which provide for the adjustment of its interest rate on set dates (such 
as the last day of a month or calendar quarter) and that, upon each 
adjustment until the final maturity of the instrument or the period 
remaining until the principal amount can be recovered through demand, 
can reasonably be expected to have a market value that approximates its 
amortized cost.
    (v) Certificates of deposit, if negotiable, must be able to be 
liquidated within one business day or, if not negotiable, must be 
redeemable at the issuing bank within one business day, with any penalty 
for early withdrawal limited to any accrued interest earned according to 
its written terms.
    (4) Concentration. (i) Direct investments. (A) U.S. government 
securities and money market mutual funds shall not be subject to a 
concentration limit or other limitation.
    (B) Securities of any single issuer of government sponsored 
enterprise securities held by a futures commission merchant or 
derivatives clearing organization may not exceed 25 percent of total 
assets held in segregation by the futures commission merchant or 
derivatives clearing organization.

[[Page 69]]

    (C) Securities of any single issuer of municipal securities, 
certificates of deposit, commercial paper, or corporate notes or bonds 
held by a futures commission merchant or derivatives clearing 
organization may not exceed 5 percent of total assets held in 
segregation by the futures commission merchant or derivatives clearing 
organization.
    (D) Sovereign debt is subject to the following limits: a futures 
commission merchant may invest in the sovereign debt of a country to the 
extent it has balances in segregated accounts owed to its customers 
denominated in that country's currency; a derivatives clearing 
organization may invest in the sovereign debt of a country to the extent 
it has balances in segregated accounts owed to its clearing member 
futures commission merchants denominated in that country's currency.
    (ii) Repurchase agreements. For purposes of determining compliance 
with the concentration limits set forth in this section, securities sold 
by a futures commission merchant or derivatives clearing organization 
subject to agreements to repurchase shall be combined with securities 
held by the futures commission merchant or derivatives clearing 
organization as direct investments.
    (iii) Reverse repurchase agreements. For purposes of determining 
compliance with the concentration limits set forth in this section, 
securities purchased by a futures commission merchant or derivatives 
clearing organization subject to agreements to resell shall be combined 
with securities held by the futures commission merchant or derivatives 
clearing organization as direct investments.
    (iv) Transactions under paragraph (a)(3). For purposes of 
determining compliance with the concentration limits set forth in this 
section, securities transferred to a customer segregated account 
pursuant to paragraphs (a)(3)(i) or (a)(3)(ii) of this section shall be 
combined with securities held by the futures commission merchant as 
direct investments.
    (v) Treatment of securities issued by affiliates. For purposes of 
determining compliance with the concentration limits set forth in this 
section, securities issued by entities that are affiliated, as defined 
in paragraph (b)(6) of this section, shall be aggregated and deemed the 
securities of a single issuer. An interest in a permitted money market 
mutual fund is not deemed to be a security issued by its sponsoring 
entity.
    (vi) Treatment of customer-owned securities. For purposes of 
determining compliance with the concentration limits set forth in this 
section, securities owned by the customers of a futures commission 
merchant and posted as margin collateral are not included in total 
assets held in segregation by the futures commission merchant, and 
securities posted by a futures commission merchant with a derivatives 
clearing organization are not included in total assets held in 
segregation by the derivatives clearing organization.
    (5) Time-to-maturity. (i) Except for investments in money market 
mutual funds, the dollar-weighted average of the time-to-maturity of the 
portfolio, as that average is computed pursuant to Sec. 270.2a-7 of 
this title, may not exceed 24 months.
    (ii) For purposes of determining the time-to-maturity of the 
portfolio, an instrument that is set forth in paragraphs (a)(1)(i) 
through (vii) of this section may be treated as having a one-day time-
to-maturity if the following terms and conditions are satisfied:
    (A) The instrument is deposited solely on an overnight basis with a 
derivatives clearing organization pursuant to the terms and conditions 
of a collateral management program that has become effective in 
accordance with Sec. 39.4 of this chapter;
    (B) The instrument is one that the futures commission merchant owns 
or has an unqualified right to pledge, is not subject to any lien, and 
is deposited by the futures commission merchant into a segregated 
account at a derivatives clearing organization;
    (C) The derivatives clearing organization prices the instrument each 
day based on the current mark-to-market value; and
    (D) The derivatives clearing organization reduces the assigned value 
of the instrument each day by a haircut of at least 2 percent.

[[Page 70]]

    (6) Investments in instruments issued by affiliates. (i) A futures 
commission merchant shall not invest customer funds in obligations of an 
entity affiliated with the futures commission merchant, and a 
derivatives clearing organization shall not invest customer funds in 
obligations of an entity affiliated with the derivatives clearing 
organization. An affiliate includes parent companies, including all 
entities through the ultimate holding company, subsidiaries to the 
lowest level, and companies under common ownership of such parent 
company or affiliates.
    (ii) A futures commission merchant or derivatives clearing 
organization may invest customer funds in a fund affiliated with that 
futures commission merchant or derivatives clearing organization.
    (7) Recordkeeping. A futures commission merchant and a derivatives 
clearing organization shall prepare and maintain a record that will show 
for each business day with respect to each type of investment made 
pursuant to this section, the following information:
    (i) The type of instruments in which customer funds have been 
invested;
    (ii) The original cost of the instruments; and
    (iii) The current market value of the instruments.
    (c) Money market mutual funds. The following provisions will apply 
to the investment of customer funds in money market mutual funds (the 
fund).
    (1) The fund must be an investment company that is registered under 
the Investment Company Act of 1940 with the Securities and Exchange 
Commission and that holds itself out to investors as a money market 
fund, in accordance with Sec. 270.2a-7 of this title.
    (2) The fund must be sponsored by a federally-regulated financial 
institution, a bank as defined in section 3(a)(6) of the Securities 
Exchange Act of 1934, an investment adviser registered under the 
Investment Advisers Act of 1940, or a domestic branch of a foreign bank 
insured by the Federal Deposit Insurance Corporation.
    (3) A futures commission merchant or derivatives clearing 
organization shall maintain the confirmation relating to the purchase in 
its records in accordance with Sec. 1.31 and note the ownership of fund 
shares (by book-entry or otherwise) in a custody account of the futures 
commission merchant or derivatives clearing organization in accordance 
with Sec. 1.26(a). If the futures commission merchant or the 
derivatives clearing organization holds its shares of the fund with the 
fund's shareholder servicing agent, the sponsor of the fund and the fund 
itself are required to provide the acknowledgment letter required by 
Sec. 1.26.
    (4) The net asset value of the fund must be computed by 9 a.m. of 
the business day following each business day and made available to the 
futures commission merchant or derivatives clearing organization by that 
time.
    (5) (i) General requirement for redemption of interests. A fund 
shall be legally obligated to redeem an interest and to make payment in 
satisfaction thereof by the business day following a redemption request, 
and the futures commission merchant or derivatives clearing organization 
shall retain documentation demonstrating compliance with this 
requirement.
    (ii) Exception. A fund may provide for the postponement of 
redemption and payment due to any of the following circumstances:
    (A) Non-routine closure of the Fedwire or applicable Federal Reserve 
Banks;
    (B) Non-routine closure of the New York Stock Exchange or general 
market conditions leading to a broad restriction of trading on the New 
York Stock Exchange;
    (C) Declaration of a market emergency by the Securities and Exchange 
Commission; or
    (D) Emergency conditions set forth in section 22(e) of the 
Investment Company Act of 1940.
    (6) The agreement pursuant to which the futures commission merchant 
or derivatives clearing organization has acquired and is holding its 
interest in a fund must contain no provision that would prevent the 
pledging or transferring of shares.
    (d) Repurchase and reverse repurchase agreements. A futures 
commission merchant or derivatives clearing organization may buy and 
sell the permitted investments listed in paragraphs (a)(1)(i) through 
(viii) of this section pursuant

[[Page 71]]

to agreements for resale or repurchase of the securities (agreements to 
repurchase or resell), provided the agreements to repurchase or resell 
conform to the following requirements:
    (1) The securities are specifically identified by coupon rate, par 
amount, market value, maturity date, and CUSIP or ISIN number.
    (2) Counterparties are limited to a bank as defined in section 
3(a)(6) of the Securities Exchange Act of 1934, a domestic branch of a 
foreign bank insured by the Federal Deposit Insurance Corporation, a 
securities broker or dealer, or a government securities broker or 
government securities dealer registered with the Securities and Exchange 
Commission or which has filed notice pursuant to section 15C(a) of the 
Government Securities Act of 1986.
    (3) The transaction is executed in compliance with the concentration 
limit requirements applicable to the securities transferred to the 
customer segregated custodial account in connection with the agreements 
to repurchase referred to in paragraphs (b)(4)(ii) and (iii) of this 
section.
    (4) The transaction is made pursuant to a written agreement signed 
by the parties to the agreement, which is consistent with the conditions 
set forth in paragraphs (d)(1) through (d)(12) of this section and which 
states that the parties thereto intend the transaction to be treated as 
a purchase and sale of securities.
    (5) The term of the agreement is no more than one business day, or 
reversal of the transaction is possible on demand.
    (6) Securities transferred to the futures commission merchant or 
derivatives clearing organization under the agreement are held in a 
safekeeping account with a bank as referred to in paragraph (d)(2) of 
this section, a derivatives clearing organization, or the Depository 
Trust Company in an account that complies with the requirements of Sec. 
1.26.
    (7) The futures commission merchant or the derivatives clearing 
organization may not use securities received under the agreement in 
another similar transaction and may not otherwise hypothecate or pledge 
such securities, except securities may be pledged on behalf of customers 
at another futures commission merchant or derivatives clearing 
organization. Substitution of securities is allowed, provided, however, 
that:
    (i) The qualifying securities being substituted and original 
securities are specifically identified by date of substitution, market 
values substituted, coupon rates, par amounts, maturity dates and CUSIP 
or ISIN numbers;
    (ii) Substitution is made on a ``delivery versus delivery'' basis; 
and
    (iii) The market value of the substituted securities is at least 
equal to that of the original securities.
    (8) The transfer of securities to the customer segregated custodial 
account is made on a delivery versus payment basis in immediately 
available funds. The transfer of funds to the customer segregated cash 
account is made on a payment versus delivery basis. The transfer is not 
recognized as accomplished until the funds and/or securities are 
actually received by the custodian of the futures commission merchant's 
or derivatives clearing organization's customer funds or securities 
purchased on behalf of customers. The transfer or credit of securities 
covered by the agreement to the futures commission merchant's or 
derivatives clearing organization's customer segregated custodial 
account is made simultaneously with the disbursement of funds from the 
futures commission merchant's or derivatives clearing organization's 
customer segregated cash account at the custodian bank. On the sale or 
resale of securities, the futures commission merchant's or derivatives 
clearing organization's customer segregated cash account at the 
custodian bank must receive same-day funds credited to such segregated 
account simultaneously with the delivery or transfer of securities from 
the customer segregated custodial account.
    (9) A written confirmation to the futures commission merchant or 
derivatives clearing organization specifying the terms of the agreement 
and a safekeeping receipt are issued immediately upon entering into the 
transaction and a confirmation to the futures commission merchant or 
derivatives clearing organization is issued once the transaction is 
reversed.

[[Page 72]]

    (10) The transactions effecting the agreement are recorded in the 
record required to be maintained under Sec. 1.27 of investments of 
customer funds, and the securities subject to such transactions are 
specifically identified in such record as described in paragraph (d)(1) 
of this section and further identified in such record as being subject 
to repurchase and reverse repurchase agreements.
    (11) An actual transfer of securities to the customer segregated 
custodial account by book entry is made consistent with Federal or State 
commercial law, as applicable. At all times, securities received subject 
to an agreement are reflected as ``customer property.''
    (12) The agreement makes clear that, in the event of the bankruptcy 
of the futures commission merchant or derivatives clearing organization, 
any securities purchased with customer funds that are subject to an 
agreement may be immediately transferred. The agreement also makes clear 
that, in the event of a futures commission merchant or derivatives 
clearing organization bankruptcy, the counterparty has no right to 
compel liquidation of securities subject to an agreement or to make a 
priority claim for the difference between current market value of the 
securities and the price agreed upon for resale of the securities to the 
counterparty, if the former exceeds the latter.
    (e) Transactions by futures commission merchants that are also 
registered securities brokers or dealers. A futures commission merchant 
that is also registered with the Securities and Exchange Commission as a 
securities broker or dealer pursuant to section 15(b)(1) of the 
Securities Exchange Act of 1934 may enter into transactions pursuant to 
paragraph (a)(3) of this section, subject to the following requirements:
    (1) The futures commission merchant, in connection with its 
securities broker or dealer activities, owns or has the unqualified 
right to pledge the securities that are exchanged for customer money or 
securities held in the customer segregated account.
    (2) The transaction can be reversed within one business day or upon 
demand.
    (3) Securities transferred from the customer segregated account and 
securities transferred to the customer segregated account as a result of 
the transaction are specifically identified by coupon rate, par amount, 
market value, maturity date, and CUSIP or ISIN number.
    (4) Securities deposited by customers as margin and transferred from 
the customer segregated account as a result of the transaction are 
subject to the following requirements:
    (i) The securities are ``readily marketable'' as defined in Sec. 
240.15c3-1 of this title.
    (ii) The securities are not ``specifically identifiable property'' 
as defined in Sec. 190.01(kk) of this chapter.
    (5) Securities transferred to the customer segregated account as a 
result of the transaction are subject to the following requirements:
    (i) The securities are priced each day based on the current mark-to-
market value.
    (ii) The securities are subject to the concentration limit 
requirements set forth in paragraph (b)(4)(iv) of this section.
    (iii) The securities are held in a safekeeping account with a bank, 
as referred to in paragraph (d)(2) of this section, a derivatives 
clearing organization, or the Depository Trust Company in an account 
that complies with the requirements of Sec. 1.26.
    (iv) The securities may not be used in another similar transaction 
and may not otherwise be hypothecated or pledged, except such securities 
may be pledged on behalf of customers at another futures commission 
merchant or derivatives clearing organization. Substitution of 
securities is allowed, provided, however, that:
    (A) The qualifying securities being substituted and original 
securities are specifically identified by date of substitution, market 
values substituted, coupon rates, par amounts, maturity dates and CUSIP 
or ISIN numbers;
    (B) Substitution is made on a ``delivery versus delivery'' basis; 
and

[[Page 73]]

    (C) The market value of the substituted securities is at least equal 
to that of the original securities.
    (6) The transactions are carried out in accordance with the 
following procedures:
    (i) With respect to transactions under paragraph (a)(3)(i) of this 
section, the transfer of securities to the customer segregated custodial 
account shall be made simultaneously with the transfer of money from the 
customer segregated cash account. In no event shall money held in the 
customer segregated cash account be disbursed prior to the transfer of 
securities to the customer segregated custodial account. Any transfer of 
securities to the customer segregated custodial account shall not be 
recognized as accomplished until the securities are actually received by 
the custodian of such account. Upon unwinding of the transaction, the 
customer segregated cash account shall receive same-day funds credited 
to such account simultaneously with the delivery or transfer of 
securities from the customer segregated custodial account.
    (ii) With respect to transactions under paragraph (a)(3)(ii) of this 
section, the transfer of securities to the customer segregated custodial 
account shall be made simultaneously with the transfer of securities 
from the customer segregated custodial account. In no event shall 
securities held in the customer segregated custodial account be released 
prior to the transfer of securities to that account. Any transfer of 
securities to the customer segregated custodial account shall not be 
recognized as accomplished until the securities are actually received by 
the custodian of the customer segregated custodial account. Upon 
unwinding of the transaction, the customer segregated custodial account 
shall receive the securities simultaneously with the delivery or 
transfer of securities from the customer segregated custodial account.
    (iii) With respect to transactions under paragraph (a)(3)(iii) of 
this section, the transfer of money to the customer segregated cash 
account shall be made simultaneously with the transfer of securities 
from the customer segregated custodial account. In no event shall 
securities held in the customer segregated custodial account be released 
prior to the transfer of money to the customer segregated cash account. 
Any transfer of money to the customer segregated cash account shall not 
be recognized as accomplished until the money is actually received by 
the custodian of the customer segregated cash account. Upon unwinding of 
the transaction, the customer segregated custodial account shall receive 
the securities simultaneously with the disbursement of money from the 
customer segregated cash account.
    (7) The futures commission merchant maintains all books and records 
with respect to the transactions in accordance with Sec. Sec. 1.25, 
1.27, 1.31, and 1.36 and the applicable rules and regulations of the 
Securities and Exchange Commission.
    (8) An actual transfer of securities by book entry is made 
consistent with Federal or State commercial law, as applicable. At all 
times, securities transferred to the customer segregated account are 
reflected as ``customer property.''
    (9) For purposes of Sec. Sec. 1.25, 1.26, 1.27, 1.28 and 1.29, 
securities transferred to the customer segregated account are considered 
to be customer funds until the customer money or securities for which 
they were exchanged are transferred back to the customer segregated 
account. In the event of the bankruptcy of the futures commission 
merchant, any securities exchanged for customer funds and held in the 
customer segregated account may be immediately transferred.
    (10) In the event the futures commission merchant is unable to 
return to the customer any customer-deposited securities exchanged 
pursuant to paragraphs (a)(3)(ii) or (a)(3)(iii) of this section, the 
futures commission merchant shall act promptly to ensure that such 
inability does not result in any direct or indirect cost or expense to 
the customer.
    (f) Deposit of firm-owned securities into segregation. A futures 
commission merchant shall not be prohibited from directly depositing 
unencumbered securities of the type specified in this section, which it 
owns for its own account, into a segregated safekeeping account

[[Page 74]]

or from transferring any such securities from a segregated account to 
its own account, up to the extent of its residual financial interest in 
customers' segregated funds; provided, however, that such investments, 
transfers of securities, and disposition of proceeds from the sale or 
maturity of such securities are recorded in the record of investments 
required to be maintained by Sec. 1.27. All such securities may be 
segregated in safekeeping only with a bank, trust company, derivatives 
clearing organization, or other registered futures commission merchant. 
Furthermore, for purposes of Sec. Sec. 1.25, 1.26, 1.27, 1.28 and 1.29, 
investments permitted by Sec. 1.25 that are owned by the futures 
commission merchant and deposited into such a segregated account shall 
be considered customer funds until such investments are withdrawn from 
segregation.

[70 FR 28200, May 17, 2005; 70 FR 32866, June 6, 2005]



Sec. 1.26  Deposit of instruments purchased with customer funds.

    (a) Each futures commission merchant who invests customer funds in 
instruments described in Sec. 1.25 shall separately account for such 
instruments and segregate such instruments as belonging to such 
commodity or option customers. Such instruments, when deposited with a 
bank, trust company, clearing organization or another futures commission 
merchant, shall be deposited under an account name which clearly shows 
that they belong to commodity or option customers and are segregated as 
required by the Act and this part. Each futures commission merchant upon 
opening such an account shall obtain and retain in its files an 
acknowledgment from such bank, trust company, clearing organization or 
other futures commission merchant that it was informed that the 
instruments belong to commodity or option customers and are being held 
in accordance with the provisions of the Act and this part. Provided, 
however, that an acknowledgment need not be obtained from a clearing 
organization that has adopted and submitted to the Commission rules that 
provide for the segregation as customer funds, in accordance with all 
relevant provisions of the Act and the rules and orders promulgated 
thereunder, of all funds held on behalf of customers and all instruments 
purchased with customer funds. Such acknowledgment shall be retained in 
accordance with Sec. 1.31. Such bank, trust company, clearing 
organization or other futures commission merchant shall allow inspection 
of such obligations at any reasonable time by representatives of the 
Commission.
    (b) Each clearing organization which invests money belonging or 
accruing to commodity or option customers of its clearing members in 
instruments described in Sec. 1.25 shall separately account for such 
instruments and segregate such instruments as belonging to such 
commodity or option customers. Such instruments, when deposited with a 
bank or trust company, shall be deposited under an account name which 
will clearly show that they belong to commodity or option customers and 
are segregated as required by the Act and this part. Each clearing 
organization upon opening such an account shall obtain and retain in its 
files a written acknowledgment from such bank or trust company that it 
was informed that the instruments belong to commodity or option 
customers of clearing members and are being held in accordance with the 
provisions of the Act and this part. Such acknowledgment shall be 
retained in accordance with Sec. 1.31. Such bank or trust company shall 
allow inspection of such instruments at any reasonable time by 
representatives of the Commission.

[65 FR 78012, Dec. 13, 2000]



Sec. 1.27  Record of investments.

    (a) Each futures commission merchant which invests customer funds, 
and each derivatives clearing organization which invests customer funds 
of its clearing members' customers or option customers, shall keep a 
record showing the following:
    (1) The date on which such investments were made;
    (2) The name of the person through whom such investments were made;
    (3) The amount of money or current market value of securities so 
invested;

[[Page 75]]

    (4) A description of the instruments in which such investments were 
made, including the CUSIP or ISIN numbers;
    (5) The identity of the depositories or other places where such 
instruments are segregated;
    (6) The date on which such investments were liquidated or otherwise 
disposed of and the amount of money or current market value of 
securities received of such disposition, if any;
    (7) The name of the person to or through whom such investments were 
disposed of; and
    (8) Daily valuation for each instrument and readily available 
documentation supporting the daily valuation for each instrument. Such 
supporting documentation must be sufficient to enable auditors to verify 
the valuations and the accuracy of any information from external sources 
used in those valuations.
    (b) Each derivatives clearing organization which receives documents 
from its clearing members representing investment of customer funds 
shall keep a record showing separately for each clearing member the 
following:
    (1) The date on which such documents were received from the clearing 
member;
    (2) A description of such documents, including the CUSIP or ISIN 
numbers; and
    (3) The date on which such documents were returned to the clearing 
member or the details of disposition by other means.
    (c) Such records shall be retained in accordance with Sec. 1.31. No 
such investments shall be made except in instruments described in Sec. 
1.25.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0024)

[46 FR 54520, Nov. 3, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 62 
FR 42401, Aug. 7, 1997; 65 FR 78013, Dec. 13, 2000; 70 FR 28204, May 17, 
2005]



Sec. 1.28  Appraisal of instruments purchased with customer funds.

    Futures commission merchants who invest customer funds in 
instruments described in Sec. 1.25 of this part shall include such 
instruments in segregated account records and reports at values which at 
no time exceed current market value, determined as of the close of the 
market on the date for which such computation is made.

[58 FR 10953, Feb. 23, 1993, as amended at 65 FR 78013, Dec. 13, 2000]



Sec. 1.29  Increment or interest resulting from investment of customer funds.

    The investment of customer funds in instruments described in Sec. 
1.25 shall not prevent the futures commission merchant or clearing 
organization so investing such funds from receiving and retaining as its 
own any increment or interest resulting therefrom.

[46 FR 54520, Nov. 3, 1981, as amended at 65 FR 78013, Dec. 13, 2000]



Sec. 1.30  Loans by futures commission merchants; treatment of proceeds.

    Nothing in these regulations shall prevent a futures commission 
merchant from lending its own funds to commodity or option customers on 
securities and property pledged by such commodity or option customers, 
or from repledging or selling such securities and property pursuant to 
specific written agreement with such commodity or option customers. The 
proceeds of such loans used to purchase, margin, guarantee, or secure 
the trades, contracts, or commodity options of commodity or option 
customers shall be treated and dealt with by a futures commission 
merchant as belonging to such commodity or option customers, in 
accordance with and subject to the provisions of section 4d(a)(2) of the 
Act and these regulations.

[46 FR 54520, Nov. 3, 1981, as amended at 69 FR 41426, July 9, 2004]

                              Recordkeeping



Sec. 1.31  Books and records; keeping and inspection.

    (a)(1) All books and records required to be kept by the Act or by 
these regulations shall be kept for a period of five years from the date 
thereof and shall be readily accessible during the first 2 years of the 
5-year period. All such books and records shall be open to inspection by 
any representative of the Commission or the United States Department of 
Justice.

[[Page 76]]

    (2) A copy of any book or record required to be kept by the Act or 
by these regulations shall be provided, at the expense of the person 
required to keep the book or record, to a Commission representative upon 
the representative's request. Instead of furnishing a copy, such person 
may provide the original book or record for reproduction, which the 
representative may temporarily remove from such person's premises for 
this purpose. All copies or originals shall be provided promptly. Upon 
request, the Commission representative shall issue a receipt provided by 
such person for any copy or original book or record received. At the 
request of the Commission representative, such person shall, upon the 
return thereof, issue a receipt for any copy or original book or record 
returned by the representative.
    (b) Except as provided in paragraph (d) of this section, immediate 
reproductions on either ``micrographic media'' (as defined in paragraph 
(b)(1)(i) of this section) or ``electronic storage media'' (as defined 
in paragraph (b)(1)(ii) this section) may be kept in that form for the 
required time period under the conditions set forth in this paragraph 
(b).
    (1) For purposes of this section:
    (i) The term ``micrographic media'' means microfilm or microfiche or 
any similar medium.
    (ii) The term ``electronic storage media'' means any digital storage 
medium or system that:
    (A) Preserves the records exclusively in a non-rewritable, non-
erasable format;
    (B) Verifies automatically the quality and accuracy of the storage 
media recording process;
    (C) Serializes the original and, if applicable, duplicate units of 
storage media and creates a time-date record for the required period of 
retention for the information placed on such electronic storage media; 
and
    (D) Permits the immediate downloading of indexes and records 
preserved on the electronic storage media onto paper, microfilm, 
microfiche or other medium acceptable under this paragraph upon the 
request of representatives of the Commission or the Department of 
Justice.
    (2) Persons who use either micrographic media or electronic storage 
media to maintain records in accordance with this section must:
    (i) Have available at all times, for examination by representatives 
of the Commission or the Department of Justice, facilities for 
immediate, easily readable projection or production of micrographic 
media or electronic storage media images;
    (ii) Be ready at all times to provide, and immediately provide at 
the expense of the person required to keep such records, any easily 
readable hard-copy image that representatives of the Commission or 
Department of Justice may request;
    (iii) Keep only Commission-require records on the individual medium 
employed (e.g., a disk or sheets of microfiche);
    (iv) Store a duplicate of the record, in any medium acceptable under 
this regulation, at a location separate from the original for the period 
of time required for maintenance of the original; and
    (v) Organize and maintain an accurate index of all information 
maintained on both the original and duplicate storage media such that:
    (A) The location of any particular record stored on the media may be 
immediately ascertained;
    (B) The index is available at all times for immediate examination by 
representatives of the Commission or the Department of Justice;
    (C) A duplicate of the index is stored at a location separate from 
the original index; and
    (D) Both the original index and the duplicate index are preserved 
for the time period required for the records included in the index.
    (3) In addition to the foregoing conditions, persons using 
electronic storage media must:
    (i) Be ready at all times to provide, and immediately provide at the 
expense of the person required to keep such records, copies of such 
records on such approved machine-readable media as defined in Sec. 
15.00(1) of this chapter which any representative of the Commission or 
the Department of Justice

[[Page 77]]

may request. Records must use a format and coding structure specified in 
the request.
    (ii) Develop and maintain written operational procedures and 
controls (an ``audit system'') designed to provide accountability over 
both the initial entry of required records to the electronic storage 
media and the entry of each change made to any original or duplicate 
record maintained on the electronic storage media such that:
    (A) The results of such audit system are available at all times for 
immediate examination by representatives of the Commission or the 
Department of Justice;
    (B) The results of such audit system are preserved for the time 
period required for the records maintained on the electronic storage 
media; and
    (C) The written operational procedures and controls are available at 
all times for immediate examination by representatives of the Commission 
or the Department of Justice.
    (iii) Either
    (A) Maintain, keep current, and make available at all times for 
immediate examination by representatives of the Commission or Department 
of Justice all information necessary to access records and indexes 
maintained on the electronic storage media; or
    (B) Place in escrow and keep current a copy of the physical and 
logical format of the electronic storage media, the file format of all 
different information types maintained on the electronic storage media 
and the source code, documentation, and information necessary to access 
the records and indexes maintained on the electronic storage media.
    (4) In addition to the foregoing conditions, any person who uses 
only electronic storage media to preserve some or all of its required 
records (``Electronic Recordkeeper'') shall, prior to the media's use, 
enter into an arrangement with at least one third party technical 
consultant (``Technical Consultant'') who has the technical and 
financial capability to perform the undertakings described in this 
paragraph (b)(4). The arrangement shall provide that the Technical 
Consultant will have access to, and the ability to download, information 
from the Electronic Recordkeeper's electronic storage media to any 
medium acceptable under this regulation.
    (i) The Technical Consultant must file with the Commission an 
undertaking in a form acceptable to the Commission, signed by the 
Technical Consultant or a person duly authorized by the Technical 
Consultant. An acceptable undertaking must include the following 
provision with respect to the Electronic Recordkeeper:

    With respect to any books and records maintained or preserved on 
behalf of the Electronic Recordkeeper, the undersigned hereby undertakes 
to furnish promptly to any representative of the United States Commodity 
Futures Trading Commission or the United States Department of Justice 
(the ``Representative''), upon reasonable request, such information as 
is deemed necessary by the Representative to download information kept 
on the Electronic Recordkeeper's electronic storage media to any medium 
acceptable under 17 CFR 1.31. The undersigned also undertakes to take 
reasonable steps to provide access to information contained on the 
Electronic Recordkeeper's electronic storage media, including, as 
appropriate, arrangements for the downloading of any record required to 
be maintained under the Commodity Exchange Act or the rules, 
regulations, or orders of the United States Commodity Futures Trading 
Commission, in a format acceptable to the Representative. In the event 
the Electronic Recordkeeper fails to download a record into a readable 
format and after reasonable notice to the Electronic Recordkeeper, upon 
being provided with the appropriate electronic storage medium, the 
undersigned will undertake to do so, at no charge to the United States, 
as the Representative may request.

    (ii) [Reserved]
    (c) Persons employing an electronic storage system shall provide a 
representation to the Commission prior to the initial use of the system. 
The representation shall be made by the person required to maintain the 
records, the storage system vendor, or another third party with 
appropriate expertise and shall state that the selected electronic 
storage system meets the requirements set forth in paragraph (b)(1)(ii) 
of this section. Persons employing an electronic storage system using 
media other than optical disk or CD-ROM technology shall so state. The 
representation shall be accompanied by the type of oath or affirmation 
described in Sec. 1.10(d)(4).

[[Page 78]]

    (d) Trading cards, documents on which trade information is 
originally recorded in writing, written orders required to be kept 
pursuant to Sec. 1.35(a), (a-1)(1), (a-1)(2) and (d), and paper copies 
of electronically filed certified Forms 1-FR and FOCUS Reports with the 
original manually signed certification must be retained in hard-copy for 
the required time period.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0022)

[41 FR 3194, Jan. 21, 1976, as amended at 46 FR 22, Jan. 2, 1981; 46 FR 
63035, Dec. 30, 1981; 58 FR 27464, 27467, May 10, 1993; 62 FR 24031, May 
2, 1997; 64 FR 28742, May 27, 1999; 71 FR 67465, Nov. 22, 2006]



Sec. 1.32  Segregated account; daily computation and record.

    (a) Each futures commission merchant must compute as of the close of 
each business day, on a currency-by-currency basis:
    (1) The total amount of customer funds on deposit in segregated 
accounts on behalf of commodity and option customers;
    (2) the amount of such customer funds required by the Act and these 
regulations to be on deposit in segregated accounts on behalf of such 
commodity and option customers; and
    (3) the amount of the futures commission merchant's residual 
interest in such customer funds.
    (b) In computing the amount of funds required to be in segregated 
accounts, a futures commission merchant may offset any net deficit in a 
particular customer's account against the current market value of 
readily marketable securities, less applicable percentage deductions 
(i.e., ``securities haircuts'') as set forth in Rule 15c3-1(c)(2)(vi) of 
the Securities and Exchange Commission (17 CFR 241.15c3-1(c)(2)(vi)), 
held for the same customer's account. The futures commission merchant 
must maintain a security interest in the securities, including a written 
authorization to liquidate the securities at the futures commission 
merchant's discretion, and must segregate the securities in a 
safekeeping account with a bank, trust company, clearing organization of 
a contract market, or another futures commission merchant. For purposes 
of this section, a security will be considered readily marketable if it 
is traded on a ``ready market'' as defined in Rule 15c3-1(c)(11)(i) of 
the Securities and Exchange Commission (17 CFR 240.15c3-1(c)(11)(i)).
    (c) The daily computations required by this section must be 
completed by the futures commission merchant prior to noon on the next 
business day and must be kept, together with all supporting data, in 
accordance with the requirements of Sec. 1.31.

[66 FR 41133, Aug. 7, 2001, as amended at 68 FR 5551, Feb. 4, 2003]



Sec. 1.33  Monthly and confirmation statements.

    (a) Monthly statements. Each futures commission merchant must 
promptly furnish in writing to each commodity customer and to each 
option customer and to each foreign futures and foreign options 
customer, as of the close of the last business day of each month or as 
of any regular monthly date selected, except for accounts in which there 
are neither open positions at the end of the statement period nor any 
changes to the account balance since the prior statement period, but in 
any event not less frequently than once every three months, a statement 
which clearly shows:
    (1) For each commodity customer and foreign futures customer--
    (i) The open contracts with prices at which acquired;
    (ii) The net unrealized profits or losses in all open contracts 
marked to the market; and
    (iii) Any customer funds carried with the futures commission 
merchant; and
    (iv) A detailed accounting of all financial charges and credits to 
such customer accounts during the monthly reporting period, including 
all customer funds and funds on deposit with respect to foreign futures 
transactions in accordance with Sec. 30.7 of this chapter received from 
or disbursed to such customer and realized profits and losses; and
    (2) For each option customer and foreign options customer--
    (i) All commodity options and foreign options purchased, sold, 
exercised,

[[Page 79]]

or expired during the monthly reporting period, identified by underlying 
futures contract or underlying physical, strike price, transaction date, 
and expiration date;
    (ii) The open commodity option and foreign option positions carried 
for such customer as of the end of the monthly reporting period, 
identified by underlying futures contract or underlying physical, strike 
price, transaction date, and expiration date;
    (iii) All open commodity option and foreign option positions marked 
to the market and the amount each position is in the money, if any;
    (iv) Any customer funds carried in such customer's account(s); and
    (v) A detailed accounting of all financial charges and credits to 
such customer's account(s) during the monthly reporting period, 
including all customer funds and funds on deposit with respect to 
foreign options transactions received from or disbursed to such 
customer, premiums charged and received, and realized profits and 
losses.
    (b) Confirmation statement. Each futures commission merchant must, 
not later than the next business day after any commodity futures or 
commodity option transaction, including any foreign futures or foreign 
options transactions, furnish:
    (1) To each commodity customer, a written confirmation of each 
commodity futures transaction caused to be executed by it for the 
customer.
    (2) To each option customer, a written confirmation of each 
commodity option transaction, containing at least the following 
information:
    (i) The option customer's account identification number;
    (ii) A separate listing of the actual amount of the premium, as well 
as each mark-up thereon, if applicable, and all other commissions, 
costs, fees and other charges incurred in connection with the commodity 
option transaction;
    (iii) The strike price;
    (iv) The underlying futures contract or underlying physical;
    (v) The final exercise date of the commodity option purchased or 
sold; and
    (vi) The date the commodity option transaction was executed.
    (3) To each option customer, upon the expiration or exercise of any 
commodity option, a written confirmation statement thereof, which 
statement shall include the date of such occurrence, a description of 
the option involved, and, in the case of exercise, the details of the 
futures or physical position which resulted therefrom including, if 
applicable, the final trading date of the contract for future delivery 
underlying the option.
    (4) Notwithstanding the provisions of paragraphs (b)(1) through 
(b)(3) of this section, a commodity futures or commodity option 
transaction that is caused to be executed for a commodity pool need be 
confirmed only to the operator of the commodity pool.
    (c) Exemptions. The requirements of paragraphs (a)(1)(i), 
(a)(1)(ii), and (b)(1) of this section shall not apply to the following:
    (1) Any account carried for a person who is a member of any contract 
market;
    (2) Any omnibus account carried for another futures commission 
merchant; and
    (3) Any account containing only bona fide hedge positions, except 
that confirmations must be furnished to accounts containing only bona 
fide hedge positions.
    (d) Controlled accounts. With respect to any account controlled by 
any person other than the commodity customer or option customer for whom 
such account is carried, each futures commission merchant shall:
    (1) Promptly furnish in writing to such other person the information 
required by paragraphs (a) and (b) of this section;
    (2) [Reserved]
    (3) Promptly furnish in writing to such other person a copy of the 
statement required by Sec. 1.46: Provided, however, That the provisions 
of this paragraph (d) shall not apply to an account controlled by the 
spouse, parent or child of the customer for whom such account is 
carried.
    (e) Recordkeeping. Each futures commission merchant shall retain, in 
accordance with Sec. 1.31, a copy of each

[[Page 80]]

monthly statement and confirmation required by this section.
    (f) Introduced accounts. Each statement provided pursuant to the 
provisions of this section must, if applicable, show that the account 
for which the futures commission merchant is providing the statement was 
introduced by an introducing broker and the names of the futures 
commission merchant and introducing broker.
    (g) Electronic transmission of statements. (1) The statements 
required by this section, and by Sec. 1.46, may be furnished to any 
customer by means of electronic media if the customer so consents, 
Provided, however, that a futures commission merchant must, prior to the 
transmission of any statement by means of electronic media, disclose the 
electronic medium or source through which statements will be delivered, 
the duration, whether indefinite or not, of the period during which 
consent will be effective, any charges for such service, the information 
that will be delivered by such means, and that consent to electronic 
delivery may be revoked at any time.
    (2) In the case of a customer who does not qualify as an 
``institutional customer'' as defined in Sec. 1.3(g), a futures 
commission merchant must obtain the customer's signed consent 
acknowledging disclosure of the information set forth in paragraph 
(g)(1) of this section prior to the transmission of any statement by 
means of electronic media.
    (3) Any statement required to be furnished to a person other than a 
customer in accordance with paragraph (d) of this section may be 
furnished by electronic media.
    (4) A futures commission merchant who furnishes statements to any 
customer by means of electronic media must retain a daily confirmation 
statement for such customer as of the end of the trading session, 
reflecting all transactions made during that session for the customer, 
in accordance with Sec. 1.31.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0024; the information collection requirements in 
paragraph (c) were approved under control number 3038-0005)

[46 FR 54520, Nov. 3, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 47 
FR 57008, Dec. 22, 1982; 48 FR 1185, Jan. 11, 1983; 48 FR 35289, Aug. 3, 
1983; 52 FR 28997, Aug. 5, 1987; 66 FR 53517, Oct. 23, 2001]



Sec. 1.34  Monthly record, ``point balance''.

    (a) Each futures commission merchant shall prepare, and retain in 
accordance with the requirements of Sec. 1.31, a statement commonly 
known as a ``point balance,'' which accrues or brings to the official 
closing price, or settlement price fixed by the clearing organization, 
all open contracts of customers as of the last business day of each 
month or of any regular monthly date selected: Provided, however, That a 
futures commission merchant who carries part or all of customers' open 
contracts with other futures commission merchants on an ``instruct 
basis'' will be deemed to have met the requirements of this section as 
to open contracts so carried if a monthly statement is prepared which 
shows that the prices and amounts of such contracts long and short in 
the customers' accounts are in balance with those in the carrying 
futures commission merchants' accounts, and such statements are retained 
in accordance with the requirements of Sec. 1.31.
    (b) Each futures commission merchant shall prepare, and retain in 
accordance with the requirements of Sec. 1.31, a listing in which all 
open commodity option positions carried for option customers are marked 
to the market. Such listing shall be prepared as of the last business 
day of each month, or as of any regular monthly date selected, and shall 
be by put or by call, by underlying contract for future delivery (by 
delivery month) or underlying

[[Page 81]]

physical (by option expiration date), and by strike price.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0024)

[46 FR 54521, Nov. 3, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 47 
FR 57008, Dec. 22, 1982]



Sec. 1.35  Records of cash commodity, futures, and option transactions.

    (a) Futures commission merchants, retail foreign exchange dealers, 
introducing brokers, and members of contract markets. Each futures 
commission merchant, retail foreign exchange dealer, introducing broker, 
and member of a contract market shall keep full, complete, and 
systematic records, together with all pertinent data and memoranda, of 
all transactions relating to its business of dealing in commodity 
futures, retail forex transactions, commodity options, and cash 
commodities (including currencies). Each futures commission merchant, 
retail foreign exchange dealer, introducing broker, and member of a 
contract market shall retain the required records, data, and memoranda 
in accordance with the requirements of Sec. 1.31, and produce them for 
inspection and furnish true and correct information and reports as to 
the contents or the meaning thereof, when and as requested by an 
authorized representative of the Commission or the United States 
Department of Justice. Included among such records shall be all orders 
(filled, unfilled, or canceled), trading cards, signature cards, street 
books, journals, ledgers, canceled checks, copies of confirmations, 
copies of statements of purchase and sale, and all other records, data 
and memoranda, which have been prepared in the course of its business of 
dealing in commodity futures, retail forex transactions, commodity 
options, and cash commodities. Among such records each member of a 
contract market must retain and produce for inspection are all documents 
on which trade information is originally recorded, whether or not such 
documents must be prepared pursuant to the rules or regulations of 
either the Commission or the contract market. For purposes of this 
section, such documents are referred to as ``original source 
documents.''
    (a-1) Futures commission merchants, retail foreign exchange dealers, 
introducing brokers, and members of contract markets: Recording of 
customers' and option customers' orders. (1) Each futures commission 
merchant, each retail foreign exchange dealer and each introducing 
broker receiving a customer's, retail forex customer's or option 
customer's order, as applicable, shall immediately upon receipt thereof 
prepare a written record of the order including the account 
identification, except as provided in paragraph (a-1)(5) of this 
section, and order number, and shall record thereon, by timestamp or 
other timing device, the date and time, to the nearest minute, the order 
is received, and in addition, for option customers' orders, the time, to 
the nearest minute, the order is transmitted for execution.
    (2)(i) Each member of a contract market who on the floor of such 
contract market receives a customer's or option customer's order which 
is not in the form of a written record including the account 
identification, order number, and the date and time, to the nearest 
minute, the order was transmitted or received on the floor of such 
contract market, shall immediately upon receipt thereof prepare a 
written record of the order in nonerasable ink, including the account 
identification, except as provided in paragraph (a-1)(5) of this section 
or appendix C to this part, and order number and shall record thereon, 
by timestamp or other timing device, the date and time, to the nearest 
minute, the order is received.
    (ii) Except as provided in paragraph (a-1)(3) of this section:
    (A) Each contract market member who on the floor of such contract 
market receives an order from another member present on the floor which 
is not in the form of a written record shall, immediately upon receipt 
of such order, prepare a written record of the order or obtain from the 
member who placed the order a written record of the order, in non-
erasable ink including the account identification and order number and 
shall record thereon, by time-stamp or other timing device, the date and 
time, to the nearest minute, the order is received; or

[[Page 82]]

    (B) When a contract market member present on the floor places an 
order, which is not in the form of a written record, for his own account 
or an account over which he has control, with another member of such 
contract market for execution:
    (1) The member placing such order immediately upon placement of the 
order shall record the order and time of placement to the nearest minute 
on a sequentially-numbered trading card maintained in accordance with 
the requirements of paragraph (d) of this section;
    (2) The member receiving and executing such order immediately upon 
execution of the order shall record the time of execution to the nearest 
minute on a trading card or other record maintained pursuant to the 
requirements of paragraph (d) of this section; and
    (3) The member receiving and executing the order shall return such 
trading card or other record to the member placing the order. The member 
placing the order then must submit together both of the trading cards or 
other records documenting such trade to contract market personnel or the 
clearing member, in accordance with contract market rules adopted 
pursuant to paragraph (j)(1) of this section.
    (iii) Each contract market may adopt rules, which must be submitted 
to the Commission pursuant to section 5a(a)(12)(A) of the Act and 
Commission Regulation 1.41, that provide alternative requirements to 
those contained in paragraph (a-1)(2)(ii) of this section. Such rules 
shall, at a minimum, require that the contemporaneous written records:
    (A) Contain the terms of the order;
    (B) Include reliable timing data for the initiation and execution of 
the order which would permit complete and effective reconstruction of 
the order placement and execution; and
    (C) Be submitted to contract market personnel or clearing members in 
accordance with contract market rules adopted pursuant to paragraph 
(j)(1) of this section.
    (3)(i) The requirements of paragraph (a-1)(2)(ii) of this section 
will not apply if a contract market maintains in effect rules which have 
been submitted to the Commission pursuant to section 5a(a)(12)(A) of the 
Act and Commission Regulation 1.41, which provide for an exemption 
where:
    (A) A contract market member places with another member of such 
contract market an order that is part of a spread transaction;
    (B) The member placing the order personally executes one or more 
legs of the spread; and
    (C) The member receiving and executing such order immediately upon 
execution of the order records the time of execution to the nearest 
minute on his trading card or other record maintained in accordance with 
the requirements of paragraph (d) of this section.
    (ii) Each contract market shall, as part of its trade practice 
surveillance program, conduct surveillance for compliance with the 
recordkeeping and other requirements under paragraphs (a-1) (2) and (3) 
of this section, and for trading abuses related to the execution of 
orders for members present on the floor of the contract market.
    (4) Each member of a contract market reporting the execution from 
the floor of the contract market of a customer's or option customer's 
order or the order of another member of the contract market received in 
accordance with paragraphs (a-1)(2)(i) or (a-1)(2)(ii)(A) of this 
section, shall record on a written record of the order, including the 
account identification, except as provided in paragraph (a-1)(5) of this 
section, and order number, by timestamp or other timing device, the date 
and time to the nearest minute such report of execution is made. Each 
member of a contract market shall submit the written records of customer 
orders or orders from other contract market members to contract market 
personnel or to the clearing member responsible for the collection of 
orders prepared pursuant to this paragraph as required by contract 
market rules adopted in accordance with paragraph (j)(1) of this 
section. The execution price and other information reported on the order 
tickets must be written in nonerasable ink.
    (5) Post-execution allocation of bunched orders. Specific customer 
account identifiers for accounts included in bunched orders need not be 
recorded at time of

[[Page 83]]

order placement or upon report of execution if the requirements of 
paragraphs (a-1)(5)(i)-(iv) of this section are met.
    (i) Eligible account managers. The person placing and directing the 
allocation of an order eligible for post-execution allocation must have 
been granted written investment discretion with regard to participating 
customer accounts. The following persons shall qualify as eligible 
account managers:
    (A) A commodity trading advisor registered with the Commission 
pursuant to the Act or excluded or exempt from registration under the 
Act or the Commission's rules, except for entities exempt under Sec. 
4.14(a)(3) or Sec. 4.14(a)(6) of this chapter;
    (B) An investment adviser registered with the Securities and 
Exchange Commission pursuant to the Investment Advisers Act of 1940 or 
with a state pursuant to applicable state law or excluded or exempt from 
registration under such Act or applicable state law or rule;
    (C) A bank, insurance company, trust company, or savings and loan 
association subject to federal or state regulation; or
    (D) A foreign adviser that exercises discretionary trading authority 
solely over the accounts of non-U.S. persons, as defined in Sec. 
4.7(a)(1)(iv) of this chapter.
    (ii) Information. Eligible account managers shall make the following 
information available to customers upon request:
    (A) The general nature of the allocation methodology the account 
manager will use;
    (B) Whether accounts in which the account manager may have any 
interest may be included with customer accounts in bunched orders 
eligible for post-execution allocation; and
    (C) Summary or composite data sufficient for that customer to 
compare its results with those of other comparable customers and, if 
applicable, any account in which the account manager has an interest.
    (iii) Allocation. Orders eligible for post-execution allocation must 
be allocated by an eligible account manager in accordance with the 
following:
    (A) Allocations must be made as soon as practicable after the entire 
transaction is executed, but in any event account managers must provide 
allocation information to futures commission merchants no later than a 
time sufficiently before the end of the day the order is executed to 
ensure that clearing records identify the ultimate customer for each 
trade.
    (B) Allocations must be fair and equitable. No account or group of 
accounts may receive consistently favorable or unfavorable treatment.
    (C) The allocation methodology must be sufficiently objective and 
specific to permit independent verification of the fairness of the 
allocations using that methodology by appropriate regulatory and self-
regulatory authorities and by outside auditors.
    (iv) Records. (A) Eligible account managers shall keep and must make 
available upon request of any representative of the Commission, the 
United States Department of Justice, or other appropriate regulatory 
agency, the information specified in paragraph (a-1)(5)(ii) of this 
section.
    (B) Eligible account managers shall keep and must make available 
upon request of any representative of the Commission, the United States 
Department of Justice, or other appropriate regulatory agency, records 
sufficient to demonstrate that all allocations meet the standards of 
paragraph (a-1)(5)(iii) of this section and to permit the reconstruction 
of the handling of the order from the time of placement by the account 
manager to the allocation to individual accounts.
    (C) Futures commission merchants that execute orders or that carry 
accounts eligible for post-execution allocation, and members of contract 
markets that execute such orders, must maintain records that, as 
applicable, identify each order subject to post-execution allocation and 
the accounts to which contracts executed for such order are allocated.
    (D) In addition to any other remedies that may be available under 
the Act or otherwise, if the Commission has reason to believe that an 
account manager has failed to provide information requested pursuant to 
paragraph (a-

[[Page 84]]

1)(5)(iv)(A) or (a-1)(5)(iv)(B) of this section, the Commission may 
inform in writing any designated contract market or derivatives 
transaction execution facility and that designated contract market or 
derivatives transaction execution facility shall prohibit the account 
manager from submitting orders for execution except for liquidation of 
open positions and no futures commission merchants shall accept orders 
for execution on any designated contract market or derivatives 
transaction execution facility from the account manager except for 
liquidation of open positions.
    (E) Any account manager that believes he or she is or may be 
adversely affected or aggrieved by action taken by the Commission under 
paragraph (a-1)(5)(iv)(D) of this section shall have the opportunity for 
a prompt hearing in accordance with the provisions of Sec. 21.03(g) of 
this chapter.
    (a-2)(1) Futures commission merchants, introducing brokers, and 
members of contract markets. Upon request of the contract market, the 
Commission, or the United States Department of Justice, each futures 
commission merchant, introducing broker, and member of a contract market 
shall request from its customers and, upon receipt thereof, provide to 
the requesting body documentation of cash transactions underlying 
exchanges of futures for cash commodities or exchanges of futures in 
connection with cash commodity transactions.
    (2) Customers. Each customer of a futures commission merchant, 
introducing broker, or member of a contract market shall create, retain, 
and produce upon request of the contract market, the Commission, or the 
United States Department of Justice documentation of cash transactions 
underlying exchanges of futures for cash commodities or exchanges of 
futures in connection with cash commodity transactions.
    (3) Contract markets. Every contract market shall adopt rules which 
require its members to provide documentation of cash transactions 
underlying exchanges of futures for cash commodities or exchanges of 
futures in connection with cash commodity transactions upon request of 
the contract market.
    (4) Documentation. For the purposes of this paragraph, documentation 
means those documents customarily generated in accordance with cash 
market practices which demonstrate the existence and nature of the 
underlying cash transactions, including, but not limited to, contracts, 
confirmation statements, telex printouts, invoices, and warehouse 
receipts or other documents of title.
    (b) Futures commission merchants, retail foreign exchange dealers, 
introducing brokers, and clearing members of contract markets. Each 
futures commission merchant, each retail foreign exchange dealer, and 
each clearing member of a contract market and, for purposes of paragraph 
(b)(3) of this section, each introducing broker, shall, as a minimum 
requirement, prepare regularly and promptly, and keep systematically and 
in permanent form, the following:
    (1) A financial ledger record which will show separately for each 
customer or retail forex customer or option customer all charges against 
and credits to such customer's or retail forex customer's or option 
customer's account, including but not limited to customer or retail 
forex customer funds deposited, withdrawn, or transferred, and charges 
or credits resulting from losses or gains on closed transactions;
    (2) A record of transactions which will show separately for each 
account (including proprietary accounts):
    (i) All commodity futures transactions executed for such account, 
including the date, price, quantity, market, commodity and future;
    (ii) All retail forex transactions executed for such account, 
including the date, price, quantity, and currency; and
    (iii) All commodity option transactions executed for such account, 
including the date, whether the transaction involved a put or call, 
expiration date, quantity, underlying contract for future delivery or 
underlying physical, strike price, and details of the purchase price of 
the option, including premium, mark-up, commission and fees; and
    (3) A record or journal which will separately show for each business 
day complete details of:

[[Page 85]]

    (i) All commodity futures transactions executed on that day, 
including the date, price, quantity, market, commodity, future and the 
person for whom such transaction was made;
    (ii) All retail forex transactions executed on that day for such 
account, including the date, price, quantity, currency and the person 
for whom such transaction was made; and
    (iii) All commodity option transactions executed on that day, 
including the date, whether the transaction involved a put or call, the 
expiration date, quantity, underlying contract for future delivery, or 
underlying physical, strike price, details of the purchase price of the 
option, including premium, mark-up, commission and fees and the person 
for whom the transaction was made; and
    (iv) In the case of an introducing broker, the record or journal 
required by this paragraph (b)(3) shall also include the futures 
commission merchant or retail foreign exchange dealer carrying the 
account for which each commodity futures, retail forex and commodity 
option transaction was executed on that day. Provided, however, that 
where reproductions on microfilm, microfiche or optical disk are 
substituted for hard copy in accordance with the provisions of Sec. 
1.31(b) of this part, the requirements of paragraphs (b)(1) and (b)(2) 
of this section will be considered met if the person required to keep 
such records is ready at all times to provide, and immediately provides 
in the same city as that in which such person's commodity retail forex 
or commodity option books and records are maintained, at the expense of 
such person, reproduced copies which show the records as specified in 
paragraphs (b)(1) and (b)(2) of this section, on request of any 
representatives of the Commission or the U.S. Department of Justice.
    (c) Clearing members of contract markets. In the daily record or 
journal required to be kept under paragraph (b)(3) of this section, each 
clearing member of a contract market shall also show the floor broker or 
floor trader executing each transaction, the opposite floor broker or 
floor trader, and the opposite clearing member with whom it was made.
    (d) Members of contract markets. (1) Each member of a contract 
market who, in the place provided by the contract market for the meeting 
of persons similarly engaged, executes purchases or sales of any 
commodity for future delivery or commodity option on or subject to the 
rules of such contract market, shall prepare regularly and promptly a 
trading card or other record showing such purchases and sales. Such 
trading card or record shall show the member's name, the name of the 
clearing member, transaction date, time (as specified in rules of the 
contract market which comply with the requirements of this section), 
quantity, and, as applicable, underlying commodity, contract for future 
delivery or physical, price or premium, delivery month or expiration 
date, whether the transaction involved a put or a call and strike price. 
Such trading card or other record shall also clearly identify the 
opposite floor broker or floor trader with whom the transaction was 
executed, and the opposite clearing member (if, in accordance with the 
rules or practice of the contract market, such opposite clearing member 
is made known to the member).
    (2) Each member of a contract market recording purchases and sales 
on trading cards must record such purchases and sales in exact 
chronological order of execution on sequential lines of the trading card 
without skipping lines between trades; Provided, however; That if lines 
remain after the last execution recorded on a trading card, the 
remaining lines must be marked through.
    (3) Each member of a contract market must identify on his trading 
cards in the manner prescribed by the rules of the contract market the 
purchases and sales executed during the opening and closing periods 
designated by the contract market pursuant to paragraph (j)(7) of this 
section.
    (4) Trading cards prepared by a member of a contract market pursuant 
to contract market rules must contain:
    (i) Pre-printed member identification or other unique identifying 
information which would permit the trading cards of one member to be 
distinguished from those of all other members;

[[Page 86]]

    (ii) Pre-printed sequence numbers to permit the intra-day sequencing 
of the cards; and
    (iii) Unique and pre-printed identifying information which would 
distinguish each of the trading cards prepared by the member from other 
such trading cards for no less than a one-week period.
    (5) Trading cards prepared by a member of a contract market and 
collected pursuant to paragraph (j)(1) of this section must be 
timestamped promptly to the nearest minute upon collection by either the 
contract market or the relevant clearing member.
    (6) Each member of a contract market shall be accountable for all 
trading cards prepared pursuant to contract market rules in exact 
numerical sequence, whether or not such trading cards are relied on as 
original source documents.
    (7) Trading records prepared by a member of a contract market 
pursuant to contract market rules must:
    (i) Be submitted in accordance with contract market rules adopted 
pursuant to paragraph (j)(1) of this section; and
    (ii) Be completed in non-erasable ink. A member may correct any 
errors by crossing out erroneous information without obliterating or 
otherwise making illegible any of the originally recorded information. 
With regard to trading cards only, a member may correct erroneous 
information by rewriting the trading card; provided, however, that the 
member must submit a ply of the trading card, or in the absence of plies 
the original trading card, that is subsequently rewritten in accordance 
with contract market rules which set forth the required collection 
schedule for trading cards and provided further that the member is 
accountable for any trading card that subsequently is rewritten pursuant 
to paragraph (d)(6) of this section.
    (8) Each member of a contract market must use a new trading card at 
the beginning of each designated 30-minute interval required by 
paragraph (j)(1) of this section (or such lesser interval as may be 
determined appropriate by the applicable contract market) or as may be 
required pursuant hereto.
    (e) Contract markets. Each contract market shall maintain or cause 
to be maintained by its clearing organization a single record which 
shall show for each futures or option trade: the transaction date, time 
(as described in paragraph (g) of this section), quantity, and, as 
applicable, underlying commodity, contract for future delivery or 
physical, price or premium, delivery month or expiration date, whether 
the transaction involved a put or a call, strike price, floor broker or 
floor trader buying, clearing member buying, floor broker or floor 
trader selling, clearing member selling, and symbols indicating the 
buying and selling customer or option customer types. The customer and 
option customer type indicators shall show, with respect to each person 
executing the trade, whether such person:
    (1) Was trading for his own account, or an account for which he has 
discretion;
    (2) Was trading for his clearing member's house account;
    (3) Was trading for another member present on the exchange floor, or 
an account controlled by such other member; or
    (4) Was trading for any other type of customer or option customer. 
The record required by this paragraph (e) shall also show, by 
appropriate and uniform symbols, any transaction which is made non-
competitively in accordance with written rules of the contract market 
which have been submitted to and approved by the Commission in 
accordance with the provisions of Sec. 1.38, and trades cleared on 
dates other than the date of execution. Except as otherwise approved by 
the Commission for good cause shown, the record required by this 
paragraph (e) shall be maintained in a format and coding structure 
approved by the Commission (i) in hard copy or on microfilm as specified 
in Sec. 1.31 and (ii) for 60 days in computer-readable form on 
compatible magnetic tapes or discs.
    (f) Each contract market shall provide for the identification of 
floor brokers, floor traders, and clearing members, in the records 
required to be kept under paragraphs (c), (d), and (e) of this section, 
by the use of a distinctive, nonvariable designation for each such

[[Page 87]]

floor broker, floor trader, and clearing member.
    (g) Time of trade execution. For purposes of paragraph (e) of this 
section: (1) The actual time of the execution of each side of a 
transaction must be obtained, or (2) if a contract market identifies and 
records the time of a transaction, a single actual time of execution for 
both sides of the transaction may be obtained. Actual times of execution 
shall be stated in increments of no more than one minute in length. If a 
contract market submits rules to the Commission, in accordance with the 
provisions of section 5a(a)(12)(A) of the Act and Sec. 1.41, defining 
and separately identifying opening and closing time periods, the 
contract market may, for purposes of paragraph (e) of this section, use 
those time periods for trades occurring during the opening and closing 
periods. Contract market rules in effect prior to the effective date of 
this paragraph (g) upon which a contract market intends to rely in 
complying herewith must be submitted for this purpose to the Commission 
in accordance with the provisions of section 5a(a)(12)(A) of the Act and 
Sec. 1.41.
    (h) Contract market price change register. Each contract market 
shall establish and maintain a record of all changes in the price of 
futures or option transactions executed on the floor of the contract 
market. This record shall include the time of all changes in price to 
the nearest ten seconds.
    (i) Contract markets. A contract market, in order to demonstrate 
that it is exercising due diligence in maintaining the continuing 
affirmative action program required by the Act and Sec. 1.51, shall, at 
a minimum:
    (1) Demonstrate effective use in its continuing affirmative action 
program of the information required to be obtained by paragraph (e) of 
this section to reconstruct rapidly and accurately transactions executed 
on or subject to the rules of such contract market; and
    (2) Submit to the Commission such reports as the Commission or the 
Director of the Division of Trading and Markets, or such persons under 
the supervision of the Director as may be specified from time to time, 
may require concerning the accuracy of all information recorded under 
paragraph (e) of this section and the use of such information in the 
contract market's affirmative action program.
    (j) Contract markets. Each contract market must maintain in effect 
rules which require that:
    (1) Trading records prepared by a member of the contract market 
pursuant to paragraphs (a-1) and (d) of this section be submitted to 
contract market personnel or the clearing member within 15 minutes of 
designated intervals not to exceed 30 minutes, commencing with the 
beginning of each trading session. The time period permitted for the 
submission of trading records after the close of trading in each market 
shall not exceed 15 minutes from the close. Such documents should 
nevertheless be collected as often as is practicable by the contract 
market or relevant clearing member. Such contract market rules need not, 
however, require that those original source documents which cannot be 
relied upon by the contract market or clearing member for clearing 
purposes be submitted pursuant to this paragraph. Each contract market 
shall submit a written report to the Commission no later than nine 
months after the effective date of this paragraph describing with 
particularity the contract market's system(s) in place to comply with 
this paragraph and the level of compliance achieved to date.
    (2) Trading cards collected pursuant to this paragraph must be 
timestamped promptly to the nearest minute upon collection by either the 
contract market or relevant clearing member.
    (3) A member of the contract market must use a new trading card at 
the beginning of each designated 30-minute interval required by 
paragraph (j)(1) of this section.
    (4) A member of the contract market must record trades in the manner 
prescribed by paragraph (d)(2) of this section.
    (5) Trading cards prepared by a member of the contract market must 
contain the identifying information prescribed by paragraph (d)(4) of 
this section.
    (6) A member of the contract market must be accountable for all 
trading cards prepared pursuant to contract

[[Page 88]]

market rules in exact numerical sequence, whether or not such trading 
cards are relied on as original source documents.
    (7) A member of the contract market must identify on his trading 
cards trades executed during opening and closing periods either by 
drawing a line on the trading card to separate those trades from others 
recorded thereon or by some other method. Each contract market must 
designate as opening and closing periods for this purpose those periods 
upon which the opening and closing trading ranges are based for each of 
its markets.
    (8) A member of the contract market must complete trades in non-
erasable ink in the manner prescribed by paragraph (d)(7)(ii) of this 
section.
    (k) Collection of trading cards in intervals not to exceed 15 
minutes. The Commission, in its discretion, may publish a schedule in 
the Federal Register no earlier than 11 months after paragraph (j)(1) of 
this section becomes effective, indicating when the records required to 
be submitted pursuant to that paragraph must be submitted to contract 
market personnel or the clearing member within 15 minutes of designated 
intervals not to exceed 15 minutes, commencing with the beginning of 
each trading session.
    (l) A contract market which can demonstrate that it currently has 
available hand-held terminals or such other automated means for the 
recordation of trades which can eliminate the opportunity for improper 
alteration or fabrication of trading records, may petition the 
Commission for an exemption from Regulations 1.35(a-1) (2) and (4), (d), 
(j) or (k), as appropriate.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0022)

[41 FR 3194, Jan. 21, 1976]

    Editorial Note: For Federal Register citations affecting Sec. 1.35, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec. 1.36  Record of securities and property received from customers and option customers.

    (a) Each futures commission merchant and each retail foreign 
exchange dealer shall maintain, as provided in Sec. 1.31, a record of 
all securities and property received from customers, retail forex 
customers or option customers in lieu of money to margin, purchase, 
guarantee, or secure the commodity, retail forex or commodity option 
transactions of such customers, retail forex customers or option 
customers. Such record shall show separately for each customer, retail 
forex customer or option customer: A description of the securities or 
property received; the name and address of such customer, retail forex 
customer or option customer; the dates when the securities or property 
were received; the identity of the depositories or other places where 
such securities or property are segregated or held; the dates of 
deposits and withdrawals from such depositories; and the dates of return 
of such securities or property to such customer, retail forex customer 
or option customer, or other disposition thereof, together with the 
facts and circumstances of such other disposition. In the event any 
futures commission merchant deposits with the clearing organization of a 
contract market, directly or with a bank or trust company acting as 
custodian for such clearing organization, securities and/or property 
which belong to a particular customer or option customer, such futures 
commission merchant shall obtain written acknowledgment from such 
clearing organization that it was informed that such securities or 
property belong to customers or option customers of the futures 
commission merchant making the deposit. Such acknowledgment shall be 
retained as provided in Sec. 1.31.
    (b) Each clearing organization of a contract market which receives 
from members securities or property belonging to particular customers or 
option customers of such members in lieu of money to margin, purchase, 
guarantee, or secure the commodity or commodity option transactions of 
such customers or option customers, or receives notice that any such 
securities or property have been received by a bank or trust company 
acting as custodian for such clearing organization, shall maintain, as 
provided in Sec. 1.31, a record which will show separately for each 
member, the

[[Page 89]]

dates when such securities or property were received, the identity of 
the depositories or other places where such securities or property are 
segregated, the dates such securities or property were returned to the 
member, or otherwise disposed of, together with the facts and 
circumstances of such other disposition including the authorization 
therefor.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0024)

[46 FR 54522, Nov. 3, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 48 
FR 8435, Mar. 1, 1983; 75 FR 55422, Sept. 10, 2010]



Sec. 1.37  Customer's or option customer's name, 

address, and occupation recorded; record of guarantor or controller of account.

    (a)(1) Each futures commission merchant, retail foreign exchange 
dealer, introducing broker, and member of a contract market shall keep a 
record in permanent form which shall show for each commodity futures, 
retail forex or option account carried or introduced by it the true name 
and address of the person for whom such account is carried or introduced 
and the principal occupation or business of such person as well as the 
name of any other person guaranteeing such account or exercising any 
trading control with respect to such account. For each such commodity 
option account, the records kept by such futures commission merchant, 
introducing broker, and member of a contract market must also show the 
name of the person who has solicited and is responsible for each option 
customer's account or assign account numbers in such a manner to 
identify that person.
    (2) Each futures commission merchant who receives a customer's 
election not to have the customer's funds separately accounted for and 
segregated, in accordance with Sec. 1.68, shall keep a record in 
permanent form that indicates such customer's election. The record of 
such a customer election may be indicated on the record required by 
paragraph (a)(1) of this section.
    (b) As of the close of the market each day, each futures commission 
merchant which carries an account for another futures commission 
merchant, foreign broker (as defined in Sec. 15.00 of this chapter), 
member of a contract market, or other person, on an omnibus basis shall 
maintain a daily record for each such omnibus account of the total open 
long contracts and the total open short contracts in each future and, 
for commodity option transactions, the total open put options purchased, 
the total open put options granted, the total open call options 
purchased, and the total open call options granted for each commodity 
option expiration date.
    (c) Each designated contract market shall keep a record in permanent 
form, which shall show the true name, address, and principal occupation 
or business of any foreign trader executing transactions on the facility 
or exchange. In addition, upon request, a designated contract market 
shall provide to the Commission information regarding the name of any 
person guaranteeing such transactions or exercising any control over the 
trading of such foreign trader.
    (d) Paragraph (c) of this section shall not apply to a designated 
contract market on which transactions in futures or option contracts of 
foreign traders are executed through, or the resulting transactions are 
maintained in, accounts carried by a registered futures commission 
merchant or introduced by a registered introducing broker subject to the 
provisions of paragraph (a) of this section.

(The information collection requirements contained in Sec. 1.37 were 
approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0024; and in paragraph (b) under control number 3038-
0009)

[46 FR 54523, Nov. 3, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 48 
FR 35289, Aug. 3, 1983; 58 FR 28501, May 14, 1993; 66 FR 20744, Apr. 25, 
2001; 66 FR 42269, Aug. 10, 2001; 75 FR 55422, Sept. 10, 2010]



Sec. 1.38  Execution of transactions.

    (a) Competitive execution required; exceptions. All purchases and 
sales of any commodity for future delivery, and of any commodity option, 
on or subject to the rules of a contract market shall be executed openly 
and competitively by

[[Page 90]]

open outcry or posting of bids and offers or by other equally open and 
competitive methods, in the trading pit or ring or similar place 
provided by the contract market, during the regular hours prescribed by 
the contract market for trading in such commodity or commodity option: 
Provided, however, That this requirement shall not apply to transactions 
which are executed non-competitively in accordance with written rules of 
the contract market which have been submitted to and approved by the 
Commission, specifically providing for the non-competitive execution of 
such transactions.
    (b) Noncompetitive trades; exchange of futures, etc.; requirements. 
Every person handling, executing, clearing, or carrying trades, 
transactions or positions which are not competitively executed, 
including transfer trades or office trades, or trades involving the 
exchange of futures for cash commodities or the exchange of futures in 
connection with cash commodity transactions, shall identify and mark by 
appropriate symbol or designation all such transactions or contracts and 
all orders, records, and memoranda pertaining thereto.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0022)

[46 FR 54523, Nov. 3, 1981, as amended at 46 FR 63035, Dec. 30, 1981]



Sec. 1.39  Simultaneous buying and selling orders of different principals; execution of, 

for and between principals.

    (a) Conditions and requirements. A member of a contract market who 
shall have in hand at the same time both buying and selling orders of 
different principals for the same commodity for future delivery in the 
same delivery month or the same option (both puts or both calls, with 
the same underlying contract for future delivery or the same underlying 
physical, expiration date and strike price) may execute such orders for 
and directly between such principals at the market price, if in 
conformity with written rules of such contract market which have been 
approved by the Commission, and:
    (1)(i) When trading is conducted in a trading pit or ring, such 
orders are first offered openly and competitively by open outcry in such 
trading pit or ring (A) by both bidding and offering at the same price, 
and neither such bid nor offer is accepted, or (B) by bidding and 
offering to a point where such offer is higher than such bid by not more 
than the minimum permissible price fluctuation applicable to such 
futures contract or commodity option on such contract market, and 
neither such bid nor offer is accepted; or
    (ii) When in nonpit trading in contracts of sale for future 
delivery, bids and offers are posted on a board, such member (A) 
pursuant to such buying order posts a bid on the board and, incident to 
the execution of such selling order, accepts such bid and all other bids 
posted at prices equal to or higher than the bid posted by him, or (B) 
pursuant to such selling order posts an offer on the board and, incident 
to the execution of such buying order, accepts such offer and all other 
offers posted at prices equal to or lower than the offer posted by him;
    (2) Such member executes such orders in the presence of an official 
representative of such contract market designated to observe such 
transactions and, by appropriate descriptive words or symbol, clearly 
identifies all such transactions on his trading card or other similar 
record, made at the time of execution, and notes thereon the exact time 
of execution and promptly presents said record to such official 
representative for verification and initialing;
    (3) Such contract market keeps a record in permanent form of each 
such transaction showing the transaction date, by whom executed, the 
exact time of execution, quantity, and, as applicable, underlying 
commodity, contract for future delivery or physical, price or premium, 
whether a put or a call, and strike price; and
    (4) Neither the futures commission merchant receiving nor the member 
executing such orders has any interest therein, directly or indirectly, 
except as a fiduciary.
    (b) Large Order Execution Procedures. A member of a contract market 
may

[[Page 91]]

execute simultaneous buying and selling orders of different principals 
directly between the principals in compliance with large order execution 
procedures established by written rules of the contract market that have 
been approved by the Commission: Provided, That, to the extent such 
large order execution procedures do not meet the conditions and 
requirements of paragraph (a) of this section, the contract market has 
petitioned the Commission for, and the Commission has granted, an 
exemption from the conditions and requirements of paragraph (a) of this 
section. Any such petition must be accompanied by proposed contract 
market rules to implement the large order execution procedures. The 
petition shall include:
    (1) An explanation of why the proposed large order execution rules 
do not comply with paragraph (a) of this section; and
    (2) A description of a special surveillance program that would be 
followed by the contract market in monitoring the large order execution 
procedures.

The Commission may, in its discretion and upon such terms and conditions 
as it deems appropriate, grant such petition for exemption if it finds 
that the exemption is not contrary to the public interest and the 
purposes of the provision from which exemption is sought. The petition 
shall be considered concurrently with the proposed large order execution 
rules.
    (c) Not deemed filling orders by offset nor cross trades. The 
execution of orders in compliance with the conditions herein set forth 
will not be deemed to constitute the filling of orders by offset within 
the meaning of paragraph (iv) of section 4b(a) of the Act, nor to 
constitute cross trades within the meaning of paragraph (A) of section 
4c(a) of the Act.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0022)

[41 FR 3194, Jan. 21, 1976, as amended at 46 FR 63035, Dec. 30, 1981; 47 
FR 57008, Dec. 22, 1982; 56 FR 12344, Mar. 25, 1991; 59 FR 5525, Feb. 7, 
1994]

                              Miscellaneous



Sec. 1.40  Crop, market information letters, reports; copies required.

    Each futures commission merchant, each retail foreign exchange 
dealer, each introducing broker and each member of a contract market 
shall, upon request, furnish or cause to be furnished to the Commission 
a true copy of any letter, circular, telegram, or report published or 
given general circulation by such futures commission merchant, retail 
foreign exchange dealer, introducing broker or member which concerns 
crop or market information or conditions that affect or tend to affect 
the price of any commodity or exchange rate, and the true source of or 
authority for the information contained therein.

[75 FR 55422, Sept. 10, 2010]



Sec. Sec. 1.41-1.43  [Reserved]



Sec. 1.44  Records and reports of warehouses, depositories, and other similar entities; 

visitation of premises.

    Each contract market shall require the operators of warehouses, 
depositories and other similar entities whose receipts are deliverable 
in satisfaction of commodity futures contracts or options on physicals 
made on or subject to the rules of such contract market:
    (a) To keep records showing the stocks of each commodity traded for 
future delivery or upon which option contracts are traded on such 
contract market in store in such warehouses, depositories and other 
similar entities by kinds, by classes, and by grades, if stored under 
conditions requiring such designation or identification, and including 
also lots and parcels stored specially or separately or in specially 
leased space of the warehouse, depository or other similar entity;
    (b) Upon call from the Commission, to report the stocks of 
commodities in such warehouses, depositories and other similar entities 
and to furnish information concerning stocks of each commodity traded 
for future delivery or upon which option contracts are traded on such 
contract market about to be transferred or in the process of being 
transferred or otherwise moved

[[Page 92]]

into or out of such warehouses, depositories and other similar entities, 
as well as any other information concerning commodities stored in such 
warehouse, depositories and other similar entities and which are or may 
be available for delivery on futures contracts or options on physicals; 
and
    (c) To permit visitation of the premises and inspection of the books 
and records of such warehouses, depositories and other similar entities 
by duly authorized representatives of the Commission or the Department 
of Justice, and to keep all books, records, papers, and memoranda 
relating to the storage and warehousing of commodities in such 
warehouse, depository or other similar entity for a period of 5 years 
from the date thereof.

(Approved by the Office of Management and Budget under control number 
3038-0019)

(Sec. 5a, 49 Stat. 1497; 7 U.S.C. 7a)

[41 FR 3194, Jan. 21, 1976, as amended at 46 FR 63035, Dec. 30, 1981; 47 
FR 57009, Dec. 22, 1982]



Sec. 1.45  [Reserved]



Sec. 1.46  Application and closing out of offsetting long and short positions.

    (a) Application of purchases and sales. (1) Except with respect to 
purchases or sales which are for omnibus accounts, or where the customer 
or account controller has instructed otherwise, any futures commission 
merchant who, on or subject to the rules of a designated contract market 
or registered derivatives transaction execution facility:
    (i) Purchases any commodity for future delivery for the account of 
any customer when the account of such customer at the time of such 
purchase has a short position in the same future of the same commodity 
on the same market;
    (ii) Sells any commodity for future delivery for the account of any 
customer when the account of such customer at the time of such sale has 
a long position in the same future of the same commodity on the same 
market;
    (iii) Purchases a put or call option for the account of any option 
customer when the account of such option customer at the time of such 
purchase has a short put or call option position with the same 
underlying futures contract or same underlying physical, strike price, 
expiration date and contract market as that purchased; or
    (iv) Sells a put or call option for the account of any option 
customer when the account of such option customer at the time of such 
sale has a long put or call option position with the same underlying 
futures contract or same underlying physical, strike price, expiration 
date and contract market as that sold--shall on the same day apply such 
purchase or sale against such previously held short or long futures or 
option position, as the case may be, and shall, for futures 
transactions, promptly furnish such customer a statement showing the 
financial result of the transactions involved and, if applicable, that 
the account was introduced to the futures commission merchant by an 
introducing broker and the names of the futures commission merchant and 
introducing broker.
    (2) Any futures commission merchant or retail foreign exchange 
dealer who:
    (i) Engages in a retail forex transaction involving the purchase of 
any currency for the account of any retail forex customer when the 
account of such retail forex customer at the time of such purchase has 
an open retail forex transaction for the sale of the same currency;
    (ii) Engages in a retail forex transaction involving the sale of any 
currency for the account of any retail forex customer when the account 
of such retail forex customer at the time of such sale has an open 
retail forex transaction for the purchase of the same currency;
    (iii) Purchases a put or call option involving foreign currency for 
the account of any option customer when the account of such option 
customer at the time of such purchase has a short put or call option 
position with the same underlying currency, strike price, and expiration 
date as that purchased; or
    (iv) Sells a put or call option involving foreign currency for the 
account of any option customer when the account of such option customer 
at the time of such sale has a long put or call option position with the 
same underlying currency, strike price, and expiration date as that 
sold--shall immediately apply

[[Page 93]]

such purchase or sale against such previously held opposite transaction, 
and shall promptly furnish such retail forex customer a statement 
showing the financial result of the transactions involved and, if 
applicable, that the account was introduced to the futures commission 
merchant or retail foreign exchange dealer by an introducing broker and 
the names of the futures commission merchant or retail foreign exchange 
dealer, and the introducing broker.
    (b) Close-out against oldest open position. In all instances wherein 
the short or long futures, retail forex transaction or option position 
in such customer's, retail forex customer's or option customer's account 
immediately prior to such offsetting purchase or sale is greater than 
the quantity purchased or sold, the futures commission merchant or 
retail foreign exchange dealer shall apply such offsetting purchase or 
sale to the oldest portion of the previously held short or long 
position: Provided, That upon specific instructions from the customer or 
option customer the offsetting transaction shall be applied as specified 
by the customer or option customer without regard to the date of 
acquisition of the previously held position; and Provided, further, that 
a futures commission merchant or retail foreign exchange dealer, if 
permitted by the rules of a registered futures association, may offset, 
at the customer's request, retail forex transactions of the same size, 
even if the customer holds other transactions of a different size, but 
in each case must offset the transaction against the oldest transaction 
of the same size. Such instructions may also be accepted from any person 
who, by power of attorney or otherwise, actually directs trading in the 
customer's, retail forex customer's or option customer's account unless 
the person directing the trading is the futures commission merchant or 
retail foreign exchange dealer (including any partner thereof), or is an 
officer, employee, or agent of the futures commission merchant or retail 
foreign exchange dealer. With respect to every such offsetting 
transaction that, in accordance with such specific instructions, is not 
applied to the oldest portion of the previously held position, the 
futures commission merchant or retail foreign exchange dealer shall 
clearly show on the statement issued to the customer, retail forex 
customer or option customer in connection with the transaction, that 
because of the specific instructions given by or on behalf of the 
customer, retail forex customer or option customer the transaction was 
not applied in the usual manner, i.e., against the oldest portion of the 
previously held position. However, no such showing need be made if the 
futures commission merchant or retail foreign exchange dealer has 
received such specific instructions in writing from the customer, retail 
forex customer or option customer for whom such account is carried.
    (c) In-and-out trades; day trades. Notwithstanding the provisions of 
paragraphs (a) and (b) of this section shall not be deemed to require 
the application of purchases or sales closed out during the same day 
(commonly known as ``in-and-out trades'' or ``day trades'') against 
short or long positions carried forward from a prior date.
    (d) Exceptions. The provisions of this section shall not apply to:
    (1) Purchases or sales of commodity options constituting ``bona fide 
hedging transactions'' pursuant to rules of the contract market which 
have been adopted in accordance with the requirements of Sec. 1.61(b) 
and approved by the Commission pursuant to; section 5a(a)(12)(A) of the 
Act Provided, That no contract market or futures commission merchant 
shall permit such option positions to be offset other than by open and 
competitive execution in the trading pit or ring provided by the 
contract market, during the regular hours prescribed by the contract 
market for trading in such commodity option.
    (2) Purchases or sales constituting ``bona fide hedging 
transactions'' as defined in Sec. 1.3(z); nor
    (3) Sales during a delivery period for the purpose of making 
delivery during such delivery period if such sales are accompanied by 
instructions to make delivery thereon, together with warehouse receipts 
or other documents necessary to effectuate such delivery.
    (4)-(7) [Reserved]
    (8) Purchases or sales held in error accounts, including but not 
limited to

[[Page 94]]

floor broker error accounts, and purchases or sales identified as errors 
at the time they are assigned to an account that contains other 
purchases or sales not identified as errors and held in that account 
(``error trades''), provided that:
    (i) Each error trade does not offset another error trade held in the 
same account;
    (ii) Each error trade is offset by open and competitive means on or 
subject to the rules of a contract market by not later than the close of 
business on the business day following the day the error trade is 
discovered and assigned to an error account or identified as an error 
trade, unless at the close of business on the business day following the 
discovery of the error trade, the relevant market has reached a daily 
price fluctuation limit and the trader is unable to offset the error 
trade, in which case the error trade must be offset as soon as 
practicable thereafter; and
    (iii) No error trade is closed out by transferring such an open 
position to another account also controlled by that same trader.
    (e) The statements required by paragraph (a) of this section may be 
furnished to the customer or the person described in Sec. 1.33(d) by 
means of electronic transmission, in accordance with Sec. 1.33(g).

(Approved by the Office of Management and Budget under control number 
3038-0007)

(Secs. 4g, 5, 42 Stat. 1000, 49 Stat. 1496; 7 U.S.C. 6g, 7; secs. 4g, 5, 
8a; 7 U.S.C. 6g, 7, 12a)

[41 FR 3194, Jan. 21, 1976]

    Editorial Note: For Federal Register citations affecting Sec. 1.46, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec. 1.47  Requirements for classification of purchases or sales

of contracts for future delivery as bona fide hedging under Sec. 1.3(z)(3) of the 
          regulations.

    (a) Any person who wishes to avail himself of the provisions of 
Sec. 1.3(z)(3) of the regulations and to make purchases or sales of any 
commodity for future delivery in any commodity in excess of trading and 
position limits then in effect pursuant to section 4a of the Act shall 
file statement with the Commission in conformity with the requirements 
of this section. All or a specified portion of the transactions and 
positions described in these statements shall not be considered as bona 
fide hedging if such person is so notified by the Commission:
    (1) Within 30 days after the Commission is furnished the information 
required under paragraph (b) of this section, or
    (2) Within 10 days after the Commission is furnished with the 
information required under paragraph (c) of this section.

The Commission may request the person notified to file specific 
additional information with the Commission to support a determination 
that all, or the specified portion, of the transactions and positions be 
considered as bona fide hedging transactions and positions. In such 
cases, the Commission shall consider all information so filed and, by 
notice to such person, shall specify the extent to which the Commission 
has determined that the transactions and positions may be classified as 
bona fide hedging. In no case shall transactions and positions described 
be considered as bona fide hedging if they exceed the levels specified 
in paragraph (d) of this section.
    (b) Initial statement. Initial statements concerning the 
classification of transactions and positions as bona fide hedging 
pursuant to Sec. 1.3(z)(3) shall be filed with the Commission at least 
30 days in advance of the date that such transactions or positions would 
be in excess of limits then in effect pursuant to section 4a of the Act. 
Such statements shall:
    (1) Describe the transactions and positions for future delivery and 
the offsetting cash positions;
    (2) Set forth in detail information which will demonstrate that the 
purchases and sales are economically appropriate to the reduction of 
risk exposure attendant to the conduct and management of a commercial 
enterprise;
    (3) Contain, and upon request of the Commission be supplemented by, 
such other information which is necessary to enable the Commission to 
make a determination whether the particular purchases and sales for 
future delivery

[[Page 95]]

fall within the scope of those described in section 1.3(z)(1) of the 
regulations;
    (4) Include a statement concerning the maximum size of positions for 
future delivery (both long and short) which will be acquired any time 
during the next fiscal year or marketing season of the person filing or 
on whose behalf the filing is made.
    (5) In addition: statements filed by an agent, concerning a futures 
position which would offset a cash position which the agent does not own 
or has not contracted to buy or sell, shall contain information 
describing all contractual arrangements between the agent filing and the 
person who owns the commodity or holds the cash market commitment being 
offset;
    (6) Statements concerning futures positions to be acquired against 
unsold anticipated production or unfilled anticipated requirements for 
manufacturing, processing or feeding shall also include the information 
required under Sec. 1.48 of the regulations.
    (c) Supplemental reports. Whenever the purchases or sales which a 
person wishes to classify as bona fide hedging shall exceed the amount 
provided in the person's most recent filing pursuant to this section or 
the amount previously specified by the Commission pursuant to paragraph 
(a) of this section, such person shall file with the Commission a 
statement which updates the information provided in the person's most 
recent filing and provides the reasons for this change at least ten days 
in advance of the date that person wishes to exceed those amounts.
    (d) Maximum purchases and sales. Purchases and sales for future 
delivery considered bona fide hedging pursuant to Sec. 1.3(z)(3) of the 
regulations shall at no time exceed the lesser of:
    (1) The value fluctuation equivalent (in terms of the commodity for 
future delivery) of the current cash position described in the 
information most recently filed pursuant to this section, or
    (2) The maximum level of long or short open positions provided in 
the information most recently filed pursuant to this section or most 
recently specified by the Commission pursuant to paragraph (a) of this 
section.
    (e) Updated reports. Reports updating the information required 
pursuant to this section also shall be filed with the Commission upon 
specific request.

(Approved by the Office of Management and Budget under control number 
3038-0013)

[42 FR 42751, Aug. 8, 1977, as amended at 46 FR 63035, Dec. 30, 1981]



Sec. 1.48  Requirements for classification of sales or purchases for 

future delivery as bona fide hedging of unsold anticipated production or unfilled 
          anticipated requirements under Sec. 1.3(z)(2) (i)(B) or 
          (ii)(C) of the regulations.

    (a) Any person who wishes to avail himself of the provisions of 
Sec. 1.3(z)(2) (i)(B) or (ii)(C) of the regulations and to make sales 
or purchases for future delivery in any commodity in excess of trading 
and position limits then in effect pursuant to section 4a of the Act for 
the purposes of bona fide hedging shall file statements with the 
Commission in conformity with the requirements of this section. All or a 
specified portion of the unsold anticipated production or unfilled 
anticipated requirements described in these statements shall not be 
considered as offsetting positions for bona fide hedging transactions 
and positions if such person is so notified by the Commission within ten 
days after the Commission is furnished with the information required 
under paragraphs (b) or (c) of this section. The Commission may request 
the person notified to file specific additional information with the 
Commission to support a determination that the statement filed 
accurately reflects unsold anticipated production or unfilled 
anticipated requirements for manufacturing, processing or feeding. In 
such cases, the Commission shall consider all additional information so 
filed and, by notice to such person, shall specify its determination as 
to what portion of the production or requirements described constitutes 
unsold anticipated production or unfilled anticipated requirements for 
the purposes of bona fide hedging. In no case shall such transactions 
and positions which offset unsold anticipated production or unfilled 
anticipated requirements be considered bona fide hedging if they exceed 
the levels specified in paragraph (d) of this section of the 
regulations.

[[Page 96]]

    (b) Initial statement. Initial statements concerning the 
classification of transactions and positions as bona fide hedging 
pursuant to Sec. 1.3(z)(2) (i)(B) or (ii)(C) shall be filed with the 
Commission at least ten days in advance of the date that such 
transactions or positions would be in excess of limits then in effect 
pursuant to section 4a of the Act. Such statements shall set forth in 
detail for a specified operating period not in excess of one year the 
person's unsold anticipated production or unfilled anticipated 
requirements for processing or manufacturing or feeding and explain the 
method of determination thereof, including, but not limited to, the 
following information:
    (1) For unsold anticipated production:
    (i) Annual production of such commodity for the three complete 
fiscal years preceding the current fiscal year;
    (ii) Anticipated production of such commodity for a specified period 
not in excess of one year;
    (iii) Fixed-price forward sales of such commodity;
    (iv) Unsold anticipated production of such commodity for a specified 
period not in excess of one year.
    (2) For unfilled anticipated requirements:
    (i) Annual requirements of such commodity for processing or 
manufacturing or feeding for the three complete fiscal years preceding 
the current fiscal year;
    (ii) Anticipated requirements of such commodity for processing or 
manufacturing or feeding for a specified operating period not in excess 
of one year;
    (iii) Inventory and fixed-price forward purchases of such commodity, 
including any quantity in process of manufacture and finished goods and 
byproducts of manufacture or processing (in terms of such commodity);
    (iv) Unfilled anticipated requirements of such commodity for 
processing or manufacturing or feedings for a specified operating period 
not in excess of one year.
    (3) Additional information: Persons hedging unsold anticipated 
production or unfilled anticipated requirements which are not the same 
quantity or are not the same commodity as the commodity to be sold or 
purchased for future delivery shall furnish this information both in 
terms of the actual commodity produced or used and in terms of the 
commodity to be sold or purchased for future delivery. In addition, such 
persons shall explain the method for determining the ratio of conversion 
between the amount of the actual unsold anticipated production or 
unfilled anticipated requirements and the amount of commodity to be sold 
or purchased for future delivery. Persons hedging unfilled annual 
feeding requirements for livestock and poultry shall provide the number 
of cattle, hogs, sheep, or poultry expected to be fed during the 
specified period, not to exceed one year, and the derivation of their 
annual requirements based upon these numbers. Persons filing as an agent 
shall furnish this information on the basis of the fiscal or operating 
year of the person on whose behalf the filing is made.
    (c) Supplemental reports. Whenever the sales or purchases which a 
person wishes to consider as bona fide hedging of unsold anticipated 
production or unfilled anticipated requirements shall exceed the amounts 
described by the figures for requirements furnished in the most recent 
filing pursuant to this section or the amounts determined by the 
Commission to constitute unsold anticipated production or unfilled 
anticipated requirements pursuant to paragraph (a) of this section, such 
person shall file with the Commission a statement which updates the 
information provided in the person's most recent filing and supplies the 
reason for this change at least ten days in advance of the date that 
person wishes to exceed these amounts.
    (d) Maximum sales and purchases. Sales or purchases for future 
delivery considered as bona fide hedges pursuant to Sec. 1.3(z)(2) 
(i)(B) or (ii)(C) shall at no time exceed the lesser of:
    (1) A person's unsold anticipated production of unfilled anticipated 
requirements as described by the information must recently filed 
pursuant to this section or determined by the Commission pursuant to 
paragraph (a) of this section; or
    (2) A person's actual unsold anticipated production or current 
unfilled anticipated requirements for the

[[Page 97]]

length of time specified in the information most recently filed pursuant 
to this section.
    (e) Updated reports. Reports updating the information required 
pursuant to this section shall also be filed with the Commission upon 
specific request.

(Approved by the Office of Management and Budget under control number 
3038-0013)

[42 FR 42752, Aug. 8, 1977, as amended at 46 FR 63035, Dec. 30, 1981]



Sec. 1.49  Denomination of customer funds and location of depositories.

    (a) Definitions. For purposes of this section:
    (1) Money center country. This term means Canada, France, Italy, 
Germany, Japan, and the United Kingdom.
    (2) Money center currency. This term means the currency of any money 
center country and the Euro.
    (b) Permissible denominations of obligations. (1) Subject to the 
terms and conditions set forth in this section, a futures commission 
merchant's obligations to a customer shall be denominated:
    (i) In the United States dollar;
    (ii) In a currency in which funds were deposited by the customer or 
were converted at the request of the customer, to the extent of such 
deposits and conversions; or
    (iii) In a currency in which funds have accrued to the customer as a 
result of trading conducted on a designated contract market or 
registered derivatives transaction execution facility, to the extent of 
such accruals.
    (2)(i) A futures commission merchant shall prepare and maintain a 
written record of each transaction converting customer funds from one 
currency to another.
    (ii) A written record prepared under paragraph (b)(2)(i) of this 
section must include the date the transaction was executed, the 
currencies converted, the amount converted, and the resulting amount.
    (iii) The information required under paragraph (b)(2)(ii) of this 
section must be provided to the customer upon the customer's request.
    (c) Permissible locations of depositories. (1) Unless a customer 
provides instructions to the contrary, a futures commission merchant or 
a derivatives clearing organization may hold customer funds:
    (i) In the United States;
    (ii) In a money center country; or
    (iii) In the country of origin of the currency.
    (2) A futures commission merchant or derivatives clearing 
organization may hold customer funds outside the United States, in a 
jurisdiction that is not a money center country, or the country of 
origin of the currency only to the extent authorized by the customer, 
provided, that the futures commission merchant or derivatives clearing 
organization must make and maintain a written record of such 
authorization. Notwithstanding the foregoing, in no event shall a 
futures commission merchant or a derivatives clearing organization hold 
customer funds in a restricted country subject to sanctions by the 
Office of Foreign Assets Control of the U.S. Department of Treasury.
    (d) Qualifications for depositories. (1) To hold customer funds 
required to be segregated pursuant to the Act and Sec. Sec. 1.20 
through 1.30, 1.32 and 1.36, a depository must provide the depositing 
futures commission merchant or derivatives clearing organization with 
the appropriate written acknowledgment as required under Sec. Sec. 1.20 
and 1.26.
    (2) A depository, if located in the United States, must be:
    (i) A bank or trust company;
    (ii) A futures commission merchant registered as such with the 
Commission; or
    (iii) A derivatives clearing organization.
    (3) A depository, if located outside the United States, must be:
    (i) A bank or trust company:
    (A) That has in excess of $1 billion of regulatory capital; or
    (B) Whose commercial paper or long-term debt instrument or, if a 
part of a holding company system, its holding company's commercial paper 
or long-term debt instrument, is rated in one of the two highest rating 
categories by at least one nationally recognized statistical rating 
organization;
    (ii) A futures commission merchant that is registered as such with 
the Commission; or
    (iii) A derivatives clearing organization.

[[Page 98]]

    (e) Segregation requirements. (1) Each futures commission merchant 
and each derivatives clearing organization must, as of the close of each 
business day, hold in segregated accounts on behalf of commodity or 
option customers:
    (i) Sufficient United States dollars, held in the United States, to 
meet all United States dollar obligations; and
    (ii) Sufficient funds in each other currency to meet obligations in 
such currency.
    (2) Notwithstanding paragraph (e)(1)(ii) of this section, assets 
denominated in one currency may be held to meet obligations denominated 
in another currency as follows:
    (i) United States dollars may be held in the United States or in 
money center countries to meet obligations denominated in any other 
currency; and
    (ii) Funds in money center currencies may be held in the United 
States or in money center countries to meet obligations denominated in 
currencies other than the United States dollar.
    (3) Each futures commission merchant and each derivatives clearing 
organization shall make and maintain records sufficient to demonstrate 
compliance with this paragraph (e).

[68 FR 5551, Feb. 4, 2003]



Sec. Sec. 1.50-1.51  [Reserved]



Sec. 1.52  Self-regulatory organization adoption and surveillance of minimum financial requirements.

    (a) Each self-regulatory organization must adopt, and submit for 
Commission approval, rules prescribing minimum financial and related 
reporting requirements for all its members who are registered futures 
commission merchants or registered retail foreign exchange dealers. Each 
self-regulatory organization other than a contract market must adopt, 
and submit for Commission approval, rules prescribing minimum financial 
and related reporting requirements for all its members who are 
registered introducing brokers. Each contract market which elects to 
have a category of membership for introducing brokers must adopt, and 
submit for Commission approval, rules prescribing minimum financial and 
related reporting requirements for all its members who are registered 
introducing brokers. Each self-regulatory organization shall submit for 
Commission approval any modification or other amendments to such rules. 
Such requirements must be the same as, or more stringent than, those 
contained in Sec. Sec. 1.10 and 1.17, for futures commission merchants 
and introducing brokers, and Sec. 5.7 of this chapter for retail 
foreign exchange dealers. The definition of adjusted net capital must be 
the same as that prescribed in Sec. 1.17(c) for futures commission 
merchants and introducing brokers, and Sec. 5.7(b)(2) of this chapter 
for futures commission merchants offering or engaging in retail forex 
transactions and for retail foreign exchange dealers: Provided, however, 
A designated self-regulatory organization may permit its member 
registrants which are registered with the Securities and Exchange 
Commission as securities brokers or dealers to file (in accordance with 
Sec. 1.10(h)) a copy of their Financial and Operational Combined 
Uniform Single Report under the Securities Exchange Act of 1934, Part 
II, Part IIA, or Part II CSE, in lieu of Form 1-FR: And, provided 
further, A designated self-regulatory organization may permit its member 
introducing brokers to file a Form 1-FR-IB in lieu of a Form 1-FR-FCM.
    (b) Each self-regulatory organization shall have in effect and 
enforce rules submitted to the Commission pursuant to paragraph (a) of 
this section and approved by the Commission.
    (c) Any two or more self-regulatory organizations may file with the 
Commission a plan for delegating to a designated self-regulatory 
organization, for any registered futures commission merchant, any 
registered retail foreign exchange dealer, or any registered introducing 
broker which is a member of more than one such self-regulatory 
organization, the responsibility of:
    (1) Monitoring and auditing for compliance with the minimum 
financial and related reporting requirements adopted by such self-
regulatory organizations in accordance with paragraph (a) of this 
section; and
    (2) Receiving the financial reports necessitated by such minimum 
financial and related reporting requirements.

[[Page 99]]


Such plan may also delegate the responsibility of monitoring, and 
examining the books and records kept by, such registered futures 
commission merchant or registered introducing broker relating to its 
business of dealing in commodity futures, commodity options, and cash 
commodities, insofar as such business relates to its dealings on 
contract markets, as required by Sec. 1.51(a)(3) and/or part 33 of this 
chapter.
    (d) Any plan filed under this section may contain provisions for the 
allocation of expenses reasonably incurred by the designated self-
regulatory organization among the self-regulatory organizations 
participating in such a plan.
    (e) A plan's designated self-regulatory organization must report to 
that plan's other self-regulatory organizations any violation of such 
other self-regulatory organizations' rules and regulations for which the 
responsibiity to monitor, audit or examine has been delegated to such 
designated self-regulatory organization under this section.
    (f) The self-regulatory organizations may, among themselves, 
establish programs to provide access to any necessary financial or 
related information.
    (g) After appropriate notice and opportunity for comment, the 
Commission may, by written notice, approve such a plan, or any part of 
the plan, if it finds that the plan, or any part of it:
    (1) Is necessary or appropriate to serve the public interest;
    (2) Is for the protection and in the interest of customers or option 
customers;
    (3) Reduces multiple monitoring and auditing for compliance with the 
minimum financial rules of the self-regulatory organizations submitting 
the plan for any futures commission merchant, retail foreign exchange 
dealer, or introducing broker which is a member of more than one self-
regulatory organization;
    (4) Reduces multiple reporting of the financial information 
necessitated by such minimum financial and related reporting 
requirements by any futures commission merchant, retail foreign exchange 
dealer, or introducing broker which is a member of more than one self-
regulatory organization;
    (5) Fosters cooperation and coordination among the contract markets; 
and
    (6) Does not hinder the development of a registered futures 
association under section 17 of the Act.
    (h) After the Commission has approved a plan or part of one under 
Sec. 1.52(g), a self-regulatory organization relieved of responsibility 
must notify each of its members which is subject to such a plan:
    (1) Of the limited nature of its responsibility for such a member's 
compliance with its minimum financial and related reporting 
requirements; and
    (2) Of the identity of the designated self-regulatory organization 
which has been delegated responsibility for such a member.
    (i) The Commission may at any time, after appropriate notice and 
opportunity for hearing, withdraw its approval of any plan or part of 
one established under this section, if such plan or part of one ceases 
to effectuate adequately the purposes of section 4(f)(b) of the Act or 
of this section.
    (j) Whenever a registered futures commission merchant, a registered 
retail foreign exchange dealer, or a registered introducing broker 
holding membership in a self-regulatory organization ceases to be a 
member in good standing of that self-regulatory organization, such self-
regulatory organization must, on the same day that event takes place, 
give telegraphic notice of that event to the principal office of the 
Commission in Washington, DC, and send a copy of that notification to 
such futures commission merchant, retail foreign exchange dealer, or 
such introducing broker.
    (k) Nothing in this section shall preclude the Commission from 
examining any futures commission merchant, retail foreign exchange 
dealer, or introducing broker for compliance with the minimum financial 
and related reporting requirements to which such futures commission 
merchant, retail foreign exchange dealer, or introducing broker is 
subject.
    (l) In the event a plan is not filed and/or approved for each 
registered futures commission merchant or for each registered 
introducing broker which is

[[Page 100]]

a member of more than one self-regulatory organization, the Commission 
may design and, after notice and opportunity for comment, approve a plan 
for those futures commission merchants or introducing brokers which are 
not the subject of an approved plan (under paragraph (g) of this 
section), delegating to a designated self-regulatory organization the 
responsibilities described in paragraph (c) of this section.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0022)

(7 U.S.C. 6c, 6d, 6f, 6g, 7a, 12a, 19, and 21; 5 U.S.C. 552, 5 U.S.C. 
552b, and secs. 2(a)(11), 4b, 4f, 4g, 5a, 8a, and 17 of the Commodity 
Exchange Act, 7 U.S.C. 4a(j), 6b, 6f, 6g, 7a, 12a, and 21, as amended, 
92 Stat 865 et seq.)

[43 FR 39981, Sept. 8, 1978, as amended at 46 FR 63035, Dec. 30, 1981; 
48 FR 35290, Aug. 3, 1983; 53 FR 4612, Feb. 17, 1988; 59 FR 5526, Feb. 
7, 1994; 62 FR 4641, Jan. 31, 1997; 71 FR 5595, Feb. 2, 2006; 75 FR 
55423, Sept. 10, 2010]



Sec. 1.53  Enforcement of contract market bylaws, rules, regulations, and resolutions.

    Each contract market shall enforce each bylaw, rule, regulation, and 
resolution, made or issued by it or by the governing board thereof or 
any committee thereof, which is in effect as of July 18, 1975, and which 
relates to terms and conditions in contracts of sale to be executed on 
or subject to the rules of such contract market or relates to other 
trading requirements, unless such bylaw, rule, regulation, or resolution 
has been disapproved by the Commission pursuant to section 5a(a)(12)(A) 
of the Act, or the amendment or revocation of such bylaw, rule, 
regulation or resolution has been approved by the Commission pursuant to 
section 5a(a)(12)(A) of the Act.

(Secs. 5, 5a, 6, 6b; 42 Stat. 1000, 1001, 49 Stat. 1497, 1498, 82 Stat. 
29, 30, 31, 88 Stat. 1392, 1400, 1401, 1402; 7 U.S.C. 7, 7a, 8, 13a)

[41 FR 3194, Jan. 21, 1976, as amended at 59 FR 5526, Feb. 7, 1994]



Sec. 1.54  Contract market rules submitted to and approved or not disapproved by the 

Secretary of Agriculture.

    Notwithstanding any provision of these rules, any bylaw, rule, 
regulation, or resolution of a contract market that was submitted to the 
Secretary of Agriculture pursuant or Sec. 1.38(a) or Sec. 1.39(a) of 
these rules, and was either approved by the Secretary or not disapproved 
by him, as of April 21, 1975, shall continue in full force and effect 
unless and until disapproved, altered or supplemented by or with the 
approval of the Commission. The adoption of this rule does not 
constitute approval by the Commission of any contract market bylaw, 
rule, regulation or resolution.

(Sec. 411, Pub. L. 93-463, 88 Stat. 1414; 7 U.S.C. 4a note)

[45 FR 2314, Jan. 11, 1980]



Sec. 1.55  Distribution of ``Risk Disclosure Statement'' by futures commission merchants

and introducing brokers.

    (a)(1) Except as provided in 1.65, no futures commission merchant, 
or in the case of an introduced account no introducing broker, may open 
a commodity futures account for a customer, other than for a customer 
specified in paragraph (f) of this section, unless the futures 
commission merchant or introducing broker first:
    (i) Furnishes the customer with a separate written disclosure 
statement containing only the language set forth in paragraph (b) of 
this section (except for nonsubstantive additions such as captions) or 
as otherwise approved under paragraph (c) of this section; Provided, 
however, that the disclosure statement may be attached to other 
documents as the cover page or the first page of such documents and as 
the only material on such page; and
    (ii) Receives from the customer an acknowledgment signed and dated 
by the customer that he received and understood the disclosure 
statement.
    (b) The language set forth in the written disclosure document 
required by paragraph (a) of this section shall be as follows:

                        Risk Disclosure Statement

    The risk of loss in trading commodity futures contracts can be 
substantial. You should, therefore, carefully consider whether such 
trading is suitable for you in light of your circumstances and financial 
resources. You should be aware of the following points:
    (1) You may sustain a total loss of the funds that you deposit with 
your broker to establish or maintain a position in the commodity futures 
market, and you may incur

[[Page 101]]

losses beyond these amounts. If the market moves against your position, 
you may be called upon by your broker to deposit a substantial amount of 
additional margin funds, on short notice, in order to maintain your 
position. If you do not provide the required funds within the time 
required by your broker, your position may be liquidated at a loss, and 
you will be liable for any resulting deficit in your account.
    (2) Under certain market conditions, you may find it difficult or 
impossible to liquidate a position. This can occur, for example, when 
the market reaches a daily price fluctuation limit (``limit move'').
    (3) Placing contingent orders, such as ``stop-loss'' or ``stop-
limit'' orders, will not necessarily limit your losses to the intended 
amounts, since market conditions on the exchange where the order is 
placed may make it impossible to execute such orders.
    (4) All futures positions involve risk, and a ``spread'' position 
may not be less risky than an outright ``long'' or ``short'' position.
    (5) The high degree of leverage (gearing) that is often obtainable 
in futures trading because of the small margin requirements can work 
against you as well as for you. Leverage (gearing) can lead to large 
losses as well as gains.
    (6) You should consult your broker concerning the nature of the 
protections available to safeguard funds or property deposited for your 
account.

ALL OF THE POINTS NOTED ABOVE APPLY TO ALL FUTURES TRADING WHETHER 
FOREIGN OR DOMESTIC. IN ADDITION, IF YOU ARE CONTEMPLATING TRADING 
FOREIGN FUTURES OR OPTIONS CONTRACTS, YOU SHOULD BE AWARE OF THE 
FOLLOWING ADDITIONAL RISKS:

    (7) Foreign futures transactions involve executing and clearing 
trades on a foreign exchange. This is the case even if the foreign 
exchange is formally ``linked'' to a domestic exchange, whereby a trade 
executed on one exchange liquidates or establishes a position on the 
other exchange. No domestic organization regulates the activities of a 
foreign exchange, including the execution, delivery, and clearing of 
transactions on such an exchange, and no domestic regulator has the 
power to compel enforcement of the rules of the foreign exchange or the 
laws of the foreign country. Moreover, such laws or regulations will 
vary depending on the foreign country in which the transaction occurs. 
For these reasons, customers who trade on foreign exchanges may not be 
afforded certain of the protections which apply to domestic 
transactions, including the right to use domestic alternative dispute 
resolution procedures. In particular, funds received from customers to 
margin foreign futures transactions may not be provided the same 
protections as funds received to margin futures transactions on domestic 
exchanges. Before you trade, you should familiarize yourself with the 
foreign rules which will apply to your particular transaction.
    (8) Finally, you should be aware that the price of any foreign 
futures or option contract and, therefore, the potential profit and loss 
resulting therefrom, may be affected by any fluctuation in the foreign 
exchange rate between the time the order is placed and the foreign 
futures contract is liquidated or the foreign option contract is 
liquidated or exercised.

THIS BRIEF STATEMENT CANNOT, OF COURSE, DISCLOSE ALL THE RISKS AND OTHER 
ASPECTS OF THE COMMODITY MARKETS

    I hereby acknowledge that I have received and understood this risk 
disclosure statement.

________________________________________________________________________
Date

________________________________________________________________________
Signature of Customer

    (c) The Commission may approve for use in lieu of the risk 
disclosure document required by paragraph (b) of this section a risk 
disclosure statement approved by one or more foreign regulatory agencies 
or self-regulatory organizations if the Commission determines that such 
risk disclosure statement is reasonably calculated to provide the 
disclosure required by paragraph (b) of this section. Notice of risk 
disclosure statements that may be used to satisfy Commission disclosure 
requirements, what requirements such statements meet and the 
jurisdictions which accept each format will be set forth in appendix A 
to this section.
    (d) Any futures commission merchant, or in the case of an introduced 
account any introducing broker, may open a commodity futures account for 
a customer without obtaining the separate acknowledgments of disclosure 
and elections required by this section and by Sec. 1.33(g), and by 
Sec. Sec. 33.7 and 190.06 of this chapter, provided that:
    (1) Prior to the opening of such account, the futures commission 
merchant or introducing broker obtains an acknowledgement from the 
customer, which may consist of a single signature at the end of the 
futures commission merchant's or introducing broker's customer account 
agreement, or on a

[[Page 102]]

separate page, of the disclosure statements, consents and elections 
specified in this section and Sec. 1.33(g), and in Sec. Sec. 33.7, 
Sec. 155.3(b)(2), Sec. 155.4(b)(2), and Sec. 190.06 of this chapter, 
and which may include authorization for the transfer of funds from a 
segregated customer account to another account of such customer, as 
listed directly above the signature line, provided the customer has 
acknowledged by check or other indication next to a description of each 
specified disclosure statement, consent or election that the customer 
has received and understood such disclosure statement or made such 
consent or election; and
    (2) The acknowledgment referred to in paragraph (d)(1) of this 
section is accompanied by and executed contemporaneously with delivery 
of the disclosures and elective provisions required by this section and 
Sec. 1.33(g), and by Sec. Sec. 33.7 and 190.06 of this chapter.
    (e) The acknowledgment required by paragraph (a) of this section 
must be retained by the futures commission merchant or introducing 
broker in accordance with Sec. 1.31.
    (f) A futures commission merchant or, in the case of an introduced 
account, an introducing broker, may open a commodity futures account for 
an ``institutional customer'' as defined in Sec. 1.3(g) without 
furnishing such institutional customer the disclosure statements or 
obtaining the acknowledgments required under paragraph (a) of this 
section Sec. Sec. 1.33(g) and 1.65(a)(3), and Sec. Sec. 30.6(a), 
33.7(a), 155.3(b)(2), 155.4(b)(2) and 190.10(c) of this chapter.
    (g) This section does not relieve a futures commission merchant or 
introducing broker from any other disclosure obligation it may have 
under applicable law.
    (h) Notwithstanding any other provision of this section or Sec. 
1.65, a person registered or required to be registered with the 
Commission as a futures commission merchant pursuant to sections 
4f(a)(1) or 4f(a)(2) of the Commodity Exchange Act and registered or 
required to be registered with the Securities and Exchange Commission as 
a broker or dealer pursuant to sections 15(b)(1) or 15(b)(11) of the 
Securities Exchange Act of 1934 and rules thereunder must provide to a 
customer or prospective customer, prior to the acceptance of any order 
for, or otherwise handling any transaction in or in connection with, a 
security futures product for a customer, the disclosures set forth in 
Sec. 41.41(b)(1) of this chapter.

(Approved by the Office of Management and Budget under control number 
3038-0022)

(Secs. 4b, 4c(b), 4g(1), 4l, 4o, and 8a(5), Commodity Exchange Act, 7 
U.S.C. 6b, 6c(b), 6g(1), 6l, 6o, and 12a(5)(1976), and sec. 217, 
Commodity Futures Trading Act of 1974, 88 Stat. 1405; secs. 2(a)(1), 4b, 
4c, 4d, 4f and 8a, Commodity Exchange Act, as amended (7 U.S.C. 2, 6b, 
6c, 6f and 12a))

[[Page 103]]

[GRAPHIC] [TIFF OMITTED] TC05OC91.028


[[Page 104]]


[GRAPHIC] [TIFF OMITTED] TC05OC91.029

                                * * * * *

[The following language should be printed on a page other than the pages 
containing the disclosure language above and may be omitted from the 
required disclosure statement]

    This disclosure document meets the risk disclosure requirements in 
the jurisdictions

[[Page 105]]

identified below ONLY for those instruments which are specified.

United States: Commodity futures, options on commodity futures and 
options on commodities subject to the Commodity Exchange Act.
United Kingdom: Futures, options on futures, options on commodities and 
options on equities traded by members of the United Kingdom Securities 
and Futures Authority pursuant to the Financial Services Act, 1986.
Ireland: Financial futures and options on financial futures traded by 
members of futures exchanges on exchanges whose rules have been approved 
by the Central Bank of Ireland under Chapter VIII of the Central Bank 
Act, 1989.

[43 FR 31890, July 24, 1978]

    Editorial Note: For Federal Register citations affecting Sec. 1.55, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec. 1.56  Prohibition of guarantees against loss.

    (a) [Reserved]
    (b) No futures commission merchant or introducing broker may in any 
way represent that it will, with respect to any commodity interest in 
any account carried by the futures commission merchant for or on behalf 
of any person:
    (1) Guarantee such person against loss;
    (2) Limit the loss of such person; or
    (3) Not call for or attempt to collect initial and maintenance 
margin as established by the rules of the applicable board of trade.
    (c) No person may in any way represent that a futures commission 
merchant or introducing broker will engage in any of the acts or 
practices described in paragraph (b) of this section.
    (d) This section shall not be construed to prevent a futures 
commission merchant or introducing broker from:
    (1) Assuming or sharing in the losses resulting from an error or 
mishandling of an order; or
    (2) Participating as a general partner in a commodity pool which is 
a limited partnership.
    (e) This section shall not affect any guarantee entered into prior 
to January 28, 1982, but this section shall apply to any extension, 
modification or renewal thereof entered into after such date.

[46 FR 62844, Dec. 29, 1981, as amended at 48 FR 35291, Aug. 3, 1983]



Sec. 1.57  Operations and activities of introducing brokers.

    (a) Each introducing broker must:
    (1) Open and carry each customer's and option customer's account 
with a carrying futures commission merchant on a fully-disclosed basis: 
Provided, however, That an introducing broker which has entered into a 
guarantee agreement with a futures commission merchant in accordance 
with the provisions of Sec. 1.10(j) of this part must open and carry 
such customer's and option customer's account with such guarantor 
futures commission merchant on a fully-disclosed basis; and
    (2) Transmit promptly for execution all customer and option customer 
orders to:
    (i) A carrying futures commission merchant; or
    (ii) a floor broker, if the introducing broker identifies its 
carrying futures commission merchant and that carrying futures 
commission merchant is also the clearing member with respect to the 
customer's or option customer's order.
    (b) An introducing broker may not carry proprietary accounts, nor 
may an introducing broker carry accounts in foreign futures.
    (c) An introducing broker may not accept any money, securities or 
property (or extend credit in lieu thereof) to margin, guarantee or 
secure any trades or contracts of customers or option customers, or any 
money, securities or property accruing as a result of such trades or 
contracts: Provided, however, That an introducing broker may deposit a 
check in a qualifying account or forward a check drawn by a customer or 
option customer if:
    (1) The futures commission merchant carrying the customer's or 
option customer's account authorizes the introducing broker, in writing, 
to receive a check in the name of the futures commission merchant, and 
the introducing broker retains such written authorization in its files 
in accordance with Sec. 1.31;

[[Page 106]]

    (2) The check is payable to the futures commission merchant carrying 
the customer's or option customer's account;
    (3) The check is deposited by the introducing broker, on the same 
day upon which it is received, in a bank or trust company located in the 
United States in a qualifying account, or the check is mailed or 
otherwise transmitted by the introducing broker to the futures 
commission merchant on the same day upon which it is received;
    (4) For purposes of this paragraph (c), a qualifying account shall 
be deemed to be an account:
    (i) Which is maintained in an account name which clearly identifies 
the funds therein as belonging to commodity or option customers of the 
futures commission merchant carrying the customer's or option customer's 
account;
    (ii) For which the bank or trust company restricts withdrawals to 
withdrawals by the carrying futures commission merchant;
    (iii) For which the bank or trust company prohibits the introducing 
broker or anyone acting upon its behalf from withdrawing funds; and
    (iv) For which the bank or trust company provides the futures 
commission merchant carrying the customer's or option customer's account 
with a written acknowledgment, which the futures commission merchant 
must retain in its files in accordance with Sec. 1.31, that it was 
informed that the funds deposited therein are those of commodity or 
option customers and are being held in accordance with the provisions of 
the Act and these regulations.

[48 FR 35291, Aug. 3, 1983, as amended at 57 FR 23143, June 2, 1992]



Sec. 1.58  Gross collection of exchange-set margins.

    (a) Each futures commission merchant which carries a commodity 
futures or commodity option position for another futures commission 
merchant or for a foreign broker on an omnibus basis must collect, and 
each futures commission merchant and foreign broker for which an omnibus 
account is being carried must deposit, initial and maintenance margin on 
each position reported in accordance with Sec. 17.04 of this chapter at 
a level no less than that established for customer accounts by the rules 
of the applicable contract market.
    (b) If the futures commission merchant which carries a commodity 
futures or commodity option position for another futures commission 
merchant or for a foreign broker on an omnibus basis allows a position 
to be margined as a spread position or as a hedged position in 
accordance with the rules of the applicable contract market, the 
carrying futures commission merchant must obtain and retain a written 
representation from the futures commission merchant or from the foreign 
broker for which the omnibus account is being carried that each such 
position is entitled to be so margined.

[61 FR 19187, May 1, 1996]



Sec. 1.59  Activities of self-regulatory organization

employees, governing board members, committee members, and consultants.

    (a) Definitions. For purposes of this section:
    (1) Self-regulatory organization means ``self-regulatory 
organization,'' as defined in Commission regulation 1.3(ee), and 
includes the term ``clearing organization,'' as defined in Commission 
regulation 1.3(d).
    (2) Governing board member means a member, or functional equivalent 
thereof, of the board of governors of a self-regulatory organization.
    (3) Committee member means a member, or functional equivalent 
thereof, of any committee of a self-regulatory organization.
    (4) Employee means any person hired or otherwise employed on a 
salaried or contract basis by a self-regulatory organization, but does 
not include:
    (i) Any governing board member compensated by a self-regulatory 
organization solely for governing board activities; or
    (ii) Any committee member compensated by a self-regulatory 
organization solely for committee activities; or
    (iii) Any consultant hired by a self-regulatory organization.
    (5) Material information means information which, if such 
information were publicly known, would be considered important by a 
reasonable person in deciding whether to trade a particular

[[Page 107]]

commodity interest on a contract market. As used in this section, 
``material information'' includes, but is not limited to, information 
relating to present or anticipated cash, futures, or option positions, 
trading strategies, the financial condition of members of self-
regulatory organizations or members of linked exchanges or their 
customers or option customers, or the regulatory actions or proposed 
regulatory actions of a self-regulatory organization or a linked 
exchange.
    (6) Non-public information means information which has not been 
disseminated in a manner which makes it generally available to the 
trading public.
    (7) Linked exchange means: (i) any board of trade, exchange or 
market outside the United States, its territories or possessions, which 
has an agreement with a contract market in the United States that 
permits positions in a commodity interest which have been established on 
one of the two markets to be liquidated on the other market; (ii) any 
board of trade, exchange or market outside the United States, its 
territories or possessions, the products of which are listed on a United 
States contract market or a trading facility thereof; (iii) any 
securities exchange, the products of which are held as margin in a 
commodity account or cleared by a securities clearing organization 
pursuant to a cross-margining arrangement with a futures clearing 
organization; or (iv) any clearing organization which clears the 
products of any of the foregoing markets.
    (8) Commodity interest means any commodity futures or commodity 
option contract traded on or subject to the rules of a contract market 
or linked exchange, or cash commodities traded on or subject to the 
rules of a board of trade which has been designated as a contract 
market.
    (9) Related commodity interest means any commodity interest which is 
traded on or subject to the rules of a contract market, linked exchange, 
or other board of trade, exchange or market, other than the self-
regulatory organization by which a person is employed, and with respect 
to which:
    (i) Such employing self-regulatory organization has recognized or 
established intermarket spread margins or other special margin treatment 
between that other commodity interest and a commodity interest which is 
traded on or subject to the rules of the employing self-regulatory 
organization; or
    (ii) Such other self-regulatory organization has recognized or 
established intermarket spread margins or other special margin treatment 
with another commodity interest as to which the person has access to 
material, nonpublic information.
    (10) Pooled investment vehicle means a trading vehicle organized and 
operated as a commodity pool within regulation 4.10(d), and whose units 
of participation have been registered under the Securities Act of 1933, 
or a trading vehicle for which regulation 4.5 makes available relief 
from regulation as a commodity pool operator, i.e., registered 
investment companies, insurance company separate accounts, bank trust 
funds, and certain pension plans.
    (b) Employees of self-regulatory organizations; Self-regulatory 
organization rules. (1) Each self-regulatory organization must maintain 
in effect rules which have been submitted to the Commission pursuant to 
Section 5a(a)(12)(A) of the Act and Sec. 1.41 (or, pursuant to section 
17(j) of the Act in the case of a registered futures association) that, 
at a minimum, prohibit:
    (i) Employees of the self-regulatory organization from:
    (A) Trading, directly or indirectly, in any commodity interest 
traded on or cleared by the employing contract market or clearing 
organization;
    (B) Trading, directly or indirectly, in any related commodity 
interest;
    (C) Trading, directly or indirectly, in a commodity interest traded 
on or cleared by contract markets or clearing organizations other than 
the employing self-regulatory organization if the employee has access to 
material, non-public information concerning such commodity interest;
    (D) Trading, directly or indirectly, in a commodity interest traded 
on or cleared by a linked exchange if the employee has access to 
material, non-public information concerning such commodity interest; and
    (ii) Employees of the self-regulatory organization from disclosing 
to any

[[Page 108]]

other person any material, non-public information which such employee 
obtains as a result of his or her employment at the self-regulatory 
organization where such employee has or should have a reasonable 
expectation that the information disclosed may assist another person in 
trading any commodity interest; Provided, however, That such rules shall 
not prohibit disclosures made in the course of an employee's duties, or 
disclosures made to another self-regulatory organization, linked 
exchange, court of competent jurisdiction or representative of any 
agency or department of the federal or state government acting in his or 
her official capacity.
    (2) Each self-regulatory organization may adopt rules, which must be 
submitted to the Commission pursuant to section 5a(a)(12)(A) of the Act 
and Commission regulation 1.41 (or, pursuant to section 17(j) of the Act 
in the case of a registered futures association), which set forth 
circumstances under which exemptions from the trading prohibition 
contained in paragraph (b)(1)(i) of this section may be granted; such 
exemptions are to be administered by the self-regulatory organization on 
a case-by-case basis. Specifically, such circumstances may include:
    (i) Participation by an employee in pooled investment vehicles where 
the employee has no direct or indirect control with respect to 
transactions executed for or on behalf of such vehicles; and
    (ii) Trading by an employee under circumstances enumerated by the 
self-regulatory organization in rules which the self-regulatory 
organization determines are not contrary to the purposes of this 
regulation, the Commodity Exchange Act, the public interest, or just and 
equitable principles of trade.
    (c) Governing board members, committee members, and consultants; 
Self-regulatory organization rules. Each self-regulatory organization 
must maintain in effect rules which have been submitted to the 
Commission pursuant to Section 5a(a)(12)(A) of the Act and Sec. 1.41 
(or, pursuant to Section 17(j) of the Act in the case of a registered 
futures association) which provide that no governing board member, 
committee member, or consultant shall use or disclose--for any purpose 
other than the performance of official duties as a governing board 
member, committee member, or consultant--material, non-public 
information obtained as a result of the performance of such person's 
official duties.
    (d) Prohibited conduct. (1) No employee, governing board member, 
committee member, or consultant shall:
    (i) Trade for such person's own account, or for or on behalf of any 
other account, in any commodity interest, on the basis of any material, 
non-public information obtained through special access related to the 
performance of such person's official duties as an employee, governing 
board member, committee member, or consultant; or
    (ii) Disclose for any purpose inconsistent with the performance of 
such person's official duties as an employee, governing board member, 
committee member, or consultant any material, non-public information 
obtained through special access related to the performance of such 
duties.
    (2) No person shall trade for such person's own account, or for or 
on behalf of any other account, in any commodity interest, on the basis 
of any material, non-public information that such person knows was 
obtained in violation of paragraph (d)(1) of this section from an 
employee, governing board member, committee member, or consultant.

[58 FR 54973, Oct. 25, 1993, as amended at 65 FR 47847, Aug. 4, 2000]



Sec. 1.60  Pending legal proceedings.

    (a) Every contract market shall submit to the Commission copies of 
the complaint, any dispositive or partially dispositive decision, any 
notice of appeal filed concerning such decisions and such further 
documents as the Commission may thereafter request filed in any material 
legal proceeding to which the contract market is a party or its property 
or assets is subject.
    (b) Every futures commission merchant shall sumit to the Commission 
copies of any dispositive or partially dispositive decision for which a 
notice of appeal has been filed, the notice of appeal and such further 
documents as

[[Page 109]]

the Commission may thereafter request filed in any material legal 
proceeding to which the futures commission merchant is a party or its 
property or assets is subjects.
    (c) Every contract market shall submit to the Commission copies of 
the complaint, any dispositive or partially dispositive decision, any 
notice of appeal filed concerning such decisions and such further 
documents as the Commission may thereafter request filed in any material 
legal proceeding instituted against any officer, director, or other 
official of the contract market arising from conduct in such person's 
capacity as a contract market official and alleging violations of:
    (1) The act or any rule, regulation, or order thereunder;
    (2) the constitution, bylaws or rules of the contract market; or
    (3) the applicable provisions of state law relating to the duties of 
officers, directors, or other officials of business organizations.
    (d) Every futures commission merchant shall submit to the Commission 
copies of any dispositive or partially dispositive decision concerning 
which a notice of appeal has been filed, the notice of appeal, and such 
further documents as the Commission may thereafter request filed in any 
material legal proceeding instituted against any person who is a 
principal of the futures commission merchant (as that term is defined in 
Sec. 3.1(a) of this chapter) arising from conduct in such person's 
capacity as a principal of the futures commission merchant and alleging 
violations of: (1) The Act or any rule, regulation, or order thereunder; 
or (2) provisions of state law relating to a duty or obligation owed by 
such a principal.
    (e) All documents required by this section to be submitted to the 
Commission shall be mailed via first-class or submitted by other more 
expeditious means to the Commission's headquarters office in Washington, 
DC, Attention: Office of the General Counsel. All documents required by 
this section to be submitted to the Commission as to matters pending on 
the effective date of the section (May 25, 1984), shall be mailed to the 
Commission within 45 days of that effective date. Thereafter, all 
complaints required by this section to be submitted to the Commission by 
contract markets shall be mailed to the Commission within 10 days after 
the initiation of the legal proceedings to which they relate, all 
decisions required to be submitted by contract markets shall be mailed 
within 10 days of their date of issuance, all notices of appeal required 
to be submitted by contract markets shall be mailed within 10 days of 
the filing or receipt by the contract market of the notice of appeal, 
and all decisions and notices of appeal required to be submitted by 
futures commission merchants shall be mailed within 10 days of the 
filing or receipt by the futures commission merchant of the relevant 
notice of appeal. For purposes of paragraph (a), (b), (c) and (d) of 
this rule, a ``material legal proceeding'' includes but is not limited 
to actions involving alleged violations of the Commodity Exchange Act or 
the Commission's regulations. However, a legal proceeding is not 
``material'' for the purposes of this rule if the proceeding is not in a 
federal or state court or if the Commission is a party.

[49 FR 17750, Apr. 25, 1984]



Sec. 1.61  [Reserved]



Sec. 1.62  Contract market requirement for floor broker and floor trader registration.

    (a)(1) Each contract market shall adopt, maintain in effect, and 
enforce rules which have become effective pursuant to section 
5a(a)(12)(A) of the Act and Sec. 1.41 and which provide that no person 
in or surrounding any pit, ring, post, or other place provided by such 
contract market for the meeting of persons similarly engaged may:
    (i) Purchase or sell for any other person any commodity for future 
delivery, or any commodity option, on or subject to the rules of that 
contract market, unless such person is registered or has been granted a 
temporary license as a floor broker; or
    (ii) Purchase or sell solely for such person's own account, any 
commodity for future delivery, or any commodity option, on or subject to 
the rules of that contract market, unless such person is registered or 
has been granted a temporary license as a floor trader, or has been 
granted a temporary license

[[Page 110]]

as a floor broker to act as a floor trader, in accordance with section 
4f of the Act and Sec. 3.11 or Sec. 3.40 of this chapter, and such 
temporary license or registration has not been terminated, revoked or 
withdrawn: Provided, however, That such contract market rules must 
provide that a floor broker or floor trader will be prohibited from 
engaging in activities requiring registration under the Act or from 
representing himself to be a registrant under the Act or the 
representative or agent of any registrant during the pendency of any 
suspension of such person's registration or the suspension by a contract 
market of access of such person to any pit, ring, post or other place 
provided by such contract market for the meeting of persons engaged in 
purchasing and selling any commodity for future delivery or commodity 
option on or subject to the rules of that contract market.
    (2) Each contract market shall also adopt, maintain in effect and 
enforce rules which have become effective pursuant to section 
5a(a)(12)(A) of the Act and Sec. 1.41 which provide for requests for 
withdrawal of floor broker or floor trader registration using Form 8-W 
in accordance with Sec. 3.33 of this chapter, which require training of 
floor brokers and floor traders in accordance with Sec. 3.34 of this 
chapter and which require review of registration information by floor 
brokers and by floor traders every three years in accordance with Sec. 
3.11(d) of this chapter.
    (b) Each contract market must notify the Commission of any facts 
regarding a floor broker or floor trader or an applicant for 
registration as a floor broker or floor trader, or a floor trader whose 
name appears on a list submitted in accordance with Sec. 1.66 in order 
to qualify for a temporary no-action position thereunder, who has been 
granted trading privileges at the contract market, which are set forth 
as statutory disqualifications in section 8a(2) of the Act (unless such 
facts result from an enforcement action filed by the Commission or a 
disciplinary action taken by another contract market) or which are 
terminations of floor trading privileges for cause under Sec. 9.11(c) 
of this chapter within ten business days of the date upon which the 
contract market first knows of such facts. Notice to the Commission 
shall be sufficient if the contract market gives notice to the Director 
of the Division of Clearing and Intermediary Oversight or the Director's 
designee by facsimile transmission and/or first class mail or equivalent 
means to the Commission at its Washington, DC office (Attn: Division of 
Clearing and Intermediary Oversight, Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581).

[58 FR 19589, Apr. 15, 1993; 59 FR 5700, Feb. 8, 1994, as amended at 60 
FR 49334, Sept. 25, 1995; 67 FR 62351, Oct. 7, 2002]



Sec. 1.63  Service on self-regulatory organization governing boards or committees by 

persons with disciplinary histories.

    (a) Definitions. For purposes of this section:
    (1) Self-regulatory organization means a ``self-regulatory 
organization'' as defined in Commission regulation 1.3(ee) (Sec. 
1.3(ee)), and includes a ``clearing organization'' as defined in 
Commission regulation 1.3(d) (Sec. 1.3(d)), except as defined in 
paragraph (b)(6) of this section.
    (2) Disciplinary committee means any person or committee of persons, 
or any subcommittee thereof, that is authorized by a self-regulatory 
organization to issue disciplinary charges, to conduct disciplinary 
proceedings, to settle disciplinary charges, to impose disciplinary 
sanctions or to hear appeals thereof.
    (3) Arbitration panel means any person or panel empowered by a self-
regulatory organization to arbitrate disputes involving such 
organization's members or their customers.
    (4) Oversight panel means any panel authorized by a self-regulatory 
organization to review, recommend or establish policies or procedures 
with respect to the self-regulatory organization's surveillance, 
compliance, rule enforcement or disciplinary responsibilities.
    (5) Final decision means:
    (i) A decision of a self-regulatory organization which cannot be 
further appealed within the self-regulatory organization, is not subject 
to the stay of the Commission or a court of competent jurisdiction, and 
has not been

[[Page 111]]

reversed by the Commission or any court of competent jurisdiction; or,
    (ii) Any decision by an administrative law judge, a court of 
competent jurisdiction or the Commission which has not been stayed or 
reversed.
    (6) Disciplinary offense means:
    (i) Any violation of the rules of a self-regulatory organization 
except those rules related to
    (A) Decorum or attire,
    (B) Financial requirements, or
    (C) Reporting or recordkeeping unless resulting in fines aggregating 
more than $5,000 within any calendar year;
    (ii) Any rule violation described in subparagraphs (a)(6)(i) (A) 
through (C) of this regulation which involves fraud, deceit or 
conversion or results in a suspension or expulsion;
    (iii) Any violation of the Act or the regulations promulgated 
thereunder; or,
    (iv) Any failure to exercise supervisory responsibility with respect 
to acts described in paragraphs (a)(6) (i) through (iii) of this section 
when such failure is itself a violation of either the rules of a self-
regulatory organization, the Act or the regulations promulgated 
thereunder.
    (v) A disciplinary offense must arise out of a proceeding or action 
which is brought by a self-regulatory organization, the Commission, any 
federal or state agency, or other governmental body.
    (7) Settlement agreement means any agreement consenting to the 
imposition of sanctions by a self-regulatory organization, a court of 
competent jurisdiction or the Commission.
    (b) Each self-regulatory organization must maintain in effect rules 
which have been submitted to the Commission pursuant to section 
5a(a)(12)(A) of the Act and Sec. 1.41 or, in the case of a registered 
futures association, pursuant to section 17(j) of the Act, that render a 
person ineligible to serve on its disciplinary committees, arbitration 
panels, oversight panels or governing board who:
    (1) Was found within the prior three years by a final decision of a 
self-regulatory organization, an administrative law judge, a court of 
competent jurisdiction or the Commission to have committed a 
disciplinary offense;
    (2) Entered into a settlement agreement within the prior three years 
in which any of the findings or, in the absence of such findings, any of 
the acts charged included a disciplinary offense;
    (3) Currently is suspended from trading on any contract market, is 
suspended or expelled from membership with any self-regulatory 
organization, is serving any sentence of probation or owes any portion 
of a fine imposed pursuant to either:
    (i) A finding by a final decision of a self-regulatory organization, 
an administrative law judge, a court of competent jurisdiction or the 
Commission that such person committed a disciplinary offense; or,
    (ii) A settlement agreement in which any of the findings or, in the 
absence of such findings, any of the acts charged included a 
disciplinary offense.
    (4) Currently is subject to an agreement with the Commission or any 
self-regulatory organization not to apply for registration with the 
Commission or membership in any self-regulatory organization;
    (5) Currently is subject to or has had imposed on him within the 
prior three years a Commission registration revocation or suspension in 
any capacity for any reason, or has been convicted within the prior 
three years of any of the felonies listed in section 8a(2)(D) (ii) 
through (iv) of the Act;
    (6) Currently is subject to a denial, suspension or disqualification 
from serving on the disciplinary committee, arbitration panel or 
governing board of any self-regulatory organization as that term is 
defined in section 3(a)(26) of the Securities Exchange Act of 1934.
    (c) No person may serve on a disciplinary committee, arbitration 
panel, oversight panel or governing board of a self-regulatory 
organization if such person is subject to any of the conditions listed 
in paragraphs (b) (1) through (6) of this section.
    (d) Each self-regulatory organization shall submit to the Commission 
a schedule listing all those rule violations which constitute 
disciplinary offenses as defined in paragraph (a)(6) (i) of this section 
and to the extent necessary to reflect revisions shall submit an amended 
schedule within thirty days of the end of each calendar year.

[[Page 112]]

Each self-regulatory organization must maintain and keep current the 
schedule required by this section, post the schedule in a public place 
designed to provide notice to members and otherwise ensure its 
availability to the general public.
    (e) Each self-regulatory organization shall submit to the Commission 
within thirty days of the end of each calendar year a certified list of 
any persons who have been removed from its disciplinary committees, 
arbitration panels, oversight panels or governing board pursuant to the 
requirements of this regulation during the prior year.
    (f) Whenever a self-regulatory organization finds by final decision 
that a person has committed a disciplinary offense and such finding 
makes such person ineligible to serve on that self-regulatory 
organization's disciplinary committees, arbitration panels, oversight 
panels or governing board, the self-regulatory organization shall inform 
the Commission of that finding and the length of the ineligibility in 
any notice it is required to provide to the Commission pursuant to 
either section 17(h)(1) of the Act or Commission regulation 9.11.

[55 FR 7890, Mar. 6, 1990, as amended at 58 FR 37653, July 13, 1993; 64 
FR 23, Jan. 4, 1999]



Sec. 1.64  Composition of various self-regulatory organization governing boards and

major disciplinary committees.

    (a) Definitions. For purposes of this section:
    (1) Self-regulatory organization means ``self-regulatory 
organization'' as defined in Sec. 1.3(ee), not including a ``clearing 
organization'' as defined in Sec. 1.3(d).
    (2) Major disciplinary committee means a committee of persons who 
are authorized by a self-regulatory organization to conduct disciplinary 
hearings, to settle disciplinary charges, to impose disciplinary 
sanctions or to hear appeals thereof in cases involving any violation of 
the rules of the self-regulatory organization except those which:
    (i) Are related to:
    (A) Decorum or attire,
    (B) Financial requirements, or
    (C) Reporting or recordkeeping; and,
    (ii) Do not involve fraud, deceit or conversion.
    (3) Regular voting member of a governing board means any person who 
is eligible to vote routinely on matters being considered by the board 
and excludes those members who are only eligible to vote in the case of 
a tie vote by the board.
    (4) Membership interest (i) In the case of a contract market, each 
of the following will be considered a different membership interest:
    (A) Floor brokers,
    (B) Floor traders,
    (C) Futures commission merchants,
    (D) Producers, consumers, processors, distributors, and 
merchandisers of commodities traded on the particular contract market,
    (E) Participants in a variety of pits or principal groups of 
commodities traded on the particular contract market; and,
    (F) Other market users or participants; except that with respect to 
paragraph (c)(2) of this section, a contract market may define 
membership interests according to the different pits or principal groups 
of commodities traded on the contract market.
    (ii) In the case of a registered futures association, each of the 
following will be considered a different membership interest:
    (A) Futures commission merchants,
    (B) Introducing brokers,
    (C) Commodity pool operators,
    (D) Commodity trading advisors; and,
    (E) Associated persons, except that under paragraph (c)(3) of this 
section an associated person will be deemed to represent the same 
membership interest as its sponsor.
    (b) Each self-regulatory organization must maintain in effect 
standards and procedures with respect to its governing board which have 
been submitted to the Commission pursuant to section 5a(a)(12)(A) of the 
Act and Sec. 1.41 or, when applicable to a registered futures 
association, pursuant to section 17(j) of the Act, that ensure:
    (1) That twenty percent or more of the regular voting members of the 
board are persons who:

[[Page 113]]

    (i) Are knowledgeable of futures trading or financial regulation or 
are otherwise capable of contributing to governing board deliberations; 
and,
    (ii) (A) Are not members of the self-regulatory organization,
    (B) Are not currently salaried employees of the self-regulatory 
organization,
    (C) Are not primarily performing services for the self-regulatory 
organization in a capacity other than as a member of the self-regulatory 
organization's governing board, or
    (D) Are not officers, principals or employees of a firm which holds 
a membership at the self-regulatory organization either in its own name 
or through an employee on behalf of the firm;
    (2) In the case of a contract market, that ten percent or more of 
the regular voting members of the governing board be comprised where 
applicable of persons representing farmers, producers, merchants or 
exporters of principal commodities underlying a commodity futures or 
commodity option traded on the contract market; and
    (3) That the board's membership includes a diversity of membership 
interests. The self-regulatory organization must be able to demonstrate 
that the board membership fairly represents the diversity of interests 
at such self-regulatory organization and is otherwise consistent with 
this regulation's composition requirements;
    (c) Each self-regulatory organization must maintain in effect rules 
with respect to its major disciplinary committees which have been 
submitted to the Commission pursuant to section 5a(a)(12)(A) of the Act 
and Sec. 1.41 or, when applicable to a registered futures association, 
pursuant to section 17(j) of the Act, that ensure:
    (1) That at least one member of each major disciplinary committee or 
hearing panel thereof be a person who is not a member of the self-
regulatory organization whenever such committee or panel is acting with 
respect to a disciplinary action in which:
    (i) The subject of the action is a member of the self-regulatory 
organization's:
    (A) Governing board, or
    (B) Major disciplinary committee; or,
    (ii) Any of the charged, alleged or adjudicated contract market rule 
violations involve:
    (A) Manipulation or attempted manipulation of the price of a 
commodity, a futures contract or an option on a futures contract, or
    (B) Conduct which directly results in financial harm to a non-member 
of the contract market;
    (2) In the case of a contract market, that more than fifty percent 
of each major disciplinary committee or hearing panel thereof include 
persons representing membership interests other than that of the subject 
of the disciplinary proceeding being considered;
    (3) In the case of a registered futures association, that each major 
disciplinary committee or hearing panel thereof include persons 
representing membership interests other than that of the subject of the 
disciplinary proceeding being considered; and,
    (4) That each major disciplinary committee or hearing panel thereof 
include sufficient different membership interests so as to ensure 
fairness and to prevent special treatment or preference for any person 
in the conduct of a committee's or the panel's responsibilities.
    (d) Each self-regulatory organization must submit to the Commission 
within thirty days after each governing board election a list of the 
governing board's members, the membership interests they represent and 
how the composition of the governing board otherwise meets the 
requirements of Sec. 1.64(b) and the self-regulatory organization's 
implementing standards and procedures.

[58 FR 37654, July 13, 1993; 59 FR 5082, Feb. 3, 1994]



Sec. 1.65  Notice of bulk transfers and disclosure obligations to customers.

    (a) Notice and Disclosure to Customers. (1) Prior to transferring a 
customer account to another futures commission merchant or introducing 
broker other than at the request of the customer, a futures commission 
merchant or introducing broker must obtain the customer's specific 
consent to the transfer.
    (2) If the customer account agreement contains a valid consent by 
the customer to prospective transfers of the account, the transferor 
futures

[[Page 114]]

commission merchant or introducing broker may transfer the account if 
the customer is provided with written notice of, and a reasonable 
opportunity to object to, the transfer and the customer has not asserted 
an objection to the transfer or given other instructions as to the 
disposition of the account. The notice to the customer must include:
    (i) A clear statement of the reason(s) for the transfer, the name, 
address and telephone number of the proposed transferee firm and other 
information material to the transfer;
    (ii) A statement that the customer is not required to accept the 
proposed transfer and may direct the transfer or firm to liquidate the 
account or ransfer the account to a firm of the customer's selection;
    (iii) The name, telephone number and address of a contact person at 
the transferor firm to whom the customer may give instructions as to the 
disposition of the account;
    (iv) Notice that a failure to respond to the letter within a 
specified time period, which must be a reasonable period in the 
circumstances, will be deemed consent to the transfer; and
    (v) A clear statement as to the means by which the customer may 
object to or otherwise respond to the notice of proposed transfer.
    (3) Where customer accounts are transferred to a futures commission 
merchant or introducing broker, other than at the customer's request, 
the transferee introducing broker or futures commission merchant must 
provide each customer whose account is transferred with the risk 
disclosure statements and acknowledgments required by Sec. 1.55 
(domestic futures and foreign futures and options trading), and 
Sec. Sec. 33.7 (domestic exchange-traded commodity options) and 
190.10(c) (non-cash margin--to be furnished by futures commission 
merchants only) of this chapter and receive the required acknowledgments 
within sixty days of the transfer of accounts. This requirement shall 
not apply:
    (i) As to customers owning transferred accounts for which the 
transferee futures commission merchant or introducing broker has clear 
written evidence that the customer has received and acknowledged the 
required disclosure documents; or
    (ii) As to customers for which the transferee futures commission 
merchant or introducing broker has clear evidence that such customer was 
at the time the account was opened by the transferring futures 
commission merchant or introducing broker, or is at the time the account 
is being transferred, a customer listed in Sec. 1.55(f); or
    (iii) If the transfer of accounts is made from one introducing 
broker to another introducing broker guaranteed by the same futures 
commission merchant pursuant to a guarantee agreement in accordance with 
the requirements of Sec. 1.10(j) and such futures commission merchant 
maintains the relevant acknowledgments required by Sec. 1.55(a)(1)(ii) 
and Sec. 33.7(a)(1)(ii) of this chapter and can establish compliance 
with Sec. 190.10(c) of this chapter.
    (b) Notice to the Commission. Each futures commission merchant or 
introducing broker shall file with the Commission, at least five 
business days in advance of the transfer, notice of any transfer of 
customer accounts carried or introduced by such futures commission 
merchant or introducing broker that is not initiated at the request of 
the customer, where the transfer involves the lesser of:
    (1) 25 percent of the total number of customer accounts carried or 
introduced by such firm if that percentage represents at least 100 
accounts; or
    (2) 50 percent or more of the total number of customer accounts 
carried or introduced by such firm. The computation of the percentage 
and number of accounts must be based on the total number of accounts 
carried by the transferor futures commission merchant or introduced by 
the introducing broker, irrespective of whether such accounts are 
transferred to a single or multiple transferees.
    (c) The notice required by paragraph (b) of this section shall 
include:
    (1) The name, principal business address and telephone number of the 
transferor futures commission merchant or introducing broker;
    (2) The name, principal business address and telephone number of 
each transferee futures commission merchant or introducing broker;

[[Page 115]]

    (3) The designated self-regulatory organization for the transferor 
and transferee firms;
    (4) A brief statement as to the reasons for the transfer;
    (5) A copy of the notice to customers informing them of the proposed 
transfer and providing an opportunity to object to such transfer; and
    (6) A statement of the number of accounts to be transferred and the 
estimated liquidating equity of the accounts to be transferred.
    (d) The notice required by paragraph (b) of this section shall be 
filed with the Deputy Director, Compliance and Registration Section, 
Division of Clearing and Intermediary Oversight, Commodity Futures 
Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., 
Washington, DC 20581; the National Futures Association Attn: Vice 
President-Compliance; and the designated self-regulatory organization 
for the transferor firm.
    (e) In the event that the notice required by paragraph (b) of this 
section cannot be filed with the Commission at least five days prior to 
the account transfer, the transferee futures commission merchant or 
introducing broker shall file such notice as soon as practicable and no 
later than the day of the transfer. Such notice shall include a brief 
statement explaining the circumstances necessitating the delay in 
filing.
    (f) The requirements of this section shall not affect the 
obligations of a futures commission merchant or introducing broker under 
the rules of a self-regulatory organization or applicable customer 
account agreement with respect to transfer of accounts.
    (g) If a proposed transfer is not completed in accordance with the 
notice required to be filed by paragraph (b) of this section, a 
corrective notice shall be filed within five business days of the date 
such proposed transfer was to occur explaining why the proposed transfer 
was not completed.

[58 FR 17504, Apr. 5, 1993, as amended at 60 FR 49334, Sept. 25, 1995; 
63 FR 8571, Feb. 20, 1998; 67 FR 62351, Oct. 7, 2002]



Sec. 1.66  No-action positions with respect to floor traders.

    (a) Notwithstanding any other provision of law, if a contract market 
submits to the National Futures Association by April 26, 1993 a list of 
floor traders who were granted trading privileges on that contract 
market on or before April 26, 1993, and whose floor trading privileges 
remain in effect, which includes the name, date of birth and social 
security number of such floor traders, as well as facts regarding such 
floor traders which are set forth as statutory disqualifications in 
section 8a(2) of the Act if the contract market knows of such facts, and 
such list is signed by the chief operating officer of the contract 
market, the Commission will not commence an enforcement proceeding 
against a floor trader on that list based solely upon the floor trader's 
failure to register or receive a temporary license under section 4f of 
the Act and Sec. 3.11 of this chapter, nor will the Commission commence 
an enforcement proceeding against the contract market under Sec. 1.62 
for failing to bar such floor trader from operating as such: Provided, 
however, That for those floor traders listed as to whom the contract 
market knows of facts set forth as statutory disqualifications in 
section 8a(2) of the Act, the no-action position contained in paragraph 
(a) of this section will only apply if the contract market submits a 
supplemental statement signed by the chief operating officer of the 
contract market stating that, in light of the Congressional mandate 
requiring registration of floor traders under the Act, the contract 
market acknowledges its responsibility to take affirmative action to 
conduct appropriate surveillance of such floor traders. These no-action 
positions shall expire upon the floor's trader being granted or denied 
registration under the Act, or on June 11, 1993, whichever comes 
earliest: Provided, however, That if the floor trader files an 
application for registration in accordance with Sec. 3.11 of this 
chapter with the National Futures Association by June 11, 1993, the no-
action positions for the floor trader and the contract market as to the 
registration of such floor trader will be extended until the floor 
trader is granted or denied

[[Page 116]]

registration under the Act, unless an Administrative Law Judge issues an 
interim order suspending the no-action position as to such floor trader 
in accordance with paragraph (b) of this section or the application for 
registration is withdrawn.
    (b) Suspension of no-action position under paragraph (a) of this 
section pursuant to section 8a(2) of the Act--(1) Notice. On the basis 
of information obtained by the Commission, the Commission may at any 
time serve notice upon a floor trader whose name appears on a list 
submitted in accordance with paragraph (a) of this section that:
    (i) The Commission alleges and is prepared to prove that such floor 
trader is subject to one or more of the statutory disqualifications set 
forth in section 8a(2) of the Act;
    (ii) An Administrative Law Judge shall make a determination, based 
upon written evidence, as to whether the floor trader is subject to such 
statutory disqualification; and
    (iii) If the floor trader is found to be subject to a statutory 
disqualification, the no-action status of the floor trader under 
paragraph (a) of this section may be suspended and the floor trader 
ordered to show cause why registration should not be denied.
    (2) Written submission. If the floor trader wishes to challenge the 
accuracy of the allegations set forth in the notice, the floor trader 
may submit written evidence limited to the type described in Sec. 
3.60(b)(1) of this chapter. Such written submission must be served upon 
the Division of Enforcement and filed with the Proceedings Clerk within 
twenty days of the date of service of notice to the floor trader.
    (3) Reply. Within ten days of receipt of any written submission 
filed by the floor trader, the Division of Enforcement may serve upon 
the floor trader and file with the Proceedings Clerk a reply.
    (4) Determination by Administrative Law Judge. A determination by 
the Administrative Law Judge as to whether the floor trader is subject 
to a statutory disqualification must be based upon the evidence of the 
statutory disqualification, notice with proof of service, the written 
submission, if any, filed by the floor trader in response thereto, any 
written reply submitted by the Division of Enforcement and such other 
papers as the Administrative Law Judge may require or permit.
    (5) Suspension and order to show cause. (i) If the floor trader is 
found to be subject to a statutory disqualification, the Administrative 
Law Judge, within thirty days after receipt of the floor trader's 
written submission, if any, and any reply thereto, shall issue an 
interim order suspending the no-action status of the floor trader under 
paragraph (a) of this section and requiring the floor trader to show 
cause within twenty days of the date of the order why, notwithstanding 
the existence of the statutory disqualification, the registration of the 
floor trader should not be denied. The no-action status of the floor 
trader shall be suspended, effective five days after the order to show 
cause is served upon the floor trader in accordance with Sec. 3.50(a) 
of this chapter, until a final order with respect to the order to show 
cause has been issued: Provided, That if the sole basis upon which the 
floor trader is subject to statutory disqualification is the existence 
of a temporary order, judgment or decree of the type described in 
section 8a(2)(C) of the Act, the order to show cause shall not be issued 
and the floor trader shall be suspended until such time as the temporary 
order, judgment or decree shall have expired: Provided, however, That in 
no event shall the floor trader's no-action status be suspended for a 
period to exceed six months.
    (ii) If the floor trader is found not to be subject to a statutory 
disqualification, the Administrative Law Judge shall issue an order to 
that effect and the Proceedings Clerk shall promptly serve a copy of 
such order on the floor trader, the Division of Clearing and 
Intermediary Oversight and the Division of Enforcement. Such order shall 
be effective as a final order of the Commission fifteen days after the 
date it is served upon the floor trader in accordance with the 
provisions of Sec. 3.50(a) of this chapter unless a timely application 
for review is filed in accordance with Sec. 10.102 of this chapter. The 
appellate procedures set forth in Sec. Sec. 10.102, 10.103, 10.104, 
10.106, 10.107 and 10.109 of this chapter shall apply to any appeal

[[Page 117]]

brought under paragraph (c)(5)(ii) of this section.
    (6) Further proceedings. If an order to show cause is issued 
pursuant to paragraph (c)(5)(i) of this section, further proceedings on 
such order shall be conducted in accordance with the provisions of Sec. 
3.60(b) through (j) of this chapter.

[58 FR 19589, Apr. 15, 1993; 58 FR 21776, Apr. 23, 1993, as amended at 
60 FR 54801, Oct. 26, 1995; 67 FR 62351, Oct. 7, 2002]



Sec. 1.67  Notification of final disciplinary action involving financial harm to a customer.

    (a) Definitions. For purposes of this section:
    (1) Final disciplinary action means any decision by or settlement 
with a contract market in a disciplinary matter which cannot be further 
appealed at the contract market, is not subject to the stay of the 
Commission or a court of competent jurisdiction, and has not been 
reversed by the Commission or any court of competent jurisdiction.
    (2) [Reserved]
    (b) Upon any final disciplinary action in which a contract market 
finds that a member has committed a rule violation that involved a 
transaction for a customer, whether executed or not, and that resulted 
in financial harm to the customer:
    (1)(i) the contract market shall promptly provide written notice of 
the disciplinary action to the futures commission merchant that cleared 
the transaction; and,
    (ii) a futures commission merchant that receives a notice, under 
paragraph (b)(1)(i) of this section shall promptly provide written 
notice of the disciplinary action to the customer as disclosed on its 
books and records. If the customer is another futures commission 
merchant, such futures commission merchant shall promptly provide the 
notice to the customer.
    (2) A written notice required by paragraph (b)(1) of this section 
must include the principal facts of the disciplinary action and a 
statement that the contract market has found that the member has 
committed a rule violation that involved a transaction for the customer, 
whether executed or not, and that resulted in financial harm to the 
customer. For the purposes of this paragraph, a notice which includes 
the information listed in Sec. 9.11(b) shall be deemed to include the 
principal facts of the disciplinary action thereof.

[58 FR 37655, July 13, 1993]



Sec. 1.68  Customer election not to have funds, carried by a futures 

commission merchant for trading on a registered derivatives transaction execution 
          facility, separately accounted for and segregated.

    (a) A futures commission merchant shall not separately account for 
and segregate, in accordance with the provisions of section 4d of the 
Act and Sec. Sec. 1.20-1.30, 1.32 and 1.36, funds received from a 
customer if:
    (1) The customer is an eligible contract participant as defined in 
section 1a(12) of the Act;
    (2) The customer's funds are being carried by the futures commission 
merchant for the purpose of trading on or through the facilities of a 
derivatives transaction execution facility registered under section 
5a(c) of the Act;
    (3) The registered derivatives transaction execution facility has 
authorized, in accordance with Sec. 37.7 of this chapter, futures 
commission merchants to offer eligible contract participants the right 
to elect not to have funds that are being carried for purposes of 
trading on or through the facilities of the registered derivatives 
transaction execution facility, separately accounted for and segregated 
by the futures commission merchant; and
    (4) The futures commission merchant and the customer have entered 
into a written agreement, signed by a person with the authority to bind 
the customer, in which the customer:
    (i) Represents and warrants that the customer is an eligible 
contract participant as defined in section 1a(12) of the Act;
    (ii) Elects not to have its funds separately accounted for and 
segregated in accordance with the provisions of section 4d of the Act 
and Sec. Sec. 1.20-1.30, 1.32 and 1.36 with respect to agreements, 
contracts or transactions traded on or subject to the rules of any 
registered derivatives transaction execution facility that has 
authorized such treatment

[[Page 118]]

in accordance with Sec. 37.7 of this chapter;
    (iii) Acknowledges that it has been informed, and by making this 
election agrees that:
    (A) The customer's funds, related to agreements, contracts or 
transactions on any registered derivatives transaction execution 
facility that authorizes the opting out of segregation will not be 
segregated from the funds of the futures commission merchant in 
accordance with the provisions of section 4d of the Act and Sec. Sec. 
1.20-1.30, 1.32 and 1.36;
    (B) The futures commission merchant may use such funds in the course 
of the futures commission merchant's business without the prior consent 
of the customer or any third party;
    (C) In the event the futures commission merchant files, or has a 
petition filed against it, for bankruptcy, the customer, as to those 
funds that the customer has elected not to have separately accounted for 
and segregated by the futures commission merchant in accordance with the 
provisions of section 4d of the Act and Sec. Sec. 1.20-1.30, 1.32 and 
1.36, will not be entitled to the priority for customer claims provided 
for under the Bankruptcy Code and part 190 of this chapter;
    (D) The customer may not retain a security interest in assets 
excluded from segregation in accordance with this section;
    (E) The customer may not enter into any agreement or other 
understanding with the futures commission merchant relating to the 
manner in which the customer's assets will be held at the futures 
commission merchant, that directly or indirectly gives the customer a 
priority in bankruptcy that is equal or superior to the priority 
afforded public customers under the Bankruptcy Code and part 190 of this 
chapter; and
    (iv) Acknowledges that the agreement shall remain in effect unless 
and until the customer abrogates the agreement in accordance with 
paragraph (c) of this section.
    (b) In no event may money, securities or property representing those 
funds that customers have elected not to have separately accounted for 
and segregated by the futures commission merchant, in accordance with 
this section, be held or commingled and deposited with customer funds in 
the same account or accounts required to be separately accounted for and 
segregated pursuant to section 4d of the Act and Sec. Sec. 1.20-1.30, 
1.32 and 1.36.
    (c)(1) A customer that has entered into an agreement in accordance 
with paragraph (a)(4) of this section may abrogate that agreement by so 
informing the futures commission merchant in writing, signed by a person 
with the authority to bind the customer. The effective date of the 
abrogation shall not exceed five business days from the futures 
commission merchant's receipt of the customer's abrogation. The 
abrogation shall not become effective if the futures commission merchant 
files, or has had filed against it, a petition for bankruptcy prior to 
the effective date of the abrogation.
    (2) Upon the effective date of the abrogation, permitted under 
paragraph (c)(1) of this section, provided that the customer's positions 
in the non-segregated account are fully margined and the customer is not 
in default with respect to any of its obligations to the futures 
commission merchant arising out of agreements, contracts or transactions 
entered on, or subject to the rules of, a registered entity, as defined 
in section 1a(29) of the Act, the futures commission merchant shall 
transfer to a customer segregated account:
    (i) All trades or positions of the customer with respect to which 
the customer had previously elected to opt out of segregation; and
    (ii) All money, securities, or property held in such account to 
margin, guarantee or secure such trades or positions.
    (d) Each futures commission merchant shall maintain any agreements 
entered into with customers pursuant to paragraph (a) of this section 
and any abrogations of such agreements, made pursuant to paragraph (c) 
of this section, in accordance with Sec. 1.31.

[66 FR 20744, Apr. 25, 2001]

[[Page 119]]



Sec. 1.69  Voting by interested members of self-regulatory organization governing boards and 

various committees.

    (a) Definitions. For purposes of this section:
    (1) Disciplinary committee means any person or committee of persons, 
or any subcommittee thereof, that is authorized by a self-regulatory 
organization to issue disciplinary charges, to conduct disciplinary 
proceedings, to settle disciplinary charges, to impose disciplinary 
sanctions, or to hear appeals thereof in cases involving any violation 
of the rules of the self-regulatory organization except those cases 
where the person or committee is authorized summarily to impose minor 
penalties for violating rules regarding decorum, attire, the timely 
submission of accurate records for clearing or verifying each day's 
transactions or other similar activities.
    (2) Family relationship of a person means the person's spouse, 
former spouse, parent, stepparent, child, stepchild, sibling, 
stepbrother, stepsister, grandparent, grandchild, uncle, aunt, nephew, 
niece or in-law.
    (3) Governing board means a self-regulatory organization's board of 
directors, board of governors, board of managers, or similar body, or 
any subcommittee thereof, duly authorized, pursuant to a rule of the 
self-regulatory organization that has been approved by the Commission or 
has become effective pursuant to either Section 5a(a)(12)(A) or 17(j) of 
the Act to take action or to recommend the taking of action on behalf of 
the self-regulatory organization.
    (4) Oversight panel means any panel, or any subcommittee thereof, 
authorized by a self-regulatory organization to recommend or establish 
policies or procedures with respect to the self-regulatory 
organization's surveillance, compliance, rule enforcement, or 
disciplinary responsibilities.
    (5) Member's affiliated firm is a firm in which the member is a 
``principal,'' as defined in Sec. 3.1(a), or an employee.
    (6) Named party in interest means a person or entity that is 
identified by name as a subject of any matter being considered by a 
governing board, disciplinary committee, or oversight panel.
    (7) Self-regulatory organization means a ``self-regulatory 
organization'' as defined in Sec. 1.3(ee) and includes a ``clearing 
organization'' as defined in Sec. 1.3(d), but excludes registered 
futures associations for the purposes of paragraph (b)(2) of this 
section.
    8) Significant action includes any of the following types of self-
regulatory organization actions or rule changes that can be implemented 
without the Commission's prior approval:
    (i) Any actions or rule changes which address an ``emergency'' as 
defined in Sec. 1.41(a)(4)(i) through (iv) and (vi) through (viii); 
and,
    (ii) Any changes in margin levels that are designed to respond to 
extraordinary market conditions such as an actual or attempted corner, 
squeeze, congestion or undue concentration of positions, or that 
otherwise are likely to have a substantial effect on prices in any 
contract traded or cleared at such self-regulatory organization; but 
does not include any rule not submitted for prior Commission approval 
because such rule is unrelated to the terms and conditions of any 
contract traded at such self-regulatory organization.
    (b) Self-regulatory organization rules. Each self-regulatory 
organization shall maintain in effect rules that have been submitted to 
the Commission pursuant to Section 5a(a)(12)(A) of the Act and Sec. 
1.41 or, in the case of a registered futures association, pursuant to 
Section 17(j) of the Act, to address the avoidance of conflicts of 
interest in the execution of its self-regulatory functions. Such rules 
must provide for the following:
    (1) Relationship with named party in interest--(i) Nature of 
relationship. A member of a self-regulatory organization's governing 
board, disciplinary committee or oversight panel must abstain from such 
body's deliberations and voting on any matter involving a named party in 
interest where such member:
    (A) Is a named party in interest;
    (B) Is an employer, employee, or fellow employee of a named party in 
interest;

[[Page 120]]

    (C) Is associated with a named party in interest through a ``broker 
association'' as defined in Sec. 156.1;
    (D) Has any other significant, ongoing business relationship with a 
named party in interest, not including relationships limited to 
executing futures or option transactions opposite of each other or to 
clearing futures or option transactions through the same clearing 
member; or,
    (E) Has a family relationship with a named party in interest.
    (ii) Disclosure of relationship. Prior to the consideration of any 
matter involving a named party in interest, each member of a self-
regulatory organization governing board, disciplinary committee or 
oversight panel must disclose to the appropriate self-regulatory 
organization staff whether he or she has one of the relationships listed 
in paragraph (b)(1)(i) of this section with a named party in interest.
    (iii) Procedure for determination. Each self-regulatory organization 
must establish procedures for determining whether any member of its 
governing board, disciplinary committees or oversight committees is 
subject to a conflicts restriction in any matter involving a named party 
in interest. Taking into consideration the exigency of the committee 
action, such determinations should be based upon:
    (A) Information provided by the member pursuant to paragraph 
(b)(1)(ii) of this section; and
    (B) Any other source of information that is held by and reasonably 
available to the self-regulatory organization.
    (2) Financial interest in a significant action--(i) Nature of 
interest. A member of a self-regulatory organization's governing board, 
disciplinary committee or oversight panel must abstain from such body's 
deliberations and voting on any significant action if the member 
knowingly has a direct and substantial financial interest in the result 
of the vote based upon either exchange or non-exchange positions that 
could reasonably be expected to be affected by the action.
    (ii) Disclosure of interest. Prior to the consideration of any 
significant action, each member of a self-regulatory organization 
governing board, disciplinary committee or oversight panel must disclose 
to the appropriate self-regulatory organization staff the position 
information referred to in paragraph (b)(2)(iii) of this section that is 
known to him or her. This requirement does not apply to members who 
choose to abstain from deliberations and voting on the subject 
significant action.
    (iii) Procedure for determination. Each self-regulatory organization 
must establish procedures for determining whether any member of its 
governing board, disciplinary committees or oversight committees is 
subject to a conflicts restriction under this section in any significant 
action. Such determination must include a review of:
    (A) Gross positions held at that self-regulatory organization in the 
member's personal accounts or ``controlled accounts,'' as defined in 
Sec. 1.3(j);
    (B) Gross positions held at that self-regulatory organization in 
proprietary accounts, as defined in Sec. 1.17(b)(3), at the member's 
affiliated firm;
    (C) Gross positions held at that self-regulatory organization in 
accounts in which the member is a principal, as defined in Sec. 3.1(a);
    (D) Net positions held at that self-regulatory organization in 
``customer'' accounts, as defined in Sec. 1.17(b)(2), at the member's 
affiliated firm; and,
    (E) Any other types of positions, whether maintained at that self-
regulatory organization or elsewhere, held in the member's personal 
accounts or the proprietary accounts of the member's affiliated firm 
that the self-regulatory organization reasonably expects could be 
affected by the significant action.
    (iv) Bases for determination. Taking into consideration the exigency 
of the significant action, such determinations should be based upon:
    (A) The most recent large trader reports and clearing records 
available to the self-regulatory organization;
    (B) Information provided by the member with respect to positions 
pursuant to paragraph (b)(2)(ii) of this section; and,
    (C) Any other source of information that is held by and reasonably 
available to the self-regulatory organization.

[[Page 121]]

    (3) Participation in deliberations. (i) Under the rules required by 
this section, a self-regulatory organization governing board, 
disciplinary committee or oversight panel may permit a member to 
participate in deliberations prior to a vote on a significant action for 
which he or she otherwise would be required to abstain, pursuant to 
paragraph (b)(2) of this section, if such participation would be 
consistent with the public interest and the member recuses himself or 
herself from voting on such action.
    (ii) In making a determination as to whether to permit a member to 
participate in deliberations on a significant action for which he or she 
otherwise would be required to abstain, the deliberating body shall 
consider the following factors:
    (A) Wwhether the member's participation in deliberations is 
necessary for the deliberating body to achieve a quorum in the matter; 
and
    (B) Whether the member has unique or special expertise, knowledge or 
experience in the matter under consideration.
    (iii) Prior to any determination pursuant to paragraph (b)(3)(i) of 
this section, the deliberating body must fully consider the position 
information which is the basis for the member's direct and substantial 
financial interest in the result of a vote on a significant action 
pursuant to paragraph (b)(2) of this section.
    (4) Documentation of determination. Self-regulatory organization 
governing boards, disciplinary committees, and oversight panels must 
reflect in their minutes or otherwise document that the conflicts 
determination procedures required by this section have been followed. 
Such records also must include:
    (i) The names of all members who attended the meeting in person or 
who otherwise were present by electronic means;
    (ii) The name of any member who voluntarily recused himself or 
herself or was required to abstain from deliberations and/or voting on a 
matter and the reason for the recusal or abstention, if stated; and
    (iii) Information on the position information that was reviewed for 
each member.

[64 FR 23, Jan. 4, 1999; 64 FR 3340, Jan. 21, 1999]



Sec. 1.70  Notification of State enforcement actions brought under the Commodity Exchange Act.

    (a) Immediately upon instituting any proceeding in any Federal 
district court for violation of the Act or any rule, regulation or order 
thereunder against any person who is subject to suit pursuant to 
sections 6d(1)-(6) of the Act, the authorized State official of the 
State instituting the proceeding shall submit to the Commission a copy 
of the complaint filed in the proceeding, together with a written notice 
which:
    (1) Indicates the names of parties to the proceeding;
    (2) Indicates the provision of the Act or the rule, regulation or 
order thereunder which is alleged to have been violated.

The complaint and written notice must be sent by first-class U.S. mail 
or personally delivered to the Secretary, Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581.
    (b) Prior to instituting any proceeding in a State court for the 
alleged violation of any antifraud provisions of the Act or any 
antifraud rule, regulation or order thereunder against any person 
registered with the Commission who is subject to suit pursuant to the 
provisions of section 6d(8) of the Act, the authorized State official of 
the State intending to institute the proceeding shall submit to the 
Commission written notice which:
    (1) Indicates the names of parties to the proposed proceeding;
    (2) Indicates the provision of the Act or the rule, regulation or 
order thereunder which will be alleged to have been violated;
    (3) Contains a brief statement of the facts on which the proposed 
action will be based.

Except as provided in paragraph (c), this written notice must be sent by 
first-class U.S. mail or personally delivered to the Secretary, 
Commodity Futures Trading Commission, Three

[[Page 122]]

Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581 not less 
than 5 business days prior to instituting the proceeding in State court.
    (c) Where it is impracticable to provide the Commission with written 
notice within the time period specified in paragraph (b) of this 
section, the authorized state official must inform the Secretary of the 
Commission by telephone as soon as practicable to institute a proceeding 
in state court and must send the written notice required in paragraph 
(b)(1) through (b)(3) of this section by facsimile or other similarly 
expeditious means of written communication to the Secretary of the 
Commission, prior to instituting the proceeding in state court.
    (d) Immediately upon instituting any proceeding in a State court 
pursuant to the provisions of section 6d(8) of the Act for alleged 
violation of any antifraud provisions of the Act or any antifraud rule, 
regulation or order thereunder, the authorized State official 
instituting the proceeding shall submit to the Commission a copy of the 
complaint filed in the proceeding. The copy of the complaint must be 
sent by first class U.S. mail or personally delivered to the Secretary, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.

[48 FR 49503, Oct. 26, 1983, as amended at 60 FR 49334, Sept. 25, 1995]



                  Sec. Appendix A to Part 1 [Reserved]



  Sec. Appendix B to Part 1--Fees for Contract Market Rule Enforcement 
                      Reviews and Financial Reviews

    (a) Within 60 days of the effective date of a final fee schedule for 
each fiscal year, each board of trade which has been designated as a 
contract market for at least one actively trading contract shall submit 
a check or money order, made payable to the Commodity Futures Trading 
Commission, to cover the Commission's actual costs in conducting 
contract market rule enforcement reviews and financial reviews.
    (b) The Commission determines fees changed fees charged to exchanges 
based upon a formula which considers both actual costs and trading 
volume.
    (c) Checks should be sent to the attention of the Office of the 
Secretariat, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581.

[50 FR 930, Jan. 8, 1985, as amended at 52 FR 46072, Dec. 4, 1987; 58 FR 
42645, Aug. 11, 1993; 60 FR 49334, Sept. 25, 1995]



PART 2_OFFICIAL SEAL--Table of Contents



Sec.
2.1 Description.
2.2 Authority to affix seal.
2.3 Prohibitions against misuse of seal.
2.4 Employee Recreation Association's use of Commission seal.

    Authority: 7 U.S.C. 2a(11).



Sec. 2.1  Description.

    Pursuant to section 2(a)(10) of the Commodity Exchange Act, as 
amended, 7 U.S.C. 4(i), the Commodity Futures Trading Commission has 
adopted an official seal (the ``Seal''), the description of which is as 
follows:
    (a) An American bald eagle in black and white holding the scales of 
balanced interests over a black and white wheel of commerce and a 
farmer's plow, also in black and white. These symbols are enclosed with 
an inner red octagon and a blue outer octagon representing traditional 
futures contract trading pits. Around the outside of the octagons are 
the words ``Commodity Futures Trading Commission'' separated by two 
stars from the year ``1975,'' the first year of the Commission's 
existence.
    (b) The Seal of the Commodity Futures Trading Commission is 
illustrated as follows:

[[Page 123]]

[GRAPHIC] [TIFF OMITTED] TC05OC91.030



Sec. 2.2  Authority to affix seal.

    (a) The following officials of the Commodity Futures Trading 
Commission are authorized to affix the Seal to appropriate documents and 
other materials of the Commission for all purposes including those 
authorized by 28 U.S.C. 1733(b) (relating to authenticated copies of 
agency documents used as evidence): The Chairman and all Commissioners, 
the General Counsel, the Executive Director, the Directors of Divisions, 
and the Secretariat.
    (b) The officials named in paragraph (a) of this section, may 
redelegate, and authorize redelegation of this authority, except that 
the Secretary may redelegate this authority only to the Deputy 
Secretary.

[41 FR 9552, Mar. 5, 1976, as amended at 51 FR 37177, Oct. 20, 1986]



Sec. 2.3  Prohibitions against misuse of seal.

    (a) Fraudulently or wrongfully affixing or impressing the Seal to or 
upon any certificate, instrument, document or paper or with knowledge of 
its fraudulent character, or with wrongful or fraudulent intent, using, 
buying, procuring, selling or transferring to another any such paper is 
punishable under section 1017 of title 18, U.S. Code.
    (b) Falsely making, forging, counterfeiting, mutilating, or altering 
the Seal, or knowingly using a fraudulent or altered Seal or possessing 
any such Seal knowingly is punishable under section 506 of title 18, 
U.S. Code.



Sec. 2.4  Employee Recreation Association's use of Commission seal.

    (a) As a specific exception to the provisions of 17 CFR 2.2 and 2.3, 
the Commodity Futures Trading Commission Employee Recreation Association 
(``Association'') is hereby authorized to use the Commission seal as an 
imprint upon sport apparel (e.g., hats, clothing, accessories, etc.) and 
novelty items (e.g., office mugs, lanyards, badge holders, stationary 
items, among other);
    (b) The Association may sell or distribute above said items 
imprinted with the Commission seal to members of the Association or 
others to meet its fundraising goals and/or in conjunction with its 
sports, social or similar events.

[72 FR 29247, May 25, 2007]



PART 3_REGISTRATION--Table of Contents



                         Subpart A_Registration

Sec.
3.1 Definitions.
3.2 Registration processing by the National Futures Association; 
          notification and duration of registration.
3.3 [Reserved]
3.4 Registration in one capacity not included in registration in any 
          other capacity.
3.5-3.9 [Reserved]
3.10 Registration of futures commission merchants, retail foreign 
          exchange dealers, introducing brokers, commodity trading 
          advisors, commodity pool operators and leverage transaction 
          merchants.
3.11 Registration of floor brokers and floor traders.
3.12 Registration of associated persons of futures commission merchants, 
          retail foreign exchange dealers, introducing brokers, 
          commodity trading advisors, commodity pool operators and 
          leverage transaction merchants.
3.13 Registration of agricultural trade option merchants and their 
          associated persons.
3.14-3.20 [Reserved]
3.21 Exemption from fingerprinting requirement in certain cases.
3.22 Supplemental filings.
3.23-3.29 [Reserved]
3.30 Current address for purpose of delivery of communications from the 
          Commission or the National Futures Association.

[[Page 124]]

3.31 Deficiencies, inaccuracies, and changes, to be reported.
3.33 Withdrawal from registration.

                      Subpart B_Temporary Licenses

3.40 Temporary licensing of applicants for associated person, floor 
          broker or floor trader registration.
3.42 Termination.
3.43 Relationship to registration.
3.44 Temporary licensing of applicants for guaranteed introducing broker 
          registration.
3.45 Restrictions upon activities.
3.46 Termination.
3.47 Relationship to registration.

       Subpart C_Denial, Suspension or Revocation of Registration

3.50 Service.
3.51 Withdrawal of application for registration.
3.52-3.54 [Reserved]
3.55 Suspension and revocation of registration pursuant to section 8a(2) 
          of the Act.
3.56 Suspension or modification of registration pursuant to section 
          8a(11) of the Act.
3.57 Proceedings under section 8a(2)(E) of the Act.
3.60 Procedure to deny, condition, suspend, revoke or place restrictions 
          upon registration pursuant to sections 8a(2), 8a(3) and 8a(4) 
          of the Act.
3.61 Extensions of time for proceedings brought under Sec. 3.55, Sec. 
          3.56 and Sec. 3.60 of this part.
3.62 [Reserved]
3.63 Service of order issued by an Administrative Law Judge or the 
          Commission.
3.64 Procedure to lift or modify conditions or restrictions.

             Subpart D_Notice Under Section 4k(5) of the Act

3.70 Notification of certain information regarding associated persons.

            Subpart E_Delegation and Reservation of Authority

3.75 Delegation and reservation of authority.

Appendix A to Part 3--Interpretive Statement with Respect to Section 
          8a(2)(C) and (E) and Section 8a(3)(J) and (M) of the Commodity 
          Exchange Act
Appendix B to Part 3--Statement of Acceptable Practices With Respect to 
          Ethics Training

    Authority: 5 U.S.C. 522, 522b; 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c, 6d, 
6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 8, 9, 9a, 12, 12a, 13b, 13c, 
16a, 18, 19, 21, 23.

    Source: 45 FR 80491, Dec. 5, 1980, unless otherwise noted.



                         Subpart A_Registration



Sec. 3.1  Definitions.

    (a) Principal. Principal means, with respect to an applicant for 
registration, a registrant or a person required to be registered under 
the Act or these regulations:
    (1) If the entity is organized as a sole proprietorship, the 
proprietor; if a partnership, any general partner; if a corporation, any 
director, the president, chief executive officer, chief operating 
officer, chief financial officer, and any person in charge of a 
principal business unit, division or function subject to regulation by 
the Commission; if a limited liability company or limited liability 
partnership, any director, the president, chief executive officer, chief 
operating officer, chief financial officer, the manager, managing member 
or those members vested with the management authority for the entity, 
and any person in charge of a principal business unit, division or 
function subject to regulation by the Commission; and, in addition, any 
person occupying a similar status or performing similar functions, 
having the power, directly or indirectly, through agreement or 
otherwise, to exercise a controlling influence over the entity's 
activities that are subject to regulation by the Commission;
    (2)(i) Any individual who directly or indirectly, through agreement, 
holding company, nominee, trust or otherwise, is the owner of ten 
percent or more of the outstanding shares of any class of stock, is 
entitled to vote or has the power to sell or direct the sale of ten 
percent or more of any class of voting securities, or is entitled to 
receive ten percent or more of the profits; or
    (ii) Any person other than an individual that is the direct owner of 
ten percent or more of any class of securities; or
    (3) Any person who has contributed ten percent or more of the 
capital: Provided, however, That if such capital contribution consists 
of subordinated debt contributed by an unaffiliated bank insured by the 
Federal Deposit Insurance Corporation, United States

[[Page 125]]

branch or agency of an unaffiliated foreign bank that is licensed under 
the laws of the United States and regulated, supervised and examined by 
United States government authorities having regulatory responsibility 
for such financial institutions, or insurance company subject to 
regulation by any State, such bank, branch, agency or insurance company 
will not be deemed to be a principal for purposes of this section, 
provided such debt is not guaranteed by another party not listed as a 
principal.
    (b) Current. As used in this subpart, a Form 8-R is current if, 
subsequent to the filing of that form and continuously thereafter, the 
registrant or principal has been either registered or affiliated with a 
registrant as a principal.
    (c) Sponsor. Sponsor means the futures commission merchant, retail 
foreign exchange dealer, introducing broker, commodity trading advisor, 
commodity pool operator or leverage transaction merchant which makes the 
certification required by Sec. 3.12 of this part for the registration 
of an associated person of such sponsor.
    (d) Beneficial owner. Any person who, without limitation, directly 
or indirectly, creates or uses a trust, proxy, power of attorney, 
pooling arrangement or any other contract, arrangement, or device with 
the purpose or effect of divesting such person of beneficial ownership 
of a security or preventing the vesting of such beneficial ownership, or 
of avoiding making a contribution of ten percent or more of the capital, 
as part of a plan or scheme to evade being deemed a principal of an 
applicant or registrant under paragraph (a) of this section shall be 
deemed for purposes of such paragraph to be the beneficial owner or the 
contributor of capital.
    (e) Foreign futures authority. Foreign futures authority means any 
foreign government, or any department, agency, governmental body, or 
regulatory organization empowered by a foreign government to administer 
or enforce a law, rule, or regulation as it relates to a futures or 
options matter, or any department or agency of a political subdivision 
of a foreign government empowered to administer or enforce a law, rule 
or regulation as it relates to a futures or options matter.
    (f) [Reserved]

[49 FR 5521, Feb. 13, 1984, and 49 FR 8217, Mar. 5, 1984, as amended at 
49 FR 39530, Oct. 9, 1984; 57 FR 23144, June 2, 1992; 66 FR 53518, Oct. 
23, 2001; 72 FR 63979, Nov. 14, 2007; 75 FR 55424, Sept. 10, 2010]



Sec. 3.2  Registration processing by the National Futures Association; notification 

and duration of registration.

    (a) Except as otherwise provided in any rule, regulation or order of 
the Commission, the registration functions of the Commission set forth 
in subpart A, subpart B and subpart C of this part shall be performed by 
the National Futures Association, in accordance with such rules, 
consistent with the provisions of the Act and this part, applicable to 
registrations granted under the Act that the National Futures 
Association may adopt and are approved by the Commission pursuant to 
section 17(j) of the Act.
    (b) Notwithstanding any other provision of this part, the original 
of any registration form, any schedule or supplement thereto, any 
fingerprint card or other document required by this part to be filed 
with both the Commission and the National Futures Association, may be 
filed with either the Commission or the National Futures Association if:
    (1) A legible, accurate, and complete photocopy of that form, 
schedule, supplement, fingerprint card, or other document is filed 
simultaneously with the National Futures Association or the Commission, 
respectively, and
    (2) Such photocopy contains an original signature and date in each 
place where such signature and date is required on the original form, 
schedule, supplement, fingerprint card, or other document.
    (c) The National Futures Association shall notify the registrant, or 
the sponsor in the case of an applicant for registration as an 
associated person, and each designated contract market or registered 
derivatives trading execution facility that has granted the applicant 
trading privileges in the case of an applicant for registration as a 
floor

[[Page 126]]

broker or floor trader, if registration has been granted under the Act.
    (1) If an applicant for registration as an associated person 
receives a temporary license in accordance with Sec. 3.40, the National 
Futures Association shall notify the sponsor that only a temporary 
license has been granted.
    (2) If an applicant for registration as a floor broker or floor 
trader receives a temporary license in accordance with Sec. 3.40, the 
National Futures Association shall notify the designated contract market 
or registered derivatives trading execution facility that has granted 
the applicant trading privileges that only a temporary license has been 
granted.
    (d) Any registration form, any schedule or supplement thereto, any 
fingerprint card or other document required by this part or any rule of 
the National Futures Assocation to be filed with the National Futures 
Association shall be deemed for all purposes to have been filed with, 
and to be the official record of, the Commission.

[49 FR 39530, Oct. 9, 1984, as amended at 53 FR 8431, Mar. 15, 1988; 54 
FR 19558, May 8, 1989; 67 FR 38874, June 6, 2002]



Sec. 3.3  [Reserved]



Sec. 3.4  Registration in one capacity not included in registration in any other capacity.

    (a) Except as may be otherwise provided in the Act or in any rule, 
regulation, or order of the Commission, each futures commission 
merchant, retail foreign exchange dealer, floor broker, floor trader, 
associated person, commodity trading advisor, commodity pool operator, 
introducing broker, and leverage transaction merchant must register as 
such under the Act. Registration in one capacity under the Act shall not 
include registration in any other capacity: Provided, however, That a 
registered floor broker need not also register as a floor trader in 
order to engage in activity as a floor trader.
    (b) Except as may be provided in any rule, regulation or order of 
the Commission, registration as an associated person in one capacity 
shall not include registration as an associated person in any other 
capacity: Provided, however, That an associated person who is sponsored 
by a registrant, which itself is registered in more than one capacity, 
need register only once to act as an associated person of the 
registrant, and shall be deemed to be an associated person of such 
registrant, in each such capacity.

[49 FR 39530, Oct. 9, 1984, as amended at 58 FR 19590, Apr. 15, 1993; 75 
FR 55424, Sept. 10, 2010]



Sec. Sec. 3.5-3.9  [Reserved]



Sec. 3.10  Registration of futures commission merchants, retail foreign

exchange dealers, introducing brokers, commodity trading advisors, commodity pool 
          operators and leverage transaction merchants.

    (a) Application for registration. (1)(i) Except as provided in 
paragraph (a)(3) of this section, application for registration as a 
futures commission merchant, retail foreign exchange dealers, 
introducing broker, commodity trading advisor, commodity pool operator 
or leverage transaction merchant must be on Form 7-R, completed and 
filed with the National Futures Association in accordance with the 
instructions thereto.
    (ii) Applicants for registration as a futures commission merchant, 
retail foreign exchange dealer or introducing broker must accompany 
their Form 7-R with a Form 1-FR-FCM or Form 1-FR-IB, respectively, in 
accordance with the provisions of Sec. 1.10 of this chapter: Provided, 
however, That an applicant for registration as a futures commission 
merchant or introducing broker which is registered with the Securities 
and Exchange Commission as a securities broker or dealer may accompany 
its Form 7-R with a copy of its Financial and Operational Combined 
Uniform Single Report under the Securities Exchange Act of 1934, Part II 
or Part II A, in accordance with the provisions of Sec. 1.10(h) of this 
chapter.
    (2) Each Form 7-R filed in accordance with the requirements of 
paragraph (a)(1)(i) of this section must be accompanied by a Form 8-R, 
completed in accordance with the instructions thereto and executed by 
each natural person who is a principal of the applicant, and must be 
accompanied by the fingerprints of that principal on a fingerprint card 
provided by the National Futures Association for that purpose: Provided,

[[Page 127]]

however, that if such principal is a director who qualifies for the 
exemption from the fingerprint requirement pursuant to Sec. 3.21(c) or 
has a current Form 8-R on file with the Commission or the National 
Futures Association, the fingerprints of that principal do not need to 
accompany the Form 7-R.
    (3) Notice registration as a futures commission merchant or 
introducing broker for certain securities brokers or dealers. (i) Any 
broker or dealer that is registered with the Securities and Exchange 
Commission may be registered as a futures commission merchant or 
introducing broker, as applicable, by following such procedures for 
notice registration as may be specified by the National Futures 
Association, if--
    (A) The broker or dealer limits its solicitation of orders, 
acceptance of orders, or execution of orders, or placing of orders on 
behalf of others involving any contracts of sale of any commodity for 
future delivery, on or subject to the rules of any contract market or 
registered derivatives transaction execution facility, to security 
futures products as defined in section 1a(32) of the Act;
    (B) The registration of the broker or dealer is not suspended 
pursuant to an order of the Securities and Exchange Commission; and
    (C) The broker or dealer is a member of a national securities 
association registered pursuant to section 15A(a) of the Securities 
Exchange Act of 1934.
    (ii) The registration will be effective upon the filing of the 
notice prescribed by the National Futures Association in accordance with 
the instructions thereto.
    (b) Duration of registration. (1) A person registered as a futures 
commission merchant, introducing broker, commodity trading advisor, 
commodity pool operator or leverage transaction merchant in accordance 
with paragraph (a) of this section will continue to be so registered 
until the effective date of any revocation or withdrawal of such 
registration. Such person will be prohibited from engaging in activities 
requiring registration under the Act or from representing himself to be 
a registrant under the Act or the representative or agent of any 
registrant during the pendency of any suspension of such registration.
    (2) A person registered as an introducing broker who was a party to 
a guarantee agreement with a futures commission merchant in accordance 
with Sec. 1.10(j) of this chapter will have its registration cease 
thirty days after the termination of such guarantee agreement unless the 
procedures set forth in Sec. 1.10(j)(8) of this chapter are followed.
    (c) Exemption from registration for certain persons. (1) A person 
trading solely for proprietary accounts, as defined in Sec. 1.3(y) of 
this chapter, is not required to register as a futures commission 
merchant: Provided, that such person remains subject to all other 
provisions of the Act and of the rules, regulations and orders 
thereunder.
    (2)(i) A foreign broker, as defined in Sec. 1.3(xx) of this 
chapter, is not required to register as a futures commission merchant if 
it submits any commodity interest transactions executed on or subject to 
the rules of designated contract market or derivatives transaction 
execution facility for clearing on an omnibus basis through a futures 
commission merchant registered in accordance with section 4d of the Act.
    (ii) A foreign broker acting in accordance with paragraph (c)(2)(i) 
of this section is not required to comply with those provisions of the 
Act and of the rules, regulations and orders thereunder applicable 
solely to any registered futures commission merchant or any person 
required to be so registered.
    (3)(i) A person located outside the United States, its territories 
or possessions engaged in the activity of: An introducing broker, as 
defined in Sec. 1.3(mm) of this chapter; a commodity trading advisor, 
as defined in Sec. 1.3(bb) of this chapter; or a commodity pool 
operator, as defined in Sec. 1.3(nn) of this chapter, in connection 
with any commodity interest transaction made on or subject to the rules 
of any designated contract market or derivatives transaction execution 
facility only on behalf of persons located outside the United States, 
its territories or possessions, is not required to register in such 
capacity: Provided, that any such commodity interest transaction 
executed

[[Page 128]]

on or subject to the rules of designated contract market or derivatives 
transaction execution facility is submitted for clearing through a 
futures commission merchant registered in accordance with section 4d of 
the Act.
    (ii) A person acting in accordance with paragraph (c)(3)(i) of this 
section remains subject to section 4o of the Act, but otherwise is not 
required to comply with those provisions of the Act and of the rules, 
regulations and orders thereunder applicable solely to any person 
registered in such capacity, or any person required to be so registered.
    (4) A person located outside the United States, its territories or 
possessions that is exempt from registration as a futures commission 
merchant in accordance with Sec. 30.10 of this chapter is not required 
to register as an introducing broker in accordance with section 4d of 
the Act if:
    (i) Such a person is affiliated with a futures commission merchant 
registered in accordance with section 4d of the Act;
    (ii) Such a person introduces, on a fully-disclosed basis in 
accordance with Sec. 1.57 of this chapter, any institutional customer, 
as defined in Sec. 1.3(g) of this chapter, to a registered futures 
commission merchant for the purpose of trading on a designated contract 
market or derivatives execution facility;
    (iii) Prior to a person located outside the United States, its 
territories or possessions, that is exempt from registration as a 
futures commission merchant pursuant to Sec. 30.10 of this chapter, 
engaging in the introducing activities described in this paragraph, the 
affiliated futures commission merchant has filed with the National 
Futures Association (ATTN: Vice President, Compliance) an 
acknowledgement that it will be jointly and severally liable for any 
violations of the Act or the Commission's regulations committed by such 
person in connection with those introducing activities, whether or not 
the affiliated futures commission merchant submits for clearing any 
trades resulting from those introducing activities; and
    (iv) Such person does not solicit any person located in the United 
States, its territories or possessions for trading on a designated 
contract market or derivatives transaction execution facility, nor does 
such person handle the customer funds of any person located in the 
United States, its territories or possessions for the purpose of trading 
on any designated contract market or derivatives transaction execution 
facility.
    (v) For the purposes of this paragraph, a person shall be affiliated 
with a futures commission merchant if such a person:
    (A) Owns 50 percent or more of the futures commission merchant;
    (B) Is owned 50 percent or more by the futures commission merchant; 
or
    (C) Is owned 50 percent or more by a third person that also owns 50 
percent or more of the futures commission merchant.
    (d) On a date to be established by the National Futures Association, 
and in accordance with procedures established by the National Futures 
Association, each registrant as a futures commission merchant, 
introducing broker, commodity trading advisor, commodity pool operator 
or leverage transaction merchant shall, on an annual basis, review and 
update registration information maintained with the National Futures 
Association. The failure to complete the review and update within thirty 
days following the date established by the National Futures Association 
shall be deemed to be a request for withdrawal from registration, which 
shall be processed in accordance with the provisions of Sec. 3.33(f).

(Approved by the Office of Management and Budget under control number 
3038-0023)

[45 FR 80491, Dec. 5, 1980, as amended at 47 FR 27551, June 25, 1982; 49 
FR 5522, Feb. 13, 1984; 49 FR 39530, Oct. 9, 1984; 57 FR 23144, June 2, 
1992; 66 FR 43082, Aug. 17, 2001; 66 FR 53518, Oct. 23, 2001; 67 FR 
38874, June 6, 2002; 67 FR 41166, June 17, 2002; 72 FR 35920, July 2, 
2007; 72 FR 63979, Nov. 14, 2007; 73 FR 54071, Sept. 18, 2008; 75 FR 
55424, Sept. 10, 2010]



Sec. 3.11  Registration of floor brokers and floor traders.

    (a) Application for registration. (1) Application for registration 
as a floor broker or floor trader must be on Form 8-R, completed and 
filed with the National Futures Association in accordance with the 
instructions thereto.

[[Page 129]]

Each Form 8-R filed in accordance with paragraph (a) of this section 
must be accompanied by the fingerprints of the applicant on a 
fingerprint card provided for that purpose by the National Futures 
Association, except that a fingerprint card need not be filed by any 
applicant who has a current Form 8-R on file with the Commission or the 
National Futures Association.
    (2) An applicant for registration as a floor broker or floor trader 
will not be registered or issued a temporary license as a floor broker 
or floor trader unless the applicant has been granted trading privileges 
by a board of trade designated as a contract market or registered as a 
derivatives transaction execution facility by the Commission.
    (3) When the Commission or the National Futures Association 
determines that an applicant for registration as a floor broker or floor 
trader is not disqualified from such registration or temporary license, 
the National Futures Association will notify the applicant and any 
contract market or derivatives transaction execution facility that has 
granted the applicant trading privileges that the applicant's 
registration or temporary license as a floor broker or floor trader is 
granted.
    (b) Duration of registration. A person registered as a floor broker 
or floor trader in accordance with paragraph (a) of this section, and 
whose registration has neither been revoked nor withdrawn, will continue 
to be so registered unless such person's trading privileges on all 
contract markets or derivatives transaction execution facilities have 
ceased: Provided, That if a floor broker or floor trader whose trading 
privileges on all contract markets or derivatives transaction execution 
facilities have ceased for reasons unrelated to any Commission action or 
any contract market or derivatives transaction execution facility 
disciplinary proceeding and whose registration is not revoked, suspended 
or withdrawn is granted trading privileges as a floor broker or floor 
trader, respectively, by any contract market or derivatives transaction 
execution facility where he held such privileges within the preceding 
sixty days, such registration as a floor broker or floor trader, 
respectively, shall be deemed to continue and no new Form 8-R or Form 3-
R need be filed solely on the basis of the resumption of trading 
privileges. A floor broker or floor trader is prohibited from engaging 
in activities requiring registration under the Act or from representing 
himself to be a registrant under the Act or the representative or agent 
of any registrant during the pendency of any suspension of such 
registration or of all such trading privileges. In accordance with Sec. 
3.31(d), each contract market or derivatives transaction execution 
facility that has granted trading privileges to a person who is 
registered, or has applied for registration, as a floor broker or floor 
trader, must notify the National Futures Association within sixty days 
after such person's trading privileges on such contract market or 
derivatives transaction execution facility have ceased.

[58 FR 19591, Apr. 15, 1993, as amended at 64 FR 1727, Jan. 12, 1999; 67 
FR 38874, June 6, 2002]



Sec. 3.12  Registration of associated persons of futures commission merchants,

retail foreign exchange dealers, introducing brokers, commodity trading 
          advisors, commodity pool operators and leverage transaction 
          merchants.

    (a) Registration required. It shall be unlawful for any person to be 
associated with a futures commission merchant, retail foreign exchange 
dealer, introducing broker, commodity trading advisor, commodity pool 
operator or leverage transaction merchant as an associated person unless 
that person shall have registered under the Act as an associated person 
of that sponsoring futures commission merchant, retail foreign exchange 
dealer, introducing broker, commodity trading advisor, commodity pool 
operator or leverage transaction merchant in accordance with the 
procedures in paragraphs (c), (d), (f), or (i), of this section or is 
exempt from such registration pursuant to paragraph (h) of this section.
    (b) Duration of registration. A person registered in accordance with 
paragraphs (c), (d), (f), (i), or (j) of this section and whose 
registration has not been revoked will continue to be so registered 
until the revocation or withdrawal of the registration of each of the 
registrant's sponsors, or until the

[[Page 130]]

cessation of the association of the registrant with each of his 
sponsors. Such person will be prohibited from engaging in activities 
requiring registration under the Act or from representing himself to be 
a registrant under the Act or the representative or agent of any 
registrant during the pendency of any suspension of his or his sponsor's 
registration. In accordance with Sec. 3.31(c), each of the registrant's 
sponsors must file a notice with the National Futures Association on 
Form 8-T or on a Uniform Termination Notice for Securities Industry 
Registration reporting the termination of the association of the 
associated person within thirty days thereafter.
    (c) Application for registration. Except as otherwise provided in 
paragraphs (d), (f), (i), and (j) of this section, application for 
registration as an associated person in any capacity must be on Form 8-
R, completed and filed in accordance with the instructions thereto.
    (1) No person will be registered as an associated person in 
accordance with this paragraph (c) unless a person duly authorized by 
the sponsor certifies that:
    (i) It is the intention of the sponsor to hire or otherwise employ 
the applicant as an associated person and that it will do so within 
thirty days after the receipt of the notification provided in accordance 
with paragraph (c)(4) of this section and that the applicant will not be 
permitted to engage in any activity requiring registration as an 
associated person until the applicant is registered as such in 
accordance with this section;
    (ii) The sponsor has verified the information supplied by the 
applicant in response to the questions on Form 8-R which relate to the 
applicant's education and employment history during the preceding three 
years.
    (iii) To the best of the sponsor's knowledge, information, and 
belief, all of the publicly available information supplied by the 
applicant on Form 8-R is accurate and complete: Provided, That it is 
unlawful for the sponsor to make the certification required by this 
paragraph (c)(1)(iii) if the sponsor knew or should have known that any 
of that information is not accurate and complete; and
    (2) The certification required by paragraph (c)(1) of this section 
must be submitted concurrently with the Form 8-R.
    (3) Each Form 8-R filed in accordance with the requirements of 
paragraph (c) of this section must be accompanied by the fingerprints of 
the applicant on a fingerprint card provided for that purpose by the 
National Futures Association.
    (4) When the Commission or the National Futures Association 
determines that an applicant for registration as an associated person is 
not unfit for such registration, it will notify the sponsor that has 
made the certifications required by paragraph (c)(1) of this section 
that the applicant's registration as an associated person is granted 
contingent upon the sponsor hiring or otherwise employing the applicant 
as such within thirty days.
    (d) Special temporary licensing and registration procedures for 
certain persons--(1) Registration terminated within the preceding 60 
days. Except as otherwise provided in paragraphs (f) and (i) of this 
section, any person whose registration as an associated person in any 
capacity has terminated within the preceding 60 days and who becomes 
associated with a new sponsor will be granted a temporary license to act 
in the capacity of an associated person of such sponsor upon filing by 
that sponsor with the National Futures Association a Form 8-R, completed 
in accordance with the instructions thereto and, if applicable, a 
Supplemental Sponsor Certification Statement filed on behalf of the new 
sponsor (who must meet the requirements set forth in Sec. 
3.60(b)(2)(i)(A) and (B)) stating that the new sponsor will supervise 
the applicant in accordance with conditions identical to those agreed to 
by the previous sponsor, which includes certifications stating:
    (i) That such person has been hired or is otherwise employed by that 
sponsor;
    (ii) That such person's registration as an associated person in any 
capacity is not suspended or revoked;
    (iii) That such person is eligible to be registered or temporarily 
licensed in accordance with this paragraph (d);
    (iv) Whether there is a pending adjudicatory proceeding under 
sections 6(c),

[[Page 131]]

6(d), 6c, 6d, 8a or 9 of the Act or Sec. Sec. 3.55, 3.56 or 3.60 or if, 
within the preceding 12 months, the Commission has permitted the 
withdrawal of an application for registration in any capacity after 
instituting the procedures provided in Sec. 3.51 and, if so, that the 
sponsor has been given a copy of the notice of the institution of a 
proceeding in connection therewith; and
    (v) That the sponsor has received a copy of the notice of the 
institution of a proceeding if the applicant has certified, in 
accordance with paragraph (d)(1)(iv) of this section, that there is a 
proceeding pending against the applicant as described in that paragraph 
or that the Commission has permitted the withdrawal of an application 
for registration as described in that paragraph.
    (2) Any temporary license granted pursuant to paragraph (d)(1) of 
this section shall be terminated immediately upon notice to the sponsor 
of the person granted the temporary license that, within 20 days 
following the date the temporary license was issued, the National 
Futures Association has not received the applicant's fingerprints.
    (3) A temporary license received in accordance with paragraph (d)(1) 
of this section shall be subject to the provisions of Sec. Sec. 3.42 
and 3.43.
    (4) The certifications permitted by paragraphs (d)(1)(i) and (v) of 
this section must be filed by a person duly authorized by the sponsor. 
The certifications permitted by paragraphs (d)(1)(ii)-(iv) must be filed 
by the applicant for registration as an associated person.
    (e) Retention of records. The sponsor must retain in accordance with 
Sec. 1.31 of this chapter such records as are necessary to support the 
certifications required by this section.
    (f) Reporting of dual and multiple associations. (1)(i) Except as 
otherwise provided in paragraph (f)(4) of this section, a person who is 
already registered as an associated person in any capacity whose 
registration is not subject to conditions or restrictions may become 
associated as an associated person with another sponsor if the new 
sponsor (who must meet the requirements set forth in Sec. 3.60(b)(2)(i) 
(A) and (B)) files with the National Futures Association a Form 8-R in 
accordance with the instructions thereto.
    (ii) NFA shall notify each sponsor of the associated person that the 
associated person has applied to become associated with another sponsor.
    (iii) Each sponsor of the associated person shall supervise that 
associated person and each sponsor is jointly and severally responsible 
for the conduct of the associated person with respect to the:
    (A) Solicitation or acceptance of customers' orders,
    (B) Solicitation of funds, securities, or property for a 
participation in a commodity pool,
    (C) Solicitation of a client's or prospective client's discretionary 
account,
    (D) Solicitation or acceptance of leverage customers' orders for 
leverage transactions, and
    (E) Associated person's supervision of any person or persons engaged 
in any of the foregoing solicitations or acceptances, with respect to 
any customers common to it and any other futures commission merchant, 
retail foreign exchange dealer, introducing broker, commodity trading 
advisor, commodity pool operator, or leverage transaction merchant with 
which the associated person is associated.
    (2) Upon receipt by the National Futures Association of a Form 8-R 
filed in accordance with paragraph (f)(1) of this section from an 
associated person, the associated person named therein shall be 
registered as an associated person of the new sponsor.
    (3) A person who is simultaneously associated with more than one 
sponsor in accordance with the provisions of paragraphs (f)(1) and 
(f)(2) of this section shall be required, upon receipt of notice from 
the National Futures Association, to file with the National Futures 
Association his fingerprints on a fingerprint card provided by the 
National Futures Association for that purpose as well as such other 
information as the National Futures Association may require. The 
National Futures Association may require such a filing every two years, 
or at such greater period of time as the National Futures Association 
may deem appropriate, after the associated person has become associated 
with a new sponsor

[[Page 132]]

in accordance with the requirements of paragraphs (f)(1) and (f)(2) of 
this section.
    (4) If a person is associated with a futures commission merchant, 
with a retail foreign exchange dealer, or with an introducing broker and 
he directs customers seeking a managed account to use the services of a 
commodity trading advisor(s) approved by the futures commission 
merchant, retail foreign exchange dealer or introducing broker and all 
such customers' accounts solicited or accepted by the associated person 
are carried by the futures commission merchant, retail foreign exchange 
dealer or introduced by the introducing broker with which the associated 
person is associated, such a person shall be deemed to be associated 
solely with the futures commission merchant, retail foreign exchange 
dealer or introducing broker and may not also register as an associated 
person of the commodity trading advisor(s).
    (g) Petitions for exemption. (1) Any person adversely affected by 
the operation of this section may file a petition with the Secretary of 
the Commission, which petition must set forth with particularity the 
reasons why that person believes that an applicant should be exempted 
from the requirements of this section and why such an exemption would 
not be contrary to the public interest and the purposes of the provision 
from which exemption is sought. The petition will be granted or denied 
by the Commission on the basis of the papers filed. The Commission may 
grant such a petition if it finds that the exemption is not contrary to 
the public interest and the purposes of the provision from which 
exemption is sought. The petition may be granted subject to such terms 
and conditions as the Commission may find appropriate.
    (2)(i) Until such time as the Commission orders otherwise, the 
Commission hereby delegates to the Director of the Division of Clearing 
and Intermediary Oversight or his designee the authority to grant or 
deny petitions filed pursuant to this paragraph (g).
    (ii) The Director of the Division of Clearing and Intermediary 
Oversight may submit to the Commission for its consideration any matter 
which has been delegated to him pursuant to paragraph (g)(2)(i) of this 
section.
    (h) Exemption from registration. (1) A person is not required to 
register as an associated person in any capacity if that person is:
    (i) Registered under the Act as a futures commission merchant, 
retail foreign exchange dealer, floor broker, or as an introducing 
broker;
    (ii) Engaged in the solicitation of funds, securities, or property 
for a participation in a commodity pool, or the supervision of any 
person or persons so engaged, pursuant to registration with the National 
Association of Securities Dealers as a registered representative, 
registered principal, limited representative or limited principal, and 
that person does not engage in any other activity subject to regulation 
by the Commission;
    (iii) The chief operating officer, general partner or other person 
in the supervisory chain-of-command, provided the futures commission 
merchant, retail foreign exchange dealer, introducing broker, commodity 
trading advisor, commodity pool operator, or leverage transaction 
merchant engages in commodity interest related activity for customers as 
no more than ten percent of its total revenue on an annual basis, the 
firm is not subject to a pending proceeding brought by the Commission or 
a self-regulatory organization alleging fraud or failure to supervise, 
and has not been found in such a proceeding to have committed fraud or 
failed to supervise, as required by the Act, the rules promulgated 
thereunder or the rules of a self-regulatory organization, the person 
for whom exemption is sought and the person designated in accordance 
with paragraphs (h)(1)(iii)(C) or (h)(1)(iii)(D) of this section are 
listed as principals of the firm, the fitness examination conducted by 
the National Futures Association with respect to these persons discloses 
no derogatory information that would disqualify any of such persons as a 
principal or as an associated person, and the firm files with the 
National Futures Association corporate or partnership resolutions 
stating that:
    (A) Such supervisory person is not authorized to:

[[Page 133]]

    (1) Solicit or accept customers', retail forex customers', or 
leverage customers' orders,
    (2) Solicit a client's or prospective client's discretionary 
account,
    (3) Solicit funds, securities or property for a participation in a 
commodity pool, or
    (4) Exercise any line supervisory authority over those persons so 
engaged;
    (B) Such supervisory person has no authority with respect to hiring, 
firing or other personnel matters involving persons engaged in 
activities subject to regulation under the Act;
    (C) Another person (or persons) designated therein, who is 
registered as an associated person(s) or who has applied for 
registration as an associated person(s) and is not subject to a pending 
proceeding brought by the Commission or a self-regulatory organization 
alleging fraud or failure to supervise, and has not been found in such a 
proceeding to have committed fraud or failed to supervise, as required 
by the Act, the rules promulgated thereunder or the rules of a self-
regulatory organization, holds and exercises full and final supervisory 
authority, including authority to hire and fire personnel, over the 
customer commodity interest related activities of the firm; and
    (D) If the person (or persons) so designated in accordance with 
paragraph (h)(1)(iii)(C) of this section ceases to have the authority 
referred to therein, the firm will notify the National Futures 
Association within twenty days of such occurrence by means of a 
subsequent resolution which resolution must also include the name of 
another associated person (or persons) who has been vested with full 
supervisory authority, including authority to hire and fire personnel, 
over the customer commodity interest related activities of the firm in 
the event that all of those previously designated in accordance with 
paragraph (h)(1)(iii)(C) of this section have been relieved of such 
authority. Subsequent changes in supervisory authority shall be reported 
in the same manner; or
    (iv) Engaged in any activity as an associated person, as defined in 
Sec. 1.3(aa) of this chapter, from a location outside the United 
States, its territories or possessions, and limits such activities to 
customers located outside the United States, its territories or 
possessions.
    (2) A person is not required to register as an associated person of 
a commodity trading advisor if that person is:
    (i) Registered as a commodity trading advisor, if that person is 
associated with a commodity trading advisor; or
    (ii) Exempt from registration as a commodity trading advisor 
pursuant to the provisions of Sec. 4.14(a)(1), Sec. 4.14(a)(2) or 
Sec. 4.14(a) (8) of this chapter or is associated with a person who is 
so exempt from registration: Provided, That the provisions of paragraph 
(h)(2)(ii) of this section shall not apply to the solicitation of a 
client's or prospective client's discretionary account, or the 
supervision of any person or persons so engaged, by, for or on behalf of 
a commodity trading advisor which is:
    (A) Not exempt from registration pursuant to the provisions of Sec. 
4.14(a)(1), Sec. 4.14(a)(2) or Sec. 4.14(a)(8) of this chapter or
    (B) Registered as a commodity trading advisor notwithstanding the 
availability of that exemption.
    (3) A person is not required to register as an associated person of 
a commodity pool operator if that person is:
    (i) Registered as a commodity pool operator, if that person is 
associated with a commodity pool operator;
    (ii) Exempt from registration as a commodity pool operator pursuant 
to the provisions of Sec. 4.13 of this chapter or is associated with a 
person who is so exempt from registration: Provided, That the provisions 
of paragraph (h)(3)(ii) of this section shall not apply to the 
solicitation of funds, securities, or property for a participation in a 
commodity pool, or the supervision of any person or persons so engaged, 
by, for, or on behalf of a commodity pool operator which is
    (A) Not exempt from registration pursuant to the provisions of Sec. 
4.13 of this chapter or
    (B) Registered as a commodity pool operator notwithstanding the 
availability of that exemption; or
    (iii) Where a commodity pool is operated or to be operated by two or 
more commodity pool operators, registered as an associated person of one 
of the

[[Page 134]]

pool operators of the commodity pool in accordance with the provisions 
of paragraphs (c), (d), (f), or (i) of this section: Provided, That each 
such commodity pool operator shall be jointly and severally liable for 
the conduct of that associated person in the solicitation of funds, 
securities, or property for participation in the commodity pool, or the 
supervision of any person or persons so engaged, regardless of whether 
that associated person is registered as an associated person of each 
such commodity pool operator.
    (i) Special registration or temporary licensing procedures when 
previous sponsor's registration ceases. (1) Any person whose 
registration as an associated person in any capacity was not subject to 
conditions or restrictions, and was terminated within the preceding 
sixty days because the previous sponsor's registration was revoked or 
withdrawn, and who becomes associated with a new sponsor, will be 
registered as an associated person of such new sponsor upon the mailing 
by that new sponsor to the National Futures Association of written 
certifications stating:
    (i) That such person has been hired or is otherwise employed by that 
sponsor;
    (ii) That such person's registration as an associated person in any 
capacity is not suspended or revoked;
    (iii) That such person is eligible to be registered in accordance 
with paragraph (i) of this section;
    (iv) Whether there is a pending adjudicatory proceeding under 
sections 6(c), 6(d), 6c, 6d, 8a or 9 of the Act or Sec. 3.55, 3.56 or 
3.60 or if, within the preceding twelve months, the Commission has 
permitted the withdrawal of an application for registration in any 
capacity after instituting the procedures provided in Sec. 3.51 and, if 
so, that the sponsor has been given a copy of the notice of the 
institution of a proceeding in connection therewith;
    (v) That the new sponsor has received a copy of the notice of the 
institution of a proceeding if the applicant for registration has 
certified, in accordance with paragraph (i)(1)(iv) of this section, that 
there is a proceeding pending against the applicant as described in that 
paragraph or that the Commission has permitted the withdrawal of an 
application for registration as described in that paragraph; and
    (vi) That the new sponsor will be responsible for supervising all 
activities of the person in connection with the sponsor's business as a 
registrant under the Act. Provided, however, That if such person's prior 
registration as an associated person was subject to conditions or 
restrictions, the new sponsor (who must meet the requirements set forth 
in Sec. 3.60(b)(2)(i) (A) and (B) of this part) must also file a signed 
Supplemental Sponsor Certification Statement that contains conditions 
identical to those agreed to by the original sponsor and, in such case, 
the person will be granted a temporary license, subject to the 
provisions of Sec. Sec. 3.41, 3.42 and 3.43 of this part.
    (2) The certifications required by paragraphs (i)(1)(i), (i)(1)(v), 
and (i)(1)(vi) of this section must be signed and dated by an officer, 
if the sponsor is a corporation, a general partner, if a partnership, or 
the proprietor, if a sole proprietorship. The certifications required by 
paragraphs (i)(1)(ii)-(iv) of this section must be signed and dated by 
the applicant for registration as an associated person.
    (3) A person who is registered in accordance with the provisions of 
paragraph (i)(1) of this section shall be required, upon receipt of 
notice from the National Futures Association, to file with the National 
Futures Association his fingerprints on a fingerprint card provided by 
the National Futures Association for that purpose as well as such other 
information as the National Futures Association may require. The 
National Futures Association may require such a filing every two years, 
or at such greater period of time as the National Futures Association 
may deem appropriate, after the associated person has become associated 
with a new sponsor in connection with the requirements of paragraph 
(i)(1) of this section.

(Approved by the Office of Management and Budget under control number 
3038-0023)

[45 FR 80491, Dec. 5, 1980]

    Editorial Note: For Federal Register citations affecting Sec. 3.12, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.

[[Page 135]]



Sec. 3.13  Registration of agricultural trade option merchants and their associated persons.

    (a) Definitions--(1) Agricultural trade option merchant. 
``Agricultural trade option merchant'' means any person that is in the 
business of soliciting, offering to enter into, entering into, 
confirming the execution of, or maintaining a position in, transactions 
or agreements in interstate commerce which are not conducted or executed 
on or subject to the rules of a contract market, and which are or are 
held out to be of the character of, or are commonly known to the trade 
as, an ``option,'' ``privilege,'' ``indemnity,'' ``bid,'' ``offer,'' 
``put,'' ``call,'' ``advance guarantee,'' or ``decline guarantee,'' 
involving wheat, cotton, rice, corn, oats, barley, rye, flaxseed, grain 
sorghums, mill feeds, butter, eggs, solanum tuberosum (Irish potatoes), 
wool, wool tops, fats and oils (including lard, tallow, cottonseed oil, 
peanut oil, soybean oil and all other fats and oils), cottonseed meal, 
cottonseed, peanuts, soybeans, soybean meal, livestock, livestock 
products, and frozen concentrated orange juice. Provided, however, that 
any person entering into such transactions solely for the purpose of 
managing the risk arising from the conduct of his or her own commercial 
enterprise is not considered to be in the business described in this 
paragraph.
    (2) Associated person of an agricultural trade option merchant. 
``Associated person of an agricultural trade option merchant'' means a 
partner, employee, or agent (or any person occupying a similar status or 
performing similar functions) that:
    (i) Solicits or accepts customers' orders (other than in a clerical 
capacity) or
    (ii) Supervises directly any person or persons so engaged.
    (b) Registration required. It shall be unlawful for any person in 
the business of soliciting, offering or selling the instruments listed 
in Sec. 32.2 of this chapter to solicit, to offer to enter into, or to 
enter into, to confirm the execution of, or to maintain transactions in 
such instruments or to supervise directly persons so engaged except if 
registered as an agricultural trade option merchant or as an associated 
person of such a registered agricultural trade option merchant under 
this section.
    (c) Duration of registration. (1) A person registered in accordance 
with the provisions of this section shall continue to be registered 
until the revocation or withdrawal of registration.
    (2) Agricultural trade option merchants must notify the National 
Futures Association within forty five days when an associated person has 
ceased to be so associated.
    (3) An associated person who ceases to be associated with a 
registered agricultural trade option merchant is prohibited from 
engaging in activities requiring registration under Sec. 32.13 of this 
chapter or representing himself or herself to be a registrant until:
    (i) A registered agricultural trade option merchant notifies the 
National Futures Association of the person's association; and
    (ii) The associated person certifies to the National Futures 
Association that he or she is not disqualified from registration for the 
reasons listed in section 8a (2) and (3) of the Act; provided, however, 
no such certification is required when the associated person becomes 
associated with the new agricultural trade option merchant within ninety 
days from when the associated person ceased the previous association.
    (d) Conditions for registration. (1) Applicants for registration as 
an agricultural trade option merchant must meet the following 
conditions:
    (i) The agricultural trade option merchant must have and maintain at 
all times net worth of at least $50,000 computed in accordance with 
generally accepted accounting principles;
    (ii) The agricultural trade option merchant must identify each of 
the natural persons who controls or directs the offer or sale of trade 
options or associated trading activity by the agricultural trade option 
merchant and any associated person of the agricultural trade option 
merchant and each such natural person must certify that he or she is not 
disqualified from registration for the reasons listed in sections 8a(2) 
and (3) of the Act; and
    (iii) The agricultural trade option merchant must provide access to 
any representative of the Commission or

[[Page 136]]

the United States Department of Justice for the purpose of inspecting 
books and records.
    (2) Applicants for registration as an associated person of an must 
meet the following conditions. Such persons must:
    (i) Identify the agricultural trade option merchant with whom the 
person is associated or to be associated within thirty days of the 
person's registration; and
    (ii) Certify that he or she is not disqualified from registration 
for the reasons listed in sections 8a(2) and (3) of the Act.
    (e) Applications for registration. (1) The agricultural trade option 
merchant, including its principals, and associated persons of an 
agricultural trade option merchant must apply for registration on the 
appropriate forms specified by the National Futures Association and 
approved by the Commission, in accordance with the instructions thereto, 
including the separate certifications from each natural person that he 
or she is not disqualified for any of the reasons listed in sections 
8a(2) and (3) of the Act and such other identifying background 
information as may be specified.
    (2) The agricultural trade option merchant's application must also 
include its most recent annual financial statements certified by an 
independent certified public accountant in accordance with generally 
accepted auditing standards prepared within the prior 12 months.
    (3) These applications must be supplemented to include any changes 
in the information required to be provided thereon on a form specified 
by the National Futures Association and approved by the Commission.
    (f) Withdrawal of application for registration; denial, suspension 
and revocation of registration. The provisions of Sec. Sec. 3.51, 3.55, 
3.56 and 3.60 shall apply to applicants for registration and registrants 
as agricultural trade options merchants and their associated persons 
under this part 3 as though they were an applicant or registrant in any 
capacity under the Act.
    (g) Withdrawal from registration. An agricultural trade option 
merchant that has ceased or has not commenced engaging in activities 
requiring registration may withdraw from registration 30 days after 
notifying the National Futures Association on the specified form of its 
intent to do so, unless otherwise notified by the Commission. Such a 
withdrawal notification must include information identifying the 
location of, and the custodian authorized to release, the agricultural 
trade option merchant's records, a statement of the disposition of 
customer positions, cash balances, securities or other property and a 
statement that no obligations to customers arising from agricultural 
trade options remain outstanding.
    (h) Dual registration of associated persons. An associated person of 
an agricultural trade option merchant may be associated with other 
registrants subject to the provision of Sec. 3.12(f).

[64 FR 68016, Dec. 6, 1999]



Sec. Sec. 3.14-3.20  [Reserved]



Sec. 3.21  Exemption from fingerprinting requirement in certain cases.

    (a) Any person who is required by this part to submit a fingerprint 
card may file, or cause to be filed, in lieu of such card:
    (1) A legible, accurate and complete photocopy of a fingerprint card 
which has been submitted to the Federal Bureau of Investigation for 
identification and appropriate processing and of each report, record, 
and notation made available by the Federal Bureau of Investigation with 
respect to that fingerprint card if such identification and processing 
has been completed satisfactorily by the Federal Bureau of Investigation 
not more than ninety days prior to the filing with the National Futures 
Association of the photocopy; or
    (2) A statement that such person's application for initial 
registration in any capacity was granted within the preceding ninety 
days; Provided, That the provisions of paragraph (a)(2) shall not be 
applicable to any person who, by Commission rule, regulation, or order, 
was not required to file a fingerprint card in connection with such 
application for initial registration.
    (b) Each photocopy and statement filed in accordance with the 
provisions

[[Page 137]]

of paragraph (a)(1) or (a)(2) of this section must be signed and dated. 
Such signature shall constitute a certification by that individual that 
the photocopy or statement is accurate and complete and must be made by:
    (1) With respect to the fingerprints of an associated person. An 
officer, if the sponsor is a corporation, a general partner, if a 
partnership, or the sole proprietor, if a sole proprietorship;
    (2) With respect to fingerprints of a floor broker or floor trader. 
The applicant for registration; or
    (3) With respect to the fingerprints of a principal. An officer, if 
the futures commission merchant, retail foreign exchange dealer, 
commodity trading advisor, commodity pool operator, introducing broker, 
or leverage transaction merchant with which the principal will be 
affiliated is a corporation, a general partner, if a partnership, or the 
sole proprietor, if a sole proprietorship.
    (c) Outside directors. Any futures commission merchant, retail 
foreign exchange dealer, introducing broker, commodity trading advisor, 
commodity pool operator or leverage transaction merchant that has a 
principal who is a director but is not also an officer or employee of 
the firm may, in lieu of submitting a fingerprint card in accordance 
with the provisions of Sec. Sec. 3.10(a)(2) and 3.31(a)(2), file a 
``Notice Pursuant to Rule 3.21(c)'' with the National Futures 
Association. Such notice shall state, if true, that such outside 
director:
    (1) Is not engaged in:
    (i) The solicitation or acceptance of customers' orders or retail 
forex customers' orders,
    (ii) The solicitation of funds, securities or property for a 
participation in a commodity pool,
    (iii) The solicitation of a client's or prospective client's 
discretionary account,
    (iv) The solicitation or acceptance of leverage customers' orders 
for leverage transactions;
    (2) Does not regularly have access to the keeping, handling or 
processing of:
    (i) Commodity interest transactions;
    (ii) Customer funds, retail forex customer funds, leverage customer 
funds, foreign futures or foreign options secured amount, or adjusted 
net capital; or
    (3) Does not have direct supervisory responsibility over persons 
engaged in the activities referred to in paragraphs (c)(1) and (c)(2) of 
this section; and
    (4) The Notice Pursuant to Rule 3.21(c) shall also include:
    (i) The name of the futures commission merchant, retail foreign 
exchange dealer, introducing broker, commodity trading advisor, 
commodity pool operator, leverage transaction merchant, or applicant for 
registration in any of these capacities of which the person is an 
outside director;
    (ii) The nature of the duties of the outside director for whom 
exemption under paragraph (c) of this section is sought;
    (iii) The internal controls used to ensure that the outside director 
for whom exemption under paragraph (c) of this section is sought does 
not have access to the keeping, handling or processing of the items 
described in paragraphs (c)(2)(i), (c)(2)(ii), and (c)(2)(iii) of this 
section; and
    (iv) The reasons why the outside director believes he should be 
exempted from the fingerprint requirement and why such an exemption 
would not be contrary to the public interest and the purposes of the 
provision from which exemption is sought.
    (d) A firm that has filed a Notice Pursuant to Rule 3.21(c) with 
respect to an outside director described therein must file with the 
National Futures Association on behalf of such outside director a Form 
8-R, completed in accordance with the instructions thereto and executed 
by the outside director. The exemption provided for in paragraph (c) of 
this section is limited solely to the outside director's fingerprint 
requirement and does not affect any other duties or responsibilities of 
the firm or the outside director under the Act or the rules set forth in 
this chapter. In appropriate cases, the Commission and the National 
Futures Association may require further information

[[Page 138]]

from the firm with respect to any outside director referred to in a 
Notice Pursuant to Rule 3.21(c).

[48 FR 35297, Aug. 3, 1983, as amended at 49 FR 5525, Feb. 13, 1984; 54 
FR 19558, May 8, 1989; 57 FR 23148, June 2, 1992; 58 FR 19592, Apr. 15, 
1993; 66 FR 53518, Oct. 23, 2001; 75 FR 55425, Sept. 10, 2010]



Sec. 3.22  Supplemental filings.

    Notwithstanding any other provision of this chapter, the Commission, 
the Directors of the Division of Clearing and Intermediary Oversight or 
Division of Enforcement or either Director's designee, or the National 
Futures Association may, at any time, give written notice to any 
registrant, applicant for registration, or person required to be 
registered:
    (a)(1) That derogatory information has come to the attention of the 
staff of the Commission or the National Futures Association which, if 
true, could constitute grounds upon which to base a determination that 
the person is unfit to become, or to remain, registered or temporarily 
licensed in accordance with the Act or the regulations thereunder and 
setting forth such information in the notice and requesting the person 
to provide evidence mitigating the seriousness of the statutory 
disqualification set forth in the notice and evidence that the person 
has undergone rehabilitation, or
    (2) That the Commission or the National Futures Association has 
undertaken a routine or periodic review of the registrant's fitness to 
remain registered or temporarily licensed; and
    (b) That the person, or any individual who, based upon his or her 
relationship with that person is required to file a Form 8-R in 
accordance with the requirements of this part, as applicable, must, 
within such period of time as the Commission or the National Futures 
Association may specify, complete and file with the Commission or the 
National Futures Association a current Form 7-R, or if appropriate, a 
Form 8-R, in accordance with the instructions thereto. A Form 8-R must 
be accompanied by that individual's fingerprints on a fingerprint card 
provided by the Commission or the National Futures Association for that 
purpose.
    (c) Failure to provide the information required under paragraph (b) 
of this section is a violation of the Commission's regulations which 
itself constitutes grounds upon which to base a determination that the 
person is unfit to become or to remain so registered.

(Approved by the Office of Management and Budget under control number 
3038-0023)

[45 FR 8049, Dec. 5, 1980, as amended by 47 FR 27551, June 25, 1982; 49 
FR 39532, Oct. 9, 1984; 53 FR 8433, Mar. 15, 1988; 57 FR 23148, June 2, 
1992; 67 FR 62351, Oct. 7, 2002]



Sec. Sec. 3.23-3.29  [Reserved]



Sec. 3.30  Current address for purpose of 

delivery of communications from the Commission or the National Futures Association.

    (a) The address of each registrant, applicant for registration and 
principal, as submitted on the application for registration (Form 7-R or 
Form 8-R) or as submitted on the biographical supplement (Form 8-R) 
shall be deemed to be the address for delivery to the registrant, 
applicant or principal for any communications from the Commission or the 
National Futures Association, including any summons, complaint, 
reparation claim, order, subpoena, special call, request for 
information, notice, and other written documents or correspondence, 
unless the registrant, applicant or principal specifies another address 
for this purpose: Provided, That the Commission or the National Futures 
Association may address any correspondence relating to a biographical 
supplement submitted for or on behalf of a principal to the futures 
commission merchant, retail foreign exchange dealer, commodity trading 
advisor, commodity pool operator, introducing broker, or leverage 
transaction merchant with which the principal is affiliated and may 
address any correspondence relating to the registration of an associated 
person to the futures commission merchant, retail foreign exchange 
dealer, commodity trading advisor, commodity pool operator, introducing 
broker, or leverage transaction merchant with which the associated 
person or the applicant for registration is or will be associated as an 
associated person.

[[Page 139]]

    (b) Each registrant, while registered and for two years after 
termination of registration, and each principal, while affiliated and 
for two years after termination of affiliation, must notify in writing 
the National Futures Association of any change of the address an the 
application for registration, biographical supplement, or other address 
filed with the National Futures Association for the purpose of receiving 
communications from the Commission or the National Futures Association. 
Failure to file a required response to any communication sent to the 
latest such address filed with the National Futures Association which is 
caused by a failure to notify in writing the National Futures 
Association of an address change may result in an order of default and 
award of claimed monetary damages or other appropriate order in any 
National Futures Association or Commission proceeding, including a 
reparation proceeding brought under part 12 of this chapter.

[57 FR 23149, June 2, 1992, as amended at 75 FR 55426, Sept. 10, 2010]



Sec. 3.31  Deficiencies, inaccuracies, and changes, to be reported.

    (a)(1) Each applicant or registrant as a futures commission 
merchant, retail foreign exchange dealer, commodity trading advisor, 
commodity pool operator, introducing broker, or leverage transaction 
merchant shall, in accordance with the instructions thereto, promptly 
correct any deficiency or inaccuracy in Form 7-R or Form 8-R which no 
longer renders accurate and current the information contained therein. 
Each such correction shall be made on Form 3-R and shall be prepared and 
filed in accordance with the instructions thereto. Provided, however, 
that where a registrant is reporting a change in the form of 
organization from or to a sole proprietorship, the registrant must file 
a Form 7-W regarding the pre-existing organization and a Form 7-R 
regarding the newly formed organization.
    (2) If a registrant files a Form 3-R, pursuant to this section, to 
report a change in the form of the organization of the registrant, the 
registrant shall be liable for all obligations of the pre-existing 
organization under the Act, as it may be amended from time to time, and 
the rules, regulations, or orders which have been or may be promulgated 
thereunder.
    (3) Where the deficiency or inaccuracy is created by the addition of 
a new principal not listed on the registrant's application for 
registration (or amendment of such application prior to the granting of 
registration), and the new principal is not a natural person, the 
registrant shall file a Form 3-R filed in accordance with the 
requirements of paragraph (a)(1) of this section. Provided, however, 
that if the new principal is a natural person, the registrant shall file 
a Form 8-R, completed in accordance with the instructions thereto and 
executed by such person who is a principal of the registrant and who was 
not listed on the registrant's initial application for registration or 
any amendment thereto. The Form 8-R for each such principal shall be 
accompanied by the fingerprints of that principal on a fingerprint card 
provided by the National Futures Association for that purpose, unless 
such principal is a director who qualifies for the exemption from the 
fingerprint requirement pursuant to Sec. 3.21(c) or such principal has 
a current Form 8-R on file with the Commission or the National Futures 
Association.
    (b) Each applicant or registrant as a floor broker, floor trader or 
associated person, and each principal of a futures commission merchant, 
retail foreign exchange dealer, commodity trading advisor, commodity 
pool operator, introducing broker, or leverage transaction merchant 
must, in accordance with the instructions thereto, promptly correct any 
deficiency or inaccuracy in the Form 8-R or supplemental statement 
thereto which renders no longer accurate and current the information 
contained in the Form 8-R or supplemental statement. Each such 
correction must be made on Form 3-R and must be prepared and filed in 
accordance with the instructions thereto.
    (c)(1) After the filing of a Form 8-R or a Form 3-R by or on behalf 
of any person for the purpose of permitting that person to be an 
associated person of a futures commission merchant, retail foreign 
exchange dealer, commodity trading advisor, commodity

[[Page 140]]

pool operator, introducing broker, or a leverage transaction merchant, 
that futures commission merchant, retail foreign exchange dealer, 
commodity trading advisor, commodity pool operator, introducing broker 
or leverage transaction merchant must, within thirty days after the 
occurrence of either of the following, file a notice thereof with the 
National Futures Association indicating:
    (i) The failure of that person to become associated with the futures 
commission merchant, retail foreign exchange dealer, commodity trading 
advisor, commodity pool operator, introducing broker, or leverage 
transaction merchant, and the reasons therefor; or
    (ii) The termination of the association of the associated person 
with the futures commission merchant, retail foreign exchange dealer, 
commodity trading advisor, commodity pool operator, introducing broker, 
or leverage transaction merchant, and the reasons therefor.
    (2) Each person registered as, or applying for registration as, a 
futures commission merchant, retail foreign exchange dealer, commodity 
trading advisor, commodity pool operator, introducing broker or leverage 
transaction merchant must, within thirty days after the termination of 
the affiliation of a principal with the registrant or applicant, file a 
notice thereof with the National Futures Association.
    (3) Any notice required by paragraph (c) of this section must be 
filed on Form 8-T or on a Uniform Termination Notice for Securities 
Industry Registration.
    (d) Each contract market or derivatives transaction execution 
facility that has granted trading privileges to a person who is 
registered, has received a temporary license, or has applied for 
registration as a floor broker or floor trader, must notify the National 
Futures Association within sixty days after such person has ceased 
having trading privileges on such contract market or derivatives 
transaction execution facility.

(Approved by the Office of Management and Budget under control number 
3038-0023)

[45 FR 80491, Dec. 5, 1980, as amended at 47 FR 27551, June 25, 1982; 48 
FR 35297, Aug. 3, 1983; 49 FR 5525, Feb. 13, 1984; 49 FR 39533, Oct. 9, 
1984; 51 FR 34460, Sept. 29, 1986; 53 FR 8433, Mar. 15, 1988; 54 FR 
19558, May 8, 1989; 58 FR 19592, Apr. 15, 1993; 66 FR 53518, Oct. 23, 
2001; 67 FR 38875, June 6, 2002; 72 FR 63104, Nov. 8, 2007; 75 FR 55426, 
Sept. 10, 2010]



Sec. 3.33  Withdrawal from registration.

    (a) A futures commission merchant, retail foreign exchange dealer, 
introducing broker, commodity trading advisor, commodity pool operator, 
leverage transaction merchant, floor broker or floor trader may request 
that its registration be withdrawn in accordance with the requirements 
of this section if:
    (1) The registrant has ceased, or has not commenced, engaging in 
activities requiring registration in such capacity;
    (2) The registrant is exempt from registration in such capacity; or
    (3) The registrant is excluded from the persons or any class of 
persons required to be registered in such capacity: Provided, That the 
National Futures Association or the Commission, as appropriate, may 
consider separately each capacity for which withdrawal is requested in 
acting upon such a request.
    (b) A request for withdrawal from registration as a futures 
commission merchant, retail foreign exchange dealer, introducing broker, 
commodity trading advisor, commodity pool operator, or leverage 
transaction merchant must be made on Form 7-W, and a request for 
withdrawal from registration as a floor broker or floor trader must be 
made on Form 8-W, completed and filed with National Futures Association 
in accordance with the instructions thereto. The request for withdrawal 
must be made by a person duly authorized by the registrant and must 
specify:
    (1) The name of the registrant for which withdrawal is being 
requested;
    (2) The registration capacities for which withdrawal is being 
requested;
    (3) The name, address, and telephone number of the person who will 
have

[[Page 141]]

custody of the books and records of the registrant; the address where 
such books and records will be located; and a statement that such person 
is authorized to make them available in accordance with the requirements 
of Sec. 1.31 of this chapter;
    (4) The applicable basis under paragraph (a) of this section for 
requesting withdrawal for each capacity for which withdrawal is 
requested.
    (5) If withdrawal is requested under paragraph (a)(2) or (a)(3) of 
this section, then, with respect to each capacity for which withdrawal 
is requested, the section of the Act, regulations, or other authority 
permitting the exemption or exclusion, and the circumstances which 
entitle the registrant to claim such exemption or exclusion.
    (6) If a basis for withdrawal from registration under paragraph 
(a)(1) of this section is that the registrant has ceased engaging in 
activities requiring registration, then, with respect to each capacity 
for which the registrant has ceased such activities:
    (i) That all customer, retail forex customer or option customer 
agreements, if any, have been terminated;
    (ii) That all customer, retail forex customer or option customer 
positions, if any, have been transferred on behalf of customers or 
option customers or closed;
    (iii) That all customer, retail forex customer or option customer 
cash balances, securities, or other property, if any, have been 
transferred on behalf of customers, retail forex customers or option 
customers or returned, and that there are no obligations to customers, 
retail forex customers or option customers outstanding;
    (iv) In the case of a commodity pool operator, that all interests 
in, and assets of, any commodity pool have been redeemed, distributed, 
or transferred, on behalf of the participants therein, and that there 
are no obligations to such participants outstanding;
    (v) In the case of a leverage transaction merchant:
    (A) Either that all leverage customer agreements, if any, and all 
leverage contracts have been terminated, and that all leverage customer 
cash balances, securities or other property, if any, have been returned, 
or
    (B) Alternatively, that pursuant to Commission approval, the 
leverage contract obligations of the leverage transaction merchant have 
been assumed by another leverage transaction merchant and all leverage 
customer cash balances, securities or other property, if any, have been 
transferred to such leverage transaction merchant on behalf of leverage 
customers or returned, and that there are no obligations to leverage 
customers outstanding;
    (vi) The nature and extent of any pending customer, retail forex 
customer, option customer, leverage customer, or commodity pool 
participant claims against the registrant, and, to the best of the 
registrant's knowledge and belief, the nature and extent of any 
anticipated or threatened customer, option customer, leverage customer, 
or commodity pool participant claims against the registrant; and
    (vii) In the case of a futures commission merchant or a retail 
foreign exchange dealer which is a party to a guarantee agreement, that 
all such agreements have been or will be terminated in accordance with 
the provisions of Sec. 1.10(j) of this chapter not more than thirty 
days after the filing of the request for withdrawal from registration.
    (c) Where a leverage transaction merchant is requesting withdrawal 
from registration in that capacity and the basis for withdrawal under 
paragraph (a)(1) of this section is that it has ceased engaging in 
activities requiring registration, the request for withdrawal must be 
accompanied by a form 2-FR which contains the information specified in 
Sec. 31.13(f) of this chapter as of a date not more than 30 days prior 
to the date of the withdrawal request.
    (d) [Reserved]
    (e) A request for withdrawal from registration as a futures 
commission merchant, retail foreign exchange dealer, introducing broker, 
commodity trading advisor, commodity pool operator, leverage transaction 
merchant on Form 7-W, and a request for withdrawal from registration as 
a floor broker or floor trader on Form 8-W,

[[Page 142]]

must be filed with the National Futures Association and a copy of such 
request must be sent by the National Futures Association within three 
business days of the receipt of such withdrawal request to the Commodity 
Futures Trading Commission, Division of Clearing and Intermediary 
Oversight, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 
20581. In addition, any floor broker or floor trader requesting 
withdrawal from registration must file a copy of his Form 8-W with each 
contract market that has granted him trading privileges. Within three 
business days of any determination by the National Futures Association 
under Sec. 3.10(d) to treat the failure by a registrant to file an 
annual Form 7-R as a request for withdrawal, the National Futures 
Association shall send the Commission notice of that determination.
    (f) A request for withdrawal from registration will become effective 
on the thirtieth day after receipt of such request by the National 
Futures Association, or earlier upon written notice from the National 
Futures Association (with the written concurrence of the Commission) of 
the granting of such request, unless prior to the effective date:
    (1) The Commission or the National Futures Association has 
instituted a proceeding to suspend or revoke such registration;
    (2) The Commission or the National Futures Association imposes, or 
gives notice by mail which notice shall be complete upon mailing, that 
it intends to impose terms or conditions upon such withdrawal from 
registration;
    (3) The Commission or the National Futures Association notifies the 
registrant by mail, which notice shall be complete upon mailing, or the 
registrant otherwise is notified that it is the subject of an 
investigation to determine, among other things, whether such registrant 
has violated, is violating, or is about to violate the Act, rules, 
regulations or orders adopted thereunder;
    (4) The Commission or the National Futures Association requests from 
the registrant further information pertaining to its request for 
withdrawal from registration; or
    (5) The Commission or National Futures Association determines that 
it would be contrary to the requirements of the Act, or of any rule, 
regulation or order thereunder, or to the public interest to permit such 
withdrawal from registration.
    (g) Withdrawal from registration in one capacity does not constitute 
withdrawal from registration in any other capacity.
    (h) Withdrawal from registration does not constitute a release from 
liability for any violation of the Act or of any rule, regulation, or 
order thereunder.

(Approved by the Office of Management and Budget under control number 
3038-0008)

[46 FR 48917, Oct. 5, 1981]

    Editorial Note: For Federal Register citations affecting Sec. 3.33, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



                      Subpart B_Temporary Licenses



Sec. 3.40  Temporary licensing of applicants for associated person, floor broker or floor 

trader registration.

    (a) Notwithstanding any other provision of these regulations and 
pursuant to the terms and conditions of this subpart:
    (1) The National Futures Association may grant a temporary license 
to any applicant for registration as an associated person upon the 
contemporaneous filing with the National Futures Association of:
    (i) A Form 8-R, properly completed in accordance with the 
instructions thereto; and
    (ii) The sponsor's certification required by Sec. 3.12(c): 
Provided, however, that the fingerprints of the applicant on a 
fingerprint card provided by the National Futures Association for that 
purpose must be filed with the National Futures Association within 20 
days following the date the temporary license is issued; and, provided 
further, that failure to file the fingerprints within this period will 
result in the termination of the temporary license immediately upon 
notice to the applicant's sponsor that the National Futures Association 
has not received the applicant's fingerprints.

[[Page 143]]

    (2) The National Futures Association may grant a temporary license 
to any applicant for registration as a floor broker or floor trader upon 
the contemporaneous filing with the National Futures Association of:
    (i) A Form 8-R, properly completed in accordance with the 
instructions thereto;
    (ii) The fingerprints of the applicant on a fingerprint card 
provided by the National Futures Association for that purpose;
    (iii) A Supplemental Sponsor Certification Statement executed by a 
sponsor meeting the requirements under Sec. 3.60(b)(2)(i), if the 
applicant is subject to an order imposing conditions on the applicant's 
registration; and
    (iv) Evidence that the applicant has been granted trading privileges 
by a contract market or derivatives transaction execution facility that 
has filed with the National Futures Association a certification signed 
by its chief operating officer with respect to the review of an 
applicant's employment, credit and other history in connection with the 
granting of trading privileges.
    (b) The failure of an applicant or the applicant's sponsor to 
respond to a request by the Commission or the National Futures 
Association for clarification of any information set forth in the 
application of the applicant or for the resubmission of fingerprints in 
accordance with such request will be deemed to constitute a withdrawal 
of the applicant's registration application and shall result in the 
immediate termination of the applicant's temporary license.
    (c) Subject to the provisions of Sec. 3.42 and all of the 
obligations imposed on such registrants under the Act (in particular, 
section 14 thereof) and the rules, regulations, and orders thereunder, 
an applicant for registration as an associated person who has received 
notification that a temporary license has been granted may act in the 
capacity of an associated person, an applicant for registration as a 
floor trader who has received written notification that a temporary 
license has been granted may act in the capacity of a floor trader, and 
an applicant for registration as a floor broker who has received written 
notification that a temporary license has been granted may act in the 
capacity of a floor broker.

[67 FR 38876, June 6, 2002]



Sec. 3.42  Termination.

    (a) A temporary license shall terminate:
    (1) Five days after service upon the applicant of a notice by the 
Commission or the National Futures Association pursuant to Sec. 3.60 of 
this part that the applicant for registration may be found subject to a 
statutory disqualification from registration;
    (2) Immediately upon termination of the association of the applicant 
for registration as an associated person with the registrant which filed 
the sponsorship certification, or immediately upon loss of trading 
privileges by an applicant for registration as a floor broker or floor 
trader on all contract markets which filed the certification described 
in Sec. 3.40;
    (3) Immediately upon the withdrawal of the registration application 
pursuant to Sec. 3.40;
    (4) Immediately upon failure to comply with an order to pay a civil 
monetary penalty, restitution, or disgorgement within the time permitted 
under sections 6(e), 6b, or 6c(d) of the Act;
    (5) Immediately upon failure to pay the full amount of a reparation 
order within the time permitted under section 14(f) of the Act;
    (6) Immediately upon failure to comply with an award in an 
arbitration proceeding conducted pursuant to the rules of a designated 
contract market, registered derivatives transaction execution facility, 
or registered futures association within the time specified in section 
10(g) of the National Futures Association's Code of Arbitration or the 
comparable time period specified in the rules of a contract market, 
registered derivatives transaction execution facility, or other 
appropriate arbitration forum.
    (7) Immediately upon the revocation or withdrawal of the 
registration of the applicant's sponsor; or
    (8) Immediately upon notice to the applicant and the applicant's 
sponsor or the contract market that has granted the applicant trading 
privileges that:

[[Page 144]]

    (i) The applicant failed to disclose relevant disciplinary history 
information in response to items 14 through 18 on the applicant's Form 
8-R; or
    (ii) An event has occurred leading to an affirmative response to any 
of items 14 through 18 on the applicant's Form 8-R.
    (b) Upon termination, the applicant may not engage in any activity 
which requires registration with the Commission as an associated person, 
floor broker or floor trader.

[49 FR 8219, Mar. 5, 1984, as amended at 57 FR 23151, June 2, 1992; 58 
FR 19594, Apr. 15, 1993; 67 FR 38876, June 6, 2002]



Sec. 3.43  Relationship to registration.

    (a) A temporary license shall not be deemed to be a registration or 
to confer any right to such registration.
    (b) Unless a temporary license has terminated pursuant to Sec. 
3.42, a temporary license shall become a registration with the 
Commission upon the earlier of:
    (1) A determination by the National Futures Association that the 
applicant is qualified for registration as an associated person, floor 
broker or floor trader; or
    (2) The expiration of six months from the date of issuance unless a 
notice has been issued under Sec. 3.60 of the initiation of a 
proceeding to deny registration under section 8a(2) or 8a(3) of the Act.

[49 FR 8219, Mar. 5, 1984, as amended at 49 FR 39534, Oct. 9, 1984; 54 
FR 19559, May 8, 1989; 58 FR 19595, Apr. 15, 1993]



Sec. 3.44  Temporary licensing of applicants for guaranteed introducing broker registration.

    (a) Notwithstanding any other provisions of these regulations, and 
pursuant to the terms and conditions of this subpart, the National 
Futures Association may grant a temporary license to any applicant for 
registration as an introducing broker upon the contemporaneous filing 
with the National Futures Association of:
    (1) A properly completed guarantee agreement (Form 1-FR part B) from 
a futures commission merchant or retail foreign exchange dealer which is 
eligible to enter into such an agreement pursuant to Sec. 1.10(j)(2) of 
this chapter;
    (2) A Form 7-R properly completed in accordance with the 
instructions thereto;
    (3) A Form 8-R for the applicant, if a sole proprietor, and each 
principal (including each branch office manager) thereof, properly 
completed in accordance with the instructions thereto, all of whom would 
be eligible for a temporary license if they had applied as associated 
persons.
    (4) A certification executed by a person duly authorized by the 
futures commission merchant or retail foreign exchange dealer that has 
executed the guarantee agreement required by paragraph (a)(1) of this 
section, stating that:
    (i) The futures commission merchant or retail foreign exchange 
dealer has verified the information on the Forms 8-R filed pursuant to 
paragraph (a)(3) of this section which relate to education and 
employment history of the applicant's principals (including each branch 
office manager) thereof during the preceding three years; and
    (ii) To the best of the futures commission merchant's or retail 
foreign exchange dealer's knowledge, information, and belief, all of the 
publicly available information supplied by the applicant and its 
principals and each branch office manager of the applicant on the Form 
7-R and Forms 8-R, as appropriate, is accurate and complete; and
    (5) The fingerprints of the applicant, if a sole proprietor, and of 
each principal (including each branch office manager) thereof on 
fingerprint cards provided by the National Futures Association for that 
purpose: Provided, that a principal who has a current Form 8-R on file 
with the National Futures Association or the Commission is not required 
to submit a fingerprint card.
    (b) The effective date of a guarantee agreement filed in accordance 
with paragraph (a)(1) of this section is the date upon which the 
temporary license is granted by the National Futures Association.
    (c) An applicant that fails to respond in accordance with a written 
request by the Commission or the National Futures Association for 
clarification of any information set forth in the application of the 
applicant or any principal

[[Page 145]]

(including any branch office manager) thereof or for the resubmission of 
a fingerprint card will be deemed to have withdrawn its registration 
application and the temporary license issued to such applicant and any 
associated person thereof shall terminate immediately.

[51 FR 45760, Dec. 22, 1986, as amended at 53 FR 8435, Mar. 15, 1988; 57 
FR 23151, June 2, 1992; 64 FR 1728, Jan. 12, 1999; 67 FR 38876, June 6, 
2002; 75 FR 55427, Sept. 10, 2010]



Sec. 3.45  Restrictions upon activities.

    (a) Subject to the provisions of Sec. 3.46 of this subpart and all 
of the obligations imposed on such registrants under the Act (in 
particular, section 14 thereof) and the rules, regulations and orders 
thereunder, an applicant for registration as an introducing broker who 
has received written notification that a temporary license has been 
granted may act in the capacity of a guaranteed introducing broker.
    (b) An applicant for registration as an introducing broker who has 
received a temporary license may be guaranteed by a futures commission 
merchant other than the futures commission merchant which provided the 
initial guarantee agreement described in Sec. 3.44(a)(1) of this 
subpart: Provided, That, at least 10 days prior to the effective date of 
the termination of the existing guarantee agreement in accordance with 
the provisions of Sec. 1.10 (j)(4)(ii) or (j)(5) of this chapter, or 
such other period of time as the National Futures Association may allow 
for good cause shown, the applicant files with the National Futures 
Association (1) written notice of such termination and (2) a new 
guarantee agreement with another futures commission merchant effective 
the day following the last effective date of the existing guarantee 
agreement.

[51 FR 45761, Dec. 22, 1986, as amended at 75 FR 55427, Sept. 10, 2010]



Sec. 3.46  Termination.

    (a) A temporary license shall terminate:
    (1) Five days after service upon the applicant of a notice by the 
National Futures Association that the applicant for registration may be 
found subject to a statutory disqualification from registration;
    (2) Immediately upon termination of the applicant's guarantee 
agreement in accordance with Sec. 1.10(j)(4)(ii) or (j)(5) of this 
chapter, unless a new guarantee agreement is filed in accordance with 
Sec. 3.45(b);
    (3) Immediately upon the failure of an applicant to respond to a 
written request by the Commission or the National Futures Association 
for clarification of information set forth in the application of the 
applicant or any principal (including any branch office manager) thereof 
or for the resubmission of a fingerprint card pursuant to Sec. 3.44(c) 
in accordance with such request;
    (4) Immediately upon the revocation or withdrawal of the guarantor 
futures commission merchant's registration;
    (5) Immediately upon the withdrawal of the registration application 
pursuant to Sec. 3.44(c);
    (6) Immediately upon failure to comply with an order to pay a civil 
monetary penalty, restitution, or disgorgement within the time permitted 
unders sections 6(e), 6b, or 6c(d) of the Act;
    (7) Immediately upon failure to pay the full amount of a reparation 
order within the time permitted under section 14(f) of the Act;
    (8) Immediately upon failure to comply with an award in an 
arbitration proceeding conducted pursuant to the rules of a designated 
contract market, registered derivatives transaction execution facility, 
or registered futures association within the time specified in section 
10(g) of the National Futures Association's Code of Arbitration or the 
comparable time period specified in the rules of a contract market, 
registered derivatives transaction execution facility, or other 
appropriate arbitration forum.
    (9) Whenever a person not listed as a principal on the applicant's 
initial registration application becomes a principal under Sec. 3.1(a); 
or
    (10) Immediately upon notice to the applicant and the guarantor 
futures commission merchant that:
    (i) The applicant or any principal (including any branch officer 
manager) failed to disclose relevant disciplinary

[[Page 146]]

history information in response to items 11 through 15 on the 
applicant's Form 7-R or items 14 through 18 on a principal's Form 8-R; 
or
    (ii) An event has occurred leading to an affirmative response to any 
of items 11 through 15 on the applicant's Form 7-R or items 14 through 
18 on a principal's Form 8-R.
    (b) Upon termination, the applicant may not engage in any activity 
which requires registration as an introducing broker.

[51 FR 45761, Dec. 22, 1986, as amended at 53 FR 8435, Mar. 15, 1988; 58 
FR 19595, Apr. 15, 1993; 67 FR 38876, June 6, 2002]



Sec. 3.47  Relationship to registration.

    (a) A temporary license shall not be deemed to be a registration or 
to confer any right to such registration.
    (b) Unless a temporary license has terminated, a temporary license 
shall become a registration upon the earlier of:
    (1) A determination by the National Futures Association that the 
applicant is qualified for registration as an introducing broker; or
    (2) The expiration of six months from the date of issuance unless a 
notice has been issued under Sec. 3.60 of the initiation of a 
proceeding to deny registration under sections 8a(2) or 8a(3) of the 
Act.

[51 FR 45761, Dec. 22, 1986, as amended at 58 FR 19595, Apr. 15, 1993]



       Subpart C_Denial, Suspension or Revocation of Registration

    Source: 49 FR 8220, Mar. 5, 1984, unless otherwise noted.



Sec. 3.50  Service.

    (a) For purposes of this subpart, service upon an applicant or 
registrant will be sufficient if mailed by registered mail or certified 
mail return receipt requested properly addressed to the applicant or 
registrant at the address shown on his application or any amendment 
thereto, and will be complete upon mailing. Where a party effects 
service by mail, the time within which the person served may respond 
thereto shall be increased by three days.
    (b) A copy of any notice served in accordance with paragraph (a) of 
this section shall also be served upon:
    (1) Any registrant sponsoring the applicant or registrant pursuant 
to the provisions of Sec. 3.12 of this part if the applicant or 
registrant is an individual registered as or applying for registration 
as an associated person; or
    (2) Any futures commission merchant or retail foreign exchange 
dealer which has entered into a guarantee agreement in accordance with 
Sec. 1.10(j) of this chapter, if the applicant or registrant is 
registered as or applying for registration as an introducing broker.
    (c) Documents served upon the Division of Clearing and Intermediary 
Oversight or upon the Division of Enforcement or filed with the 
Commission under this subpart shall be considered served or filed only 
upon actual receipt at the Commission's Washington, DC office, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.
    (d) Except for the documents which may be served under Sec. 3.51, 
any documents served upon an applicant or registrant or upon the 
Division of Clearing and Intermediary Oversight or the Division of 
Enforcement or filed with the Commission under this subpart shall be 
concurrently filed with the Proceedings Clerk, together with proof of 
service, in accordance with the provisions of Sec. 10.12 (d) and (e) of 
this chapter.

[49 FR 8220, Mar. 5, 1984, as amended at 57 FR 23151, June 2, 1992; 60 
FR 49334, Sept. 25, 1995; 60 FR 54801, Oct. 26, 1995; 67 FR 62351, Oct. 
7, 2002; 75 FR 55427, Sept. 10, 2010]



Sec. 3.51  Withdrawal of application for registration.

    (a) Notice. Whenever information comes to the attention of the 
Commission that an applicant for initial registration in any capacity 
under the Act may be found subject to a statutory disqualification under 
sections 8a(2) or 8a(3) of the Act, the Commission may serve written 
notice upon the applicant, which notice shall specify the statutory 
disqualifications to which the applicant may be subject and advise the 
applicant that:

[[Page 147]]

    (1) The information, if true, is a basis upon which the applicant's 
registration may be denied;
    (2) Unless the applicant voluntarily withdraws the application, it 
may be necessary to institute the denial procedures described in this 
subpart; and
    (3) If the applicant does not confirm in writing that the applicant 
wishes to have the application given further consideration, the 
application of the applicant will be deemed to have been withdrawn.
    (b) The applicant must serve the written confirmation referred to in 
paragraph (a)(3) of this section upon the Secretary of the Commission on 
or before twenty days after the date the notice described in paragraph 
(a) of this section is served.

[49 FR 8220, Mar. 5, 1984, as amended at 57 FR 23151, June 2, 1992]



Sec. Sec. 3.52-3.54  [Reserved]



Sec. 3.55  Suspension and revocation of registration pursuant to section 8a(2) of the Act.

    (a) Notice. On the basis of information obtained by the Commission, 
the Commission may at any time serve notice upon a registrant in any 
capacity under the Act that:
    (1) The Commission alleges and is prepared to prove that the 
registrant is subject to one or more of the statutory disqualifications 
set forth in section 8a(2) of the Act;
    (2) An Administrative Law Judge shall make a determination, based 
upon written evidence, as to whether the registrant is subject to such 
statutory disqualification; and
    (3) If the registrant is found to be subject to a statutory 
disqualification, the registration of the registrant may be suspended 
and the registrant ordered to show cause why such registration should 
not be revoked.
    (b) Written submission. If the registrant wishes to challenge the 
accuracy of the allegations set forth in the notice, the registrant may 
submit written evidence limited to the type described in Sec. 
3.60(b)(1) of this part. Such written submission must be served upon the 
Division of Enforcement and filed with the Proceedings Clerk within 
twenty days of the date of service of notice to the registrant.
    (c) Reply. Within ten days of receipt of any written submission 
filed by the registrant, the Division of Enforcement may serve upon the 
registrant and file with the Proceedings Clerk a reply.
    (d) Determination by Administrative Law Judge. A determination by 
the Administrative Law Judge as to whether the registrant is subject to 
a statutory disqualification must be based upon the evidence of the 
statutory disqualification, notice with proof of service, the written 
submission, if any, filed by the registrant in response thereto, any 
written reply submitted by the Division of Enforcement and such other 
papers as the Administrative Law Judge may require or permit.
    (e) Suspension and order to show cause. (1) If the registrant is 
found to be subject to a statutory disqualification, the Administrative 
Law Judge, within thirty days after receipt of the registrant's written 
submission, if any, and any reply thereto, shall issue an interim order 
suspending the registration of the registrant and requiring the 
registrant to show cause within twenty days of the date of the order 
why, notwithstanding the existence of the statutory disqualification, 
the registration of the registrant should not be revoked. The 
registration of the registrant shall be suspended, effective five days 
after the order to show cause is served upon the registrant in 
accordance with Sec. 3.50(a), until a final order with respect to the 
order to show cause has been issued: Provided, That if the sole basis 
upon which the registrant is subject to statutory disqualification is 
the existence of a temporary order, judgment or decree of the type 
described in section 8a(2)(C) of the Act, the order to show cause shall 
not be issued and the registrant shall be suspended until such time as 
the temporary order, judgment or decree shall have expired: Provided, 
however, That in no event shall the registrant be suspended for a period 
to exceed six months.
    (2) If the registrant is found not to be subject to a statutory 
disqualification, the Administrative Law Judge shall issue an order to 
that effect and the Proceedings Clerk shall promptly serve

[[Page 148]]

a copy of such order on the registrant, the Division of Clearing and 
Intermediary Oversight and the Division of Enforcement. Such order shall 
be effective as a final order of the Commission fifteen days after the 
date it is served upon the registrant in accordance with the provisions 
of Sec. 3.50(a) of this part unless a timely application for review is 
filed in accordance with Sec. 10.102 of this chapter. The appellate 
procedures set forth in Sec. Sec. 10.102, 10.103, 10.104, 10.106, 
10.107 and 10.109 of this chapter shall apply to any appeal brought 
under paragraph (e)(2) of this section.
    (f) Further proceedings. If an order to show cause is issued 
pursuant to paragraph (e)(1) of this section, further proceedings on 
such order shall be conducted in accordance with the provisions of Sec. 
3.60(b)-(j) of this part.

[49 FR 8220, Mar. 5, 1984, as amended at 57 FR 23151, June 2, 1992; 58 
FR 19595, Apr. 15, 1993; 60 FR 54801, Oct. 26, 1995; 67 FR 62351, Oct. 
7, 2002]



Sec. 3.56  Suspension or modification of registration pursuant to section 8a(11) of the Act.

    (a) Notice. (1) On the basis of information obtained by the 
Commission, the Commission may at any time serve written notice upon a 
registrant in any capacity under the Act that:
    (i) The Commission alleges and is prepared to prove, by reference to 
an information, indictment or complaint authorized by a United States 
Attorney or an appropriate official of any State that the registrant is 
charged with the commission of or participation in a crime involving a 
violation of the Act or a violation of any other provision of Federal or 
State law that would reflect on the honesty or the fitness of the person 
to act as a fiduciary that is punishable by imprisonment for a term 
exceeding one year, and 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;
    (ii) An Administrative Law Judge shall make a determination, based 
upon written evidence and any oral hearing granted, as to whether the 
registrant is charged with the Commission of or participation in such a 
crime and whether the 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; and
    (iii) If the registrant is found to be charged with the commission 
of or participation in such a crime and it is found that the 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 registration of the registrant shall be suspended or 
modified.
    (2) The notice referred to in paragraph (a) of this section shall 
include a short and plain statement that the continued registration of 
the registrant may pose a threat to the public interest or may threaten 
to impair public confidence in any market regulated by the Commission.
    (b) Response. (1) If the registrant wishes to challenge the accuracy 
of the allegations in the notice, the registrant may submit written 
evidence as to:
    (i) The registrant's identity;
    (ii) The existence of a clerical error in any record documenting the 
information, indictment or complaint;
    (iii) The nature of the information, indictment or complaint; or
    (iv) The statement accompanying the notice referred to in paragraph 
(a)(2) of this section and, in an effort to have his registration 
modified rather than suspended, the Supplemental Sponsor Certification 
Statement signed by a sponsor, supervising floor broker or, in the case 
of a floor trader, a supervising registrant, principal or contract 
market, as appropriate for the registrant in accordance with Sec. 
3.60(b)(2)(i) and who meets the standard set forth in Sec. 
3.60(b)(2)(i)(A) and (C).
    (2) The registrant may also request an oral hearing, which shall 
include a statement of the issues to be addressed, a list of any 
witnesses to be called, a summary of the testimony to be elicited and 
copies of any documents to be introduced. An oral hearing shall be 
granted upon request.
    (3) Such written submissions must be served upon the Division of 
Enforcement and filed with the Proceedings Clerk within twenty days of 
the date of

[[Page 149]]

service of notice to the registrant under paragraph (a) of this section.
    (c) Reply. Within ten days of receipt of any written submission 
filed by the registrant, the Division of Enforcement may serve upon the 
registrant and file with the Proceedings Clerk a reply.
    (d) Oral hearing. An oral hearing shall be conducted pursuant to 
such sections of the Commission's Rules of Practice, 17 CFR part 10, as 
the Administrative Law Judge deems necessary and in a manner which shall 
ensure that the proceeding is resolved expeditiously.
    (e) Determination by Administrative Law Judge. (1) A determination 
by the Administrative Law Judge as to whether the Division of 
Enforcement has shown by a preponderance of the evidence that the 
registrant is charged with the commission of or participation in a crime 
as set forth in the notice and that the continued registration of the 
registrant may pose a threat to the public interest or may threaten to 
impair public confidence in any market regulated by the Commission must 
be based upon the evidence of service, the response, if any, filed by 
the registrant, any written reply submitted by the Division of 
Enforcement and such other papers as the Administrative Law Judge may 
require or permit, and the oral hearing, if any. If the Division of 
Enforcement has made the required showings, the Administrative Law 
Judge, within thirty days after the last written submission or the oral 
hearing, shall issue an order suspending or modifying the registration 
of the registrant. If the Division of Enforcement has not made the 
required showings, the Administrative Law Judge, within thirty days 
after the last written submission or the oral hearing, shall issue an 
order to that effect. The Administrative Law Judge's order shall include 
a written determination setting forth the basis for his ruling.
    (2) The Proceedings Clerk shall promptly serve a copy of such order 
on the registrant, the Division of Clearing and Intermediary Oversight 
and the Division of Enforcement. Such Order shall be effective as a 
final order of the Commission fifteen days after the date it is served 
upon the registrant in accordance with the provisions of Sec. 3.50(a) 
unless a timely application for review is filed in accordance with Sec. 
10.102 of this chapter. The appellate procedures set forth in Sec. Sec. 
10.102, 10.103, 10.104, 10.106, 10.107 and 10.109 of this chapter shall 
apply to any appeal brought under paragraph (e)(2) of this section.
    (f) Any order of suspension or modification issued under this 
section shall remain in effect until such information, indictment, or 
complaint is disposed of or until terminated by the Commission.
    (g) On disposition of such information, indictment, or complaint, 
the Commission may issue and serve on such registrant a notice under 
Sec. 3.55 or Sec. 3.60 to suspend, restrict, or revoke the 
registration of such person.
    (h) A finding of not guilty or other disposition of the charge shall 
not preclude the Commission from thereafter instituting any other 
proceedings under the Act or its rules.
    (i) A person aggrieved by an order issued under this section may 
obtain review of such order in the same manner and on the same terms and 
conditions as are provided in section 6(c) of the Act.

[58 FR 19595, Apr. 15, 1993, as amended at 60 FR 54801, Oct. 26, 1995; 
67 FR 62351, Oct. 7, 2002]



Sec. 3.57  Proceedings under section 8a(2)(E) of the Act.

    The Commission will not initiate a proceeding under section 8a(2)(E) 
of the Act, if respondeat superior is the sole basis upon which the 
registrant may be found subject to a statutory disqualification.



Sec. 3.60  Procedure to deny, condition, suspend, revoke or place 

restrictions upon registration pursuant to sections 8a(2), 8a(3) and 8a(4) of the Act.

    (a) Notice. On the basis of information obtained by the Commission, 
the Commission may at any time give written notice to any applicant for 
registration or any registrant in any capacity under the Act that:
    (1) The Commission alleges and is prepared to prove that the 
registrant or applicant is subject to one or more of the statutory 
disqualifications set forth in section 8a(2), 8a(3) or 8a(4) of the Act;

[[Page 150]]

    (2) The allegations set forth in the notice, if true, constitute a 
basis upon which registration may be denied, granted upon conditions, 
suspended, revoked or restricted;
    (3) The applicant or registrant is entitled to file a response 
within thirty days of the date of service of the notice to challenge the 
evidentiary basis of the statutory disqualification set forth in the 
notice or show cause why, notwithstanding the accuracy of those 
allegations, registration should nevertheless be granted, or granted 
upon condition, or should not be conditioned, suspended, revoked or 
restricted; and
    (4) If the applicant or registrant does not file a timely response 
to the notice:
    (i) The applicant or registrant will be deemed to have waived his 
right to a hearing on all issues and the facts stated in the notice 
shall be deemed to be true and conclusive for the purpose of finding 
that the applicant or registrant is subject to a statutory 
disqualification under sections 8a(2), 8a(3) or 8a(4) of the Act; and
    (ii) A presiding officer may thereafter decide whether to issue an 
order of default in accordance with paragraph (g) of this section to 
deny, condition, suspend, revoke, or place restrictions upon 
registration based solely upon the facts set forth in the notice.
    (b) Response. Within thirty days after service upon the applicant or 
registrant of a notice issued in accordance with the provisions of 
paragraph (a) of this section, the applicant or registrant shall file a 
response with the Proceedings Clerk and serve a copy of the response on 
the Division of Enforcement.
    (1) In the response, the applicant or registrant shall state whether 
he challenges the evidentiary basis of the statutory disqualification 
set forth in the notice. The grounds for such a challenge shall include 
evidence as to:
    (i) The applicant's or registrant's identity,
    (ii) The existence of a clerical error in any record documenting the 
statutory disqualification,
    (iii) The nature or date of the statutory disqualification,
    (iv) The post-conviction modification of any record of conviction, 
or
    (v) The favorable disposition of any appeal.


The applicant or registrant shall state the nature of each challenge and 
submit a verified statement or affidavit to support facts material to 
each challenge raised in the response.
    (2)(i) In the response, if the person is not an associated person, a 
floor broker or a floor trader or an applicant for registration in any 
of those capacities, the applicant or registrant shall also state 
whether he intends to show that registration would not pose a 
substantial risk to the public despite the existence of the 
disqualification set forth in the notice. If the person is an associated 
person, a floor broker or a floor trader or an applicant for 
registration in any of those capacities, the applicant or registrant 
shall also state whether he intends to show that full, conditioned or 
restricted registration would not pose a substantial risk to the public 
despite the existence of the disqualification set forth in the notice. 
If the person is an associated person or an applicant for registration 
as an associated person and intends to make such a showing, he must also 
submit a letter signed by an officer or general partner authorized to 
bind the sponsor whereby the sponsor agrees to sign a Supplemental 
Sponsor Certification Statement and supervise compliance with any 
conditions or restrictions that may be imposed on the applicant or 
registrant as a result of a statutory disqualification proceeding under 
this section; if the person is a floor broker or a floor trader or an 
applicant for registration in either capacity and intends to make such a 
showing, he must, in the case of a floor broker or applicant for 
registration as a floor broker, also submit a letter signed by his 
employer or if he has no employer by another floor broker or, in the 
case of a floor trader or applicant for registration as a floor trader, 
also submit a letter 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 of each contract market that has granted 
trading privileges, whereby the employer or floor broker, appropriate 
registrant, principal or contract market chief operating officer (on 
behalf of

[[Page 151]]

the contract market) agrees to sign a Supplemental Sponsor Certification 
Statement and supervise compliance with any conditions or restrictions 
that may be imposed on the applicant or registrant as a result of a 
statutory disqualification proceeding under this section: Provided, 
That, with respect to such sponsor, supervising employer or floor 
broker, supervising registrant or principal:
    (A) An adjudicatory proceeding pursuant to the provisions of 
sections 6(c), 6(d), 6c, 6d, 8a or 9 of the Act is not pending; and
    (B) In the case of a sponsor which is a futures commission merchant, 
a retail foreign exchange dealer or a leverage transaction merchant, the 
sponsor is not subject to the reporting requirements of Sec. 1.12(b), 
Sec. 5.6(b) or Sec. 31.7(b) of this chapter, respectively; and
    (C) Such person is not barred from service on self-regulatory 
organization governing boards or committees based on disciplinary 
history in accordance with Sec. 1.63 of this chapter.
    (ii) If, in the response, the applicant or registrant states that he 
intends to make the showing referred to in paragraph (b)(2)(i) of this 
section, he shall also, within fifteen days after filing his initial 
response under paragraph (b) of this section, file with the Proceedings 
Clerk and serve a copy on the Division of Enforcement a submission which 
includes a statement of the applicant, registrant or his attorney 
identifying and summarizing the testimony of each witness whom the 
applicant or registrant intends to have testify in support of facts 
material to his showing, and copies of all documents which the applicant 
or registrant intends to introduce to support facts material to his 
showing. The factors forming the basis for a disqualified applicant's or 
registrant's showing referred to in paragraph (b)(2)(i) of this section 
may include:
    (A) Evidence mitigating the seriousness of the wrongdoing underlying 
the statutory disqualification set forth in the notice;
    (B) Evidence that the applicant or registrant has undergone 
rehabilitation since the time of the wrongdoing underlying the statutory 
disqualification; and
    (C) If the person is an associated person, floor broker or floor 
trader or an applicant for registration in any of those capacities, 
evidence that the applicant's or registrant's registration on a 
conditioned or restricted basis would be subject to supervisory controls 
likely both to detect future wrongdoing by the applicant or registrant 
and protect the public from any harm arising from the applicant's or 
registrant's future wrongdoing, including proposed conditions or 
restrictions.
    (c) Reply. Within thirty days after the latter of the date the 
applicant or registrant serves a copy of the response on the Division of 
Enforcement (if no further submission is to be made in accordance with 
paragraph (b)(2)(ii) of this section), or the date the applicant or 
registrant serves a copy of the further submission made in accordance 
with paragraph (b)(2)(ii) of this section on the Division of 
Enforcement, the Division of Enforcement shall file a reply thereto with 
the Proceedings Clerk and serve a copy of the reply on the applicant or 
registrant. The Division of Enforcement's reply shall include either:
    (1) A motion for summary disposition stating that there are no 
genuine issues of material fact to be determined and that registration 
should be denied or revoked, based upon the applicant's or registrant's 
response and further submission, if any, and any other materials which 
are attached to the reply and would be admissible under Sec. 10.91 of 
this chapter; or
    (2) A description of factual issues raised in the applicant's or 
registrant's response and further submission, if any, that the Division 
of Enforcement regards as material and disputed. Such a reply shall also 
include the identity and a summary of the expected testimony of each 
witness whom the Division intends to have testify, and copies of all 
documents which the Division intends to introduce.
    (d) Oral Presentation. Within thirty days of the date the Division 
of Enforcement files its reply in accordance with the provisions of 
paragraph (c) of this section to the applicant's or registrant's 
response and further submission, if any, the Administrative Law Judge 
shall issue an order:

[[Page 152]]

    (1) If the Administrative Law Judge finds, based on the motion for 
summary disposition, that a party is entitled to judgment as a matter of 
law, granting, denying, suspending, or revoking the registration of an 
applicant or registrant, or dismissing the notice issued in accordance 
with paragraph (a) of this section, and such order shall be made in 
accordance with the standards set forth in paragraphs (e) and (f) of 
this section; or
    (2) Notifying the parties of a time and place of hearing. At such 
hearing, the parties shall be limited to presentation of witnesses and 
documents listed in previous filings except, for good cause shown, the 
parties may request that the witness and document lists be supplemented 
for purposes of rebuttal. Such oral hearing shall be conducted in 
accordance with Sec. Sec. 10.61-10.81 and 10.83 of this chapter. The 
Administrative Law Judge shall file an initial decision after completion 
of the oral hearing in accordance with the standards set forth in 
paragraphs (e) and (f) of this section.
    (3) Upon notice that the Administrative Law Judge has concluded that 
an oral presentation is appropriate, the parties may elect to 
participate by telephone in accordance with the terms set forth in Sec. 
12.209(b) of this chapter. To effect such an election, the party shall 
file a notice with the Proceedings Clerk and serve a copy on all 
opposing parties within fifteen days of the date the Administrative Law 
Judge's notice is served. The filing of an election to participate by 
telephone will be deemed a waiver of the party's right to a full oral 
hearing on the parties' material disputes of fact. The Administrative 
Law Judge shall schedule a telephonic hearing only if all parties to the 
proceeding elect such a procedure. The Administrative Law Judge shall 
conduct such a hearing in accordance with Sec. 12.209(b) of this 
chapter. Following the hearing, the Administrative Law Judge shall issue 
a written decision in accordance with the standards set forth in 
paragraphs (e) and (f) of this section.
    (e) Determination by Administrative Law Judge--Standards of Proof. 
The Administrative Law Judge's written determination shall specifically 
consider whether the Division of Enforcement has shown by a 
preponderance of the evidence that the applicant or registrant is 
subject to the statutory disqualification set forth in the notice issued 
by the Commission and, where appropriate:
    (1) In actions involving statutory disqualifications set forth in 
section 8a(2) of the Act, whether the applicant or registrant has made a 
clear and convincing showing that full, conditioned or restricted 
registration would not pose a substantial risk to the public despite the 
existence of the statutory disqualification; or
    (2) In actions involving statutory disqualifications set forth in 
sections 8a(3) or 8a(4) of the Act, whether the applicant or registrant 
has shown by a preponderance of the evidence that full, conditioned or 
restricted registration would not pose a substantial risk to the public 
despite the existence of the statutory disqualification.
    (f) Determination of Administrative Law Judge--Findings. In making 
his written determination, the Administrative Law Judge shall set forth 
the facts material to his conclusion and provide an explanation of his 
decision in light of the statutory disqualification set forth in the 
notice and, where appropriate, his findings regarding:
    (1) Evidence mitigating the seriousness of the wrongdoing underlying 
the applicant's or registrant's statutory disqualification;
    (2) Evidence that the applicant or registrant has undergone 
rehabilitation since the time of the wrongdoing underlying the statutory 
disqualification; and
    (3) If the person is an associated person, a floor broker or a floor 
trader or an applicant for registration in any of those capacities, 
evidence that the applicant's or registrant's registration on a 
conditioned or restricted basis would be subject to supervisory controls 
likely both to detect future wrongdoing by the applicant or registrant 
and protect the public from any harm arising from future wrongdoing by 
the applicant or registrant. Any decision providing for a conditioned or 
restricted registration

[[Page 153]]

shall take into consideration the applicant's or registrant's statutory 
disqualification and the time period remaining on such statutory 
disqualification, and shall fix a time period after which the registrant 
and his sponsor, supervising employer or floor broker, or supervising 
registrant, principal or contract market may petition to lift or modify 
the conditions or restrictions in accordance with Sec. 3.64.
    (g) Default. The procedures for obtaining a default order and the 
setting aside of a default order in a proceeding instituted under this 
section shall follow the procedures set forth in Sec. Sec. 10.93 and 
10.94 of this chapter.
    (h) Settlements--(1) When offers may be made. Parties may, at any 
time during the course of the proceeding, propose offers of settlement. 
All offers of settlement shall be in writing.
    (2) Content of offer. Each offer of settlement made by a respondent 
shall:
    (i) Acknowledge service of the notice;
    (ii) Admit the jurisdiction of the Commission with respect to the 
matters set forth in the notice;
    (iii) Include a waiver of:
    (A) A hearing,
    (B) All post-hearing procedures,
    (C) Judicial review, and
    (D) Any objection to the staff's participation in the Commission's 
consideration of the offer;
    (iv) Stipulate the record basis on which an order may be entered, 
which may consist solely of the notice and any findings contained in the 
offer of settlement; and
    (v) Consent to the entry of an order reflecting the terms of 
settlement agreed upon, including, where appropriate:
    (A) Findings that the respondent is subject to statutory 
disqualification under sections 8a(2), 8a(3), or 8a(4) of the Act, and
    (B) The revocation, suspension, denial or granting of full 
registration or imposition of conditioned or restricted registration.
    (3) Submission of offer. Offers of settlement made by a respondent 
shall be submitted in writing to the Division of Enforcement, which 
shall present them to the Commission with the Division's recommendation. 
The respondent will be informed if the recommendation will be 
unfavorable, in which event the offer shall not be presented to the 
Commission unless the respondent so requests. Any offer of settlement 
not presented to the Commission shall be null and void with respect to 
any acknowledgment, admission, waiver, stipulation or consent contained 
in the offer and shall not be used in any manner in the proceeding by 
any party thereto.
    (4) Acceptance of offer. The offer of settlement will only be deemed 
accepted upon issuance by the Commission of an opinion and order based 
on the offer. Upon issuance of the opinion and order, the proceeding 
shall be terminated as to the respondent involved and so noted on the 
docket by the Proceedings Clerk.
    (5) Rejection of offer. When an offer of settlement is rejected, the 
party making the offer shall be notified by the Division of Enforcement 
and the offer of settlement shall be deemed withdrawn. A rejected offer 
of settlement and any documents relating thereto shall not constitute a 
part of the record in the proceeding; and the offer will be null and 
void with respect to any acknowledgment, admission, waiver, stipulation 
or consent contained in the offer and shall not be used in any manner in 
the proceeding by any party thereto.
    (i) Effect of the Administrative Law Judge's Determination. The 
Administrative Law Judge's written determination shall become the final 
decision of the Commission thirty days following the date the 
Proceedings Clerk serves the determination on the parties unless:
    (1) One or more of the parties files and serves a timely notice of 
appeal in accordance with Sec. 10.102 of this chapter; or
    (2) The Commission issues an order staying the effective date of the 
determination and notifying the parties of its intention to undertake 
sua sponte review in accordance with Sec. 10.105 of this chapter.
    (j) Appeal. Following the filing of a notice of appeal, the rules of 
appellate procedure set forth in Sec. Sec. 10.102, 10.103, 10.104, 
10.106, 10.107 and 10.109 of this chapter shall apply to any proceeding 
brought under this section.

[[Page 154]]

    (k) With the exception of Sec. Sec. 10.2 through 10.5, 10.7 through 
10.12(a) (1), 10.12(a) (3) through 10.12(g), 10.26(a)-(d), 10.34, 10.43, 
10.44 and 10.84 of this chapter, or unless otherwise provided in 
Sec. Sec. 3.50 through 3.64 of this part, the provisions of the 
Commission's Rules of Practice in part 10 of this chapter shall not 
apply in any proceeding brought under this part to deny, suspend, 
revoke, restrict or condition registration pursuant to sections 8a(2), 
8a(3) or 8a(4) of the Commodity Exchange Act.
    (l) The failure of any sponsor, supervising employer or floor 
broker, or supervising registrant, principal or contract market to 
fulfill its obligations with respect to supervision or monitoring of a 
conditioned or restricted registrant as agreed to in the Supplemental 
Sponsor Certification Statement shall be deemed a violation of this rule 
under the Act.

[57 FR 23152, June 2, 1992, as amended at 58 FR 19596, Apr. 15, 1993; 60 
FR 54801, Oct. 26, 1995; 75 FR 55428, Sept. 10, 2010]



Sec. 3.61  Extensions of time for proceedings brought under Sec. 3.55, Sec. 3.56, and 

Sec. 3.60 of this part.

    (a) In general. Except as otherwise provided by law or by these 
rules, for good cause shown, the Commission or an Administrative Law 
Judge before whom a proceeding brought under Sec. 3.55, Sec. 3.56 or 
Sec. 3.60 is then pending, on their own motion or the motion of a 
party, may at any time extend or shorten the time limit prescribed by 
those rules for filing any document. In any instance in which a time 
limit is not prescribed for an action to be taken concerning any matter, 
the Commission or the Administrative Law Judge may set a time limit for 
that action.
    (b) Motions for extension of time. Absent extraordinary 
circumstances, in any instance in which a time limit that has been 
prescribed for an action to be taken concerning any matter exceeds seven 
days from the date of the order establishing the time limit, requests 
for extension of time shall be filed at least five (5) days prior to the 
expiration of the time limit and shall explain why an extension of time 
is necessary.

[57 FR 23154, June 2, 1992, as amended at 58 FR 19597, Apr. 15, 1993]



Sec. 3.62  [Reserved]



Sec. 3.63  Service of order issued by an Administrative Law Judge or the Commission.

    A copy of any order issued pursuant to Sec. 3.60 of this part shall 
be served promptly upon the applicant or registrant, the Division of 
Clearing and Intermediary Oversight, the Division of Enforcement, the 
National Futures Association, and any contract markets where the 
applicant or registrant is a member or has trading privileges in 
accordance with the provisions of Sec. 3.50(a) of this part.

[57 FR 23154, June 2, 1992, as amended at 67 FR 62351, Oct. 7, 2002]



Sec. 3.64  Procedure to lift or modify conditions or restrictions.

    (a) Petition. The registrant and his sponsor or supervising floor 
broker may file a petition with the Proceedings Clerk and serve a copy 
of the petition on the Division of Enforcement to lift or modify 
conditions or restrictions on the registrant's registration.
    (1) The petition may be filed after the period specified in the 
order imposing the conditioned or restricted registration.
    (2) In the petition, the registrant and his sponsor, supervising 
employer or floor broker, or supervising registrant, principal or 
contract market shall be limited to a showing, by affidavit, that the 
conditions or restrictions have been satisfied pursuant to the order 
which imposed them. The affidavit must be sworn to by a person with 
actual knowledge of the registrant's activities on behalf of the 
sponsor, supervising employer or floor broker, or supervising 
registrant, principal or contract market.
    (b) Response. (1) Within thirty days of receipt of the petition, 
pursuant to paragraph (a) of this section, the Division of Enforcement 
shall file a response with the Proceedings Clerk. The response must 
include a recommendation by the Division of Enforcement as to whether to 
continue the conditions or restrictions, modify the conditions or 
restrictions, or to allow for a full registration.

[[Page 155]]

    (2) If the Division of Enforcement agrees with the petitioner's 
request to lift or modify conditions or restrictions on the petitioner's 
registration, it shall so recommend to the Commission. Such 
recommendation will only be deemed accepted upon issuance by the 
Commission of an order lifting or modifying conditions or restrictions 
on the petitioner's registration. Such order shall be so noted on the 
docket by the Proceedings Clerk.
    (c) Oral presentation. If the Division of Enforcement requests a 
continuation, or a modification other than in accordance with the terms 
of the petition, of the restrictions or conditions on the registration, 
the Administrative Law Judge shall, within thirty days of the date that 
the response is filed pursuant to paragraph (b) of this section, 
determine whether an oral presentation is appropriate to the reliable 
resolution of the registrant's petition.
    (1) If the Administrative Law Judge determines that an oral 
presentation is appropriate, he shall notify the parties of his 
determination and shall schedule and conduct an oral hearing in 
accordance with Sec. Sec. 10.61 through 10.81 of this chapter. 
Following the hearing, the Administrative Law Judge shall issue a 
written decision or an order.
    (2) If the Administrative Law Judge concludes that an oral 
presentation is unnecessary, he shall notify the parties and issue a 
written decision or an order.
    (d) Effect of the Administrative Law Judge's determination. The 
Administrative Law Judge's written determination shall become the final 
decision of the Commission thirty days following the date the 
Proceedings Clerk serves the determination on the registrant, the 
registrant's sponsor, supervising employer or floor broker, or 
supervising registrant, principal or contract market, and the Division 
of Enforcement unless one or more of the parties files a timely notice 
of appeal in accordance with Sec. 10.102 of this chapter.
    (e) Appeal. Following the filing of a notice of appeal, the rules of 
appellate procedure set forth in Sec. Sec. 10.102, 10.103, 10.104, 
10.106, 10.107 and 10.109 of this chapter shall apply to any proceeding 
brought under this section.

[57 FR 23154, June 2, 1992, as amended at 58 FR 19597, Apr. 15, 1993; 60 
FR 54801, Oct. 26, 1995]



             Subpart D_Notice Under Section 4k(5) of the Act



Sec. 3.70  Notification of certain information regarding associated persons.

    (a) Notice. A registrant must notify the Commission under section 
4k(5) of the Act of any facts regarding an associated person of the 
registrant or an applicant for registration as an associated person whom 
it has sponsored pursuant to the provisions of Sec. 3.12 of this part 
or whom it intends to hire or otherwise employ as an associated person 
which are set forth as statutory disqualifications in section 8a(2) of 
the Act within ten business days of the date upon which the registrant 
first knows or should have known such facts. Notice to the Commission 
shall be sufficient if the registrant gives notice to the Director of 
the Division of Clearing and Intermediary Oversight or the Director's 
designee by telephone and confirms such notice in writing by certified 
or registered mail or equivalent means to the Commission at its 
Washington, DC office (Attn: Deputy Director, Compliance and 
Registration Section, Division of Clearing and Intermediary Oversight, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581).
    (b) Unlawful to act as an associated person. Upon the earlier of 
notification to the Commission by the registrant pursuant to paragraph 
(a) of this section, or actual receipt of notice to the registrant 
pursuant to Sec. 3.50(b)(1) of this part, that an associated person of 
the registrant or an applicant for registration as an associated person 
may be subject to a statutory disqualification as set forth in section 
8a(2) of the Act, it shall be unlawful for the registrant to permit such 
person to act in the capacity of an associated person of the registrant 
until the Commission determines that such person should nonetheless be 
registered.
    (c) Proceedings under subpart C. Upon notification to the Commission 
by the

[[Page 156]]

registrant under paragraph (a) of this section, the Commission may 
promptly issue notice under Sec. 3.55 or Sec. 3.60 of this part, as 
appropriate, to suspend and revoke the registration of the associated 
person of the registrant or to deny the registration of the applicant 
for registration as an associated person of the registrant.

[49 FR 8223, Mar. 5, 1984, as amended at 57 FR 23155, June 2, 1992; 60 
FR 49334, Sept. 25, 1995; 67 FR 62351, 62352, Oct. 7, 2002]



            Subpart E_Delegation and Reservation of Authority



Sec. 3.75  Delegation and reservation of authority.

    (a) The Commission hereby delegates, until such time as it orders 
otherwise, the authority to perform all functions specified in subparts 
B through D to the persons authorized to perform them thereunder.
    (b) Nothing in this subpart shall prevent the Commission from 
exercising the authority delegated therein.
    (c) The Commission reserves to itself the decision in any case to 
proceed by order, upon notice and hearing, to deny, suspend, condition 
or restrict the registration of any person pursuant to sections 8a(2), 
8a(3) and 8a(4) of the Act.
    (d) Nothing in this part shall affect the authority of the 
Commission to institute a proceeding pursuant to section 6(c) of the 
Act.
    (e) The Commission may, by order of delegation, authorize a futures 
association registered pursuant to section 17 of the Act to perform all 
or any portion of the registration functions under subparts B through D 
in accordance with rules or procedures adopted by such futures 
association and submitted to the Commission pursuant to section 17(j) of 
the Act and subject to the applicable provisions of the Act.

[49 FR 8224, Mar. 5, 1984, as amended at 57 FR 23155, June 2, 1992; 59 
FR 5315, Feb. 4, 1994]



  Sec. Appendix A to Part 3--Interpretative Statement With Respect to 

Section 8a(2)(C) and (E) and Section 8a(3)(J) and (M) of the Commodity 
                              Exchange Act

                        Section 8a(2) (C) and (E)

    The provisions of sections 8a(2)-8a(4) of the Commodity Exchange Act 
(``Act'') establish a system of statutory disqualifications pursuant to 
which the Commission may find an applicant or registrant unfit for 
registration and vest the Commission with wide discretion to deny, 
condition, suspend, restrict or revoke the registration of any person 
subject to one or more of the disqualifications set forth therein. The 
Commission recognizes that the full exercise of its authority under 
these provisions of the Act may have unintended results. In particular, 
the exercise of such authority may, in certain cases, impede the 
efficient enforcement of the Act and the various federal and state 
securities acts.
    At this time, the Commission cannot anticipate all of the 
circumstances under which it may elect not to exercise its authority 
under sections 8a(2)-8a(4). Until the Commission has gained experience 
with these provisions of the Act, such determinations generally must be 
made on a case-by-case basis. Nonetheless, the Commission has identified 
two paragraphs of section 8a(2) of the Act which it has determined to 
interpret more narrowly than required.
    Section 8a(2)(C). Section 8a(2) of the Act authorizes the Commission 
to deny, condition, suspend or restrict the registration of any person 
``upon notice, but without a hearing'' and to revoke the registration of 
any person ``with such hearing as may be appropriate,'' if such person 
is subject to one or more of the disqualifications described in 
paragraphs (A)-(H). Section 8a(2)(C) authorizes the Commission to affect 
the registration of any person:

    ``if such person is permanently or temporarily enjoined by order, 
judgment, or decree of any court of competent jurisdiction * * * , 
including an order entered pursuant to an agreement of settlement to 
which the Commission or any Federal or State agency or other 
governmental body is a party, from (i) acting as a futures commission 
merchant, introducing broker, floor broker, floor trader, commodity 
trading advisor, commodity pool operator, associated person of any 
registrant under the Act, securities broker, securities dealer, 
municipal securities broker, municipal securities dealer, transfer 
agent, clearing agency, securities information processor, investment 
advisor, investment company, or affiliated person or employee of any of 
the foregoing or (ii) engaging in or continuing any activity involving 
any transaction in or

[[Page 157]]

advice concerning contracts of sale of a commodity for future delivery, 
concerning matters subject to Commission regulation under section 4c or 
19 of the Act, or concerning securities;''

    The Commission believes that a person enjoined from acting in a 
certain capacity as described in section 8a(2)(C)(i), even if the order 
of injunction is entered into pursuant to an agreement of settlement, 
similarly should be prohibited from acting in any other capacity which 
requires registration with the Commission. Therefore, the Commission 
does not intend to limit its authority under section 8a(2)(C)(i) of the 
Act.
    However, the Commission is also aware that it has often initiated 
proceedings in which the sole relief sought was an injunction from 
engaging in certain conduct. In such circumstances, the Commission has 
accepted offers of settlement which provide that the findings set forth 
in the settlement will not form the sole basis for the denial, 
suspension or revocation of such person's registration with the 
Commission. The Commission does not wish to impede the resolution by 
negotiated settlement of such proceedings. Therefore, the Commission has 
determined that it will not exercise its authority under section 
8a(2)(C)(ii) of the Act with respect to any person temporarily or 
permanently enjoined by agreement of settlement from engaging in any 
conduct described in that paragraph, if the agreement of settlement 
clearly restricts the use of such order of injunction or any findings 
set forth therein in subsequent or collateral proceedings.
    Thus, a provision in the agreement of settlement to the effect, 
inter alia, that the findings set forth in the agreement will not form 
the sole basis upon which the registration of such person may be 
affected will preclude a collateral proceeding under section 
8a(2)(C)(ii) where the sole basis for such proceeding is the agreement 
of settlement. Unless otherwise precluded in the agreement of 
settlement, however, the person will be collaterally estopped from 
denying the findings set forth therein, whether or not admitted, in any 
other subsequent or collateral proceeding and such findings may, in 
conjunction with the findings in such subsequent or collateral 
proceeding, form a basis for affecting the registration of that person 
or imposing such other sanctions as may be deemed appropriate.
    Section 8a(2)(E) of the Act authorizes the Commission to affect the 
registration of any person:

    If such person, within ten years preceding the filing of the 
application or at any time thereafter, has been found in a proceeding 
brought by the Commission or any Federal or State agency or other 
governmental body, or by agreement of settlement to which the Commission 
or any Federal or State agency or other governmental body is a party, 
(i) to have violated any provision of this Act, [the securities acts], 
chapter 96 of title 18 of the United States Code, or any similar statute 
of a State or foreign jurisdiction, or any rule, regulation, or order 
under any such statutes, or the rules of the Municipal Securities 
Rulemaking Board where such violation involves embezzlement, theft, 
extortion, fraud, fraudulent conversion, misappropriation of funds, 
securities or property, forgery, counterfeiting, false pretenses, 
bribery, or gambling, or (ii) to have willfully aided, abetted, 
counseled, commanded, induced, or procured such violation by any other 
person;

    As in section 8a(2)(C)(ii), the Commission will not exercise its 
authority under section 8a(2)(E) of the Act with respect to any person 
subject to a statutory disqualification thereunder, if the findings are 
part of an agreement of settlement which clearly restricts the use of 
such findings by inclusion of a provision to the effect, inter alia, 
that the findings set forth in the agreement will not form the sole 
basis upon which the registration of such person may be affected.
    Section 2(a)(1)(A) of the Act, inter alia, codifies the legal 
concept of respondant superior by providing that a futures commission 
merchant, introducing broker, commodity trading advisor, commodity pool 
operator or leverage transaction merchant may be held liable for the 
conduct of an associated person sponsored by such registrant. \*\ Thus, 
findings of the type described in paragraph (E) may be entered against a 
registrant solely because such registrant is responsible, under section 
2(a)(1)(A) of the Act, for the conduct of its associated persons. As 
prescribed in Sec. 3.57 of the Commission's regulations, however, the 
Commission will not exercise its authority under section 8a(2)(E) to 
affect the registration of such registrant, if respondant superior is 
the sole basis for finding that the registrant is subject to a statutory 
disqualification.
---------------------------------------------------------------------------

    \*\ Specifically, section 2(a)(1)(A)(iii) of the Act provides in 
part, that the ``act, omission or failure of any official, agent, or 
other person acting for any individual, association, partnership, 
corporation, or trust within the scope of his employment or office shall 
be deemed the act, omission, or failure of such individual, association, 
partnership, corporation, or trust as well as of such official, agent, 
or other person.'' 7 U.S.C. 4 (1982).
---------------------------------------------------------------------------

    The Commission notes that section 8a(3)(C) and 8a(4) authorize the 
Commission to affect the registration of a person if it is found, after 
notice and opportunity for a hearing, that such person ``failed 
reasonably to supervise another person, who is subject to such person's 
supervision, with a view to preventing violations of this Act or [the 
securities acts], or of any of the rules, regulation

[[Page 158]]

or orders thereunder, and the person subject to supervision committed 
such a violation * * *'' In this connection, the Commission believes 
that any proceeding to affect the registration of a registrant against 
which findings have been made solely pursuant to section 2(a)(1)(A) of 
the Act is more appropriately initiated under the provisions of section 
8a(3)(C) and 8a(4).
    Section 8a(2)(E) may also be interpreted to authorize the Commission 
to affect the registration of any person if the findings described 
therein are made in a proceeding initiated by a private party either in 
a court of law or in a reparations proceeding under section 14 of the 
Act. At the present time, however, the Commission does not intend to 
exercise its authority under section 8a(2)(E) on the basis of such 
findings. The Commission believes that such proceedings are intended 
primarily to provide restitution to the customer and are not intended to 
be punitive in nature. Therefore, it may not be appropriate to use 
findings in such proceedings to affect the registration of any person 
under section 8a(2)(E).
    At the same time, however, such findings may form the basis of a 
proceeding against a person under the provisions of section 8a(3)(M) and 
8a(4), which authorize the Commission, after notice and opportunity for 
a hearing, to deny, condition, suspend, restrict or revoke the 
registration of any person if ``there is other good cause.'' Similarly, 
such findings may form the basis for a proceeding against a registrant 
under sections 8a(3)(C) and 8a(4) for the failure of such registrant 
``reasonably to supervise another person, who is subject to such 
person's supervision, with a view to preventing violations of this Act * 
* * or of any of the rules, regulations or orders thereunder * * *'' 
Moreover, because the Commission views actions by private parties as an 
important adjunct to the Commission's own enforcement proceedings, the 
Commission intends to monitor carefully decisions in such proceedings 
and may amend this interpretation if deemed appropriate.

                        Section 8a(3) (J) and (M)

    Section 8a(3) authorizes the Commission to refuse to register an 
applicant for registration if, after notice and opportunity for a 
hearing, the applicant is found subject to one or more of the 
disqualifications described in paragraphs (A)-(M). Section 8a(4) 
authorizes the Commission, after notice and opportunity for a hearing, 
to condition, suspend, restrict, or revoke the registration of any 
person subject to a disqualification under section 8a(3).
    Section 8a(3)(J) authorizes the Commission to affect the 
registration of any person if:

    such person is subject to an outstanding order denying, suspending, 
or expelling such person from membership in a contract market, a 
registered futures association, any other self-regulatory organization 
or any foreign regulatory body that the Commission recognizes as having 
a comparable regulatory program, or barring or suspending such person 
from being associated with any member or members of such contract 
market, association, self-regulatory organization, or foreign regulatory 
body.

    The Commission interprets the term ``self-regulatory organization'' 
to include, in addition to a contract market and a registered futures 
association, any self-regulatory organization as defined in section 
3(a)(26) of the Securities Exchange Act of 1934. Thus, a self-regulatory 
organization includes any national securities exchange, any registered 
securities association, any registered clearing agency and the Municipal 
Securities Rulemaking Board.
    Section 8a(3)(M). Section 8a(3)(M) authorizes the Commission to 
affect the registration of any person if ``there is other good cause''. 
Specifically, the Commission interprets paragraph (M) to authorize the 
Commission to refuse to register such person in any new capacity, if 
such person, or any principal of such person, is the subject of an 
administrative proceeding brought by the Commission to revoke the 
existing registration of such person in any other capacity, pending a 
final decision in such administrative proceeding. The Commission 
believes it would be inconsistent to register a person in a new 
capacity, thereby determining that such person is qualified to be 
registered, while simultaneously seeking to revoke such person's 
registration in a different capacity because such person's conduct 
disqualifies him from registration.
    Similarly, the Commission interprets paragraph (M) to authorize the 
Commission to refuse to register, register conditionally or otherwise 
affect the registration of any person if such person has consented, in 
connection with an agreement of settlement with a contract market, a 
registered futures association, or any other self-regulatory 
organization, to comply with an undertaking to withdraw all forms of 
existing or pending registration and/or not to apply for registration 
with the National Futures Association or the Commission in any capacity. 
Such person's effort to violate his or her prior undertaking to withdraw 
from and/or not to apply for registration shall be considered to 
constitute ``other good cause'' under paragraph (M). The Commission 
believes that allowing such a person to be registered would be 
inappropriate and inconsistent with the intention of parties to the 
prior settlement agreement. The failure to withdraw or the attempt to 
register in the face of such an undertaking would indicate the lack of 
fair and

[[Page 159]]

honest dealing which the Commission believes constitutes ``other good 
cause'' for denying, revoking or conditioning registration under the 
Act. The Commission also believes that allowing registration in such a 
situation would be inconsistent with both Section 8a(2)(A), which 
authorizes the Commission to refuse to register, to register 
conditionally, or to revoke, suspend or place restrictions upon the 
registration of any person if such person's prior registration has been 
suspended (and the period of such suspension has not expired) or has 
been revoked, and Section 8a(3)(J), which authorizes the Commission to 
refuse to register or to register conditionally any person if he or she 
is subject to an outstanding order denying, suspending, or expelling 
such person from membership in a contract market, a registered futures 
association, or any other self-regulatory organization.
    Good cause to affect a person's registration also exists: (1) If the 
operations of such person disrupt or would tend to disrupt orderly 
market conditions, or cause or would tend to cause sudden or 
unreasonable fluctuations or unwarranted changes in the price of 
commodities or contracts for future delivery of commodities or commodity 
options; (2) if such person has used or is using in its name a term such 
as ``board of trade'', ``clearing corporation'' or ``exchange'' in a 
misleading context, or uses any terms in its representations to the 
public which may indicate that the person is a contract market or a 
member of a contract market when such is not the case, or has used or is 
using a misleading name which would tend to suggest to the public that 
the person is affiliated with another person when that is not the case 
or that the person is engaged in a commodity-related business when the 
person is not in fact substantially so engaged, or has failed to 
disclose to the public an agency relationship with another person when 
such failure could mislead the public; (3) if such person is subject to 
an outstanding order denying, suspending or revoking the license of such 
person by a licensing authority, such as a state real estate or 
insurance commission; and (4) if such person has failed to answer the 
inquiries or requests for further information concerning an application 
for registration filed with the Commission.
    This listing, of course, is not exclusive. In general, the 
Commission interprets paragraph (M) to authorize the Commission to 
affect the registration of any person if, as a result of any act or 
pattern of conduct attributable to such person, although never the 
subject of formal action or proceeding before either a court or 
governmental agency, such person's potential disregard of or inability 
to comply with the requirements of the Act or the rules, regulations or 
order thereunder, or such person's moral turpitude, or lack of honesty 
or financial responsibility is demonstrated to the Commission.
    Any inability to deal fairly with the public and consistent with 
just and equitable principles of trade may render an applicant or 
registrant unfit for registration, given the high ethical standards 
which must prevail in the industry.
    The Commission has further addressed ``other good cause'' under 
Section 8a(3)(M) of the Act in issuing guidance letters on assessing the 
fitness of floor brokers, floor traders or applicants in either 
category:

[First guidance letter]

December 4, 1997

Robert K. Wilmouth, President, National Futures Association, 200 West 
          Madison Street, Chicago, IL 60606-3447

Re: Adverse Registration Actions with Respect to Floor Brokers, Floor 
          Traders and Applicants for Registration in Either Category

    Dear Mr. Wilmouth: As you know, the Commission on June 26, 1997, 
approved for publication in the Federal Register a Notice and Order 
concerning adverse registration actions by the National Futures 
Association (``NFA'') with respect to registered floor brokers 
(``FBs''), registered floor traders (``FTs'') and applicants for 
registration in either category. 62 Fed. Reg. 36050 (July 3, 1997). The 
Notice and Order authorized NFA to grant or to maintain, either with or 
without conditions or restrictions, FB or FT registration where NFA 
previously would have forwarded the case to the Commission for review of 
disciplinary history. The Commission has worked with its staff to 
determine which of the pending matters could efficiently be returned to 
NFA for handling, and such matters have been forwarded to NFA. The 
Commission will continue to accept or to act upon requests for 
exemption, and the Commission staff will consider requests for ``no-
action'' opinions with respect to applicable registration requirements.
    By this correspondence, the Commission is issuing guidance that 
provides NFA further direction on how it expects NFA to exercise its 
delegated power, based upon the experience of the Commission and the 
staff with the registration review process during the past three years. 
This guidance will help ensure that NFA exercises its delegated power in 
a manner consistent with Commission precedent.
    In exercising its delegated authority, NFA, of course, needs to 
apply all of the provisions of Sections 8a(2) and (3) of the Commodity 
Exchange Act (``Act''). \1\ In that regard, NFA

[[Page 160]]

should consider the matters in which the Commission has taken action in 
the past and endeavor to seek similar registration restrictions, 
conditions, suspensions, denials, or revocations under similar 
circumstances.
---------------------------------------------------------------------------

    \1\ 7 U.S.C. 12a(2) and (3) (1994). The letter is intended to 
supplement, not to supersede, other guidance provided in the past to 
NFA. In this regard, the NFA should continue to follow other guidance 
provided by the Commission or its staff.
---------------------------------------------------------------------------

    One of the areas in which NFA appears to have had the most 
uncertainty is with regard to previous self-regulatory organization 
(``SRO'') disciplinary actions. Commission Rule 1.63 \2\ provides clear 
guidelines for determining whether a person's history of ``disciplinary 
offenses'' should preclude service on SRO governing boards or 
committees. \3\ In determining whether to grant or to maintain, either 
with or without conditions or restrictions, FB or FT registration, NFA 
should, as an initial matter, apply the Rule 1.63(a)(6) criteria to 
those registered FBs, registered FTs and applicants for registration in 
either category. However, NFA should be acting based upon any such 
offenses that occurred within the previous five years, rather than the 
three years provided for in Rule 1.63(c). NFA should consider 
disciplinary actions taken by an SRO as that term is defined in Section 
3(a)(26) of the Securities Exchange Act of 1934 no differently from 
disciplinary actions taken by an SRO in the futures industry as defined 
in Rule 1.3(ee). \4\ Application of the Rule 1.63 criteria, as modified, 
to these matters will aid NFA in making registration determinations that 
are reasonably consonant with Commission views. \5\ NFA should focus on 
the nature of the underlying conduct rather than the sanction imposed by 
an SRO. Thus, if a disciplinary action would not come within the 
coverage of Rule 1.63 but for the imposition of a short suspension of 
trading privileges (such as for a matter involving fighting, use of 
profane language or minor recordkeeping violations), NFA could exercise 
discretion, as has the Commission, not to institute a statutory 
disqualification case. On the other hand, conduct that falls clearly 
within the terms of Rule 1.63, such as violations of rules involving 
potential harm to customers of the exchange, should not be exempt from 
review simply because the exchange imposed a relatively minor sanction.
---------------------------------------------------------------------------

    \2\ Commission rules referred to herein are found at 17 CFR Ch. I.
    \3\ Rule 1.63(c) provides that a person is ineligible from serving 
on an SRO's disciplinary committees, arbitration panels, oversight 
panels or governing board if, as provided in Rule 1.63(b), the person, 
inter alia: (1) within the past three years has been found by a final 
decision of an SRO, an administrative law judge, a court of competent 
jurisdiction or the Commission to have committed a disciplinary offense; 
or (2) within the past three years has entered into a settlement 
agreement in which any of the findings or, in the absence of such 
findings, any of the acts charged included a disciplinary offense.
    Rule 1.63(a)(6) provides that a ``disciplinary offense'' includes: 
(i) any violation of the rules of an SRO except those rules related to 
(A) decorum or attire, (B) financial requirements, or (C) reporting or 
record-keeping unless resulting in fines aggregating more than $5,000 
within any calendar year; (ii) any rule violation described in 
subparagraphs (A) through (C) above that involves fraud, deceit or 
conversion or results in a suspension or expulsion; (iii) any violation 
of the Act or the regulations promulgated thereunder; or (iv) any 
failure to exercise supervisory responsibility with respect to an act 
described in paragraphs (i) through (iii) above when such failure is 
itself a violation of either the rules of an SRO, the Act or the 
regulations promulgated thereunder.
    \4\ Thus, for example, a disciplinary action taken by the Chicago 
Board Options Exchange or the National Association of Securities 
Dealers, Inc. should be considered in a manner similar to a disciplinary 
action of the Chicago Board of Trade or NFA.
    \5\ In reviewing these matters, the NFA should bear in mind recent 
Commission precedent which allows for reliance on settled disciplinary 
proceedings in some circumstances. See In the Matter of Michael J. 
Clark, [1996-1998 Transfer Binder] Comm. Fut. L. Rep. (CCH) ] 27,032 
(Apr. 22, 1997) (``other good cause'' under Section 8a(3)(M) of the Act 
exists based upon a pattern of exchange disciplinary actions resulting 
in significant sanctions for serious rule violations--whether 
settlements or adjudications), aff'd sub nom., Clark v. Commodity 
Futures Trading Commission, No. 97-4228 (2d Cir. June 4, 1999) 
(unpublished).
---------------------------------------------------------------------------

    The Commission has treated the registration process and the SRO 
disciplinary process as separate matters involving separate 
considerations. The fact that the Commission has not pursued its own 
enforcement case in a particular situation does not necessarily mean 
that the Commission considers the situation to be a minor matter for 
which no registration sanctions are appropriate. Further, the Commission 
believes that it and NFA, entities with industry-wide perspective and 
responsibilities, are the appropriate bodies, rather than any individual 
exchange, to decide issues relating to registration status, which can 
affect a person's ability to function in the industry well beyond the 
jurisdiction of a particular exchange. Thus, NFA's role is in no way 
related to review of exchange sanctions for particular conduct, but 
rather it is the entirely separate task of determining whether an FB's 
or FT's conduct should impact his or her registration.

[[Page 161]]

    NFA also should look to Commission precedent in selecting conditions 
or restrictions to be imposed, such as a dual trading ban where a person 
has been involved in disciplinary offenses involving customer abuse. 
Where conditions or restrictions are imposed, or agreed upon, NFA also 
should follow Commission precedent, under which such conditions or 
restrictions generally have been imposed for a two-year period.
    The Commission has required sponsorship for conditioned FBs and FTs 
when their disciplinary offenses have involved noncompetitive trading 
and fraud irrespective of the level of sanctions imposed by an SRO. 
Indeed, but for a sponsorship requirement there would be no one 
routinely watching and responsible for the activities of these 
registrants. Absent sponsorship, such FBs and FTs would only be subject 
to routine Commission and exchange surveillance. The Commission's rules 
are premised upon the judgment that requiring FTs and FBs to have 
sponsors to ensure their compliance with conditions is both appropriate 
and useful. See Rule 3.60(b)(2)(i).
    A question has arisen whether, if NFA is required to prove up the 
underlying facts of an SRO disciplinary action, the exchanges can 
provide information on exchange disciplinary proceedings directly to 
NFA. Although Section 8c(a)(2) of the Act states that an exchange shall 
not disclose the evidence for a disciplinary action except to the person 
disciplined and to the Commission, Section 8a(10) of the Act allows the 
Commission to authorize any person to perform any portion of the 
registration functions under the Act, notwithstanding any other 
provision of law. The effective discharge of the delegated registration 
function requires NFA to have access to the exchange evidence. Thus, the 
Commission believes that Section 8a(10) may reasonably be interpreted to 
allow the disclosure of information from exchange disciplinary 
proceedings directly to NFA despite the provisions of Section 8c(a)(2).
    Nothing in the Notice and Order affects the Commission's authority 
to review the granting of a registration application by NFA in the 
performance of Commission registration functions, including review of 
the sufficiency of conditions or restrictions imposed by NFA, to review 
the determination by NFA not to take action to affect an existing 
registration, or to take its own action to address a statutory 
disqualification. Moreover, the Commission Order contemplates that to 
allow for appropriate Commission oversight of NFA's exercise of this 
delegated authority, NFA will provide for the Commission's review 
quarterly schedules of all applicants cleared for registration and all 
registrants whose registrations are maintained without adverse action by 
NFA's Registration, Compliance, Legal Committee despite potential 
statutory disqualifications.
    The Commission will continue to monitor NFA activities through 
periodic rule enforcement reviews, and NFA remains subject to the 
present requirement that it monitor compliance with the conditions and 
restrictions imposed on conditioned and restricted registrants.
    Sincerely,

Jean A. Webb, Secretary of the Commission

[Second guidance letter]

April 13, 2000

Robert K. Wilmouth, President, National Futures Association, 200 West 
          Madison Street, Chicago, IL 60606-3447

Re: Use of Exchange Disciplinary Actions as ``Other Good Cause'' to 
          Affect Floor Broker/Floor Trader Registration

    Dear Mr. Wilmouth:

                     I. Introduction and Background

    In July 1997, the Commission issued a Notice and Order authorizing 
the National Futures Association (``NFA'') to grant or to maintain, 
either with or without conditions or restrictions, floor broker (``FB'') 
or floor trader (``FT'') registration where NFA previously would have 
forwarded the case to the Commission for review of disciplinary history. 
\1\ By letter dated December 4, 1997 (``Guidance Letter''), the 
Commission provided further direction on how the Commission expected NFA 
to exercise its delegated power and to ensure that NFA exercised its 
delegated power in a manner consistent with Commission precedent.
---------------------------------------------------------------------------

    \1\ Registration Actions by National Futures Association With 
Respect to Floor Brokers, Floor Traders and Applicants for Registration 
in Either Category, 62 FR 36050 (July 3, 1997).
---------------------------------------------------------------------------

    The Commission has determined to revise the Guidance Letter. 
Specifically, the Commission is revising the portion of the Guidance 
Letter that addresses the use of exchange disciplinary actions as 
``other good cause'' to affect FB and FT registrations. The Commission 
has made this determination following its own reconsideration of the 
issue and at the urging of industry members. \2\
---------------------------------------------------------------------------

    \2\ See letters submitted by James Bowe, former president of the New 
York Board of Trade (``NYBOT''), dated October 13, 1999, Christopher 
Bowen, general counsel of the New York Mercantile Exchange (``NYMEX''), 
dated October 18, 1999, and the Joint Compliance Committee (``JCC''), 
dated February 2, 2000. The JCC consists of senior compliance officials 
from all domestic futures exchanges and the NFA (i.e., the domestic 
self-regulatory organizations (``SROs'')). In addition, staff from the 
Contract Markets Section of the Commission's Division of Clearing and 
Intermediary Oversight attend the JCC meetings as observers. The JCC was 
established to aid in the development of improved compliance systems 
through joint efforts and information-sharing among the SROs. Commission 
staff have also discussed this issue with SRO staff.

---------------------------------------------------------------------------

[[Page 162]]

    The Guidance Letter pointed out that, in exercising its delegated 
authority, NFA must apply all of the provisions of Sections 8a(2) and 
(3) of the Commodity Exchange Act (``Act''). \3\ In particular, Section 
8a(3)(M) of the Act authorizes the Commission to refuse to register or 
to register conditionally any person if it is found, after opportunity 
for hearing, that there is other good cause for statutory 
disqualification from registration beyond the specifically listed 
grounds in Sections 8a(2) and 8a(3) of the Act. The Commission held in 
In the Matter of Clark that statutory disqualification under the ``other 
good cause'' provision of Section 8a(3)(M) may arise on the basis of, 
among other things, a pattern of exchange disciplinary actions alleging 
serious rule violations that result in significant sanctions, and that 
it is immaterial whether the sanctions imposed resulted from a fully-
adjudicated disciplinary action or an action that was taken following a 
settlement. \4\
---------------------------------------------------------------------------

    \3\ 7 U.S.C. 12a(2) and (3) (1994).
    \4\ In the Matter of Clark, [1996-1998 Transfer Binder] Comm. Fut. 
L. Rep. (CCH) ] 27,032 (Apr. 22, 1997), aff'd sub nom., Clark v. 
Commodity Futures Trading Commission, No. 97-4228 (2d Cir. June 4, 1999) 
(unpublished).
---------------------------------------------------------------------------

    The Guidance Letter recommended the application of the provisions of 
Commission Rule 1.63 \5\ as criteria to aid in assessing the impact of 
an FB or FT applicant's or registrant's previous disciplinary history on 
the person's fitness to be registered, with the exception that NFA 
should be acting based on disciplinary history from the previous five 
years, rather than the three years provided for in Rule 1.63. \6\ The 
Guidance Letter also noted that NFA should consider disciplinary actions 
taken not only by futures industry SROs but also those taken by SROs as 
defined in Section 3(a)(26) of the Securities Exchange Act of 1934 
(``1934 Act''), including settled disciplinary actions.
---------------------------------------------------------------------------

    \5\ Commission rules referred to in this letter are found at 17 CFR 
Ch. 1.
    \6\ Rule 1.63 provides, among other things, that a person is 
ineligible from serving on SRO disciplinary committees, arbitration 
panels, oversight panels or governing boards if that person, inter alia, 
entered into a settlement agreement within the past three years in which 
any of the findings or, in the absence of such findings, any of the acts 
charged included a disciplinary offense.
    Rule 1.63(a)(6) defines a ``disciplinary offense'' to include:
    (i) any violation of the rules of an SRO except those rules related 
to (A) decorum or attire, (B) financial requirements, or (C) reporting 
or record-keeping unless resulting in fines aggregating more than $5,000 
within any calendar year; (ii) any rule violation described in 
subparagraphs (A) through (C) above that involves fraud, deceit or 
conversion or results in a suspension or expulsion; (iii) any violation 
of the Act or the regulations promulgated thereunder; or (iv) any 
failure to exercise supervisory responsibility with respect to an act 
described in paragraphs (i) through (iii) above when such failure is 
itself a violation of either the rules of an SRO, the Act or the 
regulations promulgated thereunder.
---------------------------------------------------------------------------

                          II. Revised Guidance

    As stated above, the Commission has determined to revise the 
Guidance Letter. From this point forward, NFA should cease using Rule 
1.63 as the basis to evaluate the impact of an FB or FT applicant's or 
registrant's disciplinary history on his or her fitness to be 
registered. Instead, as Clark stated, when reviewing disciplinary 
history to assess the fitness to be registered of an FB, FT, or 
applicant in either category, a pattern of exchange disciplinary actions 
alleging serious rule violations that result in significant sanctions 
will trigger the ``other good cause'' provision of Section 8a(3)(M). The 
``pattern'' should consist of at least two final exchange disciplinary 
actions, whether settled or adjudicated.
    NFA also should consider initiating proceedings to affect the 
registration of the FB or FT, even if there is only a single exchange 
action against the FB or FT, if the exchange action was based on 
allegations of particularly egregious misconduct or involved numerous 
instances of misconduct occurring over a long period of time. If, 
however, a proceeding is initiated based on a single exchange action 
that was disposed of by settlement, NFA may have to prove up the 
underlying misconduct. Furthermore, traditional principles of collateral 
estoppel apply to adjudicated actions, whether they are being considered 
individually or as part of a pattern. \7\
---------------------------------------------------------------------------

    \7\ Clark at 44,929.
---------------------------------------------------------------------------

    As provided by the Guidance Letter, ``exchange disciplinary 
actions'' would continue to include disciplinary actions taken by both 
futures industry SROs and SROs as defined in Section 3(a)(26) of the 
1934 Exchange Act. Furthermore, NFA should review an applicant's or 
registrant's disciplinary history for the past five years. \8\ At least 
one of the actions forming the pattern, however, must

[[Page 163]]

have become final after Clark was decided by the Commission on April 22, 
1997. Finally, ``serious rule violations'' consist of, or are 
substantially related to, charges of fraud, customer abuse, other 
illicit trading practices, or the obstruction of an exchange 
investigation.
---------------------------------------------------------------------------

    \8\ The Commission generally looked at a five-year period of 
disciplinary history. On occasion, however, the Commission examined a 
longer period of an applicant's or registrant's disciplinary history. 
For example, the Commission revoked the registration of one FB on the 
basis of exchange disciplinary cases that extended back six years, see 
Clark, 2 Comm. Fut. L. Rep. (CCH) ] 27,032, and denied an application 
for registration as an FT on the basis of exchange disciplinary cases 
that extended back seven years, see In the Matter of Castellano, [1987-
1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) ] 24,360 (Nov. 23, 1988), 
summarily aff'd (May 29, 1990), reh. denied [1990-1992 Transfer Binder] 
Comm. Fut. L. Rep. ] 24,870 (June 26, 1990), aff'd sub nom. Castellano 
v. CFTC, Docket No. 90-2298 (7th Cir. Nov. 20, 1991).
---------------------------------------------------------------------------

    Congress, the courts and the Commission have indicated the 
importance of considering an applicant's history of exchange 
disciplinary actions in assessing that person's fitness to register. \9\ 
Furthermore, NFA's review of exchange disciplinary actions within the 
context of the registration process should not simply mirror the 
disciplinary actions undertaken by the exchanges. The two processes are 
separate matters that involve separate considerations. As part of their 
ongoing self-regulatory obligations, exchanges must take disciplinary 
action \10\ and such disciplinary matters necessarily focus on the 
specific misconduct that forms the allegation. In a statutory 
disqualification action, however, NFA must determine whether the 
disciplinary history of an FB, FT or applicant over the preceding five 
years should impact his or her registration. Additionally, NFA possesses 
industry-wide perspective and responsibilities. As such, NFA, rather 
than an individual exchange, should decide registration status issues, 
since those issues affect an individual's status within the industry as 
a whole, well beyond the jurisdiction of a particular exchange.
---------------------------------------------------------------------------

    \9\ Letter dated July 14, 1995, from Mary L. Schapiro to R. Patrick 
Thompson, President, New York Mercantile Exchange (unpublished). See 
also Castellano, supra note 8.
    \10\ See Rule 1.51(a)(7).
---------------------------------------------------------------------------

    The Commission also wants to clarify to the fullest extent possible 
that its power to delegate the authority to deny or condition the 
registration of an FB, FT, or an applicant for registration in either 
category permits exchanges to disclose to NFA all evidence underlying 
exchange disciplinary actions, notwithstanding the language of Section 
8c(a)(2) of the Act. \11\ The Commission's power to delegate stems from 
Section 8a(10) of the Act, which permits delegation of registration 
functions, including statutory disqualification actions, to any person 
in accordance with rules adopted by such person and submitted to the 
Commission for approval or for review under Section 17(j) of the Act, 
``notwithstanding any other provision of law.'' Certainly, Section 
8c(a)(2) qualifies as ``any other provision of law.'' Furthermore, the 
effective discharge of the delegated function requires NFA to have 
access to the exchange evidence. Thus, the exercise of the delegated 
authority pursuant to Section 8a(10) permits the exchanges to disclose 
all evidence underlying disciplinary actions to NFA. \12\
---------------------------------------------------------------------------

    \11\ Section 8c(a)(2) states, in relevant part, that ``[A]n exchange 
* * * shall not disclose the evidence therefor, except to the person who 
is suspended, expelled, disciplined, or denied access, and to the 
Commission.''
    \12\ Of course, the Commission could request records from the 
exchange and forward them to NFA. The Commission believes that this is 
an unnecessary administrative process and that NFA should obtain the 
records it needs to carry out the delegated function of conducting 
disciplinary history reviews directly from the exchanges. In this 
context and pursuant to Commission orders authorizing NFA to institute 
adverse registration actions, NFA should be viewed as standing in the 
shoes of the Commission.
---------------------------------------------------------------------------

    This letter supersedes the Guidance Letter to the extent discussed 
above. In all other aspects, the Guidance Letter and other guidance 
provided by the Commission or its staff remain in effect. Therefore, NFA 
should continue to follow Commission precedent when selecting conditions 
or restrictions to be imposed. For example, NFA should impose a dual 
trading ban where customer abuse is involved and any conditions or 
restrictions imposed should be for a two-year period. Furthermore, NFA 
should require sponsorship for conditioned FBs or FTs when their 
disciplinary offenses involve noncompetitive trading and fraud.
    Nothing in the Notice and Order or this letter affects the 
Commission's authority to review the granting of a registration 
application by NFA in the performance of Commission registration 
functions, including review of the sufficiency of conditions or 
restrictions imposed by NFA, to review the determination by NFA not to 
take action to affect an existing registration, or to take its own 
action to address a statutory disqualification. Moreover, the Commission 
Order contemplates that to allow for appropriate Commission oversight of 
NFA's exercise of this delegated authority, NFA will provide

[[Page 164]]

for the Commission's review quarterly schedules of all applicants 
cleared for registration and all registrants whose registrations are 
maintained without adverse action by NFA's Registration, Compliance, 
Legal Committee despite potential statutory disqualifications.
    The Commission will continue to monitor NFA activities through 
periodic rule enforcement reviews, and NFA remains subject to the 
present requirement that it monitor compliance with the conditions and 
restrictions imposed on conditioned and restricted registrants.

    Sincerely,
Jean A. Webb,
Secretary of the Commission.

[49 FR 8224, Mar. 5, 1984, as amended at 58 FR 19597, Apr. 15, 1993; 59 
FR 5315, Feb. 4, 1994; 61 FR 58628, Nov. 18, 1996; 66 FR 53518, Oct. 23, 
2001; 67 FR 62352, Oct. 7, 2002]



   Sec. Appendix B to Part 3--Statement of Acceptable Practices With 
                       Respect to Ethics Training

    (a) The provisions of Section 4p(b) of the Act (7 U.S.C. 6p(b) 
(1994)) set forth requirements regarding training of registrants as to 
their responsibilities to the public. This section requires the 
Commission to issue regulations requiring new registrants to attend 
ethics training sessions within six months of registration, and all 
registrants to attend such training on a periodic basis. The awareness 
and maintenance of professional ethical standards are essential elements 
of a registrant's fitness. Further, the use of ethics training programs 
is relevant to a registrant's maintenance of adequate supervision, a 
requirement under Rule 166.3.
    (b)(1) The Commission recognizes that technology has provided new, 
faster means of sharing and distributing information. In view of the 
foregoing, the Commission has chosen to allow registrants to develop 
their own ethics training programs. Nevertheless, futures industry 
professionals may want guidance as to the role of ethics training. 
Registrants may wish to consider what ethics training should be 
retained, its format, and how it might best be implemented. Therefore, 
the Commission finds it appropriate to issue this Statement of 
Acceptable Practices regarding appropriate training for registrants, as 
interpretative guidance for intermediaries on fitness and supervision. 
Commission registrants may look to this Statement of Acceptable 
Practices as a ``safe harbor'' concerning acceptable procedures in this 
area.
    (2) The Commission believes that section 4p(b) of the Act reflects 
an intent by Congress that industry professionals be aware, and remain 
abreast, of their continuing obligations to the public under the Act and 
the regulations thereunder. The text of the Act provides guidance as to 
the nature of these responsibilities. As expressed in section 4p(b) of 
the Act, personnel in the industry have an obligation to the public to 
observe the Act, the rules of the Commission, the rules of any 
appropriate self-regulatory organizations or contract markets (which 
would also include registered derivatives transaction execution 
facilities), or other applicable federal or state laws or regulations. 
Further, section 4p(b) acknowledges that registrants have an obligation 
to the public to observe ``just and equitable principles of trade.''
    (3) Additionally, section 4p(b) reflects Congress' intent that 
registrants and their personnel retain an up-to-date knowledge of these 
requirements. The Act requires that registrants receive training on a 
periodic basis. Thus, it is the intent of Congress that Commission 
registrants remain current with regard to the ethical ramifications of 
new technology, commercial practices, regulations, or other changes.
    (c) The Commission believes that training should be focused to some 
extent on a person's registration category, although there will 
obviously be certain principles and issues common to all registrants and 
certain general subjects that should be taught. Topics to be addressed 
include:
    (1) An explanation of the applicable laws and regulations, and the 
rules of self-regulatory organizations or contract markets and 
registered derivatives transaction execution facilities;
    (2) The registrant's obligation to the public to observe just and 
equitable principles of trade;
    (3) How to act honestly and fairly and with due skill, care and 
diligence in the best interests of customers and the integrity of the 
market;
    (4) How to establish effective supervisory systems and internal 
controls;
    (5) Obtaining and assessing the financial situation and investment 
experience of customers;
    (6) Disclosure of material information to customers; and
    (7) Avoidance, proper disclosure and handling of conflicts of 
interest.
    (d) An acceptable ethics training program would apply to all of a 
firm's associated persons and its principals to the extent they are 
required to register as associated persons. Additionally, personnel of 
firms that rely on their registration with other regulators, such as the 
Securities and Exchange Commission, should be provided with ethics 
training to the extent the Act and the Commission's regulations apply to 
their business.
    (e) As to the providers of such training, the Commission believes 
that classes sponsored by independent persons, firms, or industry 
associations would be acceptable. It would also be permissible to 
conduct in-house training programs. Further, registrants

[[Page 165]]

should ascertain the credentials of any ethics training providers they 
retain. Thus, persons who provide ethics training should be required to 
provide proof of satisfactory completion of the proficiency testing 
requirements applicable to the registrant and evidence of three years of 
relevant industry or pedagogical experience in the field. This industry 
experience might include the practice of law in the fields of futures or 
securities, or employment as a trader or risk manager at a brokerage or 
end-user firm. Likewise, the Commission believes that registrants should 
employ as ethics training providers only those persons they reasonably 
believe in good faith are not subject to any investigations or to bars 
to registration or to service on a self-regulatory organization 
governing board or disciplinary panel.
    (f)(1) With regard to the frequency and duration of ethics training, 
it is permissible for a firm to require training on whatever periodic 
basis and duration the registrant (and relevant self-regulatory 
organizations) deems appropriate. It may even be appropriate not to 
require any such specific requirements as, for example, where ethics 
training could be termed ongoing. For instance, a small entity, sole 
proprietorship, or even a small section in an otherwise large firm, 
might satisfy its obligation to remain current with regard to ethics 
obligations by distribution of periodicals, legal cases, or advisories. 
Use of the latest information technology, such as Internet websites, can 
be useful in this regard. In such a context, there would be no 
structured classes, but the goal should be a continuous awareness of 
changing industry standards. A corporate culture to maintain high 
ethical standards should be established on a continuing basis.
    (2) On the other hand, larger firms which transact business with a 
larger segment of the public may wish to implement a training program 
that requires periodic classwork. In such a situation, the Commission 
believes it appropriate for registrants to maintain such records as 
evidence of attendance and of the materials used for training. In the 
case of a floor broker or floor trader, the applicable contract market 
or registered derivatives transaction execution facility should maintain 
such evidence on behalf of its member. This evidence of ethics training 
could be offered to demonstrate fitness and overall compliance during 
audits by self-regulatory organizations, and during reviews of contract 
market or registered derivatives transaction execution facility 
operations.
    (g) The methodology of such training may also be flexible. Recent 
innovations in information technology have made possible new, fast, and 
cost-efficient ways for registrants to maintain their awareness of 
events and changes in the commodity interest markets. In this regard, 
the Commission recognizes that the needs of a firm will vary according 
to its size, personnel, and activities. No format of classes will be 
required. Rather, such training could be in the form of formal class 
lectures, video presentation, Internet transmission, or by simple 
distribution of written materials. These options should provide 
sufficiently flexible means for adherence to Congressional intent in 
this area.
    (h) Finally, it should be noted that self-regulatory organizations 
and industry associations will have a significant role in this area. 
Such organizations may have separate ethics and proficiency standards, 
including ethics training and testing programs, for their own members.

[66 FR 53521, Oct. 23, 2001]



PART 4_COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS--Table of Contents



        Subpart A_General Provisions, Definitions and Exemptions

Sec.
4.1 Requirements as to form.
4.2-4.4 [Reserved]
4.5 Exclusion for certain otherwise regulated persons from the 
          definition of the term ``commodity pool operator.''
4.6 Exclusion for certain otherwise regulated persons from the 
          definition of the term ``commodity trading advisor.''
4.7 Exemption from certain part 4 requirements for commodity pool 
          operators with respect to offerings to qualified eligible 
          persons and for commodity trading advisors with respect to 
          advising qualified eligible persons.
4.8 Exemption from certain requirements of rule 4.26 with respect to 
          pools offered or sold in certain offerings exempt from 
          registration under the Securities Act.
4.9 [Reserved]
4.10 Definitions.
4.11 Exemption from section 4n(3)(B).
4.12 Exemption from provisions of part 4.
4.13 Exemption from registration as a commodity pool operator.
4.14 Exemption from registration as a commodity trading advisor.
4.15 Continued applicability of antifraud section.
4.16 Prohibited representations.

                   Subpart B_Commodity Pool Operators

4.20 Prohibited activities.
4.21 Required delivery of pool Disclosure Document.
4.22 Reporting to pool participants.
4.23 Recordkeeping.
4.24 General disclosures required.
4.25 Performance disclosures.
4.26 Use, amendment and filing of Disclosure Document.

[[Page 166]]

                  Subpart C_Commodity Trading Advisors

4.30 Prohibited activities.
4.31 Required delivery of Disclosure Document to prospective clients.
4.32 Trading on a Registered Derivatives Transaction Execution Facility 
          for Non-Institutional Customers.
4.33 Recordkeeping.
4.34 General disclosures required.
4.35 Performance disclosures.
4.36 Use, amendment and filing of Disclosure Document.

                          Subpart D_Advertising

4.40 [Reserved]
4.41 Advertising by commodity pool operators, commodity trading 
          advisors, and the principals thereof.

Appendix A to Part 4--Guidance on the Application of Rule 4.13(a)(3) in 
          the Fund-of-Funds Context
Appendix B to Part 4--Adjustments for Additions and Withdrawals in the 
          Computation of Rate of Return

    Authority: 7 U.S.C. 1a, 2, 4, 6b, 6c, 6l, 6m, 6n, 6o, 12a, and 23.

    Source: 46 FR 26013, May 8, 1981, unless otherwise noted.



        Subpart A_General Provisions, Definitions and Exemptions



Sec. 4.1  Requirements as to form.

    (a) Each document distributed pursuant to this part 4 must be:
    (1) Clear and legible;
    (2) Paginated; and
    (3) Fastened in a secure manner.
    (b) Information that is required to be ``prominently'' disclosed 
under this part 4 must be displayed in capital letters and in boldface 
type.
    (c) Where a document is distributed through an electronic medium:
    (1) The requirements of paragraphs (a) of this section shall mean 
that required information must be presented in a format that is readily 
communicated to the recipient. For purposes of this paragraph (c), 
information is readily communicated to the recipient if it is accessible 
to the ordinary user by means of commonly available hardware and 
software and if the electronically delivered document is organized in 
substantially the same manner as would be required for a paper document 
with respect to the order of presentation and the relative prominence of 
information. Where a table of contents is required, the electronic 
document must either include page numbers in the text or employ a 
substantially equivalent cross-reference or indexing method or tool;
    (2) The requirements of paragraph (b) of this section shall mean 
that such information must be presented in capital letters and boldface 
type or, as warranted in the context, another manner reasonably 
calculated to draw the recipient's attention to the information and 
accord it greater prominence than the surrounding text; and
    (3) A complete paper version of the document that complies with the 
applicable provisions of this part 4 must be provided to the recipient 
upon request.
    (d) If graphic, image or audio material is included in a document 
delivered to a prospective or existing client or pool participant, and 
such material cannot be reproduced in an electronic filing, a fair and 
accurate narrative description, tabular representation or transcript of 
the omitted material must be included in the filed version of the 
document. Inclusion of such material in a Disclosure Document shall be 
subject to the requirements of Sec. 4.24(v) in the case of pool 
Disclosure Documents, and Sec. 4.34(n) in the case of commodity trading 
advisor Disclosure Documents.

(Approved by the Office of Management and Budget under control number 
3038-0005)

[46 FR 26013, May 8, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 62 
FR 39115, July 22, 1997]



Sec. Sec. 4.2-4.4  [Reserved]



Sec. 4.5  Exclusion for certain otherwise regulated persons from the definition of 

the term ``commodity pool operator.''

    (a) Subject to compliance with the provisions of this section, the 
following persons, and any principal or employee thereof, shall be 
excluded from the definition of the term ``commodity pool operator'' 
with respect to the operation of a qualifying entity specified in 
paragraph (b) of this section:
    (1) An investment company registered as such under the Investment 
Company Act of 1940;

[[Page 167]]

    (2) An insurance company subject to regulation by any State;
    (3) A bank, trust company or any other such financial depository 
institution subject to regulation by any State or the United States; and
    (4) A trustee of, a named fiduciary of (or a person designated or 
acting as a fiduciary pursuant to a written delegation from or other 
written agreement with the named fiduciary) or an employer maintaining a 
pension plan that is subject to title I of the Employee Retirement 
Income Security Act of 1974; Provided, however, That for purposes of 
this Sec. 4.5 the following employee benefit plans shall not be 
construed to be pools:
    (i) A noncontributory plan, whether defined benefit or defined 
contribution, covered under title I of the Employee Retirement Income 
Security Act of 1974;
    (ii) A contributory defined benefit plan covered under title IV of 
the Employee Retirement Income Security Act of 1974; Provided, however, 
That with respect to any such plan to which an employee may voluntarily 
contribute, no portion of an employee's contribution is committed as 
margin or premiums for futures or options contracts;
    (iii) A plan defined as a governmental plan in section 3(32) of 
title I of the Employee Retirement Income Security Act of 1974;
    (iv) Any employee welfare benefit plan that is subject to the 
fiduciary responsibility provisions of the Employee Retirement Income 
Security Act of 1974; and
    (v) A plan defined as a church plan in Section 3(33) of title I of 
the Employee Retirement Income Security Act of 1974 with respect to 
which no election has been made under 26 U.S.C. 410(d).
    (b) For the purposes of this section, the term ``qualifying entity'' 
means:
    (1) With respect to any person specified in paragraph (a)(1) of this 
section, an investment company registered as such under the Investment 
Company Act of 1940;
    (2) With respect to any person specified in paragraph (a)(2) of this 
section, a separate account established and maintained or offered by an 
insurance company pursuant to the laws of any State or territory of the 
United States, under which income gains and losses, whether or not 
realized, from assets allocated to such account, are, in accordance with 
the applicable contract, credited to or charged against such account, 
without regard to other income, gains, or losses of the insurance 
company;
    (3) With respect to any person specified in paragraph (a)(3) of this 
section, the assets of any trust, custodial account or other separate 
unit of investment for which it is acting as a fiduciary and for which 
it is vested with investment authority; and
    (4) With respect to any person specified in paragraph (a)(4) of this 
section, and subject to the proviso thereof, a pension plan that is 
subject to title I of the Employee Retirement Income Security Act of 
1974; Provided, however, That such entity will be operated in the manner 
specified in paragraph (c)(2) of this section.
    (c) Any person who desires to claim the exclusion provided by this 
section shall file electronically a notice of eligibility with the 
National Futures Association through its electronic exemption filing 
system; Provided, however, That a plan fiduciary who is not a named 
fiduciary as described in paragraph (a)(4) of this section may claim the 
exclusion through the notice filed by the named fiduciary.
    (1) The notice of eligibility must contain the following 
information:
    (i) The name of such person;
    (ii) The applicable subparagraph of paragraph (a) of this section 
pursuant to which such person is claiming exclusion;
    (iii) The name of the qualifying entity which such person intends to 
operate pursuant to the exclusion; and
    (iv) The applicable subparagraph of paragraph (b) of this section 
pursuant to which such entity is a qualifying entity.
    (2) The notice of eligibility must contain representations that such 
person will operate the qualifying entity specified therein in a manner 
such that the qualifying entity:
    (i) Will disclose in writing to each participant, whether existing 
or prospective, that the qualifying entity is operated by a person who 
has claimed

[[Page 168]]

an exclusion from the definition of the term ``commodity pool operator'' 
under the Act and, therefore, who is not subject to registration or 
regulation as a pool operator under the Act; Provided, that such 
disclosure is made in accordance with the requirements of any other 
federal or state regulatory authority to which the qualifying entity is 
subject. The qualifying entity may make such disclosure by including the 
information in any document that its other Federal or State regulator 
requires to be furnished routinely to participants or, if no such 
document is furnished routinely, the information may be disclosed in any 
instrument establishing the entity's investment policies and objectives 
that the other regulator requires to be made available to the entity's 
participants; and
    (ii) Will submit to such special calls as the Commission may make to 
require the qualifying entity to demonstrate compliance with the 
provisions of this Sec. 4.5(c); Provided, however, that the making of 
such representations shall not be deemed a substitute for compliance 
with any criteria applicable to commodity futures or commodity options 
trading established by any regulator to which such person or qualifying 
entity is subject.
    (3) The notice of eligibility must be filed with the National 
Futures Association prior to the date upon which such person intends to 
operate the qualifying entity pursuant to the exclusion provided by this 
section.
    (4) The notice of eligibility shall be effective upon filing.
    (d)(1) Each person who has claimed an exclusion hereunder must, in 
the event that any of the information contained or representations made 
in the notice of eligibility becomes inaccurate or incomplete, amend the 
notice electronically through National Futures Association's electronic 
exemption filing system as may be necessary to render the notice of 
eligibility accurate and complete.
    (2) This amendment required by paragraph (d)(1) of this section 
shall be filed within fifteen business days after the occurrence of such 
event.
    (e) An exclusion claimed hereunder shall cease to be effective upon 
any change which would render:
    (1) A person as to whom such exclusion has been claimed ineligible 
under paragraph (a) of this section;
    (2) The entity for which such exclusion has been claimed ineligible 
under paragraph (b) of this section; or
    (3) Either the representations made pursuant to paragraph (c)(2) of 
this section inaccurate or the continuation of such representations 
false or misleading.
    (f) Any notice required to be filed hereunder must be filed by a 
representative duly authorized to bind the person specified in paragraph 
(a) of this section.
    (g) The filing of a notice of eligibility or the application of 
``non-pool status'' under this section will not affect the ability of a 
person to qualify for an exemption from registration as a commodity pool 
operator under Sec. 4.13 in connection with the operation of another 
trading vehicle that is not covered under this Sec. 4.5.

[50 FR 15882, Apr. 23, 1985; 50 FR 18859, May 3, 1985, as amended at 58 
FR 6374, Jan. 28, 1993; 58 FR 43793, Aug. 18, 1993; 65 FR 24128, Apr. 
25, 2000; 65 FR 25980, May 4, 2000; 67 FR 77410, Dec. 18, 2002; 68 FR 
47230, Aug. 8, 2003; 72 FR 1662, Jan. 16, 2007]



Sec. 4.6  Exclusion for certain otherwise regulated persons from the definition of

the term ``commodity trading advisor.''

    (a) Subject to compliance with the provisions of this section, the 
following persons, and any principal or employee thereof, shall be 
excluded from the definition of the term ``commodity trading advisor:''
    (1) An insurance company subject to regulation by any State, or any 
wholly-owned subsidiary or employee thereof; Provided, however, That its 
commodity interest advisory activities are solely incidental to the 
conduct of the insurance business of the insurance company as such; and
    (2) A person who is excluded from the definition of the term 
``commodity pool operator'' by Sec. 4.5; Provided, however, That:
    (i) Its commodity interest advisory activities are solely incidental 
to its operation of those trading vehicles for which Sec. 4.5 provides 
relief; and
    (ii) Where necessary, prior to providing any commodity interest 
trading

[[Page 169]]

advice to any such trading vehicle the person files a notice of 
eligibility as specified in Sec. 4.5 to claim the relief available 
under that section.
    (b) Any person who has claimed an exclusion under this Sec. 4.6 
must submit to such special calls as the Commission may make to require 
the person to demonstrate compliance with the provisions of paragraph 
(a) of this section.
    (c) An exclusion claimed under this Sec. 4.6 shall cease to be 
effective upon any change which would render the person claiming the 
exclusion ineligible under paragraph (a) of this section.

[52 FR 41984, Nov. 2, 1987]



Sec. 4.7  Exemption from certain part 4 requirements for commodity pool operators

with respect to offerings to qualified eligible persons and for commodity 
          trading advisors with respect to advising qualified eligible 
          persons.

    This section is organized as follows: Paragraph (a) contains 
definitions for the purposes of Sec. 4.7; paragraph (b) contains the 
relief available to commodity pool operators under Sec. 4.7; paragraph 
(c) contains the relief available to commodity trading advisors under 
Sec. 4.7; paragraph (d) concerns the Notice of Claim for Exemption 
under Sec. 4.7; and paragraph (e) addresses the effect of an 
insignificant deviation from a term, condition or requirement of Sec. 
4.7.
    (a) Definitions. Paragraph (a)(1) of this section contains general 
definitions, paragraph (a)(2) of this section contains the definition of 
the term qualified eligible person with respect to those persons who do 
not need to satisfy the Portfolio Requirement and paragraph (a)(3) of 
this section contains the definition of the term qualified eligible 
person with respect to those persons who must satisfy the Portfolio 
Requirement. For the purposes of this section:
    (1) In general--(i) Affiliate of, or a person affiliated with, a 
specified person means a person that directly or indirectly through one 
or more persons, controls, is controlled by, or is under common control 
with the specified person.
    (ii) Exempt account means the account of a qualified eligible person 
that is directed or guided by a commodity trading advisor pursuant to an 
effective claim for exemption under Sec. 4.7.
    (iii) Exempt pool means a pool that is operated pursuant to an 
effective claim for exemption under Sec. 4.7.
    (iv) Non-United States person means:
    (A) A natural person who is not a resident of the United States;
    (B) A partnership, corporation or other entity, other than an entity 
organized principally for passive investment, organized under the laws 
of a foreign jurisdiction and which has its principal place of business 
in a foreign jurisdiction;
    (C) An estate or trust, the income of which is not subject to United 
States income tax regardless of source;
    (D) An entity organized principally for passive investment such as a 
pool, investment company or other similar entity; Provided, That units 
of participation in the entity held by persons who do not qualify as 
Non-United States persons or otherwise as qualified eligible persons 
represent in the aggregate less than 10% of the beneficial interest in 
the entity, and that such entity was not formed principally for the 
purpose of facilitating investment by persons who do not qualify as Non-
United States persons in a pool with respect to which the operator is 
exempt from certain requirements of part 4 of the Commission's 
regulations by virtue of its participants being Non-United States 
persons; and
    (E) A pension plan for the employees, officers or principals of an 
entity organized and with its principal place of business outside the 
United States.
    (v) Portfolio Requirement means that a person:
    (A) Owns securities (including pool participations) of issuers not 
affiliated with such person and other investments with an aggregate 
market value of at least $2,000,000;
    (B) Has had on deposit with a futures commission merchant, for its 
own account at any time during the six-month period preceding either the 
date of sale to that person of a pool participation in the exempt pool 
or the date that the person opens an exempt account with the commodity 
trading advisor, at least $200,000 in exchange-

[[Page 170]]

specified initial margin and option premiums, together with required 
minimum security deposit for retail forex transactions (as defined in 
Sec. 5.1(m) of this chapter) for commodity interest transactions; or
    (C) Owns a portfolio comprised of a combination of the funds or 
property specified in paragraphs (a)(1)(v)(A) and (B) of this section in 
which the sum of the funds or property includable under paragraph 
(a)(1)(v)(A), expressed as a percentage of the minimum amount required 
thereunder, and the amount of futures margin and option premiums 
includable under paragraph (a)(1)(v)(B), expressed as a percentage of 
the minimum amount required thereunder, equals at least one hundred 
percent. An example of a composite portfolio acceptable under this 
paragraph (a)(1)(v)(C) would consist of $1,000,000 in securities and 
other property (50% of paragraph (a)(1)(v)(A)) and $100,000 in exchange-
specified initial margin and option premiums (50% of paragraph 
(a)(1)(v)(B)).
    (vi) United States means the United States, its states, territories 
or possessions, or an enclave of the United States government, its 
agencies or instrumentalities.
    (2) Persons who do not need to satisfy the Portfolio Requirement to 
be qualified eligible persons. Qualified eligible person means any 
person, acting for its own account or for the account of a qualified 
eligible person, who the commodity pool operator reasonably believes, at 
the time of the sale to that person of a pool participation in the 
exempt pool, or who the commodity trading advisor reasonably believes, 
at the time that person opens an exempt account, is:
    (i)(A) A futures commission merchant registered pursuant to section 
4d of the Act, or a principal thereof;
    (B) A retail foreign exchange dealer registered pursuant to section 
2(c)(2)(B)(i)(II)(gg) of the Act, or a principal thereof;
    (ii) A broker or dealer registered pursuant to section 15 of the 
Securities Exchange Act of 1934, or a principal thereof;
    (iii) A commodity pool operator registered pursuant to section 4m of 
the Act, or a principal thereof; Provided, That the pool operator:
    (A) Has been registered and active as such for two years; or
    (B) Operates pools which, in the aggregate, have total assets in 
excess of $5,000,000;
    (iv) A commodity trading advisor registered pursuant to section 4m 
of the Act, or a principal thereof; Provided, That the trading advisor:
    (A) Has been registered and active as such for two years; or
    (B) Provides commodity interest trading advice to commodity accounts 
which, in the aggregate, have total assets in excess of $5,000,000 
deposited at one or more futures commission merchants;
    (v) An investment adviser registered pursuant to section 203 of the 
Investment Advisers Act of 1940 (``Investment Advisers Act'') or 
pursuant to the laws of any state, or a principal thereof; Provided, 
That the investment adviser:
    (A) Has been registered and active as such for two years; or
    (B) Provides securities investment advice to securities accounts 
which, in the aggregate, have total assets in excess of $5,000,000 
deposited at one or more registered securities brokers;
    (vi) A ``qualified purchaser'' as defined in section 2(a)(51)(A) of 
the Investment Company Act of 1940 (the ``Investment Company Act'');
    (vii) A ``knowledgeable employee'' as defined in Sec. 270.3c-5 of 
this title;
    (viii)(A) With respect to an exempt pool:
    (1) The commodity pool operator, commodity trading advisor or 
investment adviser of the exempt pool offered or sold, or an affiliate 
of any of the foregoing;
    (2) A principal of the exempt pool or the commodity pool operator, 
commodity trading advisor or investment adviser of the exempt pool, or 
of an affiliate of any of the foregoing;
    (3) An employee of the exempt pool or the commodity pool operator, 
commodity trading advisor or investment adviser of the exempt pool, or 
of an affiliate of any of the foregoing (other than an employee 
performing solely clerical, secretarial or administrative functions with 
regard to such person or its investments) who, in connection

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with his or her regular functions or duties, participates in the 
investment activities of the exempt pool, other commodity pools operated 
by the pool operator of the exempt pool or other accounts advised by the 
trading advisor or the investment adviser of the exempt pool, or by the 
affiliate; Provided, That such employee has been performing such 
functions and duties for or on behalf of the exempt pool, pool operator, 
trading advisor, investment adviser or affiliate, or substantially 
similar functions or duties for or on behalf of another person engaged 
in providing commodity interest, securities or other financial services, 
for at least 12 months;
    (4) Any other employee of, or an agent engaged to perform legal, 
accounting, auditing or other financial services for, the exempt pool or 
the commodity pool operator, commodity trading advisor or investment 
adviser of the exempt pool, or any other employee of, or agent so 
engaged by, an affiliate of any of the foregoing (other than an employee 
or agent performing solely clerical, secretarial or administrative 
functions with regard to such person or its investments); Provided, That 
such employee or agent:
    (i) Is an accredited investor as defined in Sec. 230.501(a)(5) or 
(6) of this title; and
    (ii) Has been employed or engaged by the exempt pool, commodity pool 
operator, commodity trading advisor, investment adviser or affiliate, or 
by another person engaged in providing commodity interest, securities or 
other financial services, for at least 24 months;
    (5) The spouse, child, sibling or parent of a person who satisfies 
the criteria of paragraph (a)(2)(viii)(A)(1), (2), (3) or (4) of this 
section; Provided, That:
    (i) An investment in the exempt pool by any such family member is 
made with the knowledge and at the direction of the person; and
    (ii) The family member is not a qualified eligible person for the 
purposes of paragraph (a)(3)(xi) of this section;
    (6)(i) Any person who acquires a participation in the exempt pool by 
gift, bequest or pursuant to an agreement relating to a legal separation 
or divorce from a person listed in paragraph (a)(2)(viii)(A)(1), (2), 
(3), (4) or (5) of this section;
    (ii) The estate of any person listed in paragraph 
(a)(2)(viii)(A)(1), (2), (3), (4) or (5) of this section; or
    (iii) A company established by any person listed in paragraph 
(a)(2)(viii)(A)(1), (2), (3), (4) or (5) of this section exclusively for 
the benefit of (or owned exclusively by) that person and any person 
listed in paragraph (a)(2)(viii)(A)(6)(i) or (ii) of this section;
    (B) With respect to an exempt account:
    (1) An affiliate of the commodity trading advisor of the exempt 
account;
    (2) A principal of the commodity trading advisor of the exempt 
account or of an affiliate of the trading advisor;
    (3) An employee of the commodity trading advisor of the exempt 
account or of an affiliate of the trading advisor (other than an 
employee performing solely clerical, secretarial or administrative 
functions with regard to such person or its investments) who, in 
connection with his or her regular functions or duties, participates in 
the investment activities of the trading advisor or the affiliate; 
Provided, That such employee has been performing such functions and 
duties for or on behalf of the trading advisor or the affiliate, or 
substantially similar functions or duties for or on behalf of another 
person engaged in providing commodity interest, securities or other 
financial services, for at least 12 months;
    (4) Any other employee of, or an agent engaged to perform legal, 
accounting, auditing or other financial services for, the commodity 
trading advisor of the exempt account or any other employee of, or agent 
so engaged by, an affiliate of the trading advisor (other than an 
employee or agent performing solely clerical, secretarial or 
administrative functions with regard to such person or its investments); 
Provided, That such employee or agent:
    (i) Is an accredited investor as defined in Sec. 230.501(a)(5) or 
(a)(6) of this title; and
    (ii) Has been employed or engaged by the commodity trading advisor 
or the affiliate, or by another person engaged in providing commodity 
interest, securities or other financial services, for at least 24 
months; or

[[Page 172]]

    (5) The spouse, child, sibling or parent of the commodity trading 
advisor of the exempt account or of a person who satisfies the criteria 
of paragraph (a)(2)(viii)(B)(1), (2), (3) or (4) of this section; 
Provided, That:
    (i) The establishment of an exempt account by any such family member 
is made with the knowledge and at the direction of the person; and
    (ii) The family member is not a qualified eligible person for the 
purposes of paragraph (a)(3)(xi) of this section;
    (6)(i) Any person who acquires an interest in an exempt account by 
gift, bequest or pursuant to an agreement relating to a legal separation 
or divorce from a person listed in paragraph (a)(2)(viii)(B)(1), (2), 
(3), (4) or (5) of this section;
    (ii) The estate of any person listed in paragraph 
(a)(2)(viii)(B)(1), (2), (3), (4) or (5) of this section; or
    (iii) A company established by any person listed in paragraph 
(a)(2)(viii)(B)(1), (2), (3), (4) or (5) of this section exclusively for 
the benefit of (or owned exclusively by) that person and any person 
listed in paragraph (a)(2)(viii)(B)(6)(i) or (ii) of this section;
    (ix) A trust; Provided, That:
    (A) The trust was not formed for the specific purpose of either 
participating in the exempt pool or opening an exempt account; and
    (B) The trustee or other person authorized to make investment 
decisions with respect to the trust, and each settlor or other person 
who has contributed assets to the trust, is a qualified eligible person;
    (x) An organization described in section 501(c)(3) of the Internal 
Revenue Code (the ``IRC''); Provided, That the trustee or other person 
authorized to make investment decisions with respect to the 
organization, and the person who has established the organization, is a 
qualified eligible person;
    (xi) A Non-United States person;
    (xii)(A) An entity in which all of the unit owners or participants, 
other than the commodity trading advisor claiming relief under this 
section, are qualified eligible persons;
    (B) An exempt pool; or
    (C) Notwithstanding paragraph (a)(3) of this section, an entity as 
to which a notice of eligibility has been filed pursuant to Sec. 4.5 
which is operated in accordance with such rule and in which all unit 
owners or participants, other than the commodity trading advisor 
claiming relief under this section, are qualified eligible persons.
    (3) Persons who must satisfy the Portfolio Requirement to be 
qualified eligible persons. Qualified eligible person means any person 
who the commodity pool operator reasonably believes, at the time of the 
sale to that person of a pool participation in the exempt pool, or any 
person who the commodity trading advisor reasonably believes, at the 
time that person opens an exempt account, satisfies the Portfolio 
Requirement and is:
    (i) An investment company registered under the Investment Company 
Act or a business development company as defined in section 2(a)(48) of 
such Act not formed for the specific purpose of either investing in the 
exempt pool or opening an exempt account;
    (ii) A bank as defined in section 3(a)(2) of the Securities Act of 
1933 (the ``Securities Act'') or any savings and loan association or 
other institution as defined in section 3(a)(5)(A) of the Securities Act 
acting for its own account or for the account of a qualified eligible 
person;
    (iii) An insurance company as defined in section 2(13) of the 
Securities Act acting for its own account or for the account of a 
qualified eligible person;
    (iv) A plan established and maintained by a state, its political 
subdivisions, or any agency or instrumentality of a state or its 
political subdivisions, for the benefit of its employees, if such plan 
has total assets in excess of $5,000,000;
    (v) An employee benefit plan within the meaning of the Employee 
Retirement Income Security Act of 1974; Provided, That the investment 
decision is made by a plan fiduciary, as defined in section 3(21) of 
such Act, which is a bank, savings and loan association, insurance 
company, or registered investment adviser; or that the employee benefit 
plan has total assets in excess of $5,000,000; or, if the plan is self-
directed, that investment decisions are made solely by persons that are 
qualified eligible persons;

[[Page 173]]

    (vi) A private business development company as defined in section 
202(a)(22) of the Investment Advisers Act;
    (vii) An organization described in section 501(c)(3) of the IRC, 
with total assets in excess of $5,000,000;
    (viii) A corporation, Massachusetts or similar business trust, or 
partnership, limited liability company or similar business venture, 
other than a pool, which has total assets in excess of $5,000,000, and 
is not formed for the specific purpose of either participating in the 
exempt pool or opening an exempt account;
    (ix) A natural person whose individual net worth, or joint net worth 
with that person's spouse, at the time of either his purchase in the 
exempt pool or his opening of an exempt account exceeds $1,000,000;
    (x) A natural person who had an individual income in excess of 
$200,000 in each of the two most recent years or joint income with that 
person's spouse in excess of $300,000 in each of those years and has a 
reasonable expectation of reaching the same income level in the current 
year;
    (xi) A pool, trust, insurance company separate account or bank 
collective trust, with total assets in excess of $5,000,000, not formed 
for the specific purpose of either participating in the exempt pool or 
opening an exempt account, and whose participation in the exempt pool or 
investment in the exempt account is directed by a qualified eligible 
person; or
    (xii) Except as provided for the governmental entities referenced in 
paragraph (a)(3)(iv) of this section, if otherwise authorized by law to 
engage in such transactions, a governmental entity (including the United 
States, a state, or a foreign government) or political subdivision 
thereof, or a multinational or supranational entity or an 
instrumentality, agency, or department of any of the foregoing.
    (b) Relief available to commodity pool operators. Upon filing the 
notice required by paragraph (d) of this section, and subject to 
compliance with the conditions specified in paragraph (d) of this 
section, any registered commodity pool operator who offers or sells 
participations in a pool solely to qualified eligible persons in an 
offering which qualifies for exemption from the registration 
requirements of the Securities Act pursuant to section 4(2) of that Act 
or pursuant to Regulation S, 17 CFR 230.901 et seq., and any bank 
registered as a commodity pool operator in connection with a pool that 
is a collective trust fund whose securities are exempt from registration 
under the Securities Act pursuant to section 3(a)(2) of that Act and are 
offered or sold, without marketing to the public, solely to qualified 
eligible persons, may claim any or all of the following relief with 
respect to such pool:
    (1) Disclosure relief. (i) Exemption from the specific requirements 
of Sec. Sec. 4.21, 4.24, 4.25 and 4.26 with respect to each exempt 
pool; Provided, That if an offering memorandum is distributed in 
connection with soliciting prospective participants in the exempt pool, 
such offering memorandum must include all disclosures necessary to make 
the information contained therein, in the context in which it is 
furnished, not misleading; and that the following statement is 
prominently disclosed on the cover page of the offering memorandum, or, 
if none is provided, immediately above the signature line on the 
subscription agreement or other document that the prospective 
participant must execute to become a participant in the pool:

    ``PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING 
COMMISSION IN CONNECTION WITH POOLS WHOSE PARTICIPANTS ARE LIMITED TO 
QUALIFIED ELIGIBLE PERSONS, AN OFFERING MEMORANDUM FOR THIS POOL IS NOT 
REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION. THE 
COMMODITY FUTURES TRADING COMMISSION DOES NOT PASS UPON THE MERITS OF 
PARTICIPATING IN A POOL OR UPON THE ADEQUACY OR ACCURACY OF AN OFFERING 
MEMORANDUM. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS 
NOT REVIEWED OR APPROVED THIS OFFERING OR ANY OFFERING MEMORANDUM FOR 
THIS POOL.''

    (ii) Exemption from disclosing the past performance of exempt pools 
in the Disclosure Document of non-exempt pools except to the extent that 
such past performance is material to the non-exempt pool being offered; 
Provided, That a pool operator that has

[[Page 174]]

claimed exemption hereunder and elects not to disclose any such 
performance in the Disclosure Document of non-exempt pools shall state 
in a footnote to the performance disclosure therein that the operator is 
operating or has operated exempt pools whose performance is not 
disclosed in this Disclosure Document.
    (2) Periodic reporting relief. Exemption from the specific 
requirements of Sec. Sec. 4.22(a) and (b); Provided, That a statement 
signed and affirmed in accordance with Sec. 4.22(h) is prepared and 
distributed to pool participants no less frequently than quarterly 
within 30 calendar days after the end of the reporting period. This 
statement must be presented and computed in accordance with generally 
accepted accounting principles and indicate:
    (i) The net asset value of the exempt pool as of the end of the 
reporting period;
    (ii) The change in net asset value from the end of the previous 
reporting period; and
    (iii) The net asset value per outstanding unit of participation in 
the exempt pool as of the end of the reporting period.
    (A) Either the net asset value per outstanding participation unit in 
the exempt pool as of the end of the reporting period, or
    (B) The total value of the participant's interest or share in the 
exempt pool as of the end of the reporting period.
    (iv) Where the pool is comprised of more than one ownership class or 
series, the net asset value of the series or class on which the account 
statement is reporting, and the net asset value per unit or value of the 
participant's share, also must be included in the statement required by 
this paragraph (b)(2); except that, for a pool that is a series fund 
structured with a limitation on liability among the different series, 
the account statement required by this paragraph (b)(2) is not required 
to include the consolidated net asset value of all series of the pool.
    (v) A commodity pool operator of a pool that meets the conditions 
specified in Sec. 4.22(d)(2)(i) of this part to present and compute the 
commodity pool's financial statements contained in the Annual Report in 
accordance with International Financial Reporting Standards issued by 
the International Accounting Standards Board and has filed notice 
pursuant to Sec. 4.22(d)(2)(ii) of this part also may use such 
International Financial Reporting Standards in the computation and 
presentation of the account statement.
    (3) Annual report relief. (i) Exemption from the specific 
requirements of Sec. 4.22(c) and (d) of this part; Provided, That 
within 90 calendar days after the end of the exempt pool's fiscal year 
or the permanent cessation of trading, whichever is earlier, the 
commodity pool operator electronically files with the National Futures 
Association and distributes to each participant in lieu of the financial 
information and statements specified by those sections, an annual report 
for the exempt pool, affirmed in accordance with Sec. 4.22(h) which 
contains, at a minimum:
    (A) A Statement of Financial Condition as of the close of the exempt 
pool's fiscal year (elected in accordance with Sec. 4.22(g));
    (B) A Statement of Operations for that year;
    (C) Appropriate footnote disclosure and such further material 
information as may be necessary to make the required statements not 
misleading. For a pool that invests in other funds, this information 
must include, but is not limited to, separately disclosing the amounts 
of income, management and incentive fees associated with each investment 
in an investee fund that exceeds five percent of the pool's net assets. 
The income, management and incentive fees associated with an investment 
in an investee fund that is less than five percent of the pool's net 
assets may be combined and reported in the aggregate with the income, 
management and incentive fees of other investee funds that, 
individually, represent an investment of less than five percent of the 
pool's net assets. If the commodity pool operator is not able to obtain 
the specific amounts of management and incentive fees charged by an 
investee fund, the commodity pool operator must disclose the percentage 
amounts and computational basis for each such fee and include a 
statement

[[Page 175]]

that the CPO is not able to obtain the specific fee amounts for this 
fund;
    (D) Where the pool is comprised of more than one ownership class or 
series, information for the series or class on which the financial 
statements are reporting should be presented in addition to the 
information presented for the pool as a whole; except that, for a pool 
that is a series fund structured with a limitation on liability among 
the different series, the financial statements are not required to 
include consolidated information for all series.
    (ii) Except as provided in Sec. 4.22(d)(2) of this part, such 
annual report must be presented and computed in accordance with 
generally accepted accounting principles consistently applied and, if 
certified by an independent public accountant, so certified in 
accordance with Sec. 1.16 of this chapter as applicable.
    (iii) Legend. (A) If a claim for exemption has been made pursuant to 
this section, the commodity pool operator must make a statement to that 
effect on the cover page of each annual report.
    (B) If the annual report is not certified in accordance with Sec. 
1.16, the pool operator must make a statement to that effect on the 
cover page of each annual report and state that a certified audit will 
be provided upon the request of the holders of a majority of the units 
of participation in the pool who are unaffiliated with the commodity 
pool operator.
    (4) Recordkeeping relief. Exemption from the specific requirements 
of Sec. 4.23; Provided, That the commodity pool operator must maintain 
the reports referred to in paragraphs (b)(2) and (b)(3) of this section 
and all books and records prepared in connection with his activities as 
the pool operator of the exempt pool (including, without limitation, 
records relating to the qualifications of qualified eligible persons and 
substantiating any performance representations) at his main business 
address and must make such books and records available to any 
representative of the Commission, the National Futures Association and 
the United States Department of Justice in accordance with the 
provisions of Sec. 1.31.
    (c) Relief available to commodity trading advisors. Upon filing the 
notice required by paragraph (d) of this section, and subject to 
compliance with the conditions specified in paragraph (d) of this 
section, any registered commodity trading advisor who anticipates 
directing or guiding the commodity interest accounts of qualified 
eligible persons may claim any or all of the following relief with 
respect to the accounts of qualified eligible persons who have given due 
consent to their account being an exempt account under Sec. 4.7:
    (1) Disclosure relief. (i) Exemption from the specific requirements 
of Sec. Sec. 4.31, 4.34, 4.35 and 4.36; Provided, That if the commodity 
trading advisor delivers a brochure or other disclosure statement to 
such qualified eligible persons, such brochure or statement shall 
include all additional disclosures necessary to make the information 
contained therein, in the context in which it is furnished, not 
misleading; and that the following statement is prominently displayed on 
the cover page of the brochure or statement or, if none is provided, 
immediately above the signature line of the agreement that the client 
must execute before it opens an account with the commodity trading 
advisor:

    ``PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING 
COMMISSION IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE PERSONS, 
THIS BROCHURE OR ACCOUNT DOCUMENT IS NOT REQUIRED TO BE, AND HAS NOT 
BEEN, FILED WITH THE COMMISSION. THE COMMODITY FUTURES TRADING 
COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A TRADING 
PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF COMMODITY TRADING ADVISOR 
DISCLOSURE. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS 
NOT REVIEWED OR APPROVED THIS TRADING PROGRAM OR THIS BROCHURE OR 
ACCOUNT DOCUMENT.''

    (ii) Exemption from disclosing the past performance of exempt 
accounts in the Disclosure Document for non-exempt accounts except to 
the extent that such past performance is material to the non-exempt 
account being offered; Provided, That a commodity trading advisor that 
has claimed exemption hereunder and elects not to disclose any such 
performance in the Disclosure Document for non-exempt

[[Page 176]]

accounts shall state in a footnote to the performance disclosure therein 
that the advisor is advising or has advised exempt accounts for 
qualified eligible persons whose performance is not disclosed in this 
Disclosure Document.
    (2) Recordkeeping relief. Exemption from the specific requirements 
of Sec. 4.33; Provided, That the commodity trading advisor must 
maintain, at its main business office, all books and records prepared in 
connection with his activities as the commodity trading advisor of 
qualified eligible persons (including, without limitation, records 
relating to the qualifications of such qualified eligible persons and 
substantiating any performance representations) and must make such books 
and records available to any representative of the Commission, the 
National Futures Association and the United States Department of Justice 
in accordance with the provisions of Sec. 1.31.
    (d) Notice of claim for exemption. (1) A notice of a claim for 
exemption under this section must:
    (i) Provide the name, main business address, main business telephone 
number and the National Futures Association commodity pool operator or 
commodity trading advisor identification number of the person claiming 
the exemption;
    (ii)(A) Where the claimant is a commodity pool operator, provide the 
name(s) of the pool(s) for which the request is made; Provided, That a 
single notice representing that the pool operator anticipates operating 
single-investor pools may be filed to claim exemption for single-
investor pools and such notice need not name each such pool;
    (B) Where the claimant is a commodity trading advisor, contain a 
representation that the trading advisor anticipates providing commodity 
interest trading advice to qualified eligible persons;
    (iii) Contain representations that:
    (A) Neither the commodity pool operator or commodity trading advisor 
nor any of its principals is subject to any statutory disqualification 
under section 8a(2) or 8a(3) of the Act unless such disqualification 
arises from a matter which was previously disclosed in connection with a 
previous application for registration if such registration was granted 
or which was disclosed more than thirty days prior to the filing of the 
notice under this paragraph (d);
    (B) The commodity pool operator or commodity trading advisor will 
comply with the applicable requirements of Sec. 4.7; and
    (C) Where the claimant is a commodity pool operator, that the exempt 
pool will be offered and operated in compliance with the applicable 
requirements of Sec. 4.7;
    (iv) Specify the relief claimed under Sec. 4.7;
    (v) Where the claimant is a commodity pool operator, state the 
closing date of the offering or that the offering will be continuous;
    (vi) Be filed by a representative duly authorized to bind the 
commodity pool operator or commodity trading advisor;
    (vii) Be filed electronically with the National Futures Association 
through its electronic exemption filing system; and
    (viii)(A)(1) Where the claimant is a commodity pool operator, except 
as provided in paragraph (d)(1)(ii)(A) of this section with respect to 
single-investor pools and in paragraph (d)(1)(viii)(A)(2) of this 
section, be received by the National Futures Association:
    (i) Before the date the pool first enters into a commodity interest 
transaction, if the relief claimed is limited to that provided under 
paragraphs (b)(2), (3) and (4) of this section; or
    (ii) Prior to any offer or sale of any participation in the exempt 
pool if the claimed relief includes that provided under paragraph (b)(1) 
of this section.
    (2) Where participations in a pool have been offered or sold in full 
compliance with part 4, the notice of a claim for exemption may be filed 
with the National Futures Association at any time; Provided, That the 
claim for exemption is otherwise consistent with the duties of the 
commodity pool operator and the rights of pool participants and that the 
commodity pool operator notifies the pool participants of his intention, 
absent objection by the holders of a majority of the units of 
participation in the pool who are unaffiliated with the commodity pool 
operator

[[Page 177]]

within twenty-one days after the date of the notification, to file a 
notice of claim for exemption under Sec. 4.7 and such holders have not 
objected within such period. A commodity pool operator filing a notice 
under this paragraph (d)(1)(viii)(A)(2) shall either provide disclosure 
and reporting in accordance with the requirements of part 4 to those 
participants objecting to the filing of such notice or allow such 
participants to redeem their units of participation in the pool within 
three months of the filing of such notice.
    (B) Where the claimant is a commodity trading advisor, be received 
by the Commission before the date the trading advisor first enters into 
an agreement to direct or guide the commodity interest account of a 
qualified eligible person pursuant to Sec. 4.7.
    (2) The notice will be effective upon receipt by the National 
Futures Association with respect to each pool for which it was made 
where the claimant is a commodity pool operator and otherwise generally 
where the claimant is a commodity trading advisor; Provided, That any 
notice which does not include all the required information shall not be 
effective, and that if at the time the National Futures Association 
receives the notice an enforcement proceeding brought by the Commission 
under the Act or the regulations is pending against the pool operator or 
trading advisor or any of its principals, the exemption will not be 
effective until twenty-one calendar days after receipt of the notice by 
the National Futures Association and that in such case an exemption may 
be denied by the Commission or the National Futures Association or made 
subject to such conditions as the Commission or the National Futures 
Association may impose.
    (3) Any exemption claimed hereunder shall cease to be effective upon 
any change which would cause the commodity pool operator of an exempt 
pool to be ineligible for the relief claimed with respect to such pool 
or which would cause a commodity trading advisor to be ineligible for 
the relief claimed. The pool operator or trading advisor must promptly 
file a notice advising the National Futures Association of such change.
    (4)(i) Any exemption from the requirements of Sec. 4.21, 4.22, 
4.23, 4.24, 4.25 or 4.26 claimed hereunder with respect to a pool shall 
not affect the obligation of the commodity pool operator to comply with 
all other applicable provisions of part 4, the Act and the Commission's 
rules and regulations, with respect to the pool and any other pool the 
pool operator operates or intends to operate.
    (ii) Any exemption from the requirements of Sec. 4.31, 4.33, 4.34, 
4.35 or 4.36 claimed hereunder shall not affect the obligation of the 
commodity trading advisor to comply with all other applicable provisions 
of part 4, the Act and the Commission's rules and regulations, with 
respect to any qualified eligible person and any other client to which 
the commodity trading advisor provides or intends to provide commodity 
interest trading advice.
    (e) Insignificant deviations from a term, condition or requirement 
of Sec. 4.7. (1) A failure to comply with a term or condition of Sec. 
4.7 will not result in the loss of the exemption with respect to a 
particular pool or client if the commodity pool operator or the 
commodity trading advisor relying on the exemption shows that:
    (i) The failure to comply did not pertain to a term, condition or 
requirement directly intended to protect that particular qualified 
eligible person;
    (ii) The failure to comply was insignificant with respect to the 
exempt pool as a whole or to the particular exempt account; and
    (iii) A good faith and reasonable attempt was made to comply with 
all applicable terms, conditions and requirements of Sec. 4.7.
    (2) A transaction made in reliance on Sec. 4.7 must comply with all 
applicable terms, conditions and requirements of Sec. 4.7. Where an 
exemption is established only through reliance upon paragraph (e)(1) of 
this section, the failure to comply shall nonetheless be actionable by 
the Commission.

[65 FR 47854, Aug. 4, 2000, as amended at 67 FR 77411, Dec. 18, 2002; 68 
FR 47231, Aug. 8, 2003; 71 FR 8942, Feb. 22, 2006; 72 FR 1662, Jan. 16, 
2007; 74 FR 57590, Nov. 9, 2009; 75 FR 55428, Sept. 10, 2010]

[[Page 178]]



Sec. 4.8  Exemption from certain requirements of rule 4.26 with respect 

to pools offered or sold in certain offerings exempt from registration under the 
          Securities Act.

    (a) Notwithstanding paragraph (d) of Sec. 4.26 and subject to the 
conditions specified herein, the registered commodity pool operator of a 
pool offered or sold solely to ``accredited investors'' as defined in 17 
CFR 230.501 in an offering exempt from the registration requirements of 
the Securities Act of 1933 pursuant to Rule 505 or 506 of Regulation D, 
17 CFR 230.505 or 230.506, may solicit, accept and receive funds, 
securities and other property from prospective participants in that pool 
upon filing with the National Futures Association and providing to such 
participants the Disclosure Document for the pool.
    (b) Notwithstanding paragraph (d) of Sec. 4.26 and subject to the 
conditions specified herein, the registered commodity pool operator of a 
pool offered or sold in an offering exempt from the registration 
requirements of the Securities Act of 1933 pursuant to Rule 505 or 506 
of Regulation D, 17 CFR 230.505 or 230.506, that is operated in 
compliance with, and has filed the notice required by Sec. 4.12(b) may 
solicit, accept and receive funds, securities and other property from 
prospective participants in that pool upon filing with the National 
Futures Association and providing to such participants the Disclosure 
Document for the pool.
    (c) The relief provided under Sec. 4.8 is not available if an 
enforcement proceeding brought by the Commission under the Act or the 
regulations is pending against the commodity pool operator or any of its 
principals or if the commodity pool operator or any of its principals is 
subject to any statutory disqualification under Sec. Sec. 8a(2) or 
8a(3) of the Act.

[57 FR 34865, Aug. 7, 1992; 57 FR 41173, Sept. 9, 1992, as amended at 60 
FR 38182, July 25, 1995; 72 FR 1662, Jan. 16, 2007]



Sec. 4.9  [Reserved]



Sec. 4.10  Definitions.

    For purposes of this part:
    (a) [Reserved]
    (b) Net asset value means total assets minus total liabilities, 
determined in accord with generally accepted accounting principles, with 
each position in a commodity interest accounted for at fair market 
value.
    (c) Participant means any person that has any direct financial 
interest in a pool (e.g., a limited partner).
    (d)(1) Pool means any investment trust, syndicate or similar form of 
enterprise operated for the purpose of trading commodity interests.
    (2) Multi-advisor pool means a pool in which:
    (i) No commodity trading advisor is allocated or intended to be 
allocated more than twenty-five percent of the pool's funds available 
for commodity interest trading; and
    (ii) No investee pool is allocated or intended to be allocated more 
than twenty-five percent of the pool's net asset value.
    (3) Principal-protected pool means a pool (commonly referred to as a 
``guaranteed pool'') that is designed to limit the loss of the initial 
investment of its participants.
    (4) Investee pool means any pool in which another pool or account 
participates or invests, e.g., as a limited partner thereof.
    (5) Major investee pool means, with respect to a pool, any investee 
pool that is allocated or intended to be allocated at least ten percent 
of the net asset value of the pool.
    (e)(1) Principal, when referring to a person that is a principal of 
a particular entity, shall have the same meaning as the term 
``principal'' under Sec. 3.1(a) of this chapter.
    (2) Trading principal means:
    (i) With respect to a commodity pool operator, a principal who 
participates in making trading decisions for a pool, or who supervises, 
or has authority to allocate pool assets to, persons so engaged; and
    (ii) With respect to a commodity trading advisor, a principal who 
participates in making trading decisions for the account of a client or 
who supervises or selects persons so engaged.
    (f) Direct, as used in the context of trading commodity interest 
accounts, refers to agreements whereby a person is authorized to cause 
transactions to

[[Page 179]]

be effected for a client's commodity interest account without the 
client's specific authorization.
    (g) Trading program refers to the program pursuant to which a person 
(1) directs a client's commodity interest account, or (2) guides the 
client's commodity interest trading by means of a systematic program 
that recommends specific transactions.
    (h) Trading manager means, with respect to a pool, any person, other 
than the commodity pool operator of the pool, having sole or partial 
authority to allocate pool assets to commodity trading advisors or 
investee pools.
    (i) Major commodity trading advisor means, with respect to a pool, 
any commodity trading advisor that is allocated or is intended to be 
allocated at least ten percent of the pool's funds available for 
commodity interest trading. For this purpose, the percentage allocation 
shall be the amount of funds allocated to the trading advisor by 
agreement with the commodity pool operator (or trading manager) on 
behalf of the pool, expressed as a percentage of the lesser of the 
aggregate value of the assets allocated to the pool's trading advisors 
or the net assets of the pool at the time of allocation.
    (j) Break-even point--(1) Means the trading profit that a pool must 
realize in the first year of a participant's investment to equal all 
fees and expenses such that such participant will recoup its initial 
investment, as calculated pursuant to rules promulgated by a registered 
futures association pursuant to section 17(j) of the Act; and
    (2) Must be expressed both as a dollar amount and as a percentage of 
the minimum unit of initial investment and assume redemption of the 
initial investment at the end of the first year of investment.
    (k) Draw-down means losses experienced by a pool or account over a 
specified period.
    (l) Worst peak-to-valley draw-down means the greatest cumulative 
percentage decline in month-end net asset value due to losses sustained 
by a pool, account or trading program during any period in which the 
initial month-end net asset value is not equaled or exceeded by a 
subsequent month-end net asset value. Such decline must be expressed as 
a percentage of the initial month-end net asset value, together with an 
indication of the months and year(s) of such decline from the initial 
month-end net asset value to the lowest month-end net asset value of 
such decline. \1\ For purposes of Sec. Sec. 4.25 and 4.35, a peak-to-
valley draw-down which began prior to the beginning of the most recent 
five calendar years is deemed to have occurred during such five- 
calendar-year period.
---------------------------------------------------------------------------

    \1\ For example, a worst peak-to-valley draw-down of ``4 to 8-92/
25%'' means that the peak-to-valley draw-down lasted from April to 
August of 1992 and resulted in a twenty-five percent cumulative draw-
down.
---------------------------------------------------------------------------

    (m) Partially-funded account means a client participation in the 
program of a commodity trading advisor in which the amount of funds in 
the client's commodity interest account over which such commodity 
trading advisor has trading authority is less than the account size that 
establishes the client's level of trading in a commodity trading 
advisor's program.

[46 FR 26013, May 9, 1981, as amended at 49 FR 8225, Mar. 5, 1984; 60 FR 
38182, July 25, 1995; 66 FR 53522, Oct. 23, 2001; 68 FR 42967, July 21, 
2003; 72 FR 63979, Nov. 14, 2007]



Sec. 4.11  Exemption from section 4n(3)(B).

    The provisions of section 4n(3)(B) of the Act shall not apply to any 
commodity pool operator or commodity trading advisor that is registered 
under the Act as such or that is exempt from such registration.



Sec. 4.12  Exemption from provisions of part 4.

    (a) In general. (1) The Commission may exempt any person or any 
class or classes of persons from any provision of this part 4 if it 
finds that the exemption is not contrary to the public interest and the 
purposes of the provisions from which the exemption is sought.
    (2) The Commission may grant the exemption subject to such terms and 
conditions as it may find appropriate.
    (b) Exemption from subpart B for certain commodity pool operators. 
(1) Any person who is registered as a commodity pool operator, or has 
applied for such registration, may claim any or

[[Page 180]]

all of the relief available under paragraph (b)(2) of this section if:
    (i) The pool for which it makes such claim:
    (A) Will be offered and sold pursuant to the Securities Act of 1933 
or pursuant to an exemption from said Act;
    (B) Will generally and routinely engage in the buying and selling of 
securities and securities derived instruments;
    (C) Will not enter into commodity interest transactions for which 
the aggregate initial margin and premiums, and required minimum security 
deposit for retail forex transactions (as defined in Sec. 5.1(m) of 
this chapter) exceed 10 percent of the fair market value of the pool's 
assets, after taking into account unrealized profits and unrealized 
losses on any such contracts it has entered into; Provided, however, 
That in the case of an option that is in-the-money at the time of 
purchase, the in-the-money amount as defined in Sec. 190.01(x) of this 
chapter may be excluded in computing such 10 percent; and
    (D) Will trade such commodity interests in a manner solely 
incidental to its securities trading activities.
    (ii) Each existing participant and prospective participant in the 
pool for which it makes such request is informed in writing of the 
restrictions set forth in paragraph (b)(1)(i) (C) and (D) of this 
section prior to the date the pool commences trading commodity 
interests. The pool operator may furnish this information by way of the 
pool's Disclosure Document, Account Statement, a separate notice or 
other similar means, including written communication delivered through 
electronic transmission.
    (2) The commodity pool operator of a pool which meets the criteria 
of paragraph (b)(1) of this section may claim the following relief:
    (i) In the case of Sec. 4.21, that the Commission accept in lieu 
and in satisfaction of the Disclosure Document specified by that section 
an offering memorandum for the pool which does not contain the 
information required by Sec. Sec. 4.24(a), 4.24(b), and 4.24(n); 
Provided, however, that the offering memorandum:
    (A) Is prepared pursuant to the requirements of the Securities Act 
of 1933, as amended, or the exemption from said Act pursuant to which 
the pool is being offered and sold;
    (B) Contains the information required by Sec. Sec. 4.24(c) through 
(m) and (o) through (u); and
    (C) Complies with the requirements of Sec. Sec. 4.24(v) and (w).
    (ii) In the case of Sec. 4.22 (a) and (b), that the Commission 
accept in lieu and in satisfaction of the Account Statement and 
prescribed frequency respectively specified by those sections a 
statement which indicates the net asset value of the pool as of the end 
of the reporting period and the change in net asset value from the end 
of the previous reporting period, to be prepared and distributed no less 
frequently than quarterly; Provided, however, That each such statement 
complies with the other requirements of Sec. 4.22 (a) and (b), 
including the references in those sections to Sec. 4.22 (g) and (h).
    (iii) In the case of Sec. 4.22 (c) through (e), that the Commission 
accept in lieu and in satisfaction of the financial information and 
statements in the Annual Report specified by those sections an annual 
report for the pool which contains, at a minimum, a Statement of 
Financial Condition as of the close of the pool's fiscal year and a 
Statement of Income (Loss) for that year; Provided, however, That:
    (A) Each such annual report complies with the other requirements of 
Sec. 4.22(c), including the reference in that section to Sec. 4.22(h) 
and the requirement in Sec. 4.22(c)(5) that the annual report must 
contain appropriate footnote disclosure and further material 
information; and
    (B) The financial statements in such annual report must be presented 
and computed in accordance with generally accepted accounting principles 
consistently applied and must be certified by an independent public 
accountant.
    (iv) In the case of Sec. 4.23(a) (10) and (11), to exempt the pool 
operator from the requirements of those sections with respect to the 
pool.
    (3) Any registered commodity pool operator who desires to claim the 
relief available under this Sec. 4.12(b) must file electronically a 
claim of exemption with National Futures Association through its 
electronic exemption filing system. Such claim must:

[[Page 181]]

    (i) Provide the name, main business address and main business 
telephone number of the registered commodity pool operator, or applicant 
for such registration, making the request;
    (ii) Provide the name of the commodity pool for which the request is 
being made;
    (iii) Contain representations that the pool will be operated in 
compliance with Sec. 4.12(b)(1)(i) and the pool operator will comply 
with the requirements of Sec. 4.12(b)(1)(ii);
    (iv) Specify the relief sought under Sec. 4.12(b)(2); and
    (v) Be filed by a representative duly authorized to bind the pool 
operator.
    (4)(i) The claim of exemption must be filed before the date the 
commodity pool first enters into a commodity interest transaction.
    (ii) The claim of exemption shall be effective upon filing; 
Provided, however, That any exemption claimed hereunder shall cease to 
be effective upon any change which would render the representations made 
pursuant to paragraph (b)(3)(iv) of this section inaccurate or the 
continuation of such representations false or misleading.
    (5)(i) If a claim of exemption has been made under Sec. 
4.12(b)(2)(i), the commodity pool operator must make a statement to that 
effect on the cover page of each offering memorandum, or amendment 
thereto, that it is required to file with the National Futures 
Association pursuant to Sec. 4.26.
    (ii) If a claim of exemption has been made with respect to paragraph 
(b)(2)(iii) of this section, the pool operator must make a statement to 
that effect on the cover page of each annual report that it is required 
to file with the National Futures Association pursuant to Sec. 4.22(c).
    (6)(i) Any claim of exemption effective hereunder shall be effective 
only with respect to the pool for which it has been made.
    (ii) The effectiveness of such claim shall not affect the 
obligations of the commodity pool operator to comply with all other 
applicable provisions of this part 4, the Act and the Commission's rules 
and regulations issued thereunder with respect to the pool and any other 
pool the pool operator operates or intends to operate.

[52 FR 41984, Nov. 2, 1987, as amended at 60 FR 38183, July 25, 1995; 67 
FR 77411, Dec. 18, 2002; 72 FR 1663, Jan. 16, 2007; 75 FR 55428, Sept. 
10, 2010]



Sec. 4.13  Exemption from registration as a commodity pool operator.

    This section is organized as follows: Paragraph (a) of this section 
specifies the criteria that must be met to qualify for exemption from 
registration under this section; paragraph (b) of this section governs 
the notice that must be filed to claim exemption from registration; 
paragraph (c) of this section sets forth the continuing obligations of a 
person who has claimed exemption under this section; paragraph (d) of 
this section specifies information certain persons must provide if they 
subsequently register; paragraph (e) of this section specifies the 
effect of registration on a person who has claimed an exemption from 
registration under this section or who is eligible to claim an exemption 
from registration hereunder; and paragraph (f) of this section specifies 
the effect of this section on Sec. 4.5 of this chapter.
    (a) A person is not required to register under the Act as a 
commodity pool operator if:
    (1)(i) It does not receive any compensation or other payment, 
directly or indirectly, for operating the pool, except reimbursement for 
the ordinary administrative expenses of operating the pool;
    (ii) It operates only one commodity pool at any time;
    (iii) It is not otherwise required to register with the Commission 
and is not a business affiliate of any person required to register with 
the Commission; and
    (iv) Neither the person nor any other person involved with the pool 
does any advertising in connection with the pool (for purposes of this 
section, advertising includes the systematic solicitation of prospective 
participants by telephone or seminar presentation);
    (2)(i) None of the pools operated by it has more than 15 
participants at any time; and

[[Page 182]]

    (ii) The total gross capital contributions it receives for units of 
participation in all of the pools it operates or that it intends to 
operate do not in the aggregate exceed $400,000.
    (iii) For the purpose of determining eligibility for exemption under 
paragraph (a)(2) of this section, the person may exclude the following 
participants and their contributions:
    (A) The pool's operator, commodity trading advisor, and the 
principals thereof;
    (B) A child, sibling or parent of any of these participants;
    (C) The spouse of any participant specified in paragraph 
(a)(2)(iii)(A) or (B) of this section; and
    (D) Any relative of a participant specified in paragraph 
(a)(2)(iii)(A), (B) or (C) of this section, its spouse or a relative of 
its spouse, who has the same principal residence as such participant;
    (3) For each pool for which the person claims exemption from 
registration under this paragraph (a)(3):
    (i) Interests in the pool are exempt from registration under the 
Securities Act of 1933, and such interests are offered and sold without 
marketing to the public in the United States;
    (ii) At all times, the pool meets one or the other of the following 
tests with respect to its commodity interest positions, including 
positions in security futures products, whether entered into for bona 
fide hedging purposes or otherwise:
    (A) The aggregate initial margin, premiums, and required minimum 
security deposit for retail forex transactions (as defined in Sec. 
5.1(m) of this chapter) required to establish such positions, determined 
at the time the most recent position was established, will not exceed 5 
percent of the liquidation value of the pool's portfolio, after taking 
into account unrealized profits and unrealized losses on any such 
positions it has entered into; Provided, That in the case of an option 
that is in-the-money at the time of purchase, the in-the-money amount as 
defined in Sec. 190.01(x) of this chapter may be excluded in computing 
such 5 percent; or
    (B) The aggregate net notional value of such positions, determined 
at the time the most recent position was established, does not exceed 
100 percent of the liquidation value of the pool's portfolio, after 
taking into account unrealized profits and unrealized losses on any such 
positions it has entered into. For the purpose of this paragraph:
    (1) The term ``notional value'' shall be calculated for each such 
futures position by multiplying the number of contracts by the size of 
the contract, in contract units (taking into account any multiplier 
specified in the contract), by the current market price per unit, and 
for each such option position by multiplying the number of contracts by 
the size of the contract, adjusted by its delta, in contract units 
(taking into account any multiplier specified in the contract), by the 
strike price per unit, and for each such retail forex transaction, by 
calculating the value in U.S. Dollars of such transaction, at the time 
the transaction was established, excluding for this purpose the value in 
U.S. Dollars of offsetting long and short transactions, if any; and
    (2) The person may net contracts with the same underlying commodity 
across designated contract markets, registered derivatives transaction 
execution facilities and foreign boards of trade; and
    (iii) The person reasonably believes, at the time of investment (or, 
in the case of an existing pool, at the time of conversion to a pool 
meeting the criteria of paragraph (a)(3) of this section), that each 
person who participates in the pool is:
    (A) An ``accredited investor,'' as that term is defined in Sec. 
230.501 of this title;
    (B) A trust that is not an accredited investor but that was formed 
by an accredited investor for the benefit of a family member;
    (C) A ``knowledgeable employee,'' as that term is defined in Sec. 
270.3c-5 of this title;
    (D) A ``qualified eligible person,'' as that term is defined in 
Sec. 4.7(a)(2)(viii)(A) of this chapter; or
    (E) A person eligible to participate in a pool for which the pool 
operator can claim exemption from registration under paragraph (a)(4) of 
this section; and
    (iv) Participations in the pool are not marketed as or in a vehicle 
for trading in the commodity futures or commodity options markets; 
Provided,

[[Page 183]]

That nothing in paragraph (a)(3) of this section shall prohibit the 
person from claiming an exemption under this section if it additionally 
operates one or more pools for which it meets the criteria of paragraph 
(a)(4) of this section; or
    (4) For each pool for which the person claims exemption from 
registration under this paragraph (a)(4):
    (i) Interests in the pool are exempt from registration under the 
Securities Act of 1933, and such interests are offered and sold without 
marketing to the public in the United States;
    (ii) The person reasonably believes, at the time of investment (or, 
in the case of an existing pool, at the time of conversion to a pool 
meeting the criteria of paragraph (a)(4) of this section), that:
    (A) Each natural person participant (including such person's self-
directed employee benefit plan, if any), is a ``qualified eligible 
person,'' as that term is defined in Sec. 4.7(a)(2); and
    (B) Each non-natural person participant is a ``qualified eligible 
person,'' as that term is defined in Sec. 4.7, or an ``accredited 
investor,'' as that term is defined in Sec. 230.501(a)(1)-(3), (a)(7) 
and (a)(8) of this title; Provided, That nothing in paragraph (a)(4) of 
this section will prohibit the person from claiming an exemption under 
this section if it additionally operates one or more pools that meet the 
criteria of paragraph (a)(3) of this section.
    (5)(i) Eligibility for exemption under this section is subject to 
the person furnishing in written communication physically delivered or 
delivered through electronic transmission to each prospective 
participant in the pool:
    (A) A statement that the person is exempt from registration with the 
Commission as a commodity pool operator and that therefore, unlike a 
registered commodity pool operator, it is not required to deliver a 
Disclosure Document and a certified annual report to participants in the 
pool; and
    (B) A description of the criteria pursuant to which it qualifies for 
such exemption from registration.
    (ii) The person must make these disclosures by no later than the 
time it delivers a subscription agreement for the pool to a prospective 
participant in the pool.
    (b)(1) Any person who desires to claim the relief from registration 
provided by this section, must file electronically a notice of exemption 
from commodity pool operator registration with the National Futures 
Association through its electronic exemption filing system. The notice 
must:
    (i) Provide the name, main business address, main business telephone 
number, main facsimile number and main email address of the person 
claiming the exemption and the name of the pool for which it is claiming 
exemption;
    (ii) Contain the section number pursuant to which the operator is 
filing the notice (i.e., Sec. 4.13(a)(1), (a)(2), (a)(3), or (a)(4), or 
both (a)(3) and (a)(4)) and represent that the pool will be operated in 
accordance with the criteria of that paragraph or paragraphs; and
    (iii) Be filed by a representative duly authorized to bind the 
person.
    (2) The person must file the notice by no later than the time it 
delivers a subscription agreement for the pool to a prospective 
participant in the pool; Provided, That where a person registered with 
the Commission as a commodity pool operator intends to withdraw from 
registration in order to claim exemption hereunder, the person must 
notify its pool's participants in written communication physically 
delivered or delivered through electronic transmission that it intends 
to withdraw from registration and claim the exemption, and it must 
provide each such participant with a right to redeem its interest in the 
pool prior to the person filing a notice of exemption from registration.
    (3) The notice will be effective upon filing, provided the notice is 
materially complete.
    (4) Each person who has filed a notice of exemption from 
registration under this section must, in the event that any of the 
information contained or representations made in the notice becomes 
inaccurate or incomplete, amend the notice through National Futures 
Association's electronic exemption filing system as may be necessary to 
render the notice accurate and complete. This amendment must be filed

[[Page 184]]

electronically within 15 business days after the pool operator becomes 
aware of the occurrence of such event.
    (c)(1) Each person who has filed a notice of exemption from 
registration under this section must:
    (i) Make and keep all books and records prepared in connection with 
its activities as a pool operator for a period of five years from the 
date of preparation;
    (ii) Keep such books and records readily accessible during the first 
two years of the five-year period. All such books and records must be 
available for inspection upon the request of any representative of the 
Commission, the United States Department of Justice, or any other 
appropriate regulatory agency; and
    (iii) Submit to such special calls as the Commission may make to 
demonstrate eligibility for and compliance with the applicable criteria 
for exemption under this section.
    (2) Each person who has filed a notice of exemption from 
registration pursuant to paragraph (a)(1) or (a)(2) of this section 
must:
    (i) Promptly furnish to each participant in the pool a copy of each 
monthly statement for the pool that the pool operator received from a 
futures commission merchant pursuant to Sec. 1.33 of this chapter; and
    (ii) Clearly show on such statement, or on an accompanying 
supplemental statement, the net profit or loss on all commodity 
interests closed since the date of the previous statement.
    (d) Each person who applies for registration as a commodity pool 
operator subsequent to claiming relief under paragraph (a)(1) or (a)(2) 
of this section must include with its application the financial 
statements and other information required by Sec. 4.22(c)(1) through 
(5) for each pool that it has operated as an operator exempt from 
registration. That information must be presented and computed in 
accordance with generally accepted accounting principles consistently 
applied. If the person is granted registration as a commodity pool 
operator, it must comply with the provisions of this part with respect 
to each such pool.
    (e)(1) Subject to the provisions of paragraph (e)(2) of this 
section, if a person who is eligible for exemption from registration as 
a commodity pool operator under this section nonetheless registers as a 
commodity pool operator, the person must comply with the provisions of 
this part with respect to each commodity pool identified on its 
registration application or supplement thereto.
    (2) If a person operates one or more commodity pools described in 
paragraph (a)(3) or (a)(4) of this section, and one or more commodity 
pools for which it must be, and is, registered as a commodity pool 
operator, the person is exempt from the requirements applicable to a 
registered commodity pool operator with respect to the pool or pools 
described in paragraph (a)(3) or (a)(4) of this section; Provided, That 
the person:
    (i) Furnishes in written communication physically delivered or 
delivered through electronic transmission to each prospective 
participant in a pool described in paragraph (a)(3) or (a)(4) of this 
section that it operates:
    (A) A statement that it will operate the pool as if the person was 
exempt from registration as a commodity pool operator;
    (B) A description of the criteria pursuant to which it will so 
operate the pool;
    (ii) Complies with paragraph (c) of this section; and
    (iii) Provides to each existing participant in a pool that the 
person elects to operate as described in paragraph (a)(3) or (a)(4) of 
this section a right to redeem the participant's interest in the pool, 
and informs each such participant of that right no later than the time 
the person commences to operate the pool as described in paragraph 
(a)(3) or (a)(4) of this section.
    (f) The filing of a notice of exemption from registration under this 
section will not affect the ability of a person to qualify for exclusion 
from the definition of the term ``commodity pool operator'' under Sec. 
4.5 in connection with its

[[Page 185]]

operation of another trading vehicle that is not covered under this 
Sec. 4.13.

(Approved by the Office of Management and Budget under control number 
3038-0005)

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, 
Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 
12a, 19 and 21; 5 U.S.C. 552 and 552b))

[46 FR 26013, May 8, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 47 
FR 57011, Dec. 22, 1982; 50 FR 15883, Apr. 23, 1985; 67 FR 77411, Dec. 
18, 2002; 68 FR 47231, Aug. 8, 2003; 68 FR 59113, Oct. 14, 2003; 69 FR 
41426, July 9, 2004; 72 FR 1663, Jan. 16, 2007; 74 FR 57590, Nov. 9, 
2009; 75 FR 55428, Sept. 10, 2010]



Sec. 4.14  Exemption from registration as a commodity trading advisor.

    This section is organized as follows: Paragraph (a) of this section 
specifies the criteria that must be met to qualify for exemption from 
registration under this section, including the notice of exemption from 
registration and continuing obligations of persons who have claimed 
exemption under paragraph (a)(8) of this section; paragraph (b) of this 
section concerns ``cash market transactions''; and paragraph (c) of this 
section specifies the effect of registration on a person who has claimed 
an exemption from registration under this section or who is eligible to 
claim an exemption from registration hereunder.
    (a) A person is not required to register under the Act as a 
commodity trading advisor if:
    (1) It is a dealer, processor, broker, or seller in cash market 
transactions of any commodity (or product thereof) and the person's 
commodity trading advice is solely incidental to the conduct of its cash 
market business;
    (2) It is a non-profit, voluntary membership, trade association or 
farm organization and the person's commodity trading advice is solely 
incidental to the conduct of its business as such association or 
organization;
    (3) It is registered under the Act as an associated person and the 
person's commodity trading advice is issued solely in connection with 
its employment as an associated person;
    (4) It is registered under the Act as a commodity pool operator and 
the person's commodity trading advice is directed solely to, and for the 
sole use of, the pool or pools for which it is so registered;
    (5) It is exempt from registration as a commodity pool operator and 
the person's commodity trading advice is directed solely to, and for the 
sole use of, the pool or pools for which it is so exempt;
    (6) It is registered under the Act as an introducing broker and the 
person's trading advice is solely in connection with its business as an 
introducing broker;
    (7)(i) It is registered under the Act as a leverage transaction 
merchant and the person's trading advice is solely in connection with 
its business as a leverage transaction merchant;
    (ii) It is registered under the Act as a retail foreign exchange 
dealer and the person's trading advice is solely in connection with its 
business as a retail foreign exchange dealer.
    (8) It is registered as an investment adviser under the Investment 
Advisers Act of 1940 or with the applicable securities regulatory agency 
of any State, or it is exempt from such registration, or it is excluded 
from the definition of the term ``investment adviser'' pursuant to the 
provisions of sections 202(a)(2) and 202(a)(11) of the Investment 
Advisers Act of 1940, Provided, That:
    (i) The person's commodity interest trading advice is directed 
solely to, and for the sole use of, one or more of the following:
    (A) ``Qualifying entities,'' as that term is defined in Sec. 
4.5(b), for which a notice of eligibility has been filed;
    (B) Collective investment vehicles that are excluded from the 
definition of the term commodity ``pool'' under Sec. 4.5(a)(4); and
    (C) Commodity pools that are organized and operated outside of the 
United States, its territories or possessions, where:
    (1) The commodity pool operator of each such pool has not so 
organized and is not so operating the pool for the purpose of avoiding 
commodity pool operator registration;
    (2) With the exception of the pool's operator, advisor and their 
principals, solely ``Non-United States persons,'' as that term is 
defined in Sec. 4.7(a)(1)(iv), will contribute funds or other capital 
to, and will own beneficial interests in,

[[Page 186]]

the pool; Provided, That units of participation in the pool held by 
persons who do not qualify as Non-United States persons or otherwise as 
qualified eligible persons represent in the aggregate less than 10 
percent of the beneficial interest of the pool;
    (3) No person affiliated with the pool conducts any marketing 
activity for the purpose of, or that could reasonably have the effect 
of, soliciting participation from other than Non-United States persons; 
and
    (4) No person affiliated with the pool conducts any marketing 
activity from within the United States, its territories or possessions; 
and
    (D) A commodity pool operator who has claimed an exemption from 
registration under Sec. 4.13(a)(3) or 4.13(a)(4), or, if registered as 
a commodity pool operator, who may treat each pool it operates that 
meets the criteria of Sec. 4.13(a)(3) or 4.13(a)(4) as if it were not 
so registered; and
    (ii) The person:
    (A) Provides commodity interest trading advice solely incidental to 
its business of providing securities or other investment advice to 
qualifying entities, collective investment vehicles and commodity pools 
as described in paragraph (a)(8)(i) of this section; and
    (B) Is not otherwise holding itself out as a commodity trading 
advisor.
    (iii)(A) A person who desires to claim the relief from registration 
provided by this Sec. 4.14(a)(8) must file electronically a notice of 
exemption from commodity trading advisor registration with the National 
Futures Association through its electronic exemption filing system. The 
notice must:
    (1) Provide the name, main business address, main business telephone 
number, main facsimile number and main email address of the trading 
advisor claiming the exemption;
    (2) Contain the section number pursuant to which the advisor is 
filing the notice (i.e., under Sec. 4.14(a)(8)(i)) and represent that 
it will provide commodity interest advice to its clients in accordance 
with the criteria of that paragraph or paragraphs; and
    (3) Be filed by a representative duly authorized to bind the person.
    (B) The person must file the notice by no later than the time it 
delivers an advisory agreement for the trading program pursuant to which 
it will offer commodity interest advice to a client; Provided, That 
where the advisor is registered with the Commission as a commodity 
trading advisor, it must notify its clients in written communication 
physically delivered or delivered through electronic transmission that 
it intends to withdraw from registration and claim the exemption and 
must provide each such client with a right to terminate its advisory 
agreement prior to the person filing a notice of exemption from 
registration.
    (C) The notice will be effective upon filing, provided the notice is 
materially complete.
    (D) Each person who has filed a notice of exemption from 
registration under this section must, in the event that any of the 
information contained or representations made in the notice becomes 
inaccurate or incomplete, amend the notice electronically through 
National Futures Association's electronic exemption filing system as may 
be necessary to render the notice accurate and complete. This amendment 
must be filed within 15 business days after the trading advisor becomes 
aware of the occurrence of such event.
    (iv) Each person who has filed a notice of registration exemption 
under this Sec. 4.14(a)(8) must:
    (A)(1) Make and keep all books and records prepared in connection 
with its activities as a trading advisor, including all books and 
records demonstrating eligibility for and compliance with the applicable 
criteria for exemption under this section, for a period of five years 
from the date of preparation; and
    (2) Keep such books and records readily accessible during the first 
two years of the five-year period. All such books and records must be 
available for inspection upon the request of any representative of the 
Commission, the United States Department of Justice, or any other 
appropriate regulatory agency; and
    (B) Submit to such special calls as the Commission may make to 
demonstrate eligibility for and compliance with the applicable criteria 
for exemption under this section;

[[Page 187]]

    (9) It does not engage in any of the following activities:
    (i) Directing client accounts; or
    (ii) Providing commodity trading advice based on, or tailored to, 
the commodity interest or cash market positions or other circumstances 
or characteristics of particular clients; or
    (10) If, as provided for in section 4m(1) of the Act, during the 
course of the preceding 12 months, it has not furnished commodity 
trading advice to more than 15 persons and it does not hold itself out 
generally to the public as a commodity trading advisor.
    (i) For the purpose of paragraph (a)(10) of this section, the 
following are deemed a single person:
    (A) A natural person, and:
    (1) Any minor child of the natural person;
    (2) Any relative, spouse, or relative of the spouse of the natural 
person who has the same principal residence;
    (3) All accounts of which the natural person and/or the persons 
referred to in paragraph (a)(10)(i)(A) of this section are the only 
primary beneficiaries; and
    (4) All trusts of which the natural person and/or the persons 
referred to in paragraph (a)(10)(i)(A) of this section are the only 
primary beneficiaries;
    (B)(1) A corporation, general partnership, limited partnership, 
limited liability company, trust (other than a trust referred to in 
paragraph (a)(10)(i)(A)(4) of this section), or other legal organization 
(any of which are referred to hereinafter as a ``legal organization'') 
that receives commodity interest trading advice based on its investment 
objectives rather than the individual investment objectives of its 
shareholders, partners, limited partners, members, or beneficiaries (any 
of which are referred to hereinafter as an ``owner''); and
    (2) Two or more legal organizations referred to in paragraph 
(a)(10)(i)(B)(1) of this section that have identical owners.
    (ii) Special Rules. For the purpose of paragraph (a)(10) of this 
section:
    (A) An owner must be counted in its own capacity as a person if the 
commodity trading advisor provides advisory services to the owner 
separate and apart from the advisory services provided to the legal 
organization; Provided, That the determination that an owner is a client 
will not affect the applicability of paragraph (a)(10) of this section 
with regard to any other owner;
    (B)(1) A general partner of a limited partnership, or other person 
acting as a commodity trading advisor to the partnership, may count the 
limited partnership as one person; and
    (2) A manager or managing member of a limited liability company, or 
any other person acting as a commodity trading advisor to the company, 
may count the limited liability company as one person.
    (C) A commodity trading advisor that has its principal office and 
place of business outside of the United States, its territories or 
possessions must count only clients that are residents of the United 
States, its territories and possessions; a commodity trading advisor 
that has its principal office and place of business in the United States 
or in any territory or possession thereof must count all clients.
    (iii) Holding Out. Any commodity trading advisor relying on 
paragraph (a)(10) of this section shall not be deemed to be holding 
itself out generally to the public as a commodity trading advisor, 
within the meaning of section 4m(1) of the Act, solely because it 
participates in a non-public offering of interests in a collective 
investment vehicle under the Securities Act of 1933.
    (b) For purposes of this section, ``cash market transactions'' shall 
not include transactions involving contracts for the purchase or sale of 
a commodity for future delivery or transactions subject to Commission 
regulation under section 4c or 19 of the Act.
    (c)(1) Subject to the provisions of paragraph (c)(2) of this 
section, if a person who is eligible for exemption from registration as 
a commodity trading advisor under this section nonetheless registers as 
a commodity trading advisor, the person must comply with the provisions 
of this part with respect to those clients for which it could have 
claimed an exemption from registration hereunder.

[[Page 188]]

    (2) If a person provides commodity interest trading advice to a 
client described in paragraph (a) of this section and to a client for 
which it must be, and is, registered as a commodity trading advisor, the 
person is exempt from the requirements applicable to a registered 
commodity trading advisor with respect to the clients so described; 
Provided, That the person furnishes in writing to each prospective 
client described in paragraph (a) of this section a statement that it 
will provide commodity interest trading advice to the client as if it 
was exempt from registration as a commodity trading advisor; Provided 
Further, That the person provides to each existing client described in 
paragraph (a) of this section a right to terminate its advisory 
agreement, and informs such client of that right no later than the time 
the person commences to provide commodity interest trading advice to the 
client as if the person was exempt from registration.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982); 5 U.S.C. 552 and 552b)

[46 FR 26013, May 8, 1981; 46 FR 26761, May 15, 1981; 48 FR 35298, Aug. 
3, 1983; 49 FR 5526, Feb. 13, 1984; 52 FR 41985, Nov 2, 1987; 52 FR 
43827, Nov 16, 1987; 65 FR 12943, Mar. 10, 2000; 67 FR 77411, Dec. 18, 
2002; 68 FR 47233, Aug. 8, 2003; 68 FR 52837, Sept. 8, 2003; 68 FR 
59114, Oct. 14, 2003; 72 FR 1664, Jan. 16, 2007; 75 FR 55428, Sept. 10, 
2010]



Sec. 4.15  Continued applicability of antifraud section.

    The provisions of section 4o of the Act shall apply to any person 
even though such person is exempt from registration under this part 4, 
and it shall continue to be unlawful for any such person to violate 
section 4o of the Act.

[50 FR 15884, Apr. 23, 1985]



Sec. 4.16  Prohibited representations.

    It shall be unlawful for any commodity pool operator, commodity 
trading advisor, principal thereof or person who solicits therefor to 
represent or imply in any manner whatsoever that such commodity pool 
operator or commodity trading advisor has been sponsored, recommended or 
approved, or that its abilities or qualifications have in any respect 
been passed upon, by the Commission, the Federal government or any 
agency thereof.



                   Subpart B_Commodity Pool Operators



Sec. 4.20  Prohibited activities.

    (a)(1) Except as provided in paragraph (a)(2) of this section, a 
commodity pool operator must operate its pool as an entity cognizable as 
a legal entity separate from that of the pool operator.
    (2) The Commission may exempt a corporation from the requirements of 
paragraph (a)(1) of this section if;
    (i) The corporation represents in writing to the Commission that 
each participant in its pool will be issued stock or other evidences of 
ownership in the corporation for all funds, securities or other property 
that the participant contributes for the purchase of an ownership 
interest in the pool;
    (ii) The corporation demonstrates to the satisfaction of the 
Commission that it has estabilshed procedures adequate to assure 
compliance with paragraphs (b) and (c) of this section; and
    (iii) The Commission finds that the exemption is not contrary to the 
public interest and to the purposes of the provision from which the 
exemption is sought.
    (b) All funds, securities or other property received by a commodity 
pool operator from an existing or prospective pool participant for the 
purchase of an interest or as an assessment (whether voluntary or 
involuntary) on an interest in a pool that it operates or that it 
intends to operate must be received in the pool's name.
    (c) No commodity pool operator may commingle the property of any 
pool that it operates or that it intends to operate with the property of 
any other person.

(Approved by the Office of Management and Budget under control number 
3038-0005)

[46 FR 26013, May 8, 1981, as amended at 46 FR 34311, July 1, 1981; 46 
FR 63035, Dec. 30, 1981]



Sec. 4.21  Required delivery of pool Disclosure Document.

    (a)(1) Subject to the provisions of paragraph (a)(2) of this 
section, each

[[Page 189]]

commodity pool operator registered or required to be registered under 
the Act must deliver or cause to be delivered to a prospective 
participant in a pool that it operates or intends to operate a 
Disclosure Document for the pool prepared in accordance with Sec. Sec. 
4.24 and 4.25 by no later than the time it delivers to the prospective 
participant a subscription agreement for the pool; Provided, That any 
information distributed in advance of the delivery of the Disclosure 
Document to a prospective participant is consistent with or amended by 
the information contained in the Disclosure Document and with the 
obligations of the commodity pool operator under the Act, the 
Commission's regulations issued thereunder, and the laws of any other 
applicable federal or state authority; Provided, further, That in the 
event such previously distributed information is amended by the 
Disclosure Document in any material respect, the prospective participant 
must be in receipt of the Disclosure Document at least 48 hours prior to 
its subscription being accepted by the pool operator.
    (2) For the purpose of the Disclosure Document delivery requirement, 
including any offering memorandum delivered pursuant to Sec. 4.7(b)(1) 
or 4.12(b)(2)(i), the term ``prospective pool participant'' does not 
include a commodity pool operated by a pool operator that is the same 
as, or that controls, is controlled by, or is under common control with, 
the pool operator of the offered pool.
    (b) The commodity pool operator may not accept or receive funds, 
securities or other property from a prospective participant unless the 
pool operator first receives from the prospective participant an 
acknowledgment signed and dated by the prospective participant stating 
that the prospective participant received a Disclosure Document for the 
pool. Where a Disclosure Document is delivered to a prospective pool 
participant by electronic means, in lieu of a manually signed and dated 
acknowledgment, the pool operator may establish receipt by electronic 
means that use a unique identifier to confirm the identity of the 
recipient of such Disclosure Document, Provided, however, That the 
requirement of Sec. 4.23(a)(3) to retain the acknowledgment specified 
in this paragraph (b) applies equally to such substitute evidence of 
receipt, which must be retained either in hard copy form or in another 
form approved by the Commission.

[60 FR 38183, July 25, 1995, as amended at 62 FR 39115, July 22, 1997; 
65 FR 58649, Oct. 2, 2000; 68 FR 47234, Aug. 8, 2003]



Sec. 4.22  Reporting to pool participants.

    (a) Except as provided in paragraph (a)(4) or (a)(6) of this 
section, each commodity pool operator registered or required to be 
registered under the Act must periodically distribute to each 
participant in each pool that it operates, within 30 calendar days after 
the last date of the reporting period prescribed in paragraph (b) of 
this section, an Account Statement, which shall be presented in the form 
of a Statement of Operations and a Statement of Changes in Net Assets, 
for the prescribed period. These financial statements must be presented 
and computed in accordance with generally accepted accounting principles 
consistently applied. The Account Statement must be signed in accordance 
with paragraph (h) of this section.
    (1) The portion of the Account Statement which must be presented in 
the form of a Statement of Operations must separately itemize the 
following information:
    (i) The total amount of realized net gain or loss on commodity 
interest positions liquidated during the reporting period;
    (ii) The change in unrealized net gain or loss on commodity interest 
positions during the reporting period;
    (iii) The total amount of net gain or loss from all other 
transactions in which the pool engaged during the reporting period, 
including interest and dividends earned on funds not paid as premiums or 
used to margin the pool's commodity interest positions;
    (iv) The total amount of all management fees during the reporting 
period;
    (v) The total amount of all advisory fees during the reporting 
period;
    (vi) The total amount of all brokerage commissions during the 
reporting period;

[[Page 190]]

    (vii) The total amount of other fees for commodity interest and 
other investment transactions during the reporting period; and
    (viii) The total amount of all other expenses incurred or accrued by 
the pool during the reporting period.
    (2) The portion of the Account Statement that must be presented in 
the form of a Statement of Changes in Net Assets must separately itemize 
the following information:
    (i) The net asset value of the pool as of the beginning of the 
reporting period;
    (ii) The total amount of additions to the pool, whether voluntary or 
involuntary, made during the reporting period;
    (iii) The total amount of withdrawals from and redemption of 
participation units in the pool, whether voluntary or involuntary, for 
the reporting period;
    (iv) The total net income or loss of the pool during the reporting 
period;
    (v) The net asset value of the pool as of the end of the reporting 
period; and
    (vi)(A) The net asset value per outstanding participation unit in 
the pool as of the end of the reporting period, or
    (B) The total value of the participant's interest or share in the 
pool as of the end of the reporting period.
    (3) The Account Statement must also disclose any material business 
dealings between the pool, the pool's operator, commodity trading 
advisor, futures commission merchant, or the principals thereof that 
previously have not been disclosed in the pool's Disclosure Document or 
any amendment thereto, other Account Statements or Annual Reports.
    (4) For the purpose of the Account Statement delivery requirement, 
including any Account Statement distributed pursuant to Sec. 4.7(b)(2) 
or 4.12(b)(2)(ii), the term ``participant'' does not include a commodity 
pool operated by a pool operator that is the same as, or that controls, 
is controlled by, or is under common control with, the pool operator of 
a pool in which the commodity pool has invested.
    (5) Where the pool is comprised of more than one ownership class or 
series, information for the series or class on which the account 
statement is reporting should be presented in addition to the 
information presented for the pool as a whole; except that, for a pool 
that is a series fund structured with a limitation on liability among 
the different series, the account statement is not required to include 
consolidated information for all series.
    (6) A commodity pool operator of a pool that meets the conditions 
specified in paragraph (d)(2)(i) of this section and has filed notice 
pursuant to paragraph (d)(2)(ii) of this section may elect to follow the 
same accounting treatment with respect to the computation and 
presentation of the account statement.
    (b) The Account Statement must be distributed at least monthly in 
the case of pools with net assets of more than $500,000 at the beginning 
of the pool's fiscal year, and otherwise at least quarterly; Provided, 
however, That an Account Statement for the last reporting period of the 
pool's fiscal year need not be distributed if the Annual Report required 
by paragraph (c) of this section is sent to pool participants within 45 
calendar days after the end of the fiscal year. The requirement to 
distribute an Account Statement shall commence as of the date the pool 
is formed as specified in paragraph (g)(1) of this section.
    (c) Except as provided in paragraph (c)(7) or (c)(8) of this 
section, each commodity pool operator registered or required to be 
registered under the Act must distribute an Annual Report to each 
participant in each pool that it operates, and must electronically 
submit a copy of the Report and key financial balances from the Report 
to the National Futures Association pursuant to the electronic filing 
procedures of the National Futures Association, within 90 calendar days 
after the end of the pool's fiscal year or the permanent cessation of 
trading, whichever is earlier; Provided, however, that if during any 
calendar year the commodity pool operator did not operate a commodity 
pool, the pool operator must so notify the National Futures Association 
within 30 calendar days after the end of such calendar year. The Annual 
Report must be affirmed pursuant to paragraph (h) of this section and 
must contain the following:

[[Page 191]]

    (1) The net asset value of the pool as of the end of each of the 
pool's two preceding fiscal years.
    (2)(i) The net asset value per outstanding participation unit in the 
pool as of the end of each of the pool's two preceding fiscal years, or
    (ii) The total value of the participant's interest or share in the 
pool as of the end of each of the pool's two preceding fiscal years.
    (3) A Statement of Financial Condition as of the close of the pool's 
fiscal year and preceding fiscal year.
    (4) Statements of Operations, and Changes in Net Assets, for the 
period between--
    (i) The later of:
    (A) The date of the most recent Statement of Financial Condition 
delivered to the National Futures Association pursuant to this paragraph 
(c); or
    (B) The date of the formation of the pool; and
    (ii) The close of the pool's fiscal year, together with Statements 
of Operations, and Changes in Net Assets for the corresponding period of 
the previous fiscal year.
    (5) Appropriate footnote disclosure and such further material 
information as may be necessary to make the required statements not 
misleading. For a pool that invests in other funds, this information 
must include, but is not limited to, separately disclosing the amounts 
of income, management and incentive fees associated with each investment 
in an investee fund that exceeds five percent of the pool's net assets. 
The management and incentive fees associated with an investment in an 
investee fund that is less than five percent of the pool's net assets 
may be combined and reported in the aggregate with the income, 
management and incentive fees of other investee funds that, 
individually, represent an investment of less than five percent of the 
pool's net assets. If the commodity pool operator is not able to obtain 
the specific amounts of management and incentive fees charged by an 
investee fund, the commodity pool operator must disclose the percentage 
amounts and computational basis for each such fee and include a 
statement that the CPO is not able to obtain the specific fee amounts 
for this fund;
    (6) Where the pool is comprised of more than one ownership class or 
series, information for the series or class on which the financial 
statements are reporting should be presented in addition to the 
information presented for the pool as a whole; except that, for a pool 
that is a series fund structured with a limitation on liability among 
the different series, the financial statements are not required to 
include consolidated information for all series.
    (7) For a pool that has ceased operation prior to, or as of, the end 
of the fiscal year, the commodity pool operator may provide the 
following, within 90 days of the permanent cessation of trading, in lieu 
of the annual report that would otherwise be required by Sec. 4.22(c) 
or Sec. 4.7(b)(3):
    (i) Statements of Operations and Changes in Net Assets for the 
period between--
    (A) The later of:
    (1) The date of the most recent Statement of Financial Condition 
filed with the National Futures Association pursuant to this paragraph 
(c); or
    (2) The date of the formation of the pool; and
    (B) The close of the pool's fiscal year or the date of the cessation 
of trading, whichever is earlier; and
    (ii)(A) An explanation of the winding down of the pool's operations 
and written disclosure that all interests in, and assets of, the pool 
have been redeemed, distributed or transferred on behalf of the 
participants;
    (B) If all funds have not been distributed or transferred to 
participants by the time that the final report is issued, disclosure of 
the value of assets remaining to be distributed and an approximate 
timeframe of when the distribution will occur. If the commodity pool 
operator does not distribute the remaining pool assets within the 
timeframe specified, the commodity pool operator must provide written 
notice to each participant and to the National Futures Association that 
the distribution of the remaining assets of the pool has not been 
completed, the value of assets remaining to be distributed, and a time 
frame of when the final distribution will occur.

[[Page 192]]

    (C) If the commodity pool operator will not be able to liquidate the 
pool's assets in sufficient time to prepare, file and distribute the 
final annual report for the pool within 90 days of the permanent 
cessation of trading, the commodity pool operator must provide written 
notice to each participant and to National Futures Association 
disclosing:
    (1) The value of investments remaining to be liquidated, the 
timeframe within which liquidation is expected to occur, any impediments 
to liquidation, and the nature and amount of any fees and expenses that 
will be charged to the pool prior to the final distribution of the 
pool's funds;
    (2) Which financial reports the commodity pool operator will 
continue to provide to pool participants from the time that trading 
ceased until the final annual report is distributed, and the frequency 
with which such reports will be provided, pursuant to the pool's 
operative documents; and
    (3) The timeframe within which the commodity pool operator will 
provide the final report.
    (iii) A report filed pursuant to this paragraph (c)(7) that would 
otherwise be required by this paragraph (c) is not required to be 
audited in accordance with paragraph (d) of this section if the 
commodity pool operator obtains from all participants written waivers of 
their rights to receive an audited Annual Report, and at the time of 
filing the Annual Report with National Futures Association, certifies 
that it has received waivers from all participants. The commodity pool 
operator must maintain the waivers in accordance with Sec. 1.31 of this 
chapter and must make the waivers available to the Commission or 
National Futures Association upon request.
    (8) For the purpose of the Annual Report distribution requirement, 
including any annual report distributed pursuant to Sec. 4.7(b)(3) or 
4.12(b)(2)(iii), the term ``participant'' does not include a commodity 
pool operated by a pool operator that is the same as, or that controls, 
is controlled by, or is under common control with, the pool operator of 
a pool in which the commodity pool has invested; Provided, That the 
Annual Report of such investing pool contain financial statements that 
include such information as the Commission may specify concerning the 
operations of the pool in which the commodity pool has invested.
    (d)(1) The financial statements in the Annual Report must be 
presented and computed in accordance with generally accepted accounting 
principles consistently applied and must be audited by an independent 
public accountant. The requirements of Sec. 1.16(g) of this chapter 
shall apply with respect to the engagement of such independent public 
accountants, except that any related notifications to be made may be 
made solely to the National Futures Association, and the certification 
must be in accordance with Sec. 1.16 of this chapter, except that the 
following requirements of that section shall not apply:
    (i) The audit objectives of Sec. 1.16(d)(1) concerning the periodic 
computation of minimum capital and property in segregation;
    (ii) All other references in Sec. 1.16 to the segregation 
requirements; and
    (iii) Section 1.16(c)(5), (d)(2), (e)(2), and (f).
    (2)(i) The financial statements in the Annual Report required by 
this section or by Sec. 4.7(b)(3) may be presented and computed in 
accordance with International Financial Reporting Standards issued by 
the International Accounting Standards Board if the following conditions 
are met:
    (A) The pool is organized under the laws of a foreign jurisdiction;
    (B) The Annual Report will include a condensed schedule of 
investments, or, if required by the alternate accounting standards, a 
full schedule of investments;
    (C) The preparation of the pool's financial statements under 
International Financial Reporting Standards is not inconsistent with 
representations set forth in the pool's offering memorandum or other 
operative document that is made available to participants;
    (D) Special allocations of ownership equity will be reported in 
accordance with Sec. 4.22(e)(2); and
    (E) In the event that the International Financial Reporting 
Standards require consolidated financial statements for the pool, such 
as a feeder fund consolidating with its master

[[Page 193]]

fund, all applicable disclosures required by generally accepted 
accounting principles for the feeder fund must be presented with the 
reporting pool's consolidated financial statements.
    (ii) The commodity pool operator of a pool that meets the conditions 
specified in this paragraph (d)(2) may claim relief from the requirement 
in paragraph (d)(1) of this section by filing a notice with the National 
Futures Association, within 90 calendar days after the end of the pool's 
fiscal year.
    (A) The notice must contain the name, main business address, main 
telephone number and the National Futures Association registration 
identification number of the commodity pool operator, and name and the 
identification number of the commodity pool.
    (B) The notice must include representations regarding the pool's 
compliance with each of the conditions specified in Sec. 4.22(d)(2)(A) 
through (D), and, if applicable, (E); and
    (C) The notice must be signed by the commodity pool operator in 
accordance with paragraph (h) of this section.
    (e)(1) The Statement of Operations required by this section must 
itemize brokerage commissions, management fees, advisory fees, incentive 
fees, interest income and expense, total realized net gain or loss from 
commodity interest trading, and change in unrealized net gain or loss on 
commodity interest positions during the pool's fiscal year. Gains and 
losses on commodity interests need not be itemized by commodity or by 
specific delivery or expiration date.
    (2)(i) Any share of a pool's profits or transfer of a pool's equity 
which exceeds the general partner's or any other class's share of 
profits computed on the general partner's or other class's pro rata 
capital contribution are ``special allocations.'' Special allocations of 
partnership equity or other interests must be recognized in the pool's 
Statement of Operations in the same period as the net income, interest 
income, or other basis of computation of the special allocation is 
recognized. Special allocations must be recognized and classified either 
as an expense of the pool or, if not recognized as an expense of the 
pool, presented in the Statement of Operations as a separate, itemized 
allocation of the pool's net income to arrive at net income available 
for pro rata distribution to all partners.
    (ii) Special allocations of ownership interest also must be reported 
separately in the Statement of Partners' Equity, in addition to the pro-
rata allocations of net income, as to each class of ownership interest.
    (3) Realized gains or losses on regulated commodities transactions 
presented in the Statement of Operations of a commodity pool may be 
combined with realized gains or losses from trading in non-commodity 
interest transactions, provided that the gains or losses to be combined 
are part of a related trading strategy. Unrealized gains or losses on 
open regulated commodity positions presented in the Statement of 
Operations of a commodity pool may be combined with unrealized gains or 
losses from open positions in non-commodity positions, provided that the 
gains or losses to be combined are part of a related trading strategy.
    (f)(1)(i) In the event the commodity pool operator finds that it 
cannot distribute the Annual Report for a pool that it operates within 
the time specified in paragraph (c) of this section without substantial 
undue hardship, it may file with the National Futures Association an 
application for extension of time to a specified date not more than 90 
calendar days after the date as of which the Annual Report was to have 
been distributed. The application must be made by the pool operator and 
must:
    (A) State the name of the pool for which the application is being 
made;
    (B) State the reasons for the requested extension;
    (C) Indicate that the inability to make a timely filing is due to 
circumstances beyond the control of the pool operator, if such is the 
case, and describe briefly the nature of such circumstances;
    (D) Contain an undertaking to file the Annual Report on or before 
the date specified in the application; and
    (E) Be filed with the National Futures Association prior to the date 
on which the Annual Report is due.

[[Page 194]]

    (ii) The application must be accompanied by a letter from the 
independent public accountant answering the following questions:
    (A) What specifically are the reasons for the extension request?
    (B) Do you have any indication from the part of your audit completed 
to date that would lead you to believe that the commodity pool operator 
was or is not meeting the recordkeeping requirements of this part 4 or 
was or is not complying with the Sec. 4.20(c) prohibition on 
commingling of property of any pool with the property of any other 
person?
    (iii) Within ten calendar days after receipt of an application for 
an extension of time, the National Futures Association shall:
    (A) Notify the commodity pool operator of the grant or denial of the 
requested extension, or
    (B) Indicate to the pool operator that additional time is required 
to analyze the request, in which case the amount of time needed will be 
specified.
    (2) In the event a commodity pool operator finds that it cannot 
obtain information necessary to prepare annual financial statements for 
a pool that it operates within the time specified in either paragraph 
(c) of this section or Sec. 4.7(b)(3)(i), as a result of the pool 
investing in another collective investment vehicle, it may claim an 
extension of time under the following conditions:
    (i) The commodity pool operator must, within 90 calendar days of the 
end of the pool's fiscal year, file a notice with the National Futures 
Association, except as provided in paragraph (f)(2)(v) of this section.
    (ii) The notice must contain the name, main business address, main 
telephone number and the National Futures Association registration 
identification number of the commodity pool operator, and name and the 
identification number of the commodity pool.
    (iii) The notice must state the date by which the Annual Report will 
be distributed and filed (the ``Extended Date''), which must be no more 
than 180 calendar days after the end of the pool's fiscal year. The 
Annual Report must be distributed and filed by the Extended Date.
    (iv) The notice must include representations by the commodity pool 
operator that:
    (A) The pool for which the Annual Report is being prepared has 
investments in one or more collective investment vehicles (the 
``Investments'');
    (B) For all reports prepared under paragraph (c) of this section and 
for reports prepared under Sec. 4.7(b)(3)(i) that are audited by an 
independent public accountant, the commodity pool operator has been 
informed by the independent public accountant engaged to audit the 
commodity pool's financial statements that specified information 
required to complete the pool's annual report is necessary in order for 
the accountant to render an opinion on the commodity pool's financial 
statements. The notice must include the name, main business address, 
main telephone number, and contact person of the accountant; and
    (C) The information specified by the accountant cannot be obtained 
in sufficient time for the Annual Report to be prepared, audited, and 
distributed before the Extended Date.
    (D) For unaudited reports prepared under Sec. 4.7(b)(3)(i), the 
commodity pool operator has been informed by the operators of the 
Investments that specified information required to complete the pool's 
annual report cannot be obtained in sufficient time for the Annual 
Report to be prepared and distributed before the Extended Date.
    (v) For each fiscal year following the filing of the notice 
described in paragraph (f)(2)(i) of this section, for a particular pool, 
it shall be presumed that the particular pool continues to invest in 
another collective investment vehicle and the commodity pool operator 
may claim the extension of time; Provided, however, that if the 
particular pool is no longer investing in another collective investment 
vehicle, then the commodity pool operator must file electronically with 
the National Futures Association an Annual Report within 90 days after 
the pool's fiscal year-end accompanied by a notice indicating the change 
in the pool's status.
    (vi) Any notice or statement filed pursuant to this paragraph (f)(2) 
must

[[Page 195]]

be signed by the commodity pool operator in accordance with paragraph 
(h) of this section.
    (g)(1) A commodity pool operator may initially elect any fiscal year 
for a pool, but the first fiscal year may not end more than one year 
after the pool's formation. For purposes of this section, a pool shall 
be deemed to be formed as of the date the pool operator first receives 
funds, securities or other property for the purchase of an interest in 
the pool.
    (2) If a commodity pool operator elects a fiscal year other than the 
calendar year, it must give written notice of the election to all 
participants and must file the notice with the National Futures 
Association within 90 calendar days after the date of the pool's 
formation. If this notice is not given, the pool operator will be deemed 
to have elected the calendar year as the pool's fiscal year.
    (3) The commodity pool operator must continue to use the elected 
fiscal year for the pool unless it provides written notice of any 
proposed change to all participants and files such notice with the 
National Futures Association at least 90 days before the change and the 
National Futures Association does not disapprove the change within 30 
days after the filing of the notice.
    (h)(1) Each Account Statement and Annual Report, including an 
Account Statement or Annual Report provided pursuant to Sec. 4.7(b) or 
4.12(b), must contain an oath or affirmation that, to the best of the 
knowledge and belief of the individual making the oath or affirmation, 
the information contained in the document is accurate and complete; 
Provided, however, That it shall be unlawful for the individual to make 
such oath or affirmation if the individual knows or should know that any 
of the information in the document is not accurate and complete.
    (2) Each oath or affirmation must be made by a representative duly 
authorized to bind the pool operator, and
    (i) for the copy of a commodity pool's Annual Report submitted to 
the National Futures Association, such representative shall satisfy the 
required oath or affirmation through compliance with the National 
Futures Association's electronic filing procedures, and
    (ii) for a commodity pool Account Statement or Annual Report 
distributed to participants, a facsimile of the manually signed oath or 
affirmation of such representative may be used so long as the manually 
signed original is retained in accordance with Sec. 4.23.
    (3) For each manually signed oath or affirmation, there must be 
typed beneath the signed oath or affirmation:
    (i) The name of the individual signing the document;
    (ii) The capacity in which he is signing;
    (iii) The name of the commodity pool operator for whom he is 
signing; and
    (iv) The name of the commodity pool for which the document is being 
distributed.
    (i) The Account Statement or Annual Report may be distributed to a 
pool participant by means of electronic media if the participant so 
consents; Provided, That prior to the transmission of any Account 
Statement or Annual Report by means of electronic media, a commodity 
pool operator must disclose to the participant that it intends to 
distribute electronically the Account Statement or Annual Report or both 
documents, as the case may be, absent objection from the participant, 
which objection, if any, the participant must make no later than 10 
business days following its receipt of the disclosure.

(Approved by the Office of Management and Budget under control number 
3038-0005)

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, 
Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 
12a, 19 and 21; 5 U.S.C. 552 and 552b))

[46 FR 26013, May 8, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 47 
FR 57011, Dec. 22, 1982; 52 FR 41986, Nov. 2, 1987; 65 FR 81334, Dec. 
26, 2000; 67 FR 77411, Dec. 18, 2002; 68 FR 47234, Aug. 8, 2003; 68 FR 
52837, Sept. 8, 2003; 71 FR 8942, Feb. 22, 2006; 74 FR 57590, Nov. 9, 
2009]



Sec. 4.23  Recordkeeping.

    Each commodity pool operator registered or required to be registered 
under the Act must make and keep the following books and records in an 
accurate, current and orderly manner at its main business office and in 
accordance

[[Page 196]]

with Sec. 1.31. All books and records required by this section except 
those required by paragraphs (a)(3), (a)(4), (b)(1), (b)(2) and (b)(3) 
must be made available to participants for inspection and copying during 
normal business hours at the main business office of the pool operator. 
Upon request, copies must be sent by mail to any participant within five 
business days if reasonable reproduction and distribution costs are paid 
by the pool participant. If the commodity pool operator's main business 
office is outside of the United States, its territories or possessions, 
then upon the request of a Commission representative, the pool operator 
must provide such books and records as requested at the place in the 
United States, its territories or possessions designated by the 
representative within 72 hours after the pool operator receives the 
request.
    (a) Concerning the commodity pool: (1) An itemized daily record of 
each commodity interest transaction of the pool, showing the transaction 
date, quantity, commodity interest, and, as applicable, price or 
premium, delivery month or expiration date, whether a put or a call, 
strike price, underlying contract for future delivery or underlying 
physical, the futures commission merchant and/or retail foreign exchange 
dealer carrying the account and the introducing broker, if any, whether 
the commodity interest was purchased, sold (including, in the case of a 
retail forex transaction, offset), exercised, expired (including, in the 
case of a retail forex transaction, whether it was rolled forward), and 
the gain or loss realized.
    (2) A journal of original entry or other equivalent record showing 
all receipts and disbursements of money, securities and other property.
    (3) The acknowledgement specified by Sec. 4.21(b) for each 
participant in the pool.
    (4) A subsidiary ledger or other equivalent record for each 
participant in the pool showing the participant's name and address and 
all funds, securities and other property that the pool received from or 
distributed to the participant.
    (5) Adjusting entries and any other records of original entry or 
their equivalent forming the basis of entries in any ledger.
    (6) A general ledger or other equivalent record containing details 
of all asset, liability, capital, income and expense accounts.
    (7) Copies of each confirmation of a commodity interest transaction 
of the pool, each purchase and sale statement and each monthly statement 
for the pool received from a futures commission merchant or retail 
foreign exchange dealer.
    (8) Cancelled checks, bank statements, journals, ledgers, invoices, 
computer generated records, and all other records, data and memoranda 
prepared or received in connection with the operation of the pool.
    (9) The original or a copy of each report, letter, circular, 
memorandum, publication, writing, advertisement or other literature or 
advice (including the texts of standardized oral presentations and of 
radio, television, seminar or similar mass media presentations) 
distributed or caused to be distributed by the commodity pool operator 
to any existing or prospective pool participant or received by the pool 
operator from any commodity trading advisor of the pool, showing the 
first date of distribution or receipt if not otherwise shown on the 
document.
    (10) A Statement of Financial Condition as of the close of (i) each 
regular monthly period if the pool had net assets of $500,000 or more at 
the beginning of the pool's fiscal year, or (ii) each regular quarterly 
period for all other pools. The Statement must be completed within 30 
days after the end of that period.
    (11) A Statement of Income (Loss) for the period between (i) the 
later of: (A) the date of the most recent Statement of Financial 
Condition furnished to the Commission pursuant to Sec. 4.22(c), (B) 
April 1, 1979 or (C) the formation of the pool, and (ii) the date of the 
Statement of Financial Condition required by paragraph (a)(10) of this 
section. The Statement must be completed within 30 days after the end of 
that period.
    (12) A manually signed copy of each Account Statement and Annual 
Report provided pursuant to Sec. 4.22, 4.7(b) or 4.12(b), and records 
of the key financial

[[Page 197]]

balances submitted to the National Futures Association for each 
commodity pool Annual Report, which records must clearly demonstrate how 
the key financial balances were compiled from the Annual Report.
    (b) Concerning the commodity pool operator: (1) An itemized daily 
record of each commodity interest transaction of the commodity pool 
operator and each principal thereof, showing the transaction date, 
quantity, commodity interest, and, as applicable, price or premium, 
delivery month or expiration date, whether a put or a call, strike 
price, underlying contract for future delivery or underlying physical, 
the futures commission merchant or retail foreign exchange dealer 
carrying the account and the introducing broker, if any whether the 
commodity interest was purchased, sold, exercised, or expired, and the 
gain or loss realized.
    (2) Each confirmation of a commodity interest transaction, each 
purchase and sale statement and each monthly statement furnished by a 
futures commission merchant or retail foreign exchange dealer to:
    (i) The commodity pool operator relating to a personal account of 
the pool operator; and
    (ii) Each principal of the pool operator relating to a personal 
account of such principal.
    (3) Books and records of all other transactions in all other 
activities in which the pool operator engages. Those books and records 
must include cancelled checks, bank statements, journals, ledgers, 
invoices, computer generated records and all other records, data and 
memoranda which have been prepared in the course of engaging in those 
activities.

(Approved by the Office of Management and Budget under control number 
3038-0005)

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, 
Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 
12a, 19 and 21; 5 U.S.C. 552 and 552b))

[46 FR 26013, May 8, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 47 
FR 57011, Dec. 22, 1982; 48 FR 35299, Aug. 3, 1983; 60 FR 38183, July 
25, 1995; 71 FR 8943, Feb. 22, 2006; 75 FR 55428, Sept. 10, 2010]



Sec. 4.24  General disclosures required.

    Except as otherwise provided herein, a Disclosure Document must 
include the following information.
    (a) Cautionary Statement. The following Cautionary Statement must be 
prominently displayed on the cover page of the Disclosure Document.

    THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE 
MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON 
THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.

    (b) Risk Disclosure Statement. (1) The following Risk Disclosure 
Statement must be prominently displayed immediately following any 
disclosures required to appear on the cover page of the Disclosure 
Document as provided by the Commission, by any applicable federal or 
state securities laws and regulations or by any applicable laws of non-
United States jurisdictions.

                        RISK DISCLOSURE STATEMENT

    YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION 
PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD 
BE AWARE THAT COMMODITY INTEREST TRADING CAN QUICKLY LEAD TO LARGE 
LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET 
ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN 
THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR 
ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL. IN ADDITION, 
RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR 
PARTICIPATION IN THE POOL.
    FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR 
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR 
THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL 
TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS 
DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO 
BE CHARGED THIS POOL AT PAGE (insert page number) AND A STATEMENT OF THE 
PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE 
AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE (insert page number).

[[Page 198]]

    THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS 
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. 
THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU 
SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION 
OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGE (insert page 
number).

    (2) If the pool may trade foreign futures or options contracts, the 
Risk Disclosure Statement must further state:

    YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN 
FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE 
THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES 
MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR 
DIMINISHED PROTECTION TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED 
STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF 
THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES 
JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE EFFECTED.

    (3) If the potential liability of a participant in the pool is 
greater than the amount of the participant's contribution for the 
purchase of an interest in the pool and the profits earned thereon, 
whether distributed or not, the commodity pool operator must make the 
following additional statement in the Risk Disclosure Statement, to be 
prominently disclosed as the last paragraph thereof:

    ALSO, BEFORE YOU DECIDE TO PARTICIPATE IN THIS POOL, YOU SHOULD NOTE 
THAT YOUR POTENTIAL LIABILITY AS A PARTICIPANT IN THIS POOL FOR TRADING 
LOSSES AND OTHER EXPENSES OF THE POOL IS NOT LIMITED TO THE AMOUNT OF 
YOUR CONTRIBUTION FOR THE PURCHASE OF AN INTEREST IN THE POOL AND ANY 
PROFITS EARNED THEREON. A COMPLETE DESCRIPTION OF THE LIABILITY OF A 
PARTICIPANT IN THIS POOL IS EXPLAINED MORE FULLY IN THIS DISCLOSURE 
DOCUMENT.

    (4) If the pool may engage in retail Forex transactions, the Risk 
Disclosure Statement must further state:
    YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY ENGAGE IN OFF-
EXCHANGE FOREIGN CURRENCY TRADING. SUCH TRADING IS NOT CONDUCTED IN THE 
INTERBANK MARKET. THE FUNDS THAT THE POOL USES FOR OFF-EXCHANGE FOREIGN 
CURRENCY TRADING WILL NOT RECEIVE THE SAME PROTECTIONS AS FUNDS USED TO 
MARGIN OR GUARANTEE EXCHANGE-TRADED FUTURES AND OPTION CONTRACTS. IF THE 
POOL DEPOSITS SUCH FUNDS WITH A COUNTERPARTY AND THAT COUNTERPARTY 
BECOMES INSOLVENT, THE POOL'S CLAIM FOR AMOUNTS DEPOSITED OR PROFITS 
EARNED ON TRANSACTIONS WITH THE COUNTERPARTY MAY NOT BE TREATED AS A 
COMMODITY CUSTOMER CLAIM FOR PURPOSES OF SUBCHAPTER IV OF CHAPTER 7 OF 
THE BANKRUPTCY CODE AND THE REGULATIONS THEREUNDER. THE POOL MAY BE A 
GENERAL CREDITOR AND ITS CLAIM MAY BE PAID, ALONG WITH THE CLAIMS OF 
OTHER GENERAL CREDITORS, FROM ANY MONIES STILL AVAILABLE AFTER PRIORITY 
CLAIMS ARE PAID. EVEN POOL FUNDS THAT THE COUNTERPARTY KEEPS SEPARATE 
FROM ITS OWN FUNDS MAY NOT BE SAFE FROM THE CLAIMS OF PRIORITY AND OTHER 
GENERAL CREDITORS.
    (c) Table of contents. A table of contents showing, by subject 
matter, the location of the disclosures made in the Disclosure Document 
must appear immediately following the Risk Disclosure Statement.
    (d) Information required in the forepart of the Disclosure Document. 
(1) The name, address of the main business office, main business 
telephone number and form of organization of the pool. If the mailing 
address of the main business office is a post office box number or is 
not within the United States, its territories or possessions, the pool 
operator must state where the pool's books and records will be kept and 
made available for inspection;
    (2) The name, address of the main business office, main business 
telephone number and form of organization of the commodity pool 
operator. If the

[[Page 199]]

mailing address of the main business office is a post office box number 
or is not within the United States, its territories or possessions, the 
pool operator must state where its books and records will be kept and 
made available for inspection;
    (3) As applicable, a statement that the pool is:
    (i) Privately offered pursuant to section 4(2) of the Securities Act 
of 1933, as amended (15 U.S.C. 77d(2)), or pursuant to Regulation D 
thereunder (17 CFR 230.501 et seq.);
    (ii) A multi-advisor pool as defined in Sec. 4.10(d)(2);
    (iii) A principal-protected pool as defined in Sec. 4.10(d)(3); or
    (iv) Continuously offered. If the pool is not continuously offered, 
the closing date of the offering must be disclosed.
    (4) The date when the commodity pool operator first intends to use 
the Disclosure Document; and
    (5) The break-even point per unit of initial investment, as 
specified in Sec. 4.10(j).
    (e) Persons to be identified. The names of the following persons:
    (1) Each principal of the pool operator;
    (2) The pool's trading manager, if any, and each principal thereof;
    (3) Each major investee pool, the operator of such investee pool, 
and each principal of the operator thereof;
    (4) Each major commodity trading advisor and each principal thereof;
    (5) Which of the foregoing persons will make trading decisions for 
the pool; and
    (6) If known, the futures commission merchant and/or retail foreign 
exchange dealer through which the pool will execute its trades, and, if 
applicable, the introducing broker through which the pool will introduce 
its trades to the futures commission merchant and/or retail foreign 
exchange dealer.
    (f) Business background. (1) The business background, for the five 
years preceding the date of the Disclosure Document, of:
    (i) The commodity pool operator;
    (ii) The pool's trading manager, if any;
    (iii) Each major commodity trading advisor;
    (iv) The operator of each major investee pool; and
    (v) Each principal of the persons referred to in this paragraph 
(f)(1) who participates in making trading or operational decisions for 
the pool or who supervises persons so engaged.
    (2) The pool operator must include in the description of the 
business background of each person identified in Sec. 4.24(f)(1) the 
name and main business of that person's employers, business associations 
or business ventures and the nature of the duties performed by such 
person for such employers or in connection with such business 
associations or business ventures. The location in the Disclosure 
Document of any required past performance disclosure for such person 
must be indicated.
    (g) Principal risk factors. A discussion of the principal risk 
factors of participation in the offered pool. This discussion must 
include, without limitation, risks relating to volatility, leverage, 
liquidity, counterparty creditworthiness, as applicable to the types of 
trading programs to be followed, trading structures to be employed and 
investment activity (including retail forex transactions) expected to be 
engaged in by the offered pool.
    (h) Investment program and use of proceeds. The pool operator must 
disclose the following:
    (1) The types of commodity interests and other interests which the 
pool will trade, including:
    (i) The approximate percentage of the pool's assets that will be 
used to trade commodity interests, securities and other types of 
interests, categorized by type of commodity or market sector, type of 
security (debt, equity, preferred equity), whether traded or listed on a 
regulated exchange market, maturity ranges and investment rating, as 
applicable;
    (ii) The extent to which such interests are subject to state or 
federal regulation, regulation by a non-United States jurisdiction or 
rules of a self-regulatory organization;
    (iii)(A) The custodian or other entity (e.g., bank or broker-dealer) 
which will hold such interests; and
    (B) If such interests will be held or if pool assets will be 
invested in a non-

[[Page 200]]

United States jurisdiction, the jurisdiction in which such interests or 
assets will be held or invested.
    (2) A description of the trading and investment programs and 
policies that will be followed by the offered pool, including the method 
chosen by the pool operator concerning how futures commission merchants 
and/or retail foreign exchange dealers carrying the pool's accounts 
shall treat offsetting positions pursuant to Sec. 1.46 of this chapter, 
if the method is other than to close out all offsetting positions or to 
close out offsetting positions on other than a first-in, first-out 
basis, and any material restrictions or limitations on trading required 
by the pool's organizational documents or otherwise. This description 
must include, if applicable, an explanation of the systems used to 
select commodity trading advisors, investee pools and types of 
investment activity to which pool assets will be committed;
    (3)(i) A summary description of the pool's major commodity trading 
advisors, including their respective percentage allocations of pool 
assets, a description of the nature and operation of the trading 
programs such advisors will follow, including the types of interests 
traded pursuant to such programs, and each advisor's historical 
experience trading such program including material information as to 
volatility, leverage and rates of return and the length of time during 
which the advisor has traded such program;
    (ii) A summary description of the pool's major investee pools or 
funds, including their respective percentage allocations of pool assets 
and a description of the nature and operation of such investee pools and 
funds, including for each investee pool or fund the types of interests 
traded, material information as to volatility, leverage and rates of 
return for such investee pool or fund and the period of its operation; 
and
    (4)(i) The manner in which the pool will fulfill its margin 
requirements and the approximate percentage of the pool's assets that 
will be held in segregation pursuant to the Act and the Commission's 
regulations thereunder;
    (ii) If the pool will fulfill its margin requirements with other 
than cash deposits, the nature of such deposits; and
    (iii) If assets deposited by the pool as margin or as security 
deposit generate income, to whom that income will be paid.
    (i) Fees and expenses. (1) The Disclosure Document must include a 
complete description of each fee, commission and other expense which the 
commodity pool operator knows or should know has been incurred by the 
pool for its preceding fiscal year and is expected to be incurred by the 
pool in its current fiscal year, including fees or other expenses 
incurred in connection with the pool's participation in investee pools 
and funds.
    (2) This description must include, without limitation:
    (i) Management fees;
    (ii) Brokerage fees and commissions, including interest income paid 
to futures commission merchants, and any fees incurred to maintain an 
open position in retail forex transactions;
    (iii) Fees and commissions paid in connection with trading advice 
provided to the pool;
    (iv) Fees and expenses incurred within investments in investee 
pools, investee funds and other collective investment vehicles, which 
fees and expenses must be disclosed separately for each investment tier;
    (v) Incentive fees;
    (vi) Any allocation to the commodity pool operator, or any agreement 
or understanding which provides the commodity pool operator with the 
right to receive a distribution, where such allocation or distribution 
is greater than a pro rata share of the pool's profits based on the 
percentage of capital contributions made by the commodity pool operator;
    (vii) Commissions or other benefits, including trailing commissions 
paid or that may be paid or accrue, directly or indirectly, to any 
person in connection with the solicitation of participations in the 
pool;
    (viii) Professional and general administrative fees and expenses, 
including legal and accounting fees and office supplies expenses;
    (ix) Organizational and offering expenses;

[[Page 201]]

    (x) Clearance fees and fees paid to national exchanges and self-
regulatory organizations;
    (xi) For principal-protected pools, any direct or indirect costs to 
the pool associated with providing the protection feature, as referred 
to in paragraph (o)(3) of this section; and
    (xii) Any costs or fees included in the spread between bid and asked 
prices for retail forex transactions; and
    (xiii) Any other direct or indirect cost.
    (3) Where any fee, commission or other expense is determined by 
reference to a base amount including, but not limited to, ``net 
assets,'' ``allocation of assets,'' ``gross profits,'' ``net profits,'' 
or ``net gains,'' the pool operator must explain how such base amount 
will be calculated, in a manner consistent with calculation of the 
break-even point.
    (4) Where any fee, commission or other expense is based on an 
increase in the value of the pool, the pool operator must specify how 
the increase is calculated, the period of time during which the increase 
is calculated, the fee, commission or other expense to be charged at the 
end of that period and the value of the pool at which payment of the 
fee, commission or other expense commences.
    (5) Where any fee, commission or other expense of the pool has been 
paid or is to be paid by a person other than the pool, the pool operator 
must disclose the nature and amount thereof and the person who paid or 
who is expected to pay it.
    (6) The pool operator must provide, in a tabular format, an analysis 
setting forth how the break-even point for the pool was calculated. The 
analysis must include all fees, commissions and other expenses of the 
pool, as set forth in Sec. 4.24(i)(2).
    (j) Conflicts of interest. (1) A full description of any actual or 
potential conflicts of interest regarding any aspect of the pool on the 
part of:
    (i) The commodity pool operator;
    (ii) The pool's trading manager, if any;
    (iii) Any major commodity trading advisor;
    (iv) The commodity pool operator of any major investee pool;
    (v) Any principal of the persons described in paragraphs (j)(1) (i), 
(ii), (iii) and (iv) of this section; and
    (vi) Any other person providing services to the pool or soliciting 
participants for the pool, or acting as a counterparty to the pool's 
retail forex transactions (as defined in Sec. 5.1(m) of this chapter).
    (2) Any other material conflict involving the pool.
    (3) Included in the description of such conflicts must be any 
arrangement whereby a person may benefit, directly or indirectly, from 
the maintenance of the pool's account with the futures commission 
merchant and/or retail foreign exchange dealer, or from the introduction 
of the pool's account to a futures commission merchant and/or retail 
foreign exchange dealer by an introducing broker (such as payment for 
order flow or soft dollar arrangements) or from an investment of pool 
assets in investee pools or funds or other investments.
    (k) Related party transactions. A full description, including a 
discussion of the costs thereof to the pool, of any material 
transactions or arrangements for which there is no publicly disseminated 
price between the pool and any person affiliated with a person providing 
services to the pool.
    (l) Litigation. (1) Subject to the provisions of Sec. 4.24(l)(2), 
any material administrative, civil or criminal action, whether pending 
or concluded, within five years preceding the date of the Document, 
against any of the following persons; Provided, however, that a 
concluded action that resulted in an adjudication on the merits in favor 
of such person need not be disclosed:
    (i) The commodity pool operator, the pool's trading manager, if any, 
the pool's major commodity trading advisors, and the operators of the 
pool's major investee pools;
    (ii) Any principal of the foregoing; and
    (iii) The pool's futures commission merchants and/or retail foreign 
exchange dealers and its introducing brokers, if any.
    (2) With respect to a futures commission merchant and/or retail 
foreign exchange dealer or an introducing

[[Page 202]]

broker, an action will be considered material if:
    (i) The action would be required to be disclosed in the notes to the 
futures commission merchant's, retail foreign exchange dealer's or 
introducing broker's financial statements prepared pursuant to generally 
accepted accounting principles;
    (ii) The action was brought by the Commission; Provided, however, 
that a concluded action that did not result in civil monetary penalties 
exceeding $50,000 need not be disclosed unless it involved allegations 
of fraud or other willful misconduct; or
    (iii) The action was brought by any other federal or state 
regulatory agency, a non-United States regulatory agency or a self-
regulatory organization and involved allegations of fraud or other 
willful misconduct.
    (m) Trading for own account. If the commodity pool operator, the 
pool's trading manager, any of the pool's commodity trading advisors or 
any principal thereof trades or intends to trade commodity interests for 
its own account, the pool operator must disclose whether participants 
will be permitted to inspect the records of such person's trades and any 
written policies related to such trading.
    (n) Performance disclosures. Past performance must be disclosed as 
set forth in Sec. 4.25.
    (o) Principal-protected pools. If the pool is a principal-protected 
pool as defined in Sec. 4.10(d)(3), the commodity pool operator must:
    (1) Describe the nature of the principal protection feature intended 
to be provided, the manner by which such protection will be achieved, 
including sources of funding, and what conditions must be satisfied for 
participants to receive the benefits of such protection;
    (2) Specify when the protection feature becomes operative; and
    (3) Disclose, in the break-even analysis required by Sec. 
4.24(i)(6), the costs of purchasing and carrying the assets to fund the 
principal protection feature or other limitation on risk, expressed as a 
percentage of the price of a unit of participation.
    (p) Transferability and redemption. (1) A complete description of 
any restrictions upon the transferability of a participant's interest in 
the pool; and
    (2) A complete description of the frequency, timing and manner in 
which a participant may redeem interests in the pool. Such description 
must specify:
    (i) How the redemption value of a participant's interest will be 
calculated;
    (ii) The conditions under which a participant may redeem its 
interest, including the cost associated therewith, the terms of any 
notification required and the time between the request for redemption 
and payment;
    (iii) Any restrictions on the redemption of a participant's 
interest, including any restrictions associated with the pool's 
investments; and
    (iv) Any liquidity risks relative to the pool's redemption 
capabilities.
    (q) Liability of pool participants. The extent to which a 
participant may be held liable for obligations of the pool in excess of 
the funds contributed by the participant for the purchase of an interest 
in the pool.
    (r) Distribution of profits and taxation. (1) The pool's policies 
with respect to the payment of distributions from profits or capital and 
the frequency of such payments;
    (2) The federal income tax effects of such payments for a 
participant, including a discussion of the federal income tax laws 
applicable to the form of organization of the pool and to such payments 
therefrom; and
    (3) If a pool is specifically structured to accomplish certain 
federal income tax objectives, the commodity pool operator must explain 
those objectives, the manner in which they will be achieved and any 
risks relative thereto.
    (s) Inception of trading and other information. (1) The minimum 
aggregate subscriptions that will be necessary for the pool to commence 
trading commodity interests;
    (2) The minimum and maximum aggregate subscriptions that may be 
contributed to the pool;
    (3) The maximum period of time the pool will hold funds prior to the 
commencement of trading commodity interests;

[[Page 203]]

    (4) The disposition of funds received if the pool does not receive 
the necessary amount to commence trading, including the period of time 
within which the disposition will be made; and
    (5) Where the pool operator will deposit funds received prior to the 
commencement of trading by the pool, and a statement specifying to whom 
any income from such deposits will be paid.
    (t) Ownership in pool. The extent of any ownership or beneficial 
interest in the pool held by the following:
    (1) The commodity pool operator;
    (2) The pool's trading manager, if any;
    (3) The pool's major commodity trading advisors;
    (4) The operators of the pool's major investee pools; and
    (5) Any principal of the foregoing.
    (u) Reporting to pool participants. A statement that the commodity 
pool operator is required to provide all participants with monthly or 
quarterly (whichever applies) statements of account and with an annual 
report containing financial statements certified by an independent 
public accountant.
    (v) Supplemental information. If any information, other than that 
required by Commission rules, the antifraud provisions of the Act, other 
federal or state laws or regulations, rules of a self-regulatory agency 
or laws of a non-United States jurisdiction, is provided, such 
information:
    (1) May not be misleading in content or presentation or inconsistent 
with required disclosures;
    (2) Is subject to the antifraud provisions of the Act and Commission 
rules and to rules regarding the use of promotional material promulgated 
by a registered futures association pursuant to section 17(j) of the 
Act; and
    (3) Must be placed as follows, unless otherwise specified by 
Commission rules, provided that where a two-part document is used 
pursuant to rules promulgated by a registered futures association 
pursuant to Section 17(j) of the Act, all supplemental information must 
be provided in the second part of the two-part document:
    (i) Supplemental performance information (not including proprietary 
trading results as defined in Sec. 4.25(a)(8), or hypothetical, 
extracted, pro forma or simulated trading results) must be placed after 
all specifically required performance information; Provided, however, 
that required volatility disclosure may be included with the related 
required performance disclosure;
    (ii) Supplemental non-performance information relating to a required 
disclosure may be included with the related required disclosure; and
    (iii) Other supplemental information may be included after all 
required disclosures; Provided, however, that any proprietary trading 
results as defined in Sec. 4.25(a)(8), and any hypothetical, extracted, 
pro forma or simulated trading results included in the Disclosure 
Document must appear as the last disclosure therein following all 
required and non-required disclosures.
    (w) Material information. Nothing set forth in Sec. Sec. 4.21, 
4.24, 4.25 or Sec. 4.26 shall relieve a commodity pool operator from 
any obligation under the Act or the regulations thereunder, including 
the obligation to disclose all material information to existing or 
prospective pool participants even if the information is not 
specifically required by such sections.

[60 FR 38183, July 25, 1995, as amended at 63 FR 58303, Oct. 30, 1998; 
66 FR 53522, Oct. 23, 2001; 75 FR 55429, Sept. 10, 2010]



Sec. 4.25  Performance disclosures.

    (a) General principles--(1) Capsule performance information--(i) For 
pools. Unless otherwise specified, disclosure of the past performance of 
a pool must include the following information. Amounts shown must be net 
of any fees, expenses or allocations to the commodity pool operator.
    (A) The name of the pool;
    (B) A statement as to whether the pool is:
    (1) Privately offered pursuant to section 4(2) of the Securities Act 
of 1933, as amended (15 U.S.C. 77d(2)), or pursuant to Regulation D 
thereunder (17 CFR 230.501 et seq.);
    (2) A multi-advisor pool as defined in Sec. 4.10(d)(2); and
    (3) A principal-protected pool as defined in Sec. 4.10(d)(3);
    (C) The date of inception of trading;
    (D) The aggregate gross capital subscriptions to the pool;

[[Page 204]]

    (E) The pool's current net asset value;
    (F) The largest monthly draw-down during the most recent five 
calendar years and year-to-date, expressed as a percentage of the pool's 
net asset value and indicating the month and year of the draw-down (the 
capsule must include a definition of ``draw-down'' that is consistent 
with Sec. 4.10(k));
    (G) The worst peak-to-valley draw-down during the most recent five 
calendar years and year-to-date, expressed as a percentage of the pool's 
net asset value and indicating the months and year of the draw-down; and
    (H) Subject to Sec. 4.25(a)(2) for the offered pool, the annual and 
year-to-date rate of return for the pool for the most recent five 
calendar years and year-to-date, computed on a compounded monthly basis;
    (ii) For accounts. Disclosure of the past performance of an account 
required under this Sec. 4.25 must include the following capsule 
performance information:
    (A) The name of the commodity trading advisor or other person 
trading the account and the name of the trading program;
    (B) The date on which the commodity trading advisor or other person 
trading the account began trading client accounts and the date when 
client funds began being traded pursuant to the trading program;
    (C) The number of accounts directed by the commodity trading advisor 
or other person trading the account pursuant to the trading program 
specified, as of the date of the Disclosure Document;
    (D)(1) The total assets under the management of the commodity 
trading advisor or other person trading the account, as of the date of 
the Disclosure Document; and
    (2) The total assets traded pursuant to the trading program 
specified, as of the date of the Disclosure Document;
    (E) The largest monthly draw-down for the trading program specified 
during the most recent five calendar years and year-to-date expressed as 
a percentage of client funds, and indicating the month and year of the 
draw-down;
    (F) The worst peak-to-valley draw-down for the trading program 
specified during the most recent five calendar years and year-to-date, 
expressed as a percentage of net asset value and indicating the months 
and year of the draw-down; and
    (G) The annual and year-to-date rate-of-return for the program 
specified, computed on a compounded monthly basis.
    (H) Partially-funded accounts directed by a commodity trading 
advisor may be presented in accordance with Sec. 4.35(a)(7).
    (2) Additional requirements with respect to the offered pool. (i) 
The performance of the offered pool must be identified as such and 
separately presented first;
    (ii) The rate of return of the offered pool must be presented on a 
monthly basis for the period specified in Sec. 4.25(a)(5), either in a 
numerical table or in a bar graph;
    (iii) A bar graph used to present monthly rates of return for the 
offered pool:
    (A) Must show percentage rate of return on the vertical axis and 
one-month increments on the horizontal axis;
    (B) Must be scaled in such a way as to clearly show month-to-month 
differences in rates of return; and
    (C) Must separately display numerical percentage annual rates of 
return for the period covered by the bar graph; and
    (iv) The pool operator must make available upon request to 
prospective and existing participants all supporting data necessary to 
calculate monthly rates of return for the offered pool as specified in 
Sec. 4.25(a)(7), for the period specified in Sec. 4.25(a)(5).
    (3) Additional requirements with respect to pools other than the 
offered pool. With respect to pools other than the offered pool for 
which past performance is required to be presented under this section:
    (i) Performance data for pools of the same class as the offered pool 
must be presented following the performance of the offered pool, on a 
pool-by-pool basis.
    (ii) Pools of a different class than the offered pool must be 
presented less prominently and, unless such presentation would be 
misleading, may be

[[Page 205]]

presented in composite form; Provided, however, that:
    (A) The Disclosure Document must disclose how the composite was 
developed;
    (B) Pools of different classes or pools with materially different 
rates of return may not be presented in the same composite.
    (iii) For the purpose of Sec. 4.25(a)(3)(ii), the following, 
without limitation, shall be considered pools of different classes: 
Pools privately offered pursuant to section 4(2) of the Securities Act 
of 1933, as amended (15 U.S.C. 77d(2)), or pursuant to Regulation D 
thereunder (17 CFR 230.501 et seq.), and public offerings; and 
principal-protected and non-principal-protected pools. Multi-advisor 
pools as defined in Sec. 4.10(d)(2) will be presumed to have materially 
different rates of return from those of non-multi-advisor pools absent 
evidence sufficient to demonstrate otherwise.
    (iv) Material differences among the pools for which past performance 
is disclosed, including, without limitation, differences in leverage and 
use of different trading programs, must be described.
    (4) Additional requirements with respect to accounts. (i) Unless 
such presentation would be misleading, past performance of accounts 
required to be presented under this section may be presented in 
composite form on a program-by-program basis using the format set forth 
in Sec. 4.25(a)(1)(ii).
    (ii) Accounts that differ materially with respect to rates of return 
may not be presented in the same composite.
    (iii) The commodity pool operator must disclose all material 
differences among accounts included in a composite.
    (5) Time period for required performance. All required performance 
information must be presented for the most recent five calendar years 
and year-to-date or for the life of the pool, account or trading 
program, if less than five years.
    (6) Trading programs. If the offered pool will use any of the 
trading programs for which past performance is required to be presented, 
the Disclosure Document must so indicate.
    (7) Calculation of, and recordkeeping concerning, performance 
information. (i) All performance information presented in a Disclosure 
Document, including performance information contained in any capsule and 
performance information not specifically required by Commission rules, 
must be current as of a date not more than three months preceding the 
date of the Document, and must be supported by the following amounts, 
calculated on an accrual basis of accounting in accordance with 
generally accepted accounting principles, as specified below or by a 
method otherwise approved by the Commission.
    (A) The beginning net asset value for the period, which shall be the 
same as the previous period's ending net asset value;
    (B) All additions, whether voluntary or involuntary, during the 
period;
    (C) All withdrawals and redemptions, whether voluntary or 
involuntary, during the period;
    (D) The net performance for the period, which shall represent the 
change in the net asset value net of additions, withdrawals, and 
redemptions;
    (E) The ending net asset value for the period, which shall represent 
the beginning net asset value plus or minus additions, withdrawals, 
redemptions and net performance;
    (F) The rate of return for the period, which shall be calculated by 
dividing the net performance by the beginning net asset value or by a 
method otherwise approved by the Commission; and
    (G) The number of units outstanding at the end of the period, if 
applicable.
    (ii) All supporting documents necessary to substantiate the 
computation of such amounts must be maintained in accordance with Sec. 
1.31.
    (8) Proprietary trading results. (i) Proprietary trading results may 
not be included in a Disclosure Document unless such performance is 
prominently labeled as proprietary and is set forth separately after all 
disclosures in accordance with Sec. 4.24(v), together with a discussion 
of any differences between such performance and the performance of the 
offered pool, including, but not limited to, differences in costs, 
leverage and trading methodology.

[[Page 206]]

    (ii) For the purposes of Sec. 4.24(v) and this Sec. 4.25(a), 
proprietary trading results means the performance of any pool or account 
in which fifty percent or more of the beneficial interest is owned or 
controlled by:
    (A) The commodity pool operator, trading manager (if any), commodity 
trading advisor or any principal thereof
    (B) An affiliate or family member of the commodity pool operator, 
trading manager (if any) or commodity trading advisor; or
    (C) Any person providing services to the pool.
    (9) Required legend. Any past performance presentation, whether or 
not required by Commission rules, must be preceded by the following 
statement, prominently displayed:

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

    (b) Performance disclosure when the offered pool has at least a 
three-year operating history. The commodity pool operator must disclose 
the performance of the offered pool, in accordance with paragraphs 
(a)(1)(i) (A) through (H) and (a)(2) of this Sec. 4.25, where:
    (1) The offered pool has traded commodity interests for three years 
or more; and
    (2) For at least such three-year period, seventy-five percent or 
more of the contributions to the pool were made by persons unaffiliated 
with the commodity pool operator, the trading manager (if any), the 
pool's commodity trading advisors, or the principals of any of the 
foregoing.
    (c) Performance disclosure when the offered pool has less than a 
three-year operating history--(1) Offered pool performance. (i) The 
commodity pool operator must disclose the performance of the offered 
pool, in accordance with paragraphs (a)(1)(i)(A) through (H) and (a)(2) 
of this Sec. 4.25; or
    (ii) If the offered pool has no operating history, the pool operator 
must prominently display the following statement:

THIS POOL HAS NOT COMMENCED TRADING AND DOES NOT HAVE ANY PERFORMANCE 
HISTORY.

    (2) Other performance of commodity pool operator. (i)(A) Except as 
provided in Sec. 4.25(a)(8), the commodity pool operator must disclose, 
for the period specified by Sec. 4.25(a)(5), the performance of each 
other pool operated by the pool operator (and by the trading manager if 
the offered pool has a trading manager) in accordance with paragraphs 
(a)(1)(i) (C) through (H) and (a)(3) of this Sec. 4.25, and the 
performance of each other account traded by the pool operator (and by 
the trading manager if the offered pool has a trading manager) in 
accordance with paragraphs (a)(1)(ii) (C) through (G) of this Sec. 
4.25. If the trading manager has been delegated complete authority for 
the offered pool's trading, and the trading manager's performance is not 
materially different from that of the pool operator, the performance of 
the other pools operated by and accounts traded by the pool operator is 
not required to be disclosed.
    (B) In addition, if the pool operator, or if applicable, the trading 
manager, has not operated for at least three years any commodity pool in 
which seventy-five percent or more of the contributions to the pool were 
made by persons unaffiliated with the commodity pool operator, the 
trading manager, the pool's commodity trading advisors or their 
respective principals, the pool operator must also disclose the 
performance of each other pool operated by and account traded by the 
trading principals of the pool operator (and of the trading manager, as 
applicable) unless such performance does not differ in any material 
respect from the performance of the offered pool and the pool operator 
(and trading manager, if any) disclosed in the Disclosure Document.
    (ii) If neither the pool operator or trading manager (if any), nor 
any of its trading principals has operated any other pools or traded any 
other accounts, the pool operator must prominently display the following 
statement: NEITHER THIS POOL OPERATOR (TRADING MANAGER, IF APPLICABLE) 
NOR ANY OF ITS TRADING PRINCIPALS HAS PREVIOUSLY OPERATED ANY OTHER 
POOLS OR TRADED ANY OTHER ACCOUNTS. If

[[Page 207]]

the commodity pool operator or trading manager, if applicable, is a sole 
proprietorship, reference to its trading principals may be deleted from 
the prescribed statement.
    (3) Major commodity trading advisor performance. (i) The commodity 
pool operator must disclose the perfor- mance of any accounts (including 
pools) directed by a major commodity trading advisor in accordance with 
paragraphs (a)(1)(ii) (C) through (G) of this Sec. 4.25.
    (ii) If a major commodity trading advisor has not previously traded 
accounts, the pool operator must prominently display the following 
statement:
    (name of the major commodity trading advisor), A COMMODITY TRADING 
ADVISOR THAT HAS DISCRETIONARY TRADING AUTHORITY OVER (percentage of the 
pool's funds available for commodity interest trading allocated to that 
trading advisor) PERCENT OF THE POOL'S COMMODITY INTEREST TRADING HAS 
NOT PREVIOUSLY DIRECTED ANY ACCOUNTS.

    (4) Major investee pool performance. (i) The commodity pool operator 
must disclose the performance of any major investee pool.
    (ii) If a major investee pool has not commenced trading, the pool 
operator must prominently display the following statement:

(name of the major investee pool), AN INVESTEE POOL THAT IS ALLOCATED 
(percentage of the pool assets allocated to that investee pool) PERCENT 
OF THE POOL'S ASSETS HAS NOT COMMENCED TRADING.

    (5) With respect to commodity trading advisors and investee pools 
for which performance is not required to be disclosed pursuant to Sec. 
4.25(c) (3) and (4), the pool operator must provide a summary 
description of the performance history of each of such advisors and 
pools including the following information, provided that where the pool 
operator uses a two-part document pursuant to the rules promulgated by a 
registered futures association pursuant to Section 17(j) of the Act, 
such summary description may be provided in the second part of the two-
part document:
    (i) Monthly return parameters (highs and lows);
    (ii) Historical volatility and degree of leverage; and
    (iii) Any material differences between the performance of such 
advisors and pools as compared to that of the offered pool's major 
trading advisors and major investee pools.

[60 FR 38186, July 25, 1995, as amended at 63 FR 58303, Oct. 30, 1998; 
68 FR 42967, July 21, 2003; 75 FR 55429, Sept. 10, 2010]



Sec. 4.26  Use, amendment and filing of Disclosure Document.

    (a)(1) Subject to paragraph (c) of this section, all information 
contained in the Disclosure Document and, where used, profile document, 
must be current as of the date of the Document; Provided, however, that 
performance information may be current as of a date not more than three 
months prior to the date of the Document.
    (2) No commodity pool operator may use a Disclosure Document or 
profile document dated more than nine months prior to the date of its 
use.
    (b) The commodity pool operator must attach to the Disclosure 
Document the most current Account Statement and Annual Report for the 
pool required to be distributed in accordance with Sec. 4.22; provided, 
however, that in lieu of the most current Account Statement the 
commodity pool operator may provide performance information for the pool 
current as of a date not more than sixty days prior to the date on which 
the Disclosure Document is distributed and covering the period since the 
most recent performance information contained in the Disclosure 
Document.
    (c)(1) If the commodity pool operator knows or should know that the 
Disclosure Document or profile document is materially inaccurate or 
incomplete in any respect, it must correct that defect and must 
distribute the correction to:
    (i) All existing pool participants within 21 calendar days of the 
date upon which the pool operator first knows or has reason to know of 
the defect; and
    (ii) Each previously solicited prospective pool participant prior to 
accepting or receiving funds, securities or other

[[Page 208]]

property from any such prospective participant.
    (2) The pool operator may furnish the correction by any of the 
following means:
    (i) An amended Disclosure Document or profile document;
    (ii) With respect to a hard copy of the Disclosure Document, a 
sticker affixed to the Disclosure Document; or
    (iii) Other similar means.
    (3) The pool operator may not use the Disclosure Document or profile 
document until such correction has been made.
    (d) Except as provided by Sec. 4.8:
    (1) The commodity pool operator must electronically file with the 
National Futures Association, pursuant to the electronic filing 
procedures of the National Futures Association, the Disclosure Document 
and, where used, profile document for each pool that it operates or that 
it intends to operate not less than 21 calendar days prior to the date 
the pool operator first intends to deliver such Document or documents to 
a prospective participant in the pool; and
    (2) The commodity pool operator must electronically file with the 
National Futures Association, pursuant to the electronic filing 
procedures of the National Futures Association, the subsequent 
amendments to the Disclosure Document and, where used, profile document 
for each pool that it operates or that it intends to operate within 21 
calendar days of the date upon which the pool operator first knows or 
has reason to know of the defect requiring the amendment.

[60 FR 38188, July 25, 1995, as amended at 62 FR 18268, Apr. 15, 1997; 
65 FR 58649, Oct. 2, 2000; 67 FR 42710, June 25, 2002; 67 FR 77411, Dec. 
18, 2002; 68 FR 12584, Mar. 17, 2003; 74 FR 9569, Mar. 5, 2009]



                  Subpart C_Commodity Trading Advisors



Sec. 4.30  Prohibited activities.

    No commodity trading advisor may solicit, accept or receive from an 
existing or prospective client funds, securities or other property in 
the trading advisor's name (or extend credit in lieu thereof) to 
purchase, margin, guarantee or secure any commodity interest of the 
client; Provided, however, That this section shall not apply to a future 
commission merchant that is registered as such under the Act or to a 
leverage transaction merchant that is registered as a commodity trading 
advisor under the Act or to a retail foreign exchange dealer that is 
registered as such under the Act.

[75 FR 55430, Sept. 10, 2010]



Sec. 4.31  Required delivery of Disclosure Document to prospective clients.

    (a) Each commodity trading advisor registered or required to be 
registered under the Act must deliver or cause to be delivered to a 
prospective client a Disclosure Document containing the information set 
forth in Sec. Sec. 4.34 and 4.35 for the trading program pursuant to 
which the trading advisor seeks to direct the client's commodity 
interest account or to guide the client's commodity interest trading by 
means of a systematic program that recommends specific transactions by 
no later than the time the trading advisor delivers to the prospective 
client an advisory agreement to direct or guide the client's account; 
Provided, That any information distributed in advance of the delivery of 
the Disclosure Document to a prospective client is consistent with or 
amended by the information contained in the Disclosure Document and with 
the obligations of the commodity trading advisor under the Act, the 
Commission's regulations issued thereunder, and the laws of any other 
applicable federal or state authority; Provided further, That in the 
event such previously distributed information is amended by the 
Disclosure Document in any material respect, the prospective participant 
must be in receipt of the Disclosure Document at least 48 hours prior to 
the advisory agreement being accepted by the trading advisor.
    (b) The commodity trading advisor may not enter into an agreement 
with a prospective client to direct the client's commodity interest 
account or to guide the client's commodity interest trading unless the 
trading advisor first receives from the prospective client an 
acknowledgment signed and dated by the prospective client stating that 
the client received a Disclosure Document for the trading program 
pursuant to

[[Page 209]]

which the trading advisor will direct his account or will guide his 
trading. Where a Disclosure Document is delivered to a prospective 
client by electronic means, in lieu of a manually signed and dated 
acknowledgment the trading advisor may establish receipt by electronic 
means that use a unique identifier to confirm the identity of the 
recipient of such Disclosure Document, Provided, however, That the 
requirement of Sec. 4.33(a)(2) to retain the acknowledgment specified 
in this paragraph (b) applies equally to such substitute evidence of 
receipt, which must be retained either in hard copy form or in another 
form approved by the Commission.

[60 FR 38189, July 25, 1995, as amended at 62 FR 39115, July 22, 1997; 
68 FR 47235, Aug. 8, 2003; 68 FR 59114, Oct. 14, 2003]



Sec. 4.32  Trading on a Registered Derivatives Transaction Execution Facility for 

Non-Institutional Customers.

    (a) A registered commodity trading advisor may enter trades on or 
subject to the rules of a registered derivatives transaction execution 
facility on behalf of a client who does not qualify as an 
``institutional customer'' as defined in Sec. 1.3(g) of this chapter, 
provided that the trading advisor:
    (1) Directs the client's commodity interest account;
    (2) Directs accounts containing total assets of not less than 
$25,000,000 at the time the trade is entered; and
    (3) Discloses to the client that the trading advisor may enter 
trades on or subject to the rules of a registered derivatives 
transaction execution facility on the client's behalf.
    (b) The commodity interest account of a client described in 
paragraph (a) of this section must be carried by a registered futures 
commission merchant.

[66 FR 53522, Oct. 23, 2001]



Sec. 4.33  Recordkeeping.

    Each commodity trading advisor registered or required to be 
registered under the Act must make and keep the following books and 
records in an accurate, current and orderly manner at its main business 
office and in accordance with Sec. 1.31. If the commodity trading 
advisor's main business office is located outside the United States, its 
territories or possessions, then upon the request of a Commission 
representative the trading advisor must provide such books and records 
as requested at the place designated by the representative in the United 
States, its territories or possessions within 72 hours after receipt of 
the request.
    (a) Concerning the clients and subscribers of the commodity trading 
advisor:
    (1) The name and address of each client and each subscriber.
    (2) The acknowledgement specified in Sec. 4.31(b).
    (3) All powers of attorney and other documents, or copies thereof, 
authorizing the commodity trading advisor to direct the commodity 
interest account of a client or subscriber.
    (4) All other written agreements, or copies thereof, entered into by 
the commodity trading advisor with any client or subscriber.
    (5) A list or other record of all commodity interest accounts of 
clients directed by the commodity trading advisor and of all 
transactions effected therefor.
    (6) Copies of each confirmation of a commodity interest transaction, 
each purchase and sale statement and each monthly statement received 
from a futures commission merchant or a retail foreign exchange dealer.
    (7) The original or a copy of each report, letter, circular, 
memorandum, publication, writing, advertisement or other literature or 
advice (including the texts of standardized oral presentations and of 
radio, television, seminar or similar mass media presentations) 
distributed or caused to be distributed by the commodity trading advisor 
to any existing or prospective client or subscriber, showing the first 
date of distribution if not otherwise shown on the document.
    (b) Concerning the commodity trading advisor:
    (1) An itemized daily record of each commodity interest transaction 
of the commodity trading advisor, showing the transaction date, 
quantity, commodity interest, and, as applicable, price or premium, 
delivery month or expiration date, whether a put or a call, strike 
price, underlying contract

[[Page 210]]

for future delivery or underlying physical, the futures commission 
merchant and/or retail foreign exchange dealer carrying the account and 
the introducing broker, if any, whether the commodity interest was 
purchased, sold (including, in the case of a retail forex transaction, 
offset), exercised, expired (including, in the case of a retail forex 
transaction, whether it was rolled forward), and the gain or loss 
realized.
    (2) Each confirmation of a commodity interest transaction, each 
purchase and sale statement and each monthly statement furnished by a 
futures commission merchant or retail foreign exchange dealer to:
    (i) The commodity trading advisor relating to a personal account of 
the trading advisor; and
    (ii) Each principal of the trading advisor relating to a personal 
account of such principal.
    (3) Books and records of all other transactions in all other 
business dealings in trading commodity interests and of all cash market 
transactions in which the commodity trading advisor and each principal 
thereof engages. Those books and records must include, as applicable, 
books and records of the type specified in paragraphs (a)(1) through 
(a)(7) of this section and in paragraphs (a)(1) through (a)(8) of Sec. 
4.23.

(Approved by the Office of Management and Budget under control number 
3038-0005)

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, 
Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 
12a, 19 and 21; 5 U.S.C. 552 and 552b))

[46 FR 26013, May 8, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 47 
FR 57012, Dec. 22, 1982; 48 FR 35299, Aug. 3, 1983. Redesignated and 
amended at 60 FR 38189, July 25, 1995; 75 FR 55430, Sept. 10, 2010]



Sec. 4.34  General disclosures required.

    Except as otherwise provided herein, a Disclosure Document must 
include the following information.
    (a) Cautionary Statement. The following Cautionary Statement must be 
prominently displayed on the cover page of the Disclosure Document:

THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS 
OF PARTICIPATING IN THIS TRADING PROGRAM NOR HAS THE COMMISSION PASSED 
ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.

    (b) Risk Disclosure Statement. (1) The following Risk Disclosure 
Statement must be prominently displayed immediately following any 
disclosures required to appear on the cover page of the Disclosure 
Document as provided by the Commission, by any applicable federal or 
state securities laws and regulations or by any applicable laws of non-
United States jurisdictions:

                        RISK DISCLOSURE STATEMENT

    THE RISK OF LOSS IN TRADING COMMODITY INTERESTS CAN BE SUBSTANTIAL. 
YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE 
FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. IN CONSIDERING WHETHER TO 
TRADE OR TO AUTHORIZE SOMEONE ELSE TO TRADE FOR YOU, YOU SHOULD BE AWARE 
OF THE FOLLOWING:
    IF YOU PURCHASE A COMMODITY OPTION YOU MAY SUSTAIN A TOTAL LOSS OF 
THE PREMIUM AND OF ALL TRANSACTION COSTS.
    IF YOU PURCHASE OR SELL A COMMODITY FUTURES CONTRACT OR SELL A 
COMMODITY OPTION OR ENGAGE IN OFF-EXCHANGE FOREIGN CURRENCY TRADING YOU 
MAY SUSTAIN A TOTAL LOSS OF THE INITIAL MARGIN FUNDS OR SECURITY DEPOSIT 
AND ANY ADDITIONAL FUNDS THAT YOU DEPOSIT WITH YOUR BROKER TO ESTABLISH 
OR MAINTAIN YOUR POSITION. IF THE MARKET MOVES AGAINST YOUR POSITION, 
YOU MAY BE CALLED UPON BY YOUR BROKER TO DEPOSIT A SUBSTANTIAL AMOUNT OF 
ADDITIONAL MARGIN FUNDS, ON SHORT NOTICE, IN ORDER TO MAINTAIN YOUR 
POSITION. IF YOU DO NOT PROVIDE THE REQUESTED FUNDS WITHIN THE 
PRESCRIBED TIME, YOUR POSITION MAY BE LIQUIDATED AT A LOSS, AND YOU WILL 
BE LIABLE FOR ANY RESULTING DEFICIT IN YOUR ACCOUNT.
    UNDER CERTAIN MARKET CONDITIONS, YOU MAY FIND IT DIFFICULT OR 
IMPOSSIBLE TO LIQUIDATE A POSITION. THIS CAN

[[Page 211]]

OCCUR, FOR EXAMPLE, WHEN THE MARKET MAKES A ``LIMIT MOVE.''
    THE PLACEMENT OF CONTINGENT ORDERS BY YOU OR YOUR TRADING ADVISOR, 
SUCH AS A ``STOP-LOSS'' OR ``STOP-LIMIT'' ORDER, WILL NOT NECESSARILY 
LIMIT YOUR LOSSES TO THE INTENDED AMOUNTS, SINCE MARKET CONDITIONS MAY 
MAKE IT IMPOSSIBLE TO EXECUTE SUCH ORDERS.
    A ``SPREAD'' POSITION MAY NOT BE LESS RISKY THAN A SIMPLE ``LONG'' 
OR ``SHORT'' POSITION.
    THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY 
INTEREST TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF 
LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS.
    IN SOME CASES, MANAGED COMMODITY ACCOUNTS ARE SUBJECT TO SUBSTANTIAL 
CHARGES FOR MANAGEMENT AND ADVISORY FEES. IT MAY BE NECESSARY FOR THOSE 
ACCOUNTS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING 
PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS 
DISCLOSURE DOCUMENT CONTAINS, AT PAGE (insert page number), A COMPLETE 
DESCRIPTION OF EACH FEE TO BE CHARGED TO YOUR ACCOUNT BY THE COMMODITY 
TRADING ADVISOR.
    THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER 
SIGNIFICANT ASPECTS OF THE COMMODITY INTEREST MARKETS. YOU SHOULD 
THEREFORE CAREFULLY STUDY THIS DISCLOSURE DOCUMENT AND COMMODITY 
INTEREST TRADING BEFORE YOU TRADE, INCLUDING THE DESCRIPTION OF THE 
PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGE (insert page number).
    (2)(i) If the commodity trading advisor may trade foreign futures or 
options contracts pursuant to the offered trading program, the Risk 
Disclosure Statement must further state the following:
    YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY TRADING ADVISOR MAY 
ENGAGE IN TRADING FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON 
MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY 
LINKED TO A UNITED STATES MARKET MAY BE SUBJECT TO REGULATIONS WHICH 
OFFER DIFFERENT OR DIMINISHED PROTECTION. FURTHER, UNITED STATES 
REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE 
RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES 
JURISDICTIONS WHERE YOUR TRANSACTIONS MAY BE EFFECTED. BEFORE YOU TRADE 
YOU SHOULD INQUIRE ABOUT ANY RULES RELEVANT TO YOUR PARTICULAR 
CONTEMPLATED TRANSACTIONS AND ASK THE FIRM WITH WHICH YOU INTEND TO 
TRADE FOR DETAILS ABOUT THE TYPES OF REDRESS AVAILABLE IN BOTH YOUR 
LOCAL AND OTHER RELEVANT JURISDICTIONS.
    (ii) If the commodity trading advisor may engage in retail forex 
transactions pursuant to the offered trading program, the Risk 
Disclosure Statement must further state the following:
    YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY TRADING ADVISOR MAY 
ENGAGE IN OFF-EXCHANGE FOREIGN CURRENCY TRADING. SUCH TRADING IS NOT 
CONDUCTED IN THE INTERBANK MARKET. THE FUNDS DEPOSITED WITH A 
COUNTERPARTY FOR SUCH TRANSACTIONS WILL NOT RECEIVE THE SAME PROTECTIONS 
AS FUNDS USED TO MARGIN OR GUARANTEE EXCHANGE-TRADED FUTURES AND OPTION 
CONTRACTS. IF THE COUNTERPARTY BECOMES INSOLVENT AND YOU HAVE A CLAIM 
FOR AMOUNTS DEPOSITED OR PROFITS EARNED ON TRANSACTIONS WITH THE 
COUNTERPARTY, YOUR CLAIM MAY NOT BE TREATED AS A COMMODITY CUSTOMER 
CLAIM FOR PURPOSES OF SUBCHAPTER IV OF CHAPTER 7 OF THE BANKRUPTCY CODE 
AND REGULATIONS THEREUNDER. YOU MAY BE A GENERAL CREDITOR AND YOUR CLAIM 
MAY BE PAID, ALONG WITH THE CLAIMS OF OTHER GENERAL CREDITORS, FROM ANY 
MONIES STILL AVAILABLE AFTER PRIORITY CLAIMS

[[Page 212]]

ARE PAID. EVEN FUNDS THAT THE COUNTERPARTY KEEPS SEPARATE FROM ITS OWN 
FUNDS MAY NOT BE SAFE FROM THE CLAIMS OF PRIORITY AND OTHER GENERAL 
CREDITORS.
    FURTHER, YOU SHOULD CAREFULLY REVIEW THE INFORMATION CONTAINED IN 
THE RISK DISCLOSURE STATEMENT OF THE FUTURES COMMISSION MERCHANT OR 
RETAIL FOREIGN EXCHANGE DEALER THAT YOU SELECT TO CARRY YOUR ACCOUNT.
    (3) If the commodity trading advisor is not also a registered 
futures commission merchant or a registered retail foreign exchange 
dealer, the trading advisor must make the additional following statement 
in the Risk Disclosure Statement, to be included as the last paragraph 
thereof:
    THIS COMMODITY TRADING ADVISOR IS PROHIBITED BY LAW FROM ACCEPTING 
FUNDS IN THE TRADING ADVISOR'S NAME FROM A CLIENT FOR TRADING COMMODITY 
INTERESTS. YOU MUST PLACE ALL FUNDS FOR TRADING IN THIS TRADING PROGRAM 
DIRECTLY WITH A FUTURES COMMISSION MERCHANT OR RETAIL FOREIGN EXCHANGE 
DEALER, AS APPLICABLE.
    (c) Table of contents. A table of contents showing, by subject 
matter, the location of the disclosures made in the Disclosure Document, 
must appear immediately following the Risk Disclosure Statement.
    (d) Information required in the forepart of the Disclosure Document. 
(1) The name, address of the main business office, main business 
telephone number and form of organization of the commodity trading 
advisor. If the mailing address of the main business office is a post 
office box number or is not within the United States, its territories or 
possessions, the trading advisor must state where its books and records 
will be kept and made available for inspection; and
    (2) The date when the commodity trading advisor first intends to use 
the Disclosure Document.
    (e) Persons to be identified. The names of the following persons:
    (1) Each principal of the trading advisor;
    (2) The futures commission merchant and/or retail foreign exchange 
dealer with which the commodity trading advisor will require the client 
to maintain its account or, if the client is free to choose the futures 
commission merchant or retail foreign exchange dealer with which it will 
maintain its account, the trading advisor must make a statement to that 
effect; and
    (3) The introducing broker through which the commodity trading 
advisor will require the client to introduce its account or, if the 
client is free to choose the introducing broker through which it will 
introduce its account, the trading advisor must make a statement to that 
effect.
    (f) Business background. (1) The business background, for the five 
years preceding the date of the Disclosure Document, of:
    (i) The commodity trading advisor; and
    (ii) Each principal of the trading advisor who participates in 
making trading or operational decisions for the trading advisor or 
supervises persons so engaged.
    (2) The trading advisor must include in the description of the 
business background of each person identified in Sec. 4.34(f)(1) the 
name and main business of that person's employers, business associations 
or business ventures and the nature of the duties performed by such 
person for such employers or in connection with such business 
associations or business ventures. The location in the Disclosure 
Document of any required past performance disclosure for such person 
must be indicated.
    (g) Principal risk factors. A discussion of the principal risk 
factors of this trading program. This discussion must include, without 
limitation, risks due to volatility, leverage, liquidity, and 
counterparty creditworthiness, as applicable to the trading program and 
the types of transactions and investment activity expected to be engaged 
in pursuant to such program (including retail forex transactions, if 
any).
    (h) Trading program. A description of the trading program, which 
must include the method chosen by the commodity trading advisor 
concerning how

[[Page 213]]

futures commission merchants and/or retail foreign exchange dealers 
carrying accounts it manages shall treat offsetting positions pursuant 
to Sec. 1.46 of this chapter, if the method is other than to close out 
all offsetting positions or to close out offsetting positions on other 
than a first-in, first-out basis, and the types of commodity interests 
and other interests the commodity trading advisor intends to trade, with 
a description of any restrictions or limitations on such trading 
established by the trading advisor or otherwise.
    (i) Fees. A complete description of each fee which the commodity 
trading advisor will charge the client.
    (1) Wherever possible, the trading advisor must specify the dollar 
amount of each such fee.
    (2) Where any fee is determined by reference to a base amount 
including, but not limited to, ``net assets,'' ``gross profits,'' ``net 
profits,'' ``net gains,'' ``pips'' or ``bid-asked spread,'' the trading 
advisor must explain how such base amount will be calculated. Where any 
fee is based on the difference between bid and asked prices on retail 
forex transactions (as defined in Sec. 5.1(m) of this chapter), the 
trading advisor must explain how such fee will be calculated;
    (3) Where any fee is based on an increase in the value of the 
client's commodity interest account, the trading advisor must specify 
how that increase is calculated, the period of time during which the 
increase is calculated, the fee to be charged at the end of that period 
and the value of the account at which payment of the fee commences.
    (j) Conflicts of interest. (1) A full description of any actual or 
potential conflicts of interest regarding any aspect of the trading 
program on the part of:
    (i) The commodity trading advisor;
    (ii) Any futures commission merchant and/or retail foreign exchange 
dealer with which the client will be required to maintain its commodity 
interest account;
    (iii) Any introducing broker through which the client will be 
required to introduce its account to a futures commission merchant and/
or retail foreign exchange dealer; and
    (iv) Any principal of the foregoing.
    (2) Any other material conflict involving any aspect of the offered 
trading program.
    (3) Included in the description of any such conflict must be any 
arrangement whereby the trading advisor or any principal thereof may 
benefit, directly or indirectly, from the maintenance of the client's 
commodity interest account with a futures commission merchant and/or 
retail foreign exchange dealer, or the introduction of such account 
through an introducing broker (such as payment for order flow or soft 
dollar arrangements).
    (k) Litigation. (1) Subject to the provisions of Sec. 4.34(k)(2), 
any material administrative, civil or criminal action, whether pending 
or concluded, within five years preceding the date of the Document, 
against any of the following persons; Provided, however, that a 
concluded action that resulted in an adjudication on the merits in favor 
of such person need not be disclosed:
    (i) The commodity trading advisor and any principal thereof:
    (ii) Any futures commission merchant or retail foreign exchange 
dealer with which the client will be required to maintain its commodity 
interest account; and
    (iii) Any introducing broker through which the client will be 
required to introduce its account to the futures commission merchant 
and/or retail foreign exchange dealer.
    (2) With respect to a futures commission merchant, retail foreign 
exchange dealer or introducing broker, an action will be considered 
material if:
    (i) The action would be required to be disclosed in the notes to the 
futures commission merchant's, retail foreign exchange dealer's or 
introducing broker's financial statements prepared pursuant to generally 
accepted accounting principles;
    (ii) The action was brought by the Commission; Provided, however, 
that a concluded action that did not result in civil monetary penalties 
exceeding $50,000 need not be disclosed unless it involved allegations 
of fraud or other willful misconduct; or
    (iii) The action was brought by any other federal or state 
regulatory agency, a non-United States regulatory

[[Page 214]]

agency or a self-regulatory organization and involved allegations of 
fraud or other willful misconduct.
    (l) Trading for own account. If the commodity trading advisor or any 
principal thereof trades or intends to trade commodity interests for its 
own account, the trading advisor must disclose whether clients will be 
permitted to inspect the records of such person's trading and any 
written policies related to such trading.
    (m) Performance disclosures. Past performance must be disclosed as 
set forth in Sec. 4.35.
    (n) Supplemental information. If any information, other than that 
required by Commission rules, the antifraud provisions of the Act, other 
federal or state laws and regulations, any rules of a self-regulatory 
agency or laws of a non-United States jurisdiction, is provided, such 
information:
    (1) May not be misleading in content or presentation or inconsistent 
with the required disclosures;
    (2) Is subject to the antifraud provisions of the Act and Commission 
rules, and to rules regarding the use of promotional material 
promulgated by a registered futures association pursuant to section 
17(j) of the Act; and
    (3) Must be placed as follows, unless otherwise specified by 
Commission rules:
    (i) Supplemental performance information (not including proprietary 
trading results as defined in Sec. 4.35(a)(7), or hypothetical, 
extracted, pro forma or simulated trading results) must be placed after 
all required performance information;
    (ii) Supplemental non-performance information relating to a required 
disclosure may be included with the related required disclosure; and
    (iii) Other supplemental information may be included after all 
required disclosures; Provided, however, That any proprietary trading 
results as defined in Sec. 4.35(a)(7), and any hypothetical, extracted, 
pro forma or simulated trading results included in the Disclosure 
Document must appear as the last disclosure therein following all 
required and non-required disclosures.
    (o) Material information. Nothing set forth in Sec. Sec. 4.31, 
4.34, 4.35 or Sec. 4.36 shall relieve a commodity trading advisor from 
any obligation under the Act or the regulations thereunder, including 
the obligation to disclose all material information to existing or 
prospective clients even if the information is not specifically required 
by such sections.

[60 FR 38189, July 25, 1995, as amended at 66 FR 53522, Oct. 23, 2001; 
75 FR 55430, Sept. 10, 2010]



Sec. 4.35  Performance disclosures.

    (a) General principles--(1) Capsule performance information. Unless 
otherwise specified, disclosure of the past performance of an account or 
trading program required under this Sec. 4.35 must include the 
following information:
    (i) The name of the commodity trading advisor or other person 
trading the account and the name of the trading program;
    (ii) The date on which the commodity trading advisor or other person 
trading the account began trading client accounts and the date when 
client funds began being traded pursuant to the trading program;
    (iii) The number of accounts directed by the trading advisor or 
other person trading the account pursuant to the trading program 
specified, as of the date of the Disclosure Document;
    (iv)(A) The total assets under the management of the trading advisor 
or other person trading the account, as of the date of the Disclosure 
Document; and
    (B) The total assets traded pursuant to the trading program 
specified, as of the date of the Disclosure Document;
    (v) The largest monthly draw-down for the account or trading program 
specified during the most recent five calendar year and year-to-date 
expressed as a percentage of client funds and indicating the month and 
year of the draw-down (the capsule must include a definition of ``draw-
down'' that is consistent with Sec. 4.10(k));
    (vi) The worst peak-to-valley draw-down for the trading program 
specified during the most recent five calendar year and year-to-date, 
expressed as a percentage of net asset value and indicating the months 
and year of the draw-down;
    (vii) Subject to Sec. 4.35(a)(2) for the offered trading program, 
the annual and

[[Page 215]]

year-to-date rate-of-return for the program specified for the five most 
recent calendar years and year-to-date, computed on a compounded monthly 
basis; Provided, however, That performance of the offered trading 
program must include monthly rates of return for such period; and
    (viii) In the case of the offered trading program:
    (A)(1) The number of accounts traded pursuant to the offered trading 
program that were opened and closed during the period specified in Sec. 
4.35(a)(5) with a positive net lifetime rate of return as of the date 
the account was closed; and
    (2) A measure of the variability of returns for accounts that were 
both opened and closed during the period specified in Sec. 4.35(a)(5) 
and closed with positive net lifetime rates of return; and
    (B)(1) The number of accounts traded pursuant to the offered trading 
program that were opened and closed during the period specified in Sec. 
4.35(a)(5) with negative net lifetime rates of return as of the date the 
account was closed; and
    (2) A measure of the variability of returns for accounts that were 
both opened and closed during the period specified in Sec. 4.35(a)(5) 
and closed with negative net lifetime rates of return.
    (C) The measure of variability required by Sec. Sec. 
4.35(a)(1)(viii)(A)(2) and (B)(2) may be provided as a range of both 
positive and negative net lifetime returns, or by any other form of 
disclosure that meets the objective of disclosure of the variability of 
returns experienced by clients in the trading program whose accounts 
were opened and closed during the period specified in Sec. 4.35(a)(5). 
The net lifetime rate of return shall be calculated as the compounded 
product of the monthly rates of return for each month the account is 
open.
    (2) Additional requirements with respect to the offered trading 
program. (i) The performance of the offered trading program must be 
identified as such and separately presented first;
    (ii) The rate of return of the offered trading program must be 
presented on a monthly basis for the period specified in Sec. 
4.35(a)(5), either in a numerical table or in a bar graph;
    (iii) A bar graph used to present monthly rates of return for the 
offered trading program:
    (A) Must show percentage rate of return on the vertical axis and 
one-month increments on the horizontal axis;
    (B) Must be scaled in such a way as to clearly show month-to-month 
differences in rates of return; and
    (C) Must separately display numerical percentage annual rates of 
return for the period covered by the bar graph; and
    (iv) The commodity trading advisor must make available to 
prospective and existing clients upon request a table showing at least 
quarterly the information required to be calculated pursuant to Sec. 
4.35(a)(6).
    (3) Composite presentation. (i) Unless such presentation would be 
misleading, the performance of accounts traded pursuant to the same 
trading program may be presented in composite form on a program-by-
program basis, using the format set forth in Sec. 4.35(a)(1).
    (ii) Accounts that differ materially with respect to rates of return 
may not be presented in the same composite.
    (iii) The commodity trading advisor must discuss all material 
differences among the accounts included in a composite.
    (4) Current information. All performance information presented in 
the Disclosure Document must be current as of a date not more than three 
months preceding the date of the Document.
    (5) Time period for required performance. All required performance 
information must be presented for the most recent five calendar years 
and year-to-date or for the life of the trading program or account, if 
less than five years.
    (6) Calculation of, and recordkeeping concerning, performance 
information. (i) All performance information presented in a Disclosure 
Document, including performance information contained in any capsule and 
performance information not specifically required by Commission rules, 
must be current as of a date not more than three months preceding the 
date of the Document, and must be supported by the following

[[Page 216]]

amounts, calculated on an accrual basis of accounting in accordance with 
generally accepted accounting principles, as specified below or by a 
method otherwise approved by the Commission.
    (A) The beginning net asset value for the period, which shall 
represent the previous period's ending net asset value;
    (B) All additions, whether voluntary or involuntary, during the 
period;
    (C) All withdrawals and redemptions, whether voluntary or 
involuntary, during the period;
    (D) The net performance for the period, which shall represent the 
change in the net asset value net of additions, withdrawals, 
redemptions, fees and expenses;
    (E) The ending net asset value for the period, which shall represent 
the beginning net asset value plus or minus additions, withdrawals and 
redemptions, and net performance; and
    (F) The rate of return for the period, computed on a compounded 
monthly basis, which shall be calculated by dividing the net performance 
by the beginning net asset value.
    (ii) All supporting documents necessary to substantiate the 
computation of such amounts must be maintained in accordance with Sec. 
1.31.
    (7) Performance of partially-funded accounts. Notwithstanding the 
foregoing, a commodity trading advisor will be deemed in compliance with 
this Sec. 4.35(a) concerning the performance of partially-funded 
accounts if the commodity trading advisor presents the performance of 
such accounts in a manner that is balanced and is not in violation of 
the antifraud provisions of the Commodity Exchange Act or the 
Commission's regulations thereunder.
    (8) Proprietary trading results. (i) Proprietary trading results 
shall not be included in a Disclosure Document unless such performance 
is prominently labeled as proprietary and is set forth separately after 
all disclosures in accordance with Sec. 4.34(n), together with a 
discussion of any differences between such performance and the 
performance of the offered trading program, including, but not limited 
to, differences in costs, leverage and trading.
    (ii) For the purposes of Sec. 4.34(n) and this Sec. 4.35(a), 
proprietary trading results means the performance of any account in 
which fifty percent or more of the beneficial interest is owned or 
controlled by:
    (A) The commodity trading advisor or any of its principals;
    (B) An affiliate or family member of the commodity trading advisor; 
or
    (C) Any person providing services to the account.
    (9) Required legend. Any past performance presentation, whether or 
not required by Commission rules, must be preceded with the following 
statement, prominently displayed:

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

    (b) Performance to be disclosed. Except as provided in Sec. 
4.35(a)(7), the commodity trading advisor must disclose the actual 
performance of all accounts directed by the commodity trading advisor 
and by each of its trading principals; Provided, however, that if the 
trading advisor or its trading principals previously have not directed 
any accounts, the trading advisor must prominently disclose this fact 
with one of the following statements, as applicable:
    (1) THIS TRADING ADVISOR PREVIOUSLY HAS NOT DIRECTED ANY ACCOUNTS; 
or
    (2) NONE OF THE TRADING PRINCIPALS OF THIS TRADING ADVISOR HAS 
PREVIOUSLY DIRECTED ANY ACCOUNTS; or
    (3) NEITHER THIS TRADING ADVISOR NOR ANY OF ITS TRADING PRINCIPALS 
HAVE PREVIOUSLY DIRECTED ANY ACCOUNTS.


If the commodity trading advisor is a sole proprietorship, reference to 
its trading principals need not be included in the prescribed statement.

[60 FR 38191, July 25, 1995, as amended at 68 FR 42967, July 21, 2003; 
68 FR 47235, Aug. 8, 2003]



Sec. 4.36  Use, amendment and filing of Disclosure Document.

    (a) Subject to paragraph (c) of this section, all information 
contained in the Disclosure Document must be current as of the date of 
the Document;

[[Page 217]]

Provided, however, that performance information must be current as of a 
date not more than three months preceding the date of the Document.
    (b) No commodity trading advisor may use a Disclosure Document dated 
more than nine months prior to the date of its use.
    (c)(1) If the commodity trading advisor knows or should know that 
the Disclosure Document is materially inaccurate or incomplete in any 
respect, it must correct that defect and must distribute the correction 
to:
    (i) All existing clients in the trading program within 21 calendar 
days of the date upon which the trading advisor first knows or has 
reason to know of the defect; and
    (ii) Each previously solicited prospective client for the trading 
program prior to entering into an agreement to direct or to guide such 
prospective client's commodity interest account pursuant to the program. 
The trading advisor may furnish the correction by way of an amended 
Disclosure Document, a sticker on the Document, or other similar means.
    (2) The trading advisor may not use the Disclosure Document until 
such correction is made.
    (d)(1) The commodity trading advisor must electronically file with 
the National Futures Association, pursuant to the electronic filing 
procedures of the National Futures Association, the Disclosure Document 
for each trading program that it offers or that it intends to offer not 
less than 21 calendar days prior to the date the trading advisor first 
intends to deliver the Document to a prospective client in the trading 
program; and
    (2) The commodity trading advisor must electronically file with the 
National Futures Association, pursuant to the electronic filing 
procedures of the National Futures Association, the subsequent 
amendments to the Disclosure Document for each trading program that it 
offers or that it intends to offer within 21 calendar days of the date 
upon which the trading advisor first knows or has reason to know of the 
defect requiring the amendment.

[60 FR 38192, July 25, 1995, as amended at 62 FR 18268, Apr. 15, 1997; 
65 FR 58650, Oct. 2, 2000; 67 FR 77411, Dec. 18, 2002; 74 FR 9569, Mar. 
5, 2009]



                          Subpart D_Advertising



Sec. 4.40  [Reserved]



Sec. 4.41  Advertising by commodity pool operators, commodity trading advisors, and the

principals thereof.

    (a) No commodity pool operator, commodity trading advisor, or any 
principal thereof, may advertise in a manner which:
    (1) Employs any device, scheme or artifice to defraud any 
participant or client or prospective participant or client;
    (2) Involves any transaction, practice or course of business which 
operates as a fraud or deceit upon any participant or client or any 
prospective participant or client; or
    (3) Refers to any testimonial, unless the advertisement or sales 
literature providing the testimonial prominently discloses:
    (i) That the testimonial may not be representative of the experience 
of other clients;
    (ii) That the testimonial is no guarantee of future performance or 
success; and
    (iii) If, more than a nominal sum is paid, the fact that it is a 
paid testimonial.
    (b)(1) No person may present the performance of any simulated or 
hypothetical commodity interest account, transaction in a commodity 
interest or series of transactions in a commodity interest of a 
commodity pool operator, commodity trading advisor, or any principal 
thereof, unless such performance is accompanied by one of the following:
    (i) The following statement: ``These results are based on simulated 
or hypothetical performance results that have certain inherent 
limitations. Unlike the results shown in an actual performance record, 
these results do not represent actual trading. Also, because these 
trades have not actually been executed, these results may have under-

[[Page 218]]

or over-compensated for the impact, if any, of certain market factors, 
such as lack of liquidity. Simulated or hypothetical trading programs in 
general are also subject to the fact that they are designed with the 
benefit of hindsight. No representation is being made that any account 
will or is likely to achieve profits or losses similar to these being 
shown.'' ; or
    (ii) A statement prescribed pursuant to rules promulgated by a 
registered futures association pursuant to section 17(j) of the Act.
    (2) If the presentation of such simulated or hypothetical 
performance is other than oral, the prescribed statement must be 
prominently disclosed and in immediate proximity to the simulated or 
hypothetical performance being presented.
    (c) The provisions of this section shall apply:
    (1) To any publication, distribution or broadcast of any report, 
letter, circular, memorandum, publication, writing, advertisement or 
other literature or advice, whether by electronic media or otherwise, 
including information provided via internet or e-mail, the texts of 
standardized oral presentations and of radio, television, seminar or 
similar mass media presentations; and
    (2) Regardless of whether the commodity pool operator or commodity 
trading advisor is exempt from registration under the Act.

(Approved by the Office of Management and Budget under control number 
3038-0005)

[46 FR 26013, May 8, 1981, as amended at 46 FR 63035, Dec. 30, 1981; 60 
FR 38192, July 25, 1995; 72 FR 8109, Feb. 23, 2007]



     Sec. Appendix A to Part 4--Guidance on the Application of Rule 
                 4.13(a)(3) in the Fund-of-Funds Context

    The following provides guidance on the application of the trading 
limits of Rule 4.13(a)(3)(ii) to commodity pool operators (CPOs) who 
operate ``fund-of-funds.'' For the purpose of this appendix A, it is 
presumed that the CPO can comply with all of the other requirements of 
Rule 4.13(a)(3). It also is presumed that where the investor fund CPO is 
relying on its own computations, the investor fund is participating in 
each investee fund that trades commodity interests as a passive 
investor, with limited liability (e.g., as a limited partner of a 
limited partnership or a non-managing member of a limited liability 
company). Fund-of-funds CPOs who seek to claim exemption from 
registration under Rule 4.13(a)(1), (a)(2) or (a)(4) may do so without 
regard to the trading engaged in by an investee fund, because none of 
the registration exemptions set forth in those rules concerns limits on 
or levels of commodity interest trading. Persons whose fact situations 
do not fit any of the scenarios below should contact Commission staff to 
discuss the applicability of the registration exemption in Rule 
4.13(a)(3) to their particular situations.
    1. Situation: An investor fund CPO allocates the fund's assets to 
one or more investee funds, none of which meets the trading limits of 
Rule 4.13(a)(3) and each of which is operated by a registered CPO. It 
does not allocate any of the investor fund's assets directly to 
commodity interest trading.
    Application: The investor fund CPO may claim relief under Rule 
4.13(a)(3) provided the investor fund itself meets the trading limits of 
Rule 4.13(a)(3)(ii)(A).
    2. Situation: An investor fund CPO allocates the fund's assets to 
one or more investee funds, each having a CPO who is either: (1) itself 
claiming exemption from CPO registration under Rule 4.13(a)(3); or (2) a 
registered CPO that is complying with the trading restrictions of Rule 
4.13(a)(3). It does not allocate any of the investor fund's assets 
directly to commodity interest trading.
    Application: The investor fund CPO fund may rely upon the 
representations of the investee fund CPOs that they are complying with 
the trading limits of Rule 4.13(a)(3).
    3. Situation: An investor fund CPO allocates the fund's assets to 
investee funds, each of which operates under a percentage restriction on 
the amount of margin or option premiums that may be used to establish 
its commodity interest positions (whether pursuant to Rule 4.12(b), Rule 
4.13(a)(3)(ii)(A) or otherwise), by, e.g., contractual agreement. It 
does not allocate any of the investor fund's assets directly to 
commodity interest trading.
    Application: The CPO of the investor fund may multiply the 
percentage restriction applicable to each investee fund by the 
percentage of the investor fund's allocation of assets to that investee 
fund to determine whether the CPO is operating the investor fund in 
compliance with Rule 4.13(a)(3)(ii)(A).
    4. Situation: An investor fund CPO allocates the fund's assets to 
one or more investee funds, and it has actual knowledge of the trading 
limits and commodity interest positions of the investee funds, e.g., 
where the CPO or one or more affiliates of the CPO operate the investee 
funds. (For this purpose, an ``affiliate'' is a person who controls, who 
is controlled by, or who is under common control with, the CPO.) It does 
not allocate any

[[Page 219]]

of the investor fund's assets directly to commodity interest trading.
    Application: The investor fund CPO may aggregate commodity interest 
positions across investee funds to determine compliance with the trading 
restrictions of Rule 4.13(a)(3). For this purpose, the aggregate assets 
of the investee funds would be compared to the aggregate of their 
commodity interest positions (as to margin or as to net notional value). 
The investor fund CPO should use the results of this computation to 
determine its compliance with the trading limits of Rule 4.13(a)(3).
    5. Situation: An investor fund CPO allocates no more than 50 percent 
of the fund's assets to investee funds that trade commodity interests 
(without regard to the level of commodity interest trading engaged in by 
those investee pools). It does not allocate any of the investor fund's 
assets directly to commodity interest trading.
    Application: The investor fund CPO may claim relief under Rule 
4.13(a)(3).
    6. Situation: An investor fund CPO allocates the fund's assets to 
both investee funds and direct trading of commodity interests.
    Application: The investor fund CPO must treat the amount of investor 
fund assets committed to such direct trading as a separate pool for 
purposes of determining compliance with Rule 4.13(a)(3)(ii), such that 
the commodity interest trading of that pool must meet the criteria of 
Rule 4.13(a)(3)(ii) independently of the portion of investor fund assets 
allocated to investee funds.

[68 FR 47236, Aug. 8, 2003; 68 FR 52837, Sept. 8, 2003]



Sec. Appendix B to Part 4--Adjustments for Additions and Withdrawals in 
                    the Computation of Rate of Return

    This appendix provides guidance concerning alternate methods by 
which commodity pool operators and commodity trading advisors may 
calculate the rate of return information required by Rules 
4.25(a)(7)(i)(F) and 4.35(a)(6)(i)(F). The methods described herein are 
illustrative of calculation methods the Commission has reviewed and 
determined may be appropriate to address potential material distortions 
in the computation of rate of return due to additions and withdrawals 
that occur during a performance reporting period. A commodity pool 
operator or commodity trading advisor may present to the Commission 
proposals regarding any alternative method of addressing the effect of 
additions and withdrawals on the rate of return computation, including 
documentation supporting the rationale for use of that alternate method.

                   1. Compounded Rate of Return Method

    Rate of return for a period may be calculated by computing the net 
performance divided by the beginning net asset value for each trading 
day in the period and compounding each daily rate of return to determine 
the rate of return for the period. If daily compounding is not 
practicable, the rate of return may be compounded on the basis of each 
sub-period within which an addition or withdrawal occurs during a month. 
For example:

----------------------------------------------------------------------------------------------------------------
                                                    Account value                  Change in value
----------------------------------------------------------------------------------------------------------------
Start of month..................................           $10,000  +10% ($1,000 profit).
End of 1st acct. period.........................            11,000  $4,000 addition.
Start of 2nd acct. period.......................            15,000  -20% ($3,000 loss).
End of 2nd acct. period.........................            12,000  $2,000 withdrawal.
Start of 3rd acct. period.......................            10,000  +25% ($2,500 profit).
End of month....................................           12,500
----------------------------------------------------------------------------------------------------------------
Compounded ROR = [(1 + .1)(1 - .2)(1 + .25)] - 1 = 10%.

                         2. Time-weighted method

    Time-weighting allows for adjustment to the denominator of the rate 
of return calculation for additions and withdrawals, weighted for the 
amount of time such funds were available during the period. Several 
methods exist for time-weighting, all of which will have the same 
arithmetic result. These methods include: dividing the net performance 
by the average weighted account sizes for the month; dividing the net 
performance by the arithmetic mean of the account sizes for each trading 
day during the period; and taking the number of days funds were 
available for trading divided by the total number of days in the period.

[68 FR 47236, Aug. 8, 2003; 68 FR 53430, Sept. 10, 2003]



PART 5_OFF-EXCHANGE FOREIGN CURRENCY TRANSACTIONS--Table of Contents



Sec.
5.1 Definitions.
5.2 Prohibited transactions.
5.3 Registration of persons engaged in retail forex transactions.

[[Page 220]]

5.4 Applicability of part 4 of this chapter to commodity pool operators 
          and commodity trading advisors.
5.5 Distribution of ``Risk Disclosure Statement'' by retail foreign 
          exchange dealers. futures commission merchants and introducing 
          brokers regarding retail forex transactions.
5.6 Maintenance of minimum financial requirements by retail foreign 
          exchange dealers and futures commission merchants offering or 
          engaging in retail forex transactions.
5.7 Minimum financial requirements for retail foreign exchange dealers 
          and futures commission merchants offering or engaging in 
          retail forex transactions.
5.8 Aggregate retail forex assets.
5.9 Security deposits for retail forex transactions.
5.10 Risk assessment recordkeeping requirements for retail foreign 
          exchange dealers.
5.11 Risk assessment reporting requirements for retail foreign exchange 
          dealers.
5.12 Financial reports of retail foreign exchange dealers.
5.13 Reporting to customers of retail foreign exchange dealers and 
          futures commission merchants; monthly and confirmation 
          statements.
5.14 Records to be kept by retail foreign exchange dealers and futures 
          commission merchants.
5.15 Unlawful representations.
5.16 Prohibition of guarantees against loss.
5.17 Authorization to trade.
5.18 Trading and operational standards.
5.19 Pending legal proceedings.
5.20 Special calls for account and transaction information.
5.21 Supervision.
5.22 Registered futures association membership.
5.23 Notice of bulk transfers and bulk liquidations.
5.24 Applicability of other parts of this chapter.
5.25 Applicability of the Act.

    Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 
6k, 6m, 6n, 6o, 6p, 8, 9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21, 23.

    Source: 75 FR 55432, Sept. 10, 2010, unless otherwise noted.



Sec. 5.1  Definitions.

    (a) Affiliated person of a futures commission merchant means a 
person described in section 2(c)(2)(B)(i)(II)(cc)(BB) of the Act;
    (b) Aggregate retail forex assets means an amount of liquid assets 
held in accordance with Sec. 5.8 of this part;
    (c) Associated person of an affiliated person of a futures 
commission merchant means any natural person associated with an 
affiliated person of a futures commission merchant as a partner, officer 
or employee (or any natural person occupying a similar status or 
performing similar functions), in any capacity which involves:
    (1) The solicitation or acceptance of retail forex customers' orders 
(other than in a clerical capacity); or
    (2) The supervision of any person or persons so engaged;
    (d)(1) Commodity pool operator, for purposes of this part, means any 
person who operates or solicits funds, securities, or property for a 
pooled investment vehicle that is not an eligible contract participant 
as defined in section 1a(12) of the Act, and that engages in retail 
forex transactions;
    (2) Associated person of a commodity pool operator, for purposes of 
this part, means any natural person associated with a commodity pool 
operator as defined in paragraph (d)(1) of this section as a partner, 
officer, employee, consultant or agent (or any natural person occupying 
a similar status or performing similar functions), in any capacity which 
involves:
    (i) The solicitation of funds, securities, or property for a 
participation in a pooled investment vehicle; or
    (ii) The supervision of any person or persons so engaged;
    (e)(1) Commodity trading advisor, for purposes of this part, means 
any person who exercises discretionary trading authority or obtains 
written authorization to exercise discretionary trading authority over 
any account for or on behalf of any person that is not an eligible 
contract participant as defined in section 1a(12) of the Act, in 
connection with retail forex transactions;
    (2) Associated person of a commodity trading advisor, for purposes 
of this part, means any natural person associated with a commodity 
trading advisor as defined in paragraph (e)(1) of this section as a 
partner, officer, employee, consultant or agent (or any natural person 
occupying a similar status or performing similar functions), in any 
capacity which involves:

[[Page 221]]

    (i) The solicitation of a client's or prospective client's 
discretionary account; or
    (ii) The supervision of any person or persons so engaged;
    (f)(1) Introducing broker, for purposes of this part, means any 
person who solicits or accepts orders from a customer that is not an 
eligible contract participant as defined in section 1a(12) of the Act, 
in connection with retail forex transactions;
    (2) Associated person of an introducing broker, for purposes of this 
part, means any natural person associated with an introducing broker as 
defined in paragraph (g)(1) of this section as a partner, officer, 
employee, or agent (or any natural person occupying a similar status or 
performing similar functions), in any capacity which involves:
    (i) The solicitation or acceptance of retail forex customers' orders 
(other than in a clerical capacity); or
    (ii) The supervision of any person or persons so engaged;
    (g) Primarily or substantially means, when used to describe the 
extent of a futures commission merchant's engagement in the activities 
described in section 1a(20) of the Act, that:
    (1) Such activities account for more than fifty percent of the 
futures commission merchant's gross revenues, computed in accordance 
with generally accepted accounting principles, on an annual basis;
    (2) The futures commission merchant receives gross revenues, 
computed in accordance with generally accepted accounting principles, 
from such activities in excess of $500,000 in any twelve month period; 
or
    (3) The futures commission merchant is a clearing member of a 
registered derivatives clearing organization.
    (h)(1) Retail foreign exchange dealer means any person that is, or 
that offers to be, the counterparty to a retail forex transaction, 
except for a person described in sub-paragraph (aa), (bb), (cc)(AA), 
(dd), (ee) or (ff) of section 2(c)(2)(B)(i)(II) of the Act;
    (2) Associated person of a retail foreign exchange dealer means any 
natural person associated with a retail foreign exchange dealer as 
defined in paragraph (i)(1) of this section as a partner, officer or 
employee (or any natural person occupying a similar status or performing 
similar functions), in any capacity which involves:
    (i) The solicitation or acceptance of retail forex customers' orders 
(other than in a clerical capacity); or
    (ii) The supervision of any person or persons so engaged;
    (i) Retail forex account means the account of a person who is not an 
eligible contract participant as defined in section 1a(12) of the Act, 
established with a retail foreign exchange dealer or a futures 
commission merchant, in which account retail forex transactions 
(including options on contracts for the purchase or sale of foreign 
currency) with such retail foreign exchange dealer or futures commission 
merchant as counterparty are undertaken, or which account is established 
in order to enter into such transactions.
    (j) Retail forex account agreement means the contractual agreement 
between a futures commission merchant or retail foreign exchange dealer 
and any person who is not an eligible contract participant as defined in 
section 1a(12) of the Act, which agreement contains the terms governing 
the person's retail forex account with such futures commission merchant 
or retail foreign exchange dealer.
    (k) Retail forex customer means a person, other than an eligible 
contract participant as defined in section 1a(12) of the Act, acting on 
its own behalf and trading in any account, agreement, contract or 
transaction described in section 2(c)(2)(B) or 2(c)(2)(C) of the Act.
    (l) Retail forex obligation means the net credit balance at a retail 
foreign exchange dealer or futures commission merchant that would be 
obtained by combining all money, securities and property deposited by a 
retail forex customer into a retail forex account or accounts, adjusted 
for the realized and unrealized net profit or loss, if any, accruing on 
the open trades, contracts or transactions in the retail forex account 
or accounts, without including any retail forex customers' accounts that 
contain negative net liquidating balances.
    (m) Retail forex transaction means any account, agreement, contract 
or transaction described in section 2(c)(2)(B) or

[[Page 222]]

2(c)(2)(C) of the Act. A retail forex transaction does not include an 
account, agreement, contract or transaction in foreign currency that is 
a contract of sale of a commodity for future delivery (or an option 
thereon) that is executed, traded on or otherwise subject to the rules 
of a contract market designated pursuant to section 5(a) of the Act or a 
derivatives transaction execution facility registered pursuant to 
section 5a(c) of the Act.



Sec. 5.2  Prohibited transactions.

    (a) Scope. The provisions of this section shall be applicable to any 
retail forex transaction.
    (b) Fraudulent conduct prohibited. It shall be unlawful for any 
person, by use of the mails or by any means or instrumentality of 
interstate commerce, directly or indirectly, in or in connection with 
any retail forex transaction:
    (1) To cheat or defraud or attempt to cheat or defraud any person;
    (2) Willfully to make or cause to be made to any person any false 
report or statement or cause to be entered for any person any false 
record; or
    (3) Willfully to deceive or attempt to deceive any person by any 
means whatsoever.
    (c) Acting as counterparty and exercising discretion prohibited. (1) 
No person who acts as the counterparty for any retail forex transaction 
may do so for an account for which the person or any affiliate of the 
person is authorized (by contract, power of attorney or otherwise) to 
cause transactions to be effected without the client's specific 
authorization.
    (2) For purposes of this paragraph (c), an ``affiliate'' of a person 
means a person controlling, controlled by or under common control with, 
the first person.



Sec. 5.3  Registration of persons engaged in retail forex transactions.

    (a) Subject to paragraph (b) of this section, each of the following 
is subject to the registration provisions under the Act and to part 3 of 
this chapter:
    (1)(i) Any affiliated person of a futures commission merchant, as 
defined in Sec. 5.1(a) of this part, which affiliated person:
    (A) Solicits or accepts orders from any person that is not an 
eligible contract participant in connection with any retail forex 
transaction; or
    (B) Accepts money, securities, or property (or extends credit in 
lieu thereof) in connection with such solicitation or acceptance of 
orders in order to engage in any retail forex transaction, is required 
to register as a retail foreign exchange dealer; and
    (ii) Any associated person of an affiliated person of a futures 
commission merchant, as defined in Sec. 5.1(c) of this part, is 
required to register as an associated person of an affiliated person of 
a futures commission merchant.
    (2)(i) Any commodity pool operator, as defined in Sec. 5.1(d)(1) of 
this part, is required to register as a commodity pool operator;
    (ii) Any associated person of a commodity pool operator, as defined 
in Sec. 5.1(d)(2) of this part, is required to register as an 
associated person of a commodity pool operator;
    (3)(i) Any commodity trading advisor, as defined in Sec. 5.1(e)(1) 
of this part, is required to register as a commodity trading advisor;
    (ii) Any associated person of a commodity trading advisor, as 
defined in Sec. 5.1(e)(2) of this part, is required to register as an 
associated person of a commodity trading advisor;
    (4)(i) Any person registered as a futures commission merchant:
    (A) That is not primarily or substantially engaged in the business 
activities described in section 1a(20) of the Act;
    (B) That solicits or accepts orders from any person that is not an 
eligible contract participant in connection with any retail forex 
transaction; and
    (C) That accepts money, securities, or property (or extends credit 
in lieu thereof) in connection with such solicitation or acceptance of 
orders in order to engage in retail forex transactions, is required to 
register as a retail foreign exchange dealer;
    (ii) Any associated person of a futures commission merchant 
described in paragraph (a)(4)(i) of this section is required to register 
as an associated person of a futures commission merchant;

[[Page 223]]

    (5)(i) Any introducing broker, as defined in Sec. 5.1(f)(1) of this 
part, is required to register as an introducing broker;
    (ii) Any associated person of an introducing broker, as defined in 
Sec. 5.1(f)(2) of this part, is required to register as an associated 
person of an introducing broker;
    (6)(i) Any retail foreign exchange dealer, as defined in Sec. 
5.1(h)(1) of this part is required to register as a retail foreign 
exchange dealer;
    (ii) Any associated person of a retail foreign exchange dealer, as 
defined in Sec. 5.1(h)(2) of this part, is required to register as an 
associated person of a retail foreign exchange dealer;
    (b) Any person described in paragraph (a) of this section that is 
already registered in the required capacity specified in paragraph (a) 
is not required under this section to register twice in the same 
capacity; Provided, however, that a person already registered as an 
associated person of one class of registrant may also be required to 
register as an associated person of another class of registrant in order 
to comply with this section.



Sec. 5.4  Applicability of part 4 of this chapter to commodity pool operators

and commodity trading advisors.

    Part 4 of this chapter applies to any person required pursuant to 
the provisions of this part 5 to register as a commodity pool operator 
or as a commodity trading advisor. Failure by any such person to comply 
with the requirements of part 4 will constitute a violation of this 
section and the relevant section of part 4.



Sec. 5.5  Distribution of ``Risk Disclosure Statement'' by retail foreign

exchange dealers, futures commission merchants and introducing brokers regarding 
          retail forex transactions.

    (a) Except as provided in Sec. 5.23 of this part, no retail foreign 
exchange dealer, futures commission merchant, or in the case of an 
introduced account no introducing broker, may open an account that will 
engage in retail forex transactions for a retail forex customer, unless 
the retail foreign exchange dealer, futures commission merchant or 
introducing broker first:
    (1)(i) In the case of a retail foreign exchange dealer or a person 
required to register as an introducing broker solely by reason of this 
part, furnishes the retail forex customer with a separate written 
disclosure statement containing only the language set forth in paragraph 
(b) of this section and the disclosure required by paragraph (e) of this 
section;
    (ii) In the case of a futures commission merchant or a person 
required to register as an introducing broker because it engages in the 
activities described in Sec. 1.3(mm) of this chapter, furnishes the 
retail forex customer with a separate written disclosure statement 
containing only the language set forth in paragraph (b) of this section 
and the disclosure required by paragraph (e) of this section; Provided, 
however, that the disclosure statement may be attached to other 
documents as the initial page(s) of such documents and as the only 
material on such page(s); and
    (2) Receives from the retail forex customer an acknowledgment signed 
and dated by the retail forex customer that he received and understood 
the disclosure statement.
    (b) The language set forth in the written disclosure statement 
required by paragraph (a) of this section shall be as follows:

                        RISK DISCLOSURE STATEMENT

    OFF-EXCHANGE FOREIGN CURRENCY TRANSACTIONS INVOLVE THE LEVERAGED 
TRADING OF CONTRACTS DENOMINATED IN FOREIGN CURRENCY CONDUCTED WITH A 
FUTURES COMMISSION MERCHANT OR A RETAIL FOREIGN EXCHANGE DEALER AS YOUR 
COUNTERPARTY. BECAUSE OF THE LEVERAGE AND THE OTHER RISKS DISCLOSED 
HERE, YOU CAN RAPIDLY LOSE ALL OF THE FUNDS YOU DEPOSIT FOR SUCH TRADING 
AND YOU MAY LOSE MORE THAN YOU DEPOSIT.
    YOU SHOULD BE AWARE OF AND CAREFULLY CONSIDER THE FOLLOWING POINTS 
BEFORE DETERMINING WHETHER SUCH TRADING IS APPROPRIATE FOR YOU.
    (1) TRADING IS NOT ON A REGULATED MARKET OR EXCHANGE--YOUR DEALER IS 
YOUR TRADING

[[Page 224]]

PARTNER WHICH IS A DIRECT CONFLICT OF INTEREST. BEFORE YOU ENGAGE IN ANY 
RETAIL FOREIGN EXCHANGE TRADING, YOU SHOULD CONFIRM THE REGISTRATION 
STATUS OF YOUR COUNTERPARTY.
    The off-exchange foreign currency trading you are entering into is 
not conducted on an interbank market, nor is it conducted on a futures 
exchange subject to regulation as a designated contract market by the 
Commodity Futures Trading Commission. The foreign currency trades you 
transact are trades with the futures commission merchant or retail 
foreign exchange dealer as your counterparty. WHEN YOU SELL, THE DEALER 
IS THE BUYER. WHEN YOU BUY, THE DEALER IS THE SELLER. As a result, when 
you lose money trading, your dealer is making money on such trades, in 
addition to any fees, commissions, or spreads the dealer may charge.
    (2) AN ELECTRONIC TRADING PLATFORM FOR RETAIL FOREIGN CURRENCY 
TRANSACTIONS IS NOT AN EXCHANGE. IT IS AN ELECTRONIC CONNECTION FOR 
ACCESSING YOUR DEALER. THE TERMS OF AVAILABILITY OF SUCH A PLATFORM ARE 
GOVERNED ONLY BY YOUR CONTRACT WITH YOUR DEALER.
    Any trading platform that you may use to enter off-exchange foreign 
currency transactions is only connected to your futures commission 
merchant or retail foreign exchange dealer. You are accessing that 
trading platform only to transact with your dealer. You are not trading 
with any other entities or customers of the dealer by accessing such 
platform. The availability and operation of any such platform, including 
the consequences of the unavailability of the trading platform for any 
reason, is governed only by the terms of your account agreement with the 
dealer.
    (3) YOUR DEPOSITS WITH THE DEALER HAVE NO REGULATORY PROTECTIONS.
    All of your rights associated with your retail forex trading, 
including the manner and denomination of any payments made to you, are 
governed by the contract terms established in your account agreement 
with the futures commission merchant or retail foreign exchange dealer. 
Funds deposited by you with a futures commission merchant or retail 
foreign exchange dealer for trading off-exchange foreign currency 
transactions are not subject to the customer funds protections provided 
to customers trading on a contract market that is designated by the 
Commodity Futures Trading Commission. Your dealer may commingle your 
funds with its own operating funds or use them for other purposes. In 
the event your dealer becomes bankrupt, any funds the dealer is holding 
for you in addition to any amounts owed to you resulting from trading, 
whether or not any assets are maintained in separate deposit accounts by 
the dealer, may be treated as an unsecured creditor's claim.
    (4) YOU ARE LIMITED TO YOUR DEALER TO OFFSET OR LIQUIDATE ANY 
TRADING POSITIONS SINCE THE TRANSACTIONS ARE NOT MADE ON AN EXCHANGE OR 
MARKET, AND YOUR DEALER MAY SET ITS OWN PRICES.
    Your ability to close your transactions or offset positions is 
limited to what your dealer will offer to you, as there is no other 
market for these transactions. Your dealer may offer any prices it 
wishes, and it may offer prices derived from outside sources or not in 
its discretion. Your dealer may establish its prices by offering spreads 
from third party prices, but it is under no obligation to do so or to 
continue to do so. Your dealer may offer different prices to different 
customers at any point in time on its own terms. The terms of your 
account agreement alone govern the obligations your dealer has to you to 
offer prices and offer offset or liquidating transactions in your 
account and make any payments to you. The prices offered by your dealer 
may or may not reflect prices available elsewhere at any exchange, 
interbank, or other market for foreign currency.
    (5) PAID SOLICITORS MAY HAVE UNDISCLOSED CONFLICTS
    The futures commission merchant or retail foreign exchange dealer 
may compensate introducing brokers for introducing your account in ways 
which are not disclosed to you. Such paid solicitors are not required to 
have, and may not have, any special expertise in

[[Page 225]]

trading, and may have conflicts of interest based on the method by which 
they are compensated. Solicitors working on behalf of futures commission 
merchants and retail foreign exchange dealers are required to register. 
You should confirm that they are, in fact registered. You should 
thoroughly investigate the manner in which all such solicitors are 
compensated and be very cautious in granting any person or entity 
authority to trade on your behalf. You should always consider obtaining 
dated written confirmation of any information you are relying on from 
your dealer or a solicitor in making any trading or account decisions.
    FINALLY, YOU SHOULD THOROUGHLY INVESTIGATE ANY STATEMENTS BY ANY 
DEALERS OR SALES REPRESENTATIVES WHICH MINIMIZE THE IMPORTANCE OF, OR 
CONTRADICT, ANY OF THE TERMS OF THIS RISK DISCLOSURE. SUCH STATEMENTS 
MAY INDICATE POTENTIAL SALES FRAUD.
    THIS BRIEF STATEMENT CANNOT, OF COURSE, DISCLOSE ALL THE RISKS AND 
OTHER ASPECTS OF TRADING OFF-EXCHANGE FOREIGN CURRENCY TRANSACTIONS WITH 
A FUTURES COMMISSION MERCHANT OR RETAIL FOREIGN EXCHANGE DEALER.
    I hereby acknowledge that I have received and understood this risk 
disclosure statement.

________________________________________________________________________

Date
________________________________________________________________________

Signature of Customer

    (c) The acknowledgment required by paragraph (a) of this section 
must be retained by the retail foreign exchange dealer, futures 
commission merchant or introducing broker in accordance with Sec. 1.31 
of this chapter.
    (d) This section does not relieve a retail foreign exchange dealer, 
futures commission merchant or introducing broker from any other 
disclosure obligation it may have under applicable law.
    (e)(1) Immediately following the language set forth in paragraph (b) 
of this section, the statement required by paragraph (a) of this section 
shall include, for each of the most recent four calendar quarters during 
which the counterparty maintained retail forex customer accounts:
    (i) The total number of non discretionary retail forex customer 
accounts maintained by the retail foreign exchange dealer or futures 
commission merchant;
    (ii) The percentage of such accounts that were profitable during the 
quarter; and
    (iii) The percentage of such accounts that were not profitable 
during the quarter.
    (2) Identification of retail forex customer accounts for the purpose 
of this disclosure and the calculation in determining whether each such 
account was profitable or not profitable must be made in accordance with 
Sec. 5.18(i) of this part. Such statement of profitable trades shall 
include the following legend: PAST PERFORMANCE IS NOT NECESSARILY 
INDICATIVE OF FUTURE RESULTS. Each retail foreign exchange dealer or 
futures commission merchant shall provide, upon request, to any retail 
forex customer or prospective retail forex customer the total number of 
non discretionary retail forex accounts maintained by such foreign 
exchange dealer or futures commission merchant, the percentage of such 
accounts that were profitable and the percentage of such accounts that 
were not profitable, calculated in accordance with Sec. 5.18(i) of this 
part, for each calendar quarter during the most recent five year period 
during which such retail foreign exchange dealer or futures commission 
merchant maintained non discretionary retail forex customer accounts.



Sec. 5.6  Maintenance of minimum financial requirements by retail foreign

exchange dealers and futures commission merchants offering or engaging in retail 
          forex transactions.

    (a) Each futures commission merchant offering or engaging in retail 
forex transactions or who files an application for registration as a 
futures commission merchant that will offer or engage in retail forex 
transactions and each person registered as a retail foreign exchange 
dealer or who files an application for registration as a retail foreign 
exchange dealer, who knows or should have known that its adjusted

[[Page 226]]

net capital at any time is less than the minimum required by Sec. 5.7 
of this part or by the capital rule of a registered futures association 
of which it is a member, must:
    (1) Give telephonic notice, to be confirmed in writing by facsimile 
notice, that the applicant's or registrant's adjusted net capital is 
less than that required by Sec. 5.7 of this part. The notice must be 
given immediately after the applicant or registrant knows or should know 
that its adjusted net capital is less than that required by any of the 
aforesaid rules to which the applicant or registrant is subject; and
    (2) Provide together with such notice documentation in such form as 
necessary to adequately reflect the applicant's or registrant's capital 
condition as of any date such person's adjusted net capital is less than 
the minimum required. The applicant or registrant must provide similar 
documentation for other days as the Commission may request.
    (b) Each applicant or registrant, who knows or should have known 
that its adjusted net capital at any time is less than the greatest of:
    (1) $22,000,000;
    (2) 110 percent of the amount required by Sec. 5.7(a)(1)(i)(B) of 
this part; or
    (3) 110 percent of the amount of adjusted net capital required by a 
registered futures association of which the futures commission merchant 
or retail foreign exchange dealer is a member, must file written notice 
to that effect within 24 hours of such event.
    (c) If an applicant or registrant at any time fails to make or keep 
current the books and records required by these regulations, such 
applicant or registrant must, on the same day such event occurs, provide 
facsimile notice of such fact, specifying the books and records which 
have not been made or which are not current, and within 48 hours after 
giving such notice file a written report stating what steps have been 
and are being taken to correct the situation.
    (d) Whenever any applicant or registrant discovers or is notified by 
an independent public accountant, pursuant to Sec. 1.16(e)(2) of this 
chapter, of the existence of any material inadequacy, as specified in 
Sec. 1.16(d)(2) of this chapter, such applicant or registrant must give 
facsimile notice of such material inadequacy within 24 hours, and within 
48 hours after giving such notice file a written report stating what 
steps have been and are being taken to correct the material inadequacy.
    (e) Whenever any self-regulatory organization learns that a member 
registrant has failed to file a notice or written report as required by 
Sec. 5.6 of this part, that self-regulatory organization must 
immediately report this failure by telephone, confirmed in writing 
immediately by facsimile notice, as provided in paragraph (h) of this 
section.
    (f) A retail foreign exchange dealer or a futures commission 
merchant offering or engaging in retail forex transactions shall provide 
written notice of a substantial reduction in capital as compared to that 
last reported in a financial report filed with the Commission pursuant 
to Sec. 5.12 of this part. This notice shall be provided as follows:
    (1) If any event or series of events, including any withdrawal, 
advance, loan or loss cause, on a net basis, a reduction in net capital 
of 20 percent or more, notice must be provided within two business days 
of the event or series of events causing the reduction; and
    (2) If the equity capital of the retail foreign exchange dealer or 
futures commission merchant offering or engaging in retail forex 
transactions or the equity capital of a subsidiary or affiliate of the 
retail foreign exchange dealer or futures commission merchant offering 
or engaging in retail forex transactions consolidated pursuant to Sec. 
1.17(f) of this chapter would be withdrawn by action of a stockholder or 
a partner or a limited liability company member or by redemption or 
repurchase of shares of stock by any of the consolidated entities or 
through the payment of dividends or any similar distribution, or an 
unsecured advance or loan would be made to a stockholder, partner, sole 
proprietor, limited liability company member, employee or affiliate, 
such that the withdrawal, advance or loan would cause, on a net basis, a 
reduction in excess adjusted

[[Page 227]]

net capital of 30 percent or more, notice must be provided at least two 
business days prior to the withdrawal, advance or loan that would cause 
the reduction: Provided, however, That the provisions of paragraphs 
(f)(1) and (f)(2) of this section do not apply to any retail foreign 
exchange transaction in the ordinary course of business between a retail 
foreign exchange dealer and any affiliate where the retail foreign 
exchange dealer makes payment to or on behalf of such affiliate for such 
transaction and then receives payment from such affiliate for such 
transaction within two business days from the date of the transaction.
    (3) Upon receipt of such notice from a futures commission merchant 
offering or engaging in retail forex transactions or a retail foreign 
exchange dealer, the Director of the Division of Clearing and 
Intermediary Oversight or the Director's designee may require that the 
futures commission merchant offering or engaging in retail forex 
transactions or retail foreign exchange dealer provide or cause a 
Material Affiliated Person (as that term is defined in Sec. 5.10(a)(2) 
of this part) to provide, within three business days from the date of 
the request or such shorter period as the Director or designee may 
specify, such other information as the Director or designee determines 
to be necessary based upon market conditions, reports provided by the 
retail foreign exchange dealer or futures commission merchant offering 
or engaging in retail forex transactions, or other available 
information.
    (g) Whenever a person registered as a futures commission merchant 
offering or engaging in retail forex transactions or a retail foreign 
exchange dealer knows or should know that the total amount of its retail 
forex obligation exceeds the amount of the aggregate retail forex assets 
the registrant maintains in accordance with the provisions of Sec. 5.8 
of this chapter, the registrant must report such deficiency immediately 
by telephone notice, confirmed immediately in writing by facsimile 
notice.
    (h) Every notice and written report required to be given or filed 
with the Commission by this section by an applicant must be filed with 
the regional office of the Commission with jurisdiction over the state 
in which the applicant's principal place of business is located, and 
with the National Futures Association. Every notice and written report 
required to be given or filed with the Commission by this section by a 
registrant or self-regulatory organization must be filed with the 
regional office of the Commission with jurisdiction over the state in 
which the registrant's principal place of business is located, and with 
the registrant's designated self-regulatory organization. In addition, 
every notice and written report required to be given by this section 
must also be filed with the Chief Accountant of the Division of Clearing 
and Intermediary Oversight at the Commission's principal office in 
Washington, DC.
    (i) In lieu of filing paper copies with the Commission, all filings 
or other notices prepared by a futures commission merchant or retail 
foreign exchange dealer pursuant to this section may be submitted to the 
Commission in electronic form using a form of user authentication 
assigned in accordance with procedures established by or approved by the 
Commission, and otherwise in accordance with instructions issued by or 
approved by the Commission, if the futures commission merchant, retail 
foreign exchange dealer or a designated self-regulatory organization has 
provided the Commission with the means necessary to read and to process 
the information contained in such report. Any such electronic submission 
must clearly indicate the registrant or applicant on whose behalf such 
filing is made and the use of such user authentication in submitting 
such filing will constitute and become a substitute for the manual 
signature of the authorized signer.



Sec. 5.7  Minimum financial requirements for retail foreign exchange

dealers and futures commission merchants offering or engaging in retail forex 
          transactions.

    (a)(1)(i) Each futures commission merchant offering or engaging in 
retail forex transactions and each retail foreign exchange dealer must 
maintain adjusted net capital equal to or in excess of the greatest of:
    (A) $20,000,000;

[[Page 228]]

    (B) $20,000,000 plus five percent of the futures commission 
merchant's or retail foreign exchange dealer's total retail forex 
obligation in excess of $10,000,000;
    (C) any amount required under Sec. 1.17 of this chapter, as 
applicable; or
    (D) the amount of adjusted net capital required by a registered 
futures association of which the futures commission merchant or retail 
foreign exchange dealer is a member.
    (ii) Section 1.17 of this chapter shall apply to retail foreign 
exchange dealers as if such retail foreign exchange dealers were futures 
commission merchants, or as applicable, applicants or registrants, as 
stated in Sec. 1.17 for the purpose of determining the adjusted net 
capital under this section. For the purpose of applying this section, 
``applicant'' or ``registrant'' shall include retail foreign exchange 
dealers and futures commission merchants offering or engaging in retail 
forex transactions and applicants therefore.
    (2) No person applying for registration as a retail foreign exchange 
dealer or a futures commission merchant that will engage in retail forex 
transactions shall be so registered unless such person affirmatively 
demonstrates to the satisfaction of a registered futures association 
that it complies with the financial requirements of this section.
    (3) Each registrant must be in compliance with this section at all 
times and must be able to demonstrate such compliance to the 
satisfaction of the Commission or the registrant's designated self-
regulatory organization.
    (4) A registrant who is not in compliance with this section, or is 
unable to demonstrate such compliance as required by paragraph (a)(3) of 
this section, shall, as directed by and under the supervision of the 
Commission or the registrant's designated self-regulatory organization, 
either liquidate or transfer all retail forex accounts (including the 
novation of retail forex contracts) and refund or transfer all funds 
associated with such retail forex accounts and immediately cease 
offering or engaging in retail forex transactions until such time as the 
firm is able to demonstrate to the Commission or the registrant's 
designated self-regulatory organization such compliance: Provided, 
however, That if such registrant immediately demonstrates to the 
satisfaction of the Commission or the registrant's designated self-
regulatory organization the ability to achieve compliance, the 
Commission or the registrant's designated self-regulatory organization 
may in its discretion allow such registrant up to a maximum of 10 
business days, or such additional time as determined by the Commission, 
in which to achieve compliance without having to liquidate positions or 
transfer accounts and cease doing business as required above. Nothing in 
this paragraph (a)(4) shall be construed as preventing the Commission or 
the registrant's designated self-regulatory organization from taking 
action against a registrant for non-compliance with any of the 
provisions of this section.
    (b) For the purposes of this section:
    (1) Where the applicant or registrant has an asset or liability 
which is defined in Securities Exchange Act Rule 15c3-1 (Sec. 240.15c3-
1 of this title) the inclusion or exclusion of all or part of such asset 
or liability for the computation of adjusted net capital shall be in 
accordance with Sec. 240.15c3-1 of this title, unless specifically 
stated otherwise in this section or in Sec. 1.17 of this chapter.
    (2) The adjusted net capital of an applicant or registrant for the 
purpose of this section shall be determined by the application of Sec. 
1.17 pursuant to paragraph (a)(1)(ii) of this section, with the 
following additions:
    (i) All positions in retail forex accounts and other financial 
positions and instruments of the applicant or registrant must be marked 
to market and adjusted daily by referencing to current market prices or 
rates of exchange.
    (ii) Current assets must exclude any retail forex account which 
liquidates to a deficit or contains a debit ledger balance only and is 
not secured in accordance with Sec. 1.17(c)(3).
    (iii) Current assets must exclude any unsecured receivable accrued 
from any over-the-counter transaction in foreign currency, options on 
foreign currency or options on contracts for the purchase or sale of 
foreign currency, or arising from the deposit of collateral

[[Page 229]]

or compensating balances with respect to such transactions, unless such 
unsecured receivable is from a person who is an eligible contract 
participant that also is:
    (A) A bank or trust company regulated by a United States banking 
regulator;
    (B) A broker-dealer registered with the Securities and Exchange 
Commission and a member of the Financial Industry Regulatory Authority;
    (C) A futures commission merchant registered with the Commission and 
a member of the National Futures Association;
    (D) A retail foreign exchange dealer registered with the Commission 
and a member of the National Futures Association;
    (E) An entity regulated as a foreign equivalent of any of the 
persons listed in paragraphs (b)(2)(iii)(A) through (D) of this section, 
if such person is regulated in a money center country as defined in 
Sec. 1.49 of this chapter and recognized by the futures commission 
merchant's or retail foreign exchange dealer's designated self-
regulatory organization as a foreign equivalent;
    (F) Any other entity approved by the futures commission merchant's 
or retail foreign exchange dealer's designated self-regulatory 
organization.
    (iv) The value attributed to any retail forex transaction that is an 
option shall be the difference between the option's exercise value or 
striking value and the market value of the underlying. In the case of a 
call, if the market value of the underlying is less than the exercise 
value or striking value of such call, it shall be given no value; and, 
in the case of a put, if the market value of the underlying is more than 
the exercise value or striking value of the put, it shall be given no 
value.
    (v)(A) In computing adjusted net capital, the capital deductions set 
forth in Sec. 1.17(c)(5)(ii) of this chapter shall apply to retail 
forex transactions other than options. The capital deductions which 
apply are six percent for net positions in Euros, British pounds, 
Canadian dollars, Japanese yen, or Swiss francs and 20 percent for net 
positions in all other foreign currencies, Provided, however, That there 
shall be no capital deductions for retail forex transactions covered (as 
defined in Sec. 1.17(j) of this chapter) by the applicant or registrant 
by open futures contracts to the extent such futures contracts are not 
otherwise designated as cover for any other net capital purposes. For 
purposes of this paragraph (b)(2)(v)(A), such retail forex transactions 
shall be treated as if they were inventory and cover were therefore 
applicable. A retail foreign exchange dealer or futures commission 
merchant may not use an affiliate (unless approved by the firm's 
designated self-regulatory organization) or any person that is 
considered unregulated under the rules of the firm's designated self-
regulatory organization to cover its currency positions for purposes of 
this section.
    (B) In computing adjusted net capital, the capital deductions set 
forth in Sec. 1.17(c)(5)(vi) of this chapter shall apply to all retail 
forex transactions that are options.
    (C) For the purpose of applying capital deductions on open 
proprietary futures positions under Sec. 1.17(c)(5)(x) of this chapter, 
net or individual positions in retail forex transactions shall not 
constitute cover under Sec. 1.17(j) for the purpose of applying such 
charges.
    (c) An applicant or registrant must prepare, and keep current, 
ledgers or other similar records which show or summarize, with 
appropriate references to supporting documents, each transaction 
affecting the applicant's or registrant's asset, liability, income, 
expense and capital accounts, and in which (except as otherwise 
permitted in writing by the Commission) all the applicant's or 
registrant's asset, liability and capital accounts are classified into 
the account classification subdivisions specified on Form 1-FR-FCM. Each 
applicant or registrant shall prepare and keep current such records.
    (d) An applicant or registrant must make and keep as a record in 
accordance with Sec. 5.14 of this part formal computations of its 
adjusted net capital and of its minimum financial requirements pursuant 
to this section as of the close of business each month and on other such 
dates called for by the Commission, the National Futures Association, or 
another self-regulatory organization of which the firm is a member. Such 
computations must be

[[Page 230]]

completed and made available for inspection by any representative of the 
Commission, the National Futures Association, a self-regulatory 
organization of which the firm is a member, or the United States 
Department of Justice commencing the first month-end after the date the 
application for registration is filed.



Sec. 5.8  Aggregate retail forex assets.

    (a) Each retail foreign exchange dealer and futures commission 
merchant offering or engaging in retail forex transactions shall 
calculate its total retail forex obligation and shall at all times hold 
assets solely of the type permissible under Sec. 1.25 of this chapter 
equal to or in excess of the total retail forex obligation at one or 
more qualifying institutions in the United States or money center 
countries as defined in Sec. 1.49 of this chapter.
    (b) For assets held in the United States, a qualifying institution 
is:
    (1) A bank or trust company regulated by a United States banking 
regulator;
    (2) A broker-dealer registered with the Securities and Exchange 
Commission and a member of the Financial Industry Regulatory Authority; 
or
    (3) A futures commission merchant registered with the Commission and 
a member of the National Futures Association.
    (c) For assets held in a money center country, a qualifying 
institution is:
    (1) A bank or trust company regulated in a money center country, 
Provided that the bank or trust company has regulatory capital in excess 
of $1 billion;
    (2) An entity regulated in a money center country as an equivalent 
of a broker-dealer or futures commission merchant as determined by the 
retail foreign exchange dealer's or futures commission merchant's 
designated self-regulatory organization, Provided that the entity 
maintains regulatory capital in excess of $100 million; or
    (3) A futures commission merchant registered with the Commission and 
a member of the National Futures Association.
    (d) Assets held in a money center country are not eligible to meet 
the requirements of paragraph (a) of this section unless the retail 
foreign exchange dealer or futures commission merchant has entered into 
an agreement that is acceptable to the firm's designated self-regulatory 
organization and that authorizes the qualifying institution to provide 
account information to the Commission and the firm's designated self-
regulatory organization.
    (e) In computing its adjusted net capital pursuant to Sec. 5.7 of 
this part, a retail foreign exchange dealer or futures commission 
merchant may not include aggregate retail forex assets as current assets 
or otherwise record any property received from retail forex customers as 
an asset without recording a corresponding liability to the retail forex 
customers.



Sec. 5.9  Security deposits for retail forex transactions.

    (a) Each futures commission merchant engaging, or offering to 
engage, in retail forex transactions and each retail foreign exchange 
dealer must collect from each retail forex customer a minimum security 
deposit for each retail forex transaction equal to the applicable 
percentage as set by the registered futures association of which they 
are a member; Provided, that the registered futures association's 
security deposit requirement cannot be less than:
    (1) 2% of the notional value of the retail forex transaction for 
major currency pairs and 5% of the notional value of the retail forex 
transaction for all other currency pairs;
    (2) For short options, 2% for major currency pairs and 5% for all 
other currency pairs of the notional value of the retail forex 
transaction, plus the premium received by the retail forex customer; or
    (3) For long options, the full premium charged and received by the 
futures commission merchant or retail foreign exchange dealer from the 
retail forex customer.
    (b) Security deposits must be made in the form of cash or other 
financial instruments that comply with the requirements specified in 
Sec. 1.25 of this chapter.
    (c) A futures commission merchant or retail foreign exchange dealer 
is required to collect additional security

[[Page 231]]

deposits from a retail forex customer, or liquidate the retail forex 
customer's positions, if the amount of the retail forex customer's 
security deposits maintained with the futures commission merchant or 
retail foreign exchange dealer are not sufficient to meet the 
requirements of this section.
    (d) A major currency pair security deposit percentage is only 
applicable when both sides of a retail over-the-counter foreign exchange 
transaction involve major currencies.
    (e) Any registered futures association whose members serve as 
counterparties to retail forex transaction shall designate which 
currencies are ``major currencies'', and shall review, no less 
frequently than annually, major currency designations and security 
deposit requirements, and shall adjust the designations and requirements 
as necessary.



Sec. 5.10  Risk assessment recordkeeping requirements for retail foreign exchange dealers.

    (a) Requirement to maintain and preserve information. (1) Each 
retail foreign exchange dealer registered with the Commission pursuant 
to section 2(c)(2)(B)(i)(II)(gg) of the Act shall prepare, maintain and 
preserve the following information:
    (i) An organizational chart which includes the retail foreign 
exchange dealer and each of its affiliated persons. Included in the 
organizational chart shall be a designation of which affiliated persons 
are ``Material Affiliated Persons'' as that term is used in paragraph 
(a)(2) of this section, which Material Affiliated Persons file routine 
financial or risk exposure reports with the Securities and Exchange 
Commission, a federal banking agency, an insurance commissioner or other 
similar official or agency of a state, or a foreign regulatory 
authority, and which Material Affiliated Persons are dealers in 
financial instruments with off-balance sheet risk and, if a Material 
Affiliated Person is such a dealer, whether it is also an end-user of 
such instruments;
    (ii) Written policies, procedures, or systems concerning the retail 
foreign exchange dealer's:
    (A) Method(s) for monitoring and controlling financial and 
operational risks to it resulting from the activities of any of its 
affiliated persons;
    (B) Financing and capital adequacy, including information regarding 
sources of funding, together with a narrative discussion by management 
of the liquidity of the material assets of the retail foreign exchange 
dealer, the structure of debt capital, and sources of alternative 
funding;
    (C) Establishing and maintaining internal controls with respect to 
market risk, credit risk, and other risks created by the retail foreign 
exchange dealer's trading activities, including systems and policies for 
supervising, monitoring, reporting and reviewing trading activities in 
forex transactions, securities, futures contracts, commodity options, 
forward contracts and financial instruments; policies for hedging or 
managing risks created by trading activities or supervising accounts 
carried for affiliates, including a description of the types of reviews 
conducted to monitor positions; and policies relating to restrictions or 
limitations on trading activities: Provided, however, that if the retail 
foreign exchange dealer has no such written policies, procedures or 
systems, it must so state in writing;
    (iii) Fiscal year-end consolidated and consolidating balance sheets 
for the highest level Material Affiliated Person within the retail 
foreign exchange dealer's organizational structure, which shall include 
the retail foreign exchange dealer and its other Material Affiliated 
Persons, prepared in accordance with generally accepted accounting 
principles, which consolidated balance sheets shall be audited by an 
independent certified public accountant if an annual audit is performed 
in the ordinary course of business, but which otherwise may be 
unaudited, and which shall include appropriate explanatory notes. The 
consolidating balance sheets may be those prepared by the retail foreign 
exchange dealer's highest level Material Affiliated Person as part of 
its internal financial reporting process. Any additional information 
required to be filed under Sec. 5.11(a)(2)(iii) of this part shall also 
be maintained and preserved; and
    (iv) Fiscal year-end consolidated and consolidating income 
statements and

[[Page 232]]

consolidated cash flow statements for the highest level Material 
Affiliated Person within the retail foreign exchange dealer's 
organizational structure, which shall include the retail foreign 
exchange dealer and its other Material Affiliated Persons, prepared in 
accordance with generally accepted accounting principles, which 
consolidated statements shall be audited by an independent certified 
public accountant if an annual audit is performed in the ordinary course 
of business, but which otherwise may be unaudited, and which shall 
include appropriate explanatory notes. The consolidating statements may 
be those prepared by the retail foreign exchange dealer's highest level 
Material Affiliated Person as part of its internal financial reporting 
process. Any additional information required to be filed under Sec. 
5.11(a)(2)(iii) shall also be maintained and preserved.
    (2) The determination of whether an affiliated person of a retail 
foreign exchange dealer is a Material Affiliated Person shall involve 
consideration of all aspects of the activities of, and the relationship 
between, both entities, including without limitation, the following 
factors:
    (i) The legal relationship between the retail foreign exchange 
dealer and the affiliated person;
    (ii) The overall financing requirements of the retail foreign 
exchange dealer and the affiliated person, and the degree, if any, to 
which the retail foreign exchange dealer and the affiliated person are 
financially dependent on each other;
    (iii) The degree to which the retail foreign exchange dealer and the 
affiliated person directly or indirectly engage in over-the-counter 
transactions with each other;
    (iv) The degree, if any, to which the retail foreign exchange dealer 
or its customers rely on the affiliated person for operational support 
or services in connection with the retail foreign exchange dealer's 
business;
    (v) The level of market, credit or other risk present in the 
activities of the affiliated person; and
    (vi) The extent to which the affiliated person has the authority or 
the ability to cause a withdrawal of capital from the retail foreign 
exchange dealer.
    (3) For purposes of this section and Sec. 5.11 of this part, the 
term Material Affiliated Person does not include a natural person.
    (4) The information, reports and records required by this section 
shall be maintained and preserved, and made readily available for 
inspection, in accordance with the provisions of Sec. 1.31 of this 
chapter.
    (b) Special provisions with respect to Material Affiliated Persons 
subject to the supervision of certain domestic regulators. A retail 
foreign exchange dealer shall be deemed to be in compliance with the 
recordkeeping requirements of paragraphs (a)(1)(i), (iii) and (iv) of 
this section with respect to a Material Affiliated Person if:
    (1) The Material Affiliated Person is required to maintain and 
preserve information pursuant to Sec. 240.17h-1T of this title, or such 
other risk assessment regulations as the Securities and Exchange 
Commission may adopt, and the retail foreign exchange dealer maintains 
and makes available for inspection by the Commission in accordance with 
the provisions of this section copies of the records and reports 
maintained and filed on Form 17-H (or such other forms or reports as may 
be required) by the Material Affiliated Person with the Securities and 
Exchange Commission pursuant to Sec. Sec. 240.17h-1T and 240.17h-2T of 
this title, or such other risk assessment regulations as the Securities 
and Exchange Commission may adopt;
    (2) In the case of a Material Affiliated Person (including a foreign 
banking organization) that is subject to examination by, or the 
reporting requirements of, a Federal banking agency, the retail foreign 
exchange dealer or such Material Affiliated Person maintains and makes 
available for inspection by the Commission in accordance with the 
provisions of this section copies of all reports submitted by such 
Material Associated Person to the Federal banking agency pursuant to 
section 5211 of the Revised Statutes, section 9 of the Federal Reserve 
Act, section 7(a) of the Federal Deposit Insurance Act, section 10(b) of 
the Home

[[Page 233]]

Owners' Loan Act, or section 5 of the Bank Holding Company Act of 1956; 
or
    (3) In the case of a Material Affiliated Person that is subject to 
the supervision of an insurance commissioner or other similar official 
or agency of a state, the retail foreign exchange dealer or such 
Material Affiliated Person maintains and makes available for inspection 
by the Commission in accordance with the provisions of this section 
copies of the annual statements with schedules and exhibits prepared by 
the Material Affiliated Person on forms prescribed by the National 
Association of Insurance Commissioners or by a state insurance 
commissioner.
    (c)(1) Special provisions with respect to Material Affiliated 
Persons subject to the supervision of a Foreign Regulatory Authority. A 
retail foreign exchange dealer shall be deemed to be in compliance with 
the recordkeeping requirements of paragraphs (a)(1)(iii) and (iv) of 
this section with respect to a Material Affiliated Person if such retail 
foreign exchange dealer maintains and makes available, or causes such 
Material Affiliated Person to make available, for inspection by the 
Commission in accordance with the provisions of this section copies of 
any financial or risk exposure reports filed by such Material Affiliated 
Person with a foreign futures authority or other foreign regulatory 
authority, provided that:
    (i) The retail foreign exchange dealer agrees to use its best 
efforts to obtain from the Material Affiliated Person and to cause the 
Material Affiliated Person to provide, directly or through its foreign 
futures authority or other foreign regulatory authority, any 
supplemental information the Commission may request and there is no 
statute or other bar in the foreign jurisdiction that would preclude the 
retail foreign exchange dealer, the Material Affiliated Person, the 
foreign futures authority or other foreign regulatory authority from 
providing such information to the Commission; or
    (ii) The foreign futures authority or other foreign regulatory 
authority with whom the Material Affiliated Person files such reports 
has entered into an information-sharing agreement with the Commission 
which is in effect as of the retail foreign exchange dealer's fiscal 
year-end and which will allow the Commission to obtain the type of 
information required herein.
    (2) The retail foreign exchange dealer shall maintain a copy of the 
original report and a copy translated into the English language. For the 
purposes of this section, the term ``Foreign Futures Authority'' shall 
have the meaning set forth in section 1a(10) of the Act.
    (d) Exemptions. The Commission may exempt any retail foreign 
exchange dealer from any provision of this section if it finds that the 
exemption is not contrary to the public interest and the purposes of the 
provisions from which the exemption is sought. The Commission may grant 
the exemption subject to such terms and conditions as it may find 
appropriate.
    (e) Location of records. A retail foreign exchange dealer required 
to maintain records concerning Material Affiliated Persons pursuant to 
this section may maintain those records either at the principal office 
of the Material Affiliated Person or at a records storage facility, 
provided that, except as set forth in paragraph (c) of this section, the 
records are located within the boundaries of the United States and the 
records are kept and available for inspection in accordance with Sec. 
1.31 of this chapter. If such records are maintained at a place other 
than the retail foreign exchange dealer's principal place of business, 
the Material Affiliated Person or other entity maintaining the records 
shall file with the Commission a written undertaking, in a form 
acceptable to the Commission, signed by a duly authorized person, to the 
effect that the records will be treated as if the retail foreign 
exchange dealer were maintaining the records pursuant to this section 
and that the entity maintaining the records will permit examination of 
such records at any time, or from time to time during business hours, by 
representatives or designees of the Commission and promptly furnish the 
Commission representative or its designee true, correct, complete and 
current hard copy of all or any part of such records. The election to 
maintain records at the principal place of business of the Material 
Affiliated Person

[[Page 234]]

or at a records storage facility pursuant to the provisions of this 
paragraph shall not relieve the retail foreign exchange dealer required 
to maintain and preserve such records from any of its responsibilities 
under this section or Sec. 5.11 of this part.
    (f) Confidentiality. All information obtained by the Commission 
pursuant to the provisions of this section from a retail foreign 
exchange dealer concerning a Material Affiliated Person shall be deemed 
confidential information for the purposes of section 8 of the Act.
    (g) Implementation schedule. Each retail foreign exchange dealer who 
is subject to the requirements of this section shall maintain and 
preserve the information required by paragraphs (a)(1)(i) and (ii) of 
this section commencing 60 calendar days after registration becomes 
effective and the information required by paragraphs (a)(1)(iii) and 
(iv) of this section commencing 105 calendar days following the first 
fiscal year-end occurring after registration becomes effective.



Sec. 5.11  Risk assessment reporting requirements for retail foreign exchange dealers.

    (a) Reporting requirements with respect to information required to 
be maintained by Sec. 5.10 of this part. (1) Each retail foreign 
exchange dealer registered with the Commission pursuant to Section 
2(c)(2)(B)(i)(II)(gg) of the Act shall file the following with the 
regional office of the Commission with which it files periodic financial 
reports within 60 calendar days after the effective date of such 
registration:
    (i) A copy of the organizational chart maintained by the retail 
foreign exchange dealer pursuant to Sec. 5.10(a)(l)(i) of this part. 
Where there is a material change in information provided, an updated 
organizational chart shall be filed within sixty calendar days after the 
end of the fiscal quarter in which the change has occurred; and
    (ii) Copies of the financial, operational, and risk management 
policies, procedures and systems maintained by the retail foreign 
exchange dealer pursuant to Sec. 5.10(a)(l)(ii) of this part. If the 
retail foreign exchange dealer has no such written policies, procedures 
or systems, it must file a statement so indicating. Where there is a 
material change in information provided, such change shall be reported 
within sixty calendar days after the end of the fiscal quarter in which 
the change has occurred.
    (2) Each retail foreign exchange dealer registered with the 
Commission pursuant to section 2(c)(2)(B)(i)(II)(gg) of the Act shall 
file the following with the regional office with which it files periodic 
financial reports within 105 calendar days after the end of each fiscal 
year or, if a filing is made pursuant to a written notice issued under 
paragraph (a)(2)(iii) of this section, within the time period specified 
in the written notice:
    (i) Fiscal year-end consolidated and consolidating balance sheets 
for the highest level Material Affiliated Person within the retail 
foreign exchange dealer's organizational structure, which shall include 
the retail foreign exchange dealer and its other Material Affiliated 
Persons, prepared in accordance with generally accepted accounting 
principles, which consolidated balance sheets shall be audited by an 
independent certified public accountant if an annual audit is performed 
in the ordinary course of business, but which otherwise may be 
unaudited, and which consolidated balance sheets shall include 
appropriate explanatory notes. The consolidating balance sheets may be 
those prepared by the retail foreign exchange dealer's highest level 
Material Affiliated Person as part of its internal financial reporting 
process;
    (ii) Fiscal year-end annual consolidated and consolidating income 
statements and consolidated cash flow statements for the highest level 
Material Affiliated Person within the retail foreign exchange dealer's 
organizational structure, which shall include the retail foreign 
exchange dealer and its other Material Affiliated Persons, prepared in 
accordance with generally accepted accounting principles, which 
consolidated statements shall be audited by an independent certified 
public accountant if an annual audit is performed in the ordinary course 
of business, but which otherwise may be unaudited, and which 
consolidated statements shall include appropriate explanatory notes. The 
consolidating

[[Page 235]]

statements may be those prepared by the retail foreign exchange dealer's 
highest level Material Affiliated Person as part of its internal 
financial reporting process; and
    (iii) Upon receiving written notice from any representative of the 
Commission and within the time period specified in the written notice, 
such additional information which the Commission determines is necessary 
for a complete understanding of a particular affiliate's financial 
impact on the retail foreign exchange dealer's organizational structure.
    (3) For the purposes of this section, the term Material Affiliated 
Person shall have the meaning used in Sec. 5.10 of this part.
    (4) The reports required to be filed pursuant to paragraphs (a)(1) 
and (2) of this section shall be considered filed when received by the 
regional office of the Commission with whom the retail foreign exchange 
dealer files financial reports pursuant to Sec. 5.12 of this part.
    (b) Exemptions. The Commission may exempt any retail foreign 
exchange dealer from any provision of this section if it finds that the 
exemption is not contrary to the public interest and the purposes of the 
provisions from which the exemption is sought. The Commission may grant 
the exemption subject to such terms and conditions as it may find 
appropriate.
    (c) Special provisions with respect to Material Affiliated Persons 
subject to the supervision of certain domestic regulators. (1) In the 
case of a Material Affiliated Person that is required to maintain and 
preserve information pursuant to Sec. 240.17h-1T of this title, or such 
other risk assessment regulations as the Securities and Exchange 
Commission may adopt, the retail foreign exchange dealer shall be deemed 
to be in compliance with the reporting requirements of paragraph (a)(2) 
of this section with respect to such Material Affiliated Person if the 
retail foreign exchange dealer maintains and makes available for 
inspection by the Commission in accordance with the provisions of this 
section copies of the records and reports maintained and filed on Form 
17-H (or such other forms or reports as may be required) by the Material 
Affiliated Person with the Securities and Exchange Commission pursuant 
to Sec. Sec. 240.17h-1T and 240.17h-2T of this title, or such other 
risk assessment regulations as the Securities and Exchange Commission 
may adopt;
    (2) In the case of a Material Affiliated Person (including a foreign 
banking organization) that is subject to examination by, or the 
reporting requirements of, a Federal banking agency, the retail foreign 
exchange dealer shall be deemed to be in compliance with the reporting 
requirements of paragraph (a)(2) of this section with respect to such 
Material Affiliated Person if the retail foreign exchange dealer or such 
Material Affiliated Person maintains in accordance with Sec. 5.10 of 
this part copies of all reports filed by the Material Affiliated Person 
with the Federal banking agency pursuant to section 5211 of the Revised 
Statutes, section 9 of the Federal Reserve Act, section 7(a) of the 
Federal Deposit Insurance Act, section 10(b) of the Home Owners' Loan 
Act, or section 5 of the Bank Holding Company Act of 1956.
    (3) In the case of a retail foreign exchange dealer that has a 
Material Affiliated Person that is subject to the supervision of an 
insurance commissioner or other similar official or agency of a state, 
such retail foreign exchange dealer shall be deemed to be in compliance 
with the reporting requirements of paragraph (a)(2) of this section with 
respect to the Material Affiliated Person if:
    (i) With respect to a Material Affiliated Person organized as a 
mutual insurance company or a non-public stock company, the retail 
foreign exchange dealer or such Material Affiliated Person maintains in 
accordance with Sec. 5.14 of this part copies of the annual statements 
with schedules and exhibits prepared by the Material Affiliated Person 
on forms prescribed by the National Association of Insurance 
Commissioners or by a state insurance commissioner; and
    (ii) With respect to a Material Affiliated Person organized as a 
public stock company, the retail foreign exchange dealer or such 
Material Affiliated Person maintains, in addition to the annual 
statements with schedules and exhibits required to be maintained 
pursuant to Sec. 1.14 of this chapter, copies of

[[Page 236]]

the filings made by the Material Affiliated Person pursuant to sections 
13 or 15 of the Securities Exchange Act of 1934 and the Investment 
Company Act of 1940.
    (4) No retail foreign exchange dealer shall be required to furnish 
to the Commission any examination report of any Federal banking agency 
or any supervisory recommendations or analyses contained therein with 
respect to a Material Affiliated Person that is subject to the 
regulation of a Federal banking agency. All information received by the 
Commission pursuant to this section concerning a Material Affiliated 
Person that is subject to examination by or the reporting requirements 
of a Federal banking agency shall be deemed confidential for the 
purposes of section 8 of the Act.
    (5) The furnishing of any information or documents by a retail 
foreign exchange dealer pursuant to this section shall not constitute an 
admission for any purpose that a Material Affiliated Person is otherwise 
subject to the Act.
    (d) Special provisions with respect to Material Affiliated Persons 
subject to the supervision of a Foreign Regulatory Authority. A retail 
foreign exchange dealer shall be deemed to be in compliance with the 
reporting requirements of paragraph (a)(2) of this section with respect 
to a Material Affiliated Person if such retail foreign exchange dealer 
furnishes, or causes such Material Affiliated Person to make available, 
in accordance with the provisions of this section, copies of any 
financial or risk exposure reports filed by such Material Affiliated 
Person with a foreign futures authority or other foreign regulatory 
authority, provided that:
    (1) The retail foreign exchange dealer agrees to use its best 
efforts to obtain from the Material Affiliated Person and to cause the 
Material Affiliated Person to provide, directly or through its foreign 
futures authority or other foreign regulatory authority, any 
supplemental information the Commission may request and there is no 
statute or other bar in the foreign jurisdiction that would preclude the 
retail foreign exchange dealer, the Material Affiliated Person, the 
foreign futures authority or other foreign regulatory authority from 
providing such information to the Commission; or
    (2) The foreign futures authority or other foreign regulatory 
authority with whom the Material Affiliated Person files such reports 
has entered into an information sharing agreement with the Commission 
which is in effect as of the retail foreign exchange dealer's fiscal 
year-end and which will allow the Commission to obtain the type of 
information required herein. The retail foreign exchange dealer shall 
file a copy of the original report and a copy translated into the 
English language. For the purposes of this section, the term ``Foreign 
Futures Authority'' shall have the meaning set forth in section 1a(10) 
of the Act.
    (e) Confidentiality. All information obtained by the Commission 
pursuant to the provisions of this section from a retail foreign 
exchange dealer concerning a Material Associated Person shall be deemed 
confidential information for the purposes of section 8 of the Act.
    (f) Implementation schedule. Each retail foreign exchange dealer who 
is subject to the requirements of this section shall file the 
information required by paragraph (a)(1) of this section within 60 
calendar days after registration is granted, and the information 
required by paragraph (a)(2) of this section within 105 calendar days 
after registration is granted.



Sec. 5.12  Financial reports of retail foreign exchange dealers.

    (a)(1) Each person who files an application for registration as a 
retail foreign exchange dealer with the National Futures Association 
shall submit, concurrently with the filing of such application, either:
    (i) A Form 1-FR-FCM certified by an independent public accountant as 
of a date not more than 45 days prior to the date on which such report 
is filed; or
    (ii) A Form 1-FR-FCM as of a date not more than 17 business days 
prior to the date on which such report is filed and a Form 1-FR-FCM 
certified by an independent public accountant as of a date not more than 
one year prior to the date on which such report is filed.
    (2) Each such person must include with such financial report a 
statement

[[Page 237]]

describing the source of his current assets and representing that his 
capital has been contributed for the purpose of operating his business 
and will continue to be used for such purpose.
    (3) The provisions of paragraph (a)(1) of this section do not apply 
to any person succeeding to and continuing the business of another 
retail foreign exchange dealer.
    (b)(1) Each person registered as a retail foreign exchange dealer 
must file a Form 1-FR-FCM as of the close of business each month. Each 
Form 1-FR must be filed no later than 17 business days after the date 
for which the report is made.
    (2) In addition to the monthly financial reports required by 
paragraph (b)(1) of this section, each person registered as a retail 
foreign exchange dealer must file a Form 1-FR-FCM as of the close of its 
fiscal year, which must be certified by an independent public accountant 
and must be filed no later than 90 days after the close of the retail 
foreign exchange dealer's fiscal year.
    (3) A Form 1-FR-FCM required to be certified by an independent 
public accountant which is filed by a retail foreign exchange dealer 
must be filed in paper form and may not be filed electronically with the 
Commission. A Form 1-FR-FCM required to be certified by an independent 
public accountant which is filed by an applicant for registration as a 
retail foreign exchange dealer with the National Futures Association 
must be filed electronically in accordance with electronic filing 
procedures established by the National Futures Association, however a 
paper copy of any such filing with the original manually signed 
certification must be maintained by the applicant for registration as a 
retail foreign exchange dealer in accordance with Sec. 1.31.
    (c) Each Form 1-FR-FCM required by the provisions of paragraphs 
(a)(1) and (b)(2) of this section to be certified by an independent 
public accountant must be certified in accordance with Sec. 1.16 of 
this chapter, and must be accompanied by the accountant's report on 
material inadequacies in accordance with the provisions of Sec. 
1.16(c)(5) of this chapter. In all other respects, the independent 
public accountant shall act in accordance with the provisions of Sec. 
1.16 (except paragraph (f)) of this chapter: Provided, however, that the 
term ``Sec. 5.7'' shall be substituted for the term ``Sec. 1.17,'' and 
the term ``retail foreign exchange dealer'' shall be substituted for the 
term ``futures commission merchant.''
    (d) Upon receiving written notice from any representative of the 
Commission, National Futures Association, or any self-regulatory 
organization of which the firm is a member, a retail foreign exchange 
dealer or applicant for such registration, must, monthly or at such 
times as specified, furnish the Commission, National Futures 
Association, or self-regulatory organization a Form 1-FR-FCM or such 
other financial information requested in the written notice. Each such 
Form 1-FR-FCM or such other information must be furnished within the 
time period specified in the written notice, and in accordance with the 
provisions of paragraph (i) of this section.
    (e)(1) Each Form 1-FR-FCM filed pursuant to this Sec. 5.12 which is 
not required to be certified by an independent public accountant must be 
completed in accordance with the instructions to the form and contain:
    (i) A statement of financial condition as of the date for which the 
report is made;
    (ii) A statement of income (loss) for the period between the date of 
the most recent statement of financial condition filed with the 
Commission and the date for which the report is made;
    (iii) A statement of changes in ownership equity for the period 
between the date of the most recent statement of financial condition 
filed with the Commission and the date for which the report is made;
    (iv) A statement of changes in liabilities subordinated to claims of 
general creditors for the period between the date of the most recent 
statement of financial condition filed with the Commission and the date 
for which the report is made;
    (v) A statement of the computation of the minimum capital 
requirements pursuant to Sec. 5.7 of this part as of the date for which 
the report is made; and

[[Page 238]]

    (vi) In addition to the information expressly required, such further 
material information as may be necessary to make the required statements 
and schedules not misleading.
    (2) Each Form 1-FR-FCM filed pursuant to this Sec. 5.12 which is 
required to be certified by an independent public accountant must be 
completed in accordance with the instructions to the form and contain:
    (i) A statement of financial condition as of the date for which the 
report is made;
    (ii) Statements of income (loss), cash flows, changes in ownership 
equity, and changes in liabilities subordinated to claims of general 
creditors, for the period between the date of the most recent certified 
statement of financial condition filed with the Commission and the date 
for which the report is made: Provided, That for an applicant filing 
pursuant to paragraph (a) of this section the period must be the year 
ending as of the date of the statement of financial condition;
    (iii) A statement of the computation of the minimum capital 
requirements pursuant to Sec. 5.7 of this part as of the date for which 
the report is made;
    (iv) Appropriate footnote disclosures;
    (v) A reconciliation, including appropriate explanations, of the 
statement of the computation of the minimum capital requirements 
pursuant to Sec. 5.7 of this part, in the certified Form 1-FR-FCM with 
the applicant's or registrant's corresponding uncertified most recent 
Form 1-FR-FCM filing when material differences exist or, if no material 
differences exist, a statement so indicating; and
    (vi) In addition to the information expressly required, such further 
material information as may be necessary to make the required statements 
not misleading.
    (3) The statements required by paragraphs (e)(2)(i) and (ii) of this 
section may be presented in accordance with generally accepted 
accounting principles in the certified reports filed as of the close of 
the registrant's fiscal year pursuant to paragraph (b)(2) of this 
section or accompanying the application for registration pursuant to 
paragraph (a)(1) of this section, rather than in the format specifically 
prescribed by these regulations: Provided, the statement of financial 
condition is presented in a format as consistent as possible with the 
Form 1-FR-FCM and a reconciliation is provided reconciling such 
statement of financial condition to the statement of the computation of 
the minimum capital requirements pursuant to Sec. 5.7 of this part. 
Such reconciliation must be certified by an independent public 
accountant in accordance with Sec. 1.16 of this chapter.
    (4) Attached to each Form 1-FR-FCM filed pursuant to this section 
must be an oath or affirmation that to the best knowledge and belief of 
the individual making such oath or affirmation the information contained 
in the Form 1-FR-FCM is true and correct. The individual making such 
oath or affirmation must be: If the registrant or applicant is a sole 
proprietorship, the proprietor; if a partnership, any general partner; 
if a corporation, the chief executive officer or chief financial 
officer; and, if a limited liability company or limited liability 
partnership, the chief executive officer, the chief financial officer, 
the manager, the managing member, or those members vested with the 
management authority for the limited liability company or limited 
liability partnership.
    (f) Election of fiscal year. (1) An applicant wishing to establish a 
fiscal year other than the calendar year may do so by notifying the 
National Futures Association of its election of such fiscal year, in 
writing, concurrently with the filing of the Form 1-FR-FCM pursuant to 
paragraph (a)(1) of this section, but in no event may such fiscal year 
end more than one year from the date of the Form 1-FR-FCM filed pursuant 
to paragraph (a)(1) of this section. An applicant that does not so 
notify the National Futures Association will be deemed to have elected 
the calendar year as its fiscal year.
    (2)(i) A registrant must continue to use its elected fiscal year, 
calendar or otherwise, unless a change in such fiscal year has been 
approved pursuant to this paragraph (f)(2).
    (ii) A registrant may file with its designated self-regulatory 
organization an application to change its fiscal year, a copy of which 
the registrant must file with the Commission. The application

[[Page 239]]

shall be approved or denied in writing by the registrant's designated 
self-regulatory organization. The registrant must file immediately with 
the Commission a copy of any notice it receives from its designated 
self-regulatory organization to approve or deny the registrant's 
application to change its fiscal year. A written notice of approval 
shall become effective upon the filing by the registrant of a copy with 
the Commission, and a written notice of denial shall be effective as of 
the date of the notice.
    (g) In the event a retail foreign exchange dealer or applicant for 
registration as a retail foreign exchange dealer finds that it cannot 
file its Form 1-FR-FCM for any period within the time specified in 
paragraph (b)(1) or (2) of this section without substantial undue 
hardship, it may request approval for an extension of time by filing an 
application for an extension of time with, in the case of a registrant, 
its designated self-regulatory organization, or, in the case of an 
applicant, the National Futures Association. The registrant or applicant 
also must file a copy of its application for an extension of time with 
the Commission. The application shall be approved or denied in writing 
by the National Futures Association or designated self-regulatory 
organization, as applicable. The registrant or applicant must file 
immediately with the Commission a copy of any notice it receives 
approving or denying the request for extension of time. A written notice 
of approval shall become effective upon the filing by the registrant or 
applicant of a copy with the Commission, and a written notice of denial 
shall be effective as of the date of the notice.
    (h) Public availability of reports. (1) Forms 1-FR-FCM filed 
pursuant to this section will be treated as exempt from mandatory public 
disclosure for purposes of the Freedom of Information Act and the 
Government in the Sunshine Act and parts 145 and 147 of this chapter, 
except for the information described in paragraph (i)(2) of this 
section.
    (2) The following information in Forms 1-FR-FCM will be publicly 
available:
    (i) The amount of the applicant's or registrant's adjusted net 
capital; the amount of its minimum net capital requirement under Sec. 
5.7 of this chapter; the amount of its adjusted net capital in excess of 
its minimum net capital requirement; and the amount of the retail forex 
obligation owed to its retail forex customers; and
    (ii) The Statement of Financial Condition and the opinion of the 
independent public accountant in the certified annual financial reports 
of retail foreign exchange dealers.
    (3) All information that is exempt from mandatory public disclosure 
under paragraph (h)(1) of this section will, however, be available for 
official use by any official or employee of the United States or any 
State, by the National Futures Association or any other self-regulatory 
organization of which the person filing such report is a member, and by 
any other person to whom the Commission believes disclosure of such 
information is in the public interest. Nothing in this paragraph (h) 
will limit the authority of any self-regulatory organization to request 
or receive any information relative to its members' financial condition.
    (i)(1) In the case of an applicant, all filings or other notices 
provided for in this section will be considered filed when received by 
the regional office of the Commission with jurisdiction over the state 
in which the applicant's principal place of business is located and by 
the National Futures Association. In the case of a registrant, all 
filings or other notices provided for in this section will be considered 
filed when received by the regional office of the Commission with 
jurisdiction over the state in which the registrant's principal place of 
business is located and by the registrant's designated self-regulatory 
organization. Any copy that under paragraph (f)(2) or (g) of this 
section is required to be filed with the Commission shall be filed with 
the regional office of the Commission with jurisdiction over the state 
in which the registrant's principal place of business is located.
    (2) All filings or other notices filed pursuant to this section 
which need not be certified in accordance with

[[Page 240]]

Sec. 1.16 may be submitted to the Commission in electronic form using a 
a form of user authentication assigned in accordance with procedures 
established by or approved by the Commission, and otherwise in 
accordance with instructions issued by or approved by the Commission, if 
the retail foreign exchange dealer or a designated self-regulatory 
organization has provided the Commission with the means necessary to 
read and to process the information contained in such report. Any such 
electronic submission must clearly indicate the registrant or applicant 
on whose behalf such filing is made and the use of such user 
authentication in submitting such filing will constitute and become a 
substitute for the manual signature of the authorized signer. In the 
case of a Form 1-FR filed via electronic transmission in accordance with 
procedures established by or approved by the Commission, such 
transmission must be accompanied by the user authentication assigned to 
the authorized signer under such procedures, and the use of such user 
authentication will constitute and become a substitute for the manual 
signature of the authorized signer for the purpose of making the oath or 
affirmation referred to in paragraph (e)(4) of this section.



Sec. 5.13  Reporting to customers of retail foreign exchange 

dealers and futures commission merchants; monthly and confirmation statements.

    (a) Monthly statements. Each retail foreign exchange dealer or 
futures commission merchant must promptly furnish in writing to each 
retail forex customer, as of the close of the last business day of each 
month or as of any regular monthly date selected, except for accounts in 
which there are neither open positions at the end of the statement 
period nor any changes to the account balance since the prior statement 
period, but in any event not less frequently than once every three 
months, a statement which clearly shows:
    (1) For each retail forex customer:
    (i) The open retail forex transactions with prices at which 
acquired;
    (ii) The net unrealized profits or losses in all open retail forex 
transactions marked to the market; and
    (iii) Any money, securities or other property carried with the 
retail foreign exchange dealer or futures commission merchant; and
    (iv) A detailed accounting of all financial charges and credits to 
such retail forex accounts during the monthly reporting period, 
including money, securities or property received from or disbursed to 
such customer and realized profits and losses; and
    (2) For each retail forex customer engaging in forex options 
transactions:
    (i) All forex options purchased, sold, exercised, or expired during 
the monthly reporting period, identified by underlying retail forex 
transaction or underlying currency, strike price, transaction date, and 
expiration date;
    (ii) The open forex option positions carried for such customer as of 
the end of the monthly reporting period, identified by underlying retail 
forex transaction or underlying currency, strike price, transaction 
date, and expiration date;
    (iii) All open forex option positions marked to the market and the 
amount each position is in the money, if any;
    (iv) Any money, securities or other property carried with the retail 
foreign exchange dealer or futures commission merchant; and
    (v) A detailed accounting of all financial charges and credits to 
such retail forex account(s) during the monthly reporting period, 
including money, securities and property received from or disbursed to 
such customer, premiums charged and received, and realized profits and 
losses.
    (b) Confirmation statement. Each retail foreign exchange dealer or 
futures commission merchant must, not later than the next business day 
after any retail forex or forex option transaction, furnish:
    (1) To each retail forex customer, a written confirmation of each 
retail forex transaction caused to be executed by it for the customer, 
including offsetting transactions executed during the same business day 
and the rollover of an open retail forex transaction to the next 
business day.
    (2) To each retail forex customer engaging in forex option 
transactions, a

[[Page 241]]

written confirmation of each forex option transaction, containing at 
least the following information:
    (i) The retail forex customer's account identification number;
    (ii) A separate listing of the actual amount of the premium, as well 
as each mark-up thereon, if applicable, and all other commissions, 
costs, fees and other charges incurred in connection with the forex 
option transaction;
    (iii) The strike price;
    (iv) The underlying retail forex transaction or underlying currency;
    (v) The final exercise date of the forex option purchased or sold; 
and
    (vi) The date the forex option transaction was executed.
    (3) To each retail forex customer engaging in forex option 
transactions, upon the expiration or exercise of any forex option, a 
written confirmation statement thereof, which statement shall include 
the date of such occurrence, a description of the forex option involved, 
and, in the case of exercise, the details of the retail forex or 
physical currency position which resulted therefrom including, if 
applicable, the final trading date of the retail forex transaction 
underlying the option.
    (4) Notwithstanding the provisions of paragraphs (b)(1) through (3) 
of this section, a retail forex transaction or forex option transaction 
that is caused to be executed for a pooled investment vehicle that 
engages in retail forex transactions need be confirmed only to the 
operator of such pooled investment vehicle.
    (c) Controlled accounts. With respect to any account controlled by 
any person other than the retail forex customer or forex option customer 
for whom such account is carried, each retail foreign exchange dealer or 
futures commission merchant shall promptly furnish in writing to such 
other person the information required by paragraphs (a) and (b) of this 
section.
    (d) Recordkeeping. Each retail foreign exchange dealer or futures 
commission merchant shall retain, in accordance with Sec. 1.31 of this 
chapter, a copy of each monthly statement and confirmation required by 
this section.
    (e) Introduced accounts. Each statement provided pursuant to the 
provisions of this section must, if applicable, show that the account 
for which the retail foreign exchange dealer or futures commission 
merchant is providing the statement was introduced by an introducing 
broker and the names of the retail foreign exchange dealer or futures 
commission merchant and introducing broker.
    (f) Electronic transmission of statements. (1) The statements 
required by this section may be furnished to a retail forex customer by 
means of electronic media if the retail forex customer so consents, 
Provided, however, that a retail foreign exchange dealer or futures 
commission merchant must, prior to the transmission of any statement by 
means of electronic media, disclose the electronic medium or source 
through which statements will be delivered, the duration, whether 
indefinite or not, of the period during which consent will be effective, 
any charges for such service, the information that will be delivered by 
such means, and that consent to electronic delivery may be revoked at 
any time, and provided, further, that a retail foreign exchange dealer 
or futures commission merchant must obtain the retail forex customer's 
signed consent acknowledging such disclosure prior to the transmission 
of any statement by means of electronic media.
    (2) Any statement required to be furnished to a person other than a 
retail forex customer in accordance with paragraph (f) of this section 
may be furnished by electronic media.
    (3) A retail foreign exchange dealer or futures commission merchant 
who furnishes statements to a retail forex customer by means of 
electronic media must retain a daily confirmation statement for such 
retail forex customer as of the end of the trading session, reflecting 
all transactions made during that session for the customer, in 
accordance with Sec. 1.31 of this chapter.
    (g) Combination with other statements. Any futures commission 
merchant required to deliver statements to retail forex customers in 
accordance with Sec. 1.33 of this chapter may combine into one monthly 
statement or confirmation statement, as the case may be, the information 
required by this section and the information required by Sec. 1.33,

[[Page 242]]

provided that retail forex account information is separately identified 
from any other trading or account activity of the retail forex customer.



Sec. 5.14  Records to be kept by retail foreign exchange dealers and futures 

commission merchants.

    (a) No person shall be registered as a retail foreign exchange 
dealer under the Act unless, commencing on the date his application for 
such registration is filed, he prepares and keeps current ledgers or 
other similar records which show or summarize, with appropriate 
references to supporting documents, each transaction affecting his 
asset, liability, income, expense and capital accounts, and in which 
(except as otherwise permitted in writing by the Commission) all his 
asset, liability and capital accounts are classified into either the 
account classification subdivisions specified on Form 1-FR-FCM or 
categories that are in accord with generally accepted accounting 
principles as applicable. Each person so registered shall prepare and 
keep current such records.
    (b) Each applicant or registrant must make and keep as a record in 
accordance with Sec. 1.31 of this chapter formal computations of its 
adjusted net capital and of its minimum financial requirements pursuant 
to Sec. 1.17 or Sec. 5.7 of this chapter, or the requirements of the 
designated self-regulatory organization to which it is subject, as 
applicable, as of the close of business each month. Such computations 
must be completed and made available for inspection by any 
representative of the National Futures Association, in the case of an 
applicant, or of the Commission or designated self-regulatory 
organization, if any, in the case of a registrant, within 17 business 
days after the date for which the computations are made, commencing the 
first month end after the date the application for registration is 
filed.



Sec. 5.15  Unlawful representations.

    It shall be unlawful for any person registered pursuant to the 
requirements of this part to represent or imply in any manner whatsoever 
that such person has been sponsored, recommended or approved, or that 
its abilities or qualifications have been reviewed or evaluated, by the 
Commission, the Federal government or any agency thereof.



Sec. 5.16  Prohibition of guarantees against loss.

    (a) No retail foreign exchange dealer, futures commission merchant 
or introducing broker may in any way represent that it will, with 
respect to any retail foreign exchange transaction in any account 
carried by a retail foreign exchange dealer or futures commission 
merchant for or on behalf of any person:
    (1) Guarantee such person against loss;
    (2) Limit the loss of such person; or
    (3) Not call for or attempt to collect security deposits, margin, or 
other deposits as established for retail forex customers.
    (b) No person may in any way represent that a retail foreign 
exchange dealer, futures commission merchant or introducing broker will 
engage in any of the acts or practices described in paragraph (a) of 
this section.
    (c) This section shall not be construed to prevent a retail foreign 
exchange dealer, futures commission merchant or introducing broker from 
assuming or sharing in the losses resulting from an error or mishandling 
of an order.
    (d) This section shall not affect any guarantee entered into prior 
to October 18, 2010, but this section shall apply to any extension, 
modification or renewal thereof entered into after such date.



Sec. 5.17  Authorization to trade.

    No retail foreign exchange dealer, futures commission merchant, 
introducing broker or any of their associated persons may directly or 
indirectly effect a retail forex transaction for the account of any 
customer unless before the transaction the customer, or person 
designated by the customer to control the account specifically 
authorized the retail foreign exchange dealer, futures commission 
merchant, introducing broker or any of their associated persons to 
effect the transaction.

[[Page 243]]

A transaction is ``specifically authorized'' if the customer or person 
designated by the customer to control the account specifies:
    (a) The precise retail forex transaction to be effected;
    (b) The exact amount of the foreign currency to be purchased or 
sold; and
    (c) In the case of an option, the identity of the foreign currency 
or contract that underlies the option.



Sec. 5.18  Trading and operational standards.

    (a) For purposes of this section:
    (1) The term retail forex counterparty includes, as appropriate:
    (i) A retail foreign exchange dealer as defined in Sec. 5.1 of this 
part;
    (ii) A futures commission merchant as defined in section 1a(20) of 
the Act; and
    (iii) An affiliated person of a futures commission merchant as 
defined in Sec. 5.1 of this part.
    (2) The term related person when used in reference to a retail forex 
counterparty means any general partner, officer, director, owner of more 
than ten percent of the equity interest, associated person or employee 
of the retail forex counterparty, and any relative or spouse of any of 
the foregoing persons, or any relative of such spouse, who shares the 
same home as any of the foregoing persons.
    (b) Prior to engaging in a retail forex transaction, each retail 
forex counterparty shall, at a minimum, establish and enforce internal 
rules, procedures and controls to:
    (1) Ensure, to the extent possible, that each order received from a 
retail forex customer which order is executable at or near the price 
that the retail forex counterparty has quoted to the customer is entered 
for execution before any order in any retail forex transaction for any 
proprietary account, any other account in which a related person of the 
retail forex counterparty has an interest, or any account for which such 
a related person may originate orders without the prior specific consent 
of the account owner (if such related person has gained knowledge of the 
retail forex customer's order prior to the transmission of an order for 
a proprietary account), an account in which such a related person has an 
interest, or an account in which such a related person may originate 
orders without the prior specific consent of the account owner; and
    (2) Prevent related persons of forex counterparties from placing 
orders, directly or indirectly, with another person in a manner designed 
to circumvent the provisions of paragraph (b)(1) of this section;
    (3) Fairly and objectively establish settlement prices for retail 
forex transactions; and
    (4) Record and maintain essential information regarding customer 
orders and account activity, and to provide such information to 
customers upon request. Such information shall include:
    (i) Transaction records for the customer's account, including:
    (A) The date and time each order is received by the retail forex 
counterparty;
    (B) The price at which each order is placed, or, in the case of an 
option, the premium paid
    (C) If the transaction was entered into by means of a trading 
platform, the price quoted on the trading platform when the order was 
placed, or, in the case of an option, the premium quoted;
    (D) The customer account identification information;
    (E) The currency pair;
    (F) The size of the transaction;
    (G) Whether the order was a buy or sell order;
    (H) The type of order, if the order was not a market order;
    (I) If a trading platform is used, the date and time the order is 
transmitted to the trading platform;
    (J) If a trading platform is used, the date and time the order is 
executed;
    (K) The size and price at which the order is executed, or in the 
case of an option, the amount of the premium paid for each option 
purchased, or the amount credited for each option sold; and
    (L) For options, whether the option is a put or call, the strike 
price, and expiration date.
    (ii) Account records that contain the following information:
    (A) The funds in the account, net of any commissions and fees;

[[Page 244]]

    (B) The net profits and losses on open trades; and
    (C) The funds in the account plus or minus the net profits and 
losses on open trades. (In the case of open option positions, the 
account balance should be adjusted for the net option value);
    (iii) If a trading platform is used, daily logs showing each price 
change on the platform, the time of the change to the nearest second, 
and the trading volume at that time and price; and
    (iv) Any method or algorithm used to determine the bid or asked 
price for any retail forex transaction or the prices at which customer 
orders are executed, including, but not limited to, any markups, fees, 
commissions or other items which affect the profitability or risk of 
loss of a retail forex customer's transaction.
    (c) No retail forex counterparty shall disclose that an order of 
another person is being held by the retail forex counterparty, unless 
such disclosure is necessary to the effective execution of such order or 
is made at the request of an authorized representative of the 
Commission, or a futures association registered with the Commission 
pursuant to section 17 of the Act.
    (d) No retail forex counterparty shall knowingly handle the account 
of any related person of another retail forex counterparty unless it:
    (1) Receives written authorization from a person designated by such 
other retail forex counterparty with responsibility for the surveillance 
over such account pursuant to paragraph (b)(2) of this section;
    (2) Prepares immediately upon receipt of an order for such account a 
written record of such order, including the account identification and 
order number, and records thereon to the nearest minute, by time-stamp 
or other timing device, the date and time the order is received; and
    (3) Transmits on a regular basis to such other retail forex 
counterparty copies of all statements for such account and of all 
written records prepared upon the receipt of orders for such account 
pursuant to paragraph (b)(2) of this section.
    (e) No related person of a retail forex counterparty shall have an 
account, directly or indirectly, with another retail forex counterparty 
unless:
    (1) It receives written authorization to maintain such an account 
from a person designated by the retail forex counterparty of which it is 
a related person with responsibility for the surveillance over such 
account pursuant to paragraph (b)(2) of this section; and
    (2) Copies of all statements for such account and of all written 
records prepared by such other retail forex counterparty upon receipt of 
orders for such account pursuant to paragraph (d)(2) of this section are 
transmitted on a regular basis to the retail forex counterparty of which 
it is a related person.
    (f) No retail forex counterparty shall:
    (1) Enter into a retail forex transaction, to be executed pursuant 
to a market or limit order at a price that is not at or near the price 
at which other retail forex customers, during that same time period, 
have executed retail forex transactions with the retail forex 
counterparty; Provided, however, that this paragraph (f)(1) shall not 
prohibit such practice if done in accordance with the rules of a 
registered futures association, and of which such retail foreign 
exchange dealer, futures commission merchant or affiliated person of a 
futures commission merchant is a member;
    (2) Adjust or alter prices for a retail forex transaction after the 
transaction has been confirmed to the retail forex customer; Provided, 
however, that this paragraph (f)(2) shall not prohibit such practice if 
in accordance with the rules of a registered futures association, and of 
which such retail foreign exchange dealer, futures commission merchant 
or affiliated person of a futures commission merchant is a member;
    (3)(i) Provide a retail forex customer a new bid price for a retail 
forex transaction that is higher than its previous bid without providing 
a new asked price that is also higher than its previous asked price by a 
similar amount;
    (ii) Provide a retail forex customer a new bid price for a retail 
forex transaction that is lower than its previous bid without providing 
a new asked price that is also lower than its previous asked price by a 
similar amount; or

[[Page 245]]

    (4) Establish a new position for a retail forex customer (except one 
that offsets an existing position for that retail forex customer) where 
the retail forex counterparty holds outstanding orders of other retail 
forex customers for the same currency pair at a comparable price.
    (g)(1) Each retail forex counterparty and each CPO, CTA and IB 
subject to this part 5 shall maintain a record of all communications 
received by such person concerning facts giving rise to possible 
violations of the Act, rules, regulations or orders thereunder, related 
to their retail forex business. The record shall contain the name of the 
complainant, if provided, the date of the communication, the agreement, 
contract or transaction, the substance of the communication, and the 
name of the person who received the communication.
    (2) Each retail forex counterparty and each CPO, CTA and IB subject 
to this part 5 shall provide to the Division of Enforcement of the 
Commission, electronically, a copy of the record of each communication 
received pursuant to paragraph (g)(1) of this section. Such copy shall 
be provided to the Division of Enforcement of the Commission no later 
than 30 calendar days after the communication is received: Provided, 
however, that in the case of a communication concerning facts giving 
rise to possible fraud under the Act or Commission regulations, such 
copy shall be provided to the Division of Enforcement of the Commission 
within three business days after the communication is received.
    (h) An introducing broker as defined in Sec. 5.1(f)(1) of this 
part, applicant for registration as an introducing broker as defined in 
Sec. 5.1(f)(1) of this part, or person succeeding to and continuing the 
business of another introducing broker as defined in Sec. 5.1(f)(1) of 
this part must comply with all provisions applicable to an introducing 
broker under this chapter; Provided, however, that an introducing broker 
operating pursuant to, or an applicant for registration as an 
introducing broker who has filed concurrently with its application for 
registration, a guarantee agreement meeting the requirements of Sec. 
1.10(j) of this chapter is not subject to the minimum capital and 
related financial reporting requirements of Sec. Sec. 1.10, 1.12 and 
1.17 of this chapter.
    (i)(1) Each retail forex counterparty shall prepare and maintain on 
a quarterly basis (calendar quarter) a calculation of the percentage of 
nondiscretionary retail forex customer accounts open for any period of 
time during the quarter that were profitable, and the percentage of such 
accounts that were not profitable. In calculating whether a retail forex 
account was profitable or not profitable during the quarter, the FCM or 
RFED must compute the realized and unrealized gains and/or losses on all 
retail forex transactions carried in the retail forex account at any 
time during the quarter, and subtract all fees, commissions, and any 
other charges posted to the retail forex account during the quarter, and 
add any interest income and other income or rebates credited to the 
retail forex account during the quarter. All deposits and/or withdrawals 
of funds made by a retail forex customer during the quarter must be 
excluded from the computation of whether the retail forex account was 
profitable or not profitable during the quarter. Computations that 
result in a zero or negative number shall be considered a retail forex 
account that was not profitable. Computations that result in a positive 
number shall be considered a retail forex account that was profitable. 
RFEDs and FCMs shall maintain such calculations along with data 
supporting such calculations for five years in accordance with Sec. 
1.31.
    (2) In calculating its percentages of nondiscretionary retail forex 
customer accounts that were profitable or not profitable, the retail 
forex counterparty may only use those retail forex accounts, as defined 
in Sec. 5.1(i) of this part, that are nondiscretionary accounts; 
provided, that the retail forex account is not a proprietary account, as 
defined in paragraph (i)(3) of this section.
    (3) Proprietary account for this section means a retail forex 
account carried on the books of a retail foreign exchange dealer or a 
futures commission merchant for one of the following persons, or of 
which ten percent or more is owned by one of the following persons,

[[Page 246]]

or of which an aggregate of ten percent or more of which is owned by 
more than one of the following persons:
    (i) Such retail foreign exchange dealer or futures commission 
merchant itself;
    (ii) If the retail foreign exchange dealer or futures commission 
merchant is a partnership, a general partner in such partnership;
    (iii) If the retail foreign exchange dealer or futures commission 
merchant is a limited partnership, a limited or special partner in such 
partnership whose duties include:
    (A) The management of the partnership business or any part thereof,
    (B) The handling of retail forex transactions of such partnership,
    (C) The keeping of records pertaining to retail forex transactions, 
or
    (D) The signing or co-signing of checks or drafts on behalf of such 
partnership;
    (iv) If the retail foreign exchange dealer or futures commission 
merchant is a corporation or association, an officer, director or owner 
of ten percent or more of the capital stock, of such organization;
    (v) An employee of such retail foreign exchange dealer or futures 
commission merchant whose duties include:
    (A) The management of the business of such retail foreign exchange 
dealer or futures commission merchant or any part thereof,
    (B) The handling of retail forex transactions of such retail foreign 
exchange dealer or futures commission merchant,
    (C) The keeping of records pertaining to retail forex transactions 
of such retail foreign exchange dealer or futures commission merchant, 
or
    (D) The signing or co-signing of checks or drafts on behalf of such 
retail foreign exchange dealer or futures commission merchant;
    (vi) A spouse or minor dependent living in the same household of any 
of the foregoing persons;
    (vii) A business affiliate that directly or indirectly controls such 
retail foreign exchange dealer or futures commission merchant; or
    (viii) A business affiliate that, directly or indirectly is 
controlled by or is under common control with, such retail foreign 
exchange dealer or futures commission merchant.
    (j) Each retail forex counterparty shall designate one or more 
principals to serve as a chief compliance officer(s). The chief 
compliance officer(s) shall certify to the Commission and a registered 
national futures association annually that the retail forex counterparty 
has in place processes to establish, maintain, review, modify and test 
policies and procedures reasonably designed to achieve compliance with 
the Act, rules, regulations and orders thereunder. The certification 
shall include a statement that the counterparty has in place compliance 
processes, and that the chief compliance officer(s) has apprised the 
chief executive officer of the compliance efforts to date and identify 
and address significant compliance problems and plans to address those 
problems.



Sec. 5.19  Pending legal proceedings.

    (a) Every retail foreign exchange dealer or futures commission 
merchant and each CPO, CTA or IB subject to this part 5 shall submit to 
the Commission copies of any dispositive or partially dispositive 
decision for which a notice of appeal has been filed, the notice of 
appeal and such further documents as the Commission may thereafter 
request filed in any material legal proceeding to which the retail 
foreign exchange dealer, futures commission merchant, CPO, CTA or IB is 
a party or to which its property or assets is subject with respect to 
retail forex transactions.
    (b) Every retail foreign exchange dealer or futures commission 
merchant and each CPO, CTA or IB subject to this part 5 shall submit to 
the Commission copies of any dispositive or partially dispositive 
decision concerning which a notice of appeal has been filed, the notice 
of appeal, and such further documents as the Commission may thereafter 
request filed in any material legal proceeding instituted against any 
person who is a principal of the retail foreign exchange dealer, futures 
commission merchant CPO, CTA or IB (as the term ``principal'' is defined 
in Sec. 3.1(a) of this chapter) arising from conduct in such person's 
capacity as a principal of

[[Page 247]]

the retail foreign exchange dealer, futures commission merchant, CPO, 
CTA or IB and alleging violations, with regard to retail forex 
transactions, of:
    (1) The Act or any rule, regulation, or order thereunder; or
    (2) Provisions of state law relating to a duty or obligation owed by 
such a principal.
    (c) All documents required by this section to be submitted to the 
Commission shall be mailed via first-class or submitted by other more 
expeditious means to the Commission's headquarters office in Washington, 
DC, Attention: Director, Division of Enforcement. All documents required 
by this section to be submitted to the Commission as to matters pending 
on October 18, 2010 shall be mailed to the Commission within 45 days of 
that effective date. Thereafter, all decisions and notices of appeal 
required to be submitted by retail foreign exchange dealers, futures 
commission merchants, CPOs, CTAs or IBs shall be mailed within 10 days 
of the filing or receipt by the retail foreign exchange dealer or 
futures commission merchant of the relevant notice of appeal. For 
purposes of paragraph (a) and (b) of this section, a ``material legal 
proceeding'' includes but is not limited to actions involving alleged 
violations of the Commodity Exchange Act or the Commission's 
regulations. However, a legal proceeding is not ``material'' for the 
purposes of this rule if the proceeding is not in a federal or state 
court or if the Commission is a party.



Sec. 5.20  Special calls for account and transaction information.

    (a) Preparation and transmission of information upon special call. 
All information required upon special call shall be prepared in such 
form and manner and in accordance with such instructions, and shall be 
transmitted at such time and to such office of the Commission, as may be 
specified in the call.
    (b) Special calls for information on controlled accounts from retail 
foreign exchange dealers, futures commission merchants and introducing 
brokers. Upon call by the Commission, each retail foreign exchange 
dealer, futures commission merchant and introducing broker shall file 
with the Commission the names and addresses of all persons who, by power 
of attorney or otherwise, exercise trading control over any customer's 
account in retail forex transactions.
    (c) Special calls for information on open transactions in accounts 
carried or introduced by retail foreign exchange dealers, futures 
commission merchants, and introducing brokers. Upon special call by the 
Commission for information relating to retail forex transactions held or 
introduced on the dates specified in the call, each retail foreign 
exchange dealer, futures commission merchant, or introducing broker 
shall furnish to the Commission the following information concerning 
accounts of traders owning or controlling such retail forex transaction 
positions, as may be specified in the call:
    (1) The name, address, and telephone number of the person for whom 
each account is carried;
    (2) The principal business or occupation of the person for whom each 
account is introduced or carried, as specified in the call;
    (3) The name, address and principal business or occupation of any 
person who controls the trading of each account;
    (4) The name and address of any person having a financial interest 
of ten percent or more in each account;
    (5) The number of open retail forex transaction positions introduced 
or carried in each account, as specified in the call; and
    (6) The total number of retail forex transactions against which 
delivery has been made.
    (d) Delegation of authority to the Director of the Division of 
Clearing and Intermediary Oversight and the Director of the Division of 
Market Oversight. The Commission hereby delegates, until the Commission 
orders otherwise, to the Director of the Division of Clearing and 
Intermediary Oversight and the Director of the Division of Market 
Oversight, or to the respective Director's designees, the authority set 
forth in this section to make special calls for information on 
controlled accounts from retail foreign exchange dealers, futures 
commission merchants and from introducing brokers, and to make special 
calls for information on open

[[Page 248]]

contracts in accounts carried or introduced by futures commission 
merchants, introducing brokers, and foreign brokers. Either Director may 
submit to the Commission for its consideration any matter that has been 
delegated pursuant to this section. Nothing in this section shall be 
deemed to prohibit the Commission, at its election, from exercising the 
authority delegated in this section to the Directors.



Sec. 5.21  Supervision.

    Each Commission registrant subject to this part 5, except an 
associated person who has no supervisory duties, must diligently 
supervise the handling by its partners, officers, employees and agents 
(or persons occupying a similar status or performing a similar function) 
of all retail forex accounts carried, operated, advised or introduced by 
the registrant and all other activities of its partners, officers, 
employees and agents (or persons occupying a similar status or 
performing a similar function) relating to its business as a Commission 
registrant.



Sec. 5.22  Registered futures association membership.

    (a) Each person registered as a retail foreign exchange dealer must 
become and remain a member of at least one futures association that is 
registered under section 17 of the Act and that provides for the 
membership therein of such retail foreign exchange dealer.
    (b) Each person required to register as:
    (1) An introducing broker, because the person solicits or accepts 
orders for retail forex transactions;
    (2) A commodity pool operator because the person operates, or 
solicits funds, securities, or property for, a pooled investment vehicle 
that engages in retail forex transactions; or
    (3) A commodity trading advisor because the person exercises 
discretionary trading authority, or obtains written authorization to 
exercise discretionary trading authority over, an account in connection 
with retail forex transactions, must become and remain a member of at 
least one futures association that is registered under section 17 of the 
Act and that provides for the membership therein of such person.



Sec. 5.23  Notice of bulk transfers and bulk liquidations.

    (a) Notice and disclosure to retail forex customers of a bulk 
transfer. (1) A retail foreign exchange dealer, futures commission 
merchant or introducing broker must obtain the written prior and 
specific consent of its retail forex customer to the assignment of any 
position or transfer of any account of the retail forex customer to 
another retail foreign exchange dealer, futures commission merchant or 
introducing broker, unless made at the retail forex customer's request.
    (2) Absent a request of the retail forex customer or the consent 
described in paragraph (a)(1) of this section, assignments of positions 
and transfers of accounts of retail forex customers may be permitted 
under rules of the retail forex dealer's, futures commission merchant's, 
or introducing broker's designated self-regulatory organization that 
establish notice and other requirements with respect to the assignment 
of positions and transfers of accounts of retail forex customers. If 
such rules permit implied consent as a result of the failure of the 
retail forex customer to object after having received notice of the 
proposed assignment or transfer, such rules must provide that the notice 
must include a statement that the retail forex customer is not required 
to accept the proposed assignment or transfer and may direct the 
transferor firm to liquidate the positions of the retail forex customer 
or transfer the account to a firm of the retail forex customer's 
selection.
    (3) For assignments and transfers made under this section, other 
than at the retail forex customer's request, the transferee retail 
foreign exchange dealer, futures commission merchant or introducing 
broker must provide to the retail forex customer the risk disclosure 
statements and forms of acknowledgment required by part 5 of this 
chapter and receive the required signed acknowledgments within sixty 
days of such assignments or transfers. This requirement shall not apply:
    (i) If the transferee retail foreign exchange dealer, futures 
commission merchant or introducing broker has clear written evidence 
that the retail

[[Page 249]]

forex customer has received and acknowledged receipt of the required 
disclosure statements; or
    (ii) If the transfer of accounts is made from one introducing broker 
to another introducing broker guaranteed by the same retail foreign 
exchange dealer or futures commission merchant pursuant to a guarantee 
agreement in accordance with the requirements of Sec. 1.10(j) of this 
chapter and such retail foreign exchange dealer or futures commission 
merchant maintains the relevant acknowledgments required by part 5 of 
this chapter.
    (b) Notice to the Commission. Each retail foreign exchange dealer, 
futures commission merchant or introducing broker shall file with the 
Commission prior notice of any transfer of accounts of any retail forex 
customer that is not initiated at the request of the customer, where the 
transfer involves 50 percent or more of the transferor's total number of 
retail forex customer accounts.
    (c) Contents of notice to the Commission. The notice required by 
paragraph (b) of this section shall include:
    (1) The name, principal business address and telephone number of the 
transferor futures retail foreign exchange dealer, futures commission 
merchant or introducing broker;
    (2) The name, principal business address and telephone number of 
each transferee retail foreign exchange dealer, futures commission 
merchant or introducing broker;
    (3) The designated self-regulatory organization for the transferor 
and transferee firms;
    (4) A brief statement as to the reasons for the transfer;
    (5) A copy of any notices to customers regarding the transfers; and
    (6) A statement of the number of accounts to be transferred.
    (d) Notice of the bulk liquidation of retail forex transactions. A 
retail foreign exchange dealer or futures commission merchant may not 
initiate the bulk liquidation of properly margined retail forex 
transactions unless such liquidation complies with the rules and 
procedures of the retail forex dealer's or futures commission merchant's 
designated self-regulatory organization and the retail forex dealer or 
futures commission merchant provides the Commission with prior written 
notice of the liquidation.
    (e) Contents of notice of bulk liquidation. The notice required by 
paragraph (d) of this section shall include:
    (1) The name, principal business address and telephone number of the 
initiating retail foreign exchange dealer or futures commission 
merchant;
    (2) A brief statement of the reasons for the liquidation;
    (3) A copy of any notices to customers regarding the liquidation; 
and
    (4) A statement of the number of accounts to be liquidated.
    (f) Filing of notices. The notice required by paragraph (b) and (d) 
of this section shall be filed five business days prior to the transfer 
or liquidation of the retail forex transaction with the Deputy Director, 
Compliance and Registration Section, Division of Clearing and 
Intermediary Oversight, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581; the 
National Futures Association Attn: Vice President-Compliance; and the 
designated self-regulatory organization for the transferor firm.
    (g) No effect on other obligations. The requirements of this section 
shall not affect the obligations of a retail foreign exchange dealer, 
futures commission merchant or introducing broker under the rules of a 
self-regulatory organization or applicable customer account agreement 
with respect to assignments of positions or transfers of accounts or 
liquidation of positions.
    (h) Corrective notice. If a proposed transfer is not completed in 
accordance with the notice required to be filed by paragraph (b) of this 
section, a corrective notice shall be filed within five business days of 
the date such proposed transfer was to occur explaining why the proposed 
transfer was not completed.



Sec. 5.24  Applicability of other parts of this chapter

    Insofar as it is consistent with the requirements of this part, all 
other provisions of this chapter that apply to a person shall apply to 
such person as though such provisions were expressly set forth in this 
part.

[[Page 250]]



Sec. 5.25  Applicability of the Act.

    Except as otherwise specified in this part and unless the context 
otherwise requires, the provisions of Sections 4b, 4c(b), 4f, 4g, 4k, 
4m, 4n, 4o, 6(c)-(e), 6b, 6c, 8(a)-(e), 8a and 12(f) of the Act shall 
apply to retail forex transactions that are subject to the requirements 
of this part as though such provisions were set forth herein and 
included specific references to retail forex transactions and the 
persons defined in Sec. 5.1 of this part.



PART 7_CONTRACT MARKET RULES ALTERED OR SUPPLEMENTED BY THE COMMISSION--Table of Contents



                      Subpart A_General Provisions

Sec.
7.1 Scope of rules.

Subpart B [Reserved]

7.100-7.101 [Reserved]

          Subpart C_Board of Trade of the City of Chicago Rules

7.200-7.201 [Reserved]

    Authority: 7 U.S.C. 7(a) and 12a(7).

    Source: 45 FR 51526, Aug. 1, 1980, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 7.1  Scope of rules.

    This part sets forth contract market rules altered or supplemented 
by the Commission pursuant to section 8a(7) of the Act.

Subpart B [Reserved]



Sec. Sec. 7.100-7.101  [Reserved]



          Subpart C_Board of Trade of the City of Chicago Rules



Sec. 7.200-7.201  [Reserved]



PART 8_EXCHANGE PROCEDURES FOR DISCIPLINARY, SUMMARY, AND MEMBERSHIP DENIAL ACTIONS--Table of Contents



                      Subpart A_General Provisions

Sec.
8.01 Scope of rules.
8.02 Implementing exchange rules.
8.03 Definitions.

                    Subpart B_Disciplinary Procedure

8.05 Enforcement staff.
8.06 Investigations.
8.07 Investigation reports.
8.08 Disciplinary committee.
8.09 Review of investigation report.
8.10 Predetermined penalties.
8.11 Notice of charges.
8.12 Right to representation.
8.13 Answer to charges.
8.14 Admission or failure to deny charges.
8.15 Denial of charges and right to hearing.
8.16 Settlement offers.
8.17 Hearing.
8.18 Decision.
8.19 Appeal.
8.20 Final decision.

                        Subpart C_Summary Actions

8.25 Member responsibility actions.
8.26 Procedure for member responsibility actions.
8.27 Violations of rules regarding decorum, submission of records or 
          other similar activities.
8.28 Final decision.

    Authority: 7 U.S.C. 6c, 7a, 12a and 12c, unless otherwise noted.

    Source: 43 FR 41950, Sept. 19, 1978, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 8.01  Scope of rules.

    This part sets forth the standards to be followed by an exchange in 
establishing procedures for investigating and adjudicating possible rule 
violations within the disciplinary jurisdiction of the exchange, for 
taking summary action in member responsibility

[[Page 251]]

cases and in cases involving violations of rules regarding decorum, 
submission of records or other similar activities, and for adjudicating 
membership denial determinations. Nothing in this part shall be 
construed to prohibit an exchange from adopting additional rules and 
practices not inconsistent with those set forth herein.



Sec. 8.02  Implementing exchange rules.

    (a) Each exchange shall submit to the Commission for its approval 
rules implementing the following regulations: Sec. Sec. 8.11, 8.13, 
8.15, 8.17, 8.18 and 8.20 of subpart B and Sec. Sec. 8.26 and 8.28 of 
subpart C. Any such rule not previously submitted to the Commission 
shall not be put into effect prior to Commission approval.
    (b) An exchange may adopt rules implementing any or all of the 
following regulations: Sec. Sec. 8.10, 8.16 and 8.19 of subpart B and 
Sec. 8.27 of subpart C. Each rule so adopted and not previously 
submitted to the Commission shall be submitted to the Commission for its 
approval and shall not be put into effect prior to Commission approval.



Sec. 8.03  Definitions.

    For purposes of this part:
    (a) Board of appeals means that body provided for in Sec. 8.19.
    (b) Charge or charges means any charge or charges contained in the 
notice of charges.
    (c) Disciplinary committee means that body or bodies provided for in 
Sec. 8.08.
    (d) Disciplinary procedure means the rules of an exchange governing 
the investigation and adjudication of possible rule violations and the 
imposition of appropriate penalties under subpart B of this part.
    (e) Enforcement staff means that body provided for in Sec. 8.05.
    (f) Exchange means any board of trade which has been designated as a 
contract market for one or more commodities pursuant to section 5 of the 
Act or to trade commodity options pursuant to part 33 of this chapter.
    (g) Investigation report means the report required by Sec. 8.07.
    (h) Notice of charges means the notice required by Sec. 8.11.
    (i) Penalty means any restriction, limitation, censure, fine, 
expulsion, suspension, revocation, reprimand, cease and desist order, 
sanction or any other disciplinary action for any amount or of any 
definite or indefinite period imposed upon any person within the 
disciplinary jurisdiction of an exchange upon a finding by the 
disciplinary committee that a violation has been committed or pursuant 
to the terms of a settlement agreement.
    (j) Person(s) within the jurisdiction of an exchange means any 
exchange employee, staff member or official, any member or person with 
membership privileges or any person employed by or affiliated with a 
member or person with membership privileges, including any agent or 
associated person, and any other person under the supervision or control 
of the exchange or of any member.
    (k) Record of the proceeding means all testimony, exhibits, papers 
and records produced at or filed in a disciplinary or summary proceeding 
or served on a respondent or an exchange.
    (l) Respondent means any person named in a notice of charges who has 
been served with such notice or who is the subject of a summary action.
    (m) Rule(s) of an exchange means any constitutional provision, 
article of incorporation, bylaw, rule, regulation, resolution, 
interpretation, stated policy or instrument corresponding thereto.
    (n) Violation means any violation within the disciplinary 
jurisdiction of the exchange.

[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 54525, Nov. 3, 1981]



                    Subpart B_Disciplinary Procedure



Sec. 8.05  Enforcement staff.

    (a) Each exchange shall establish an adequate enforcement staff 
which shall be authorized by the exchange to initiate and conduct 
investigations, to prepare reports incident to such investigations and 
to prosecute possible rule violations within the disciplinary 
jurisdiction of the exchange. The enforcement staff shall consist of 
employees of the exchange and/or persons hired on a contract basis. It 
may not include either members of the exchange or persons whose 
interests conflict with enforcement duties. When

[[Page 252]]

carrying out any responsibility under this part 8 or any rule adopted 
pursuant thereto, a member of the enforcement staff may not operate 
under the direction or control of any person or persons with trading 
privileges.
    (b) Each exchange is responsible for assuring the effective and 
diligent enforcement of all rules within its disciplinary jurisdiction, 
regardless of whether its enforcement staff consists of employees or 
persons hired on a contract basis.



Sec. 8.06  Investigations.

    (a) Each exchange shall establish and maintain a disciplinary 
procedure which requires the enforcement staff of the exchange to 
conduct investigations of possible rule violations within the 
disciplinary jurisdiction of the exchange. Such an investigation shall 
be commenced:
    (1) Upon the receipt of a request from the Commission, its Executive 
Director or his delegee, or
    (2) Upon the discovery or receipt of information by the exchange 
which, in the judgment of the enforcement staff, indicates a possible 
basis for finding that a violation has occurred or will occur.
    (b) Each enforcement staff investigation shall be completed within 
four months, unless there exists significant reason to extend it beyond 
such period. If for any reason the enforcement staff closes an 
investigation before determining whether a reasonable basis exists for 
finding that a violation has occurred, the staff shall fully set forth 
the reasons for so closing the investigation in its report.



Sec. 8.07  Investigation reports.

    (a) The enforcement staff shall submit a written investigation 
report to the disciplinary committee of the exchange in every instance 
in which the enforcement staff has determined from surveillance or from 
an investigation that a reasonable basis exists for finding a violation. 
The investigation report shall include the reason the investigation was 
initiated, a summary of the complaint, if any, the relevant facts, the 
enforcement staff's conclusions and a recommendation as to whether the 
disciplinary committee should proceed with the matter.
    (b) If after conducting an investigation the enforcement staff has 
determined that no reasonable basis exists for finding a violation, it 
shall prepare a written report including the reason the investigation 
was initiated, a summary of the complaint, if any, the relevant facts, 
the enforcement staff's conclusions and, if applicable, any 
recommendation that the disciplinary committee issue a warning letter in 
accordance with paragraph (c) of this section. The report shall become 
part of the investigation file which thereafter may be closed.
    (c) In addition to the action required to be taken under either 
paragraph (a) or (b) of this section, the rules of an exchange may 
authorize the enforcement staff to issue a warning letter to a person 
under investigation or to recommend that the disciplinary committee 
issue such a letter. A warning letter issued in accordance with this 
section is not a penalty or an indication that a finding of a violation 
has been made. A copy of such warning letter issued by the enforcement 
staff shall be included in the investigation report required by 
paragraph (a) or (b) of this section.

(Approved by the Office of Management and Budget under control number 
3038-0022)

[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 63036, Dec. 30, 1981]



Sec. 8.08  Disciplinary committee.

    Each exchange shall establish one or more disciplinary committees 
which shall be authorized by the exchange to determine whether 
violations have been committed, to accept offers of settlement and to 
set and impose appropriate penalties. Each such disciplinary committee 
shall consist of one or more members of the exchange or persons on the 
staff of the exchange; however, persons on the enforcement staff may not 
serve on a disciplinary committee.



Sec. 8.09  Review of investigation report.

    The disciplinary committee shall promptly review each investigation 
report. In the event the disciplinary committee determines that 
additional investigation or evidence is needed, it

[[Page 253]]

shall promptly direct the enforcement staff to conduct its investigation 
further. Within a reasonable period of time not to exceed 30 days after 
the receipt of a completed investigation report, the disciplinary 
committee shall take one of the following actions:
    (a) If the disciplinary committee determines that no reasonable 
basis exists for finding a violation or that prosecution is otherwise 
unwarranted, it may direct that no further action be taken. Such 
determination must be in writing and contain a brief statement setting 
forth the reasons therefor.
    (b) If the disciplinary committee determines that a reasonable basis 
exists for finding a violation which should be adjudicated, it shall 
direct that the person alleged to have committed the violation be served 
with a notice of charges and shall proceed in accordance with the rules 
of this subpart.

(Approved by the Office of Management and Budget under control number 
3038-0022)

[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 63036, Dec. 30, 1981]



Sec. 8.10  Predetermined penalties.

    An exchange may adopt rules which set specific maximum penalties for 
particular violations. If the rules of an exchange establish 
predetermined penalties, the disciplinary committee shall have 
discretion in each case whether to employ the predetermined penalty. If 
the predetermined penalty is employed, it shall be stated in the notice 
of charges. In such case, after a hearing on a denied charge where a 
respondent is found to have committed the violation charged, the 
disciplinary committee shall impose the predetermined penalty or an 
appropriate lesser penalty.



Sec. 8.11  Notice of charges.

    The notice of charges shall:
    (a) State the acts, practices, or conduct in which the person is 
alleged to have engaged;
    (b) State the rule alleged to have been violated (or about to be 
violated);
    (c) State the predetermined penalty, if any;
    (d) Prescribe the period within which a hearing on the charges may 
be requested;
    (e) Advise the person charged that:
    (1) He is entitled, upon request, to a hearing on the charges;
    (2) If the rules of the exchange so provide, failure to request a 
hearing within the period prescribed in the notice, except for good 
cause, shall be deemed a waiver of the right to a hearing; and
    (3) If the rules of the exchange so provide, failure in an answer to 
deny expressly a charge shall be deemed to be an admission of such 
charge.

(Approved by the Office of Management and Budget under control number 
3038-0022)

[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 63036, Dec. 30, 1981]



Sec. 8.12  Right to representation.

    Upon being served with a notice of charges the respondent shall have 
the right to be represented by legal counsel or any other representative 
of his choosing in all succeeding stages of the disciplinary proceeding.



Sec. 8.13  Answer to charges.

    The respondent shall be given a reasonable period of time to file an 
answer to the charges. The rules of an exchange may provide that:
    (a) The answer must be in writing and include a statement that the 
respondent admits, denies or does not have and is unable to obtain 
sufficient information to admit or deny each allegation. A statement of 
a lack of sufficient information shall have the effect of a denial of an 
allegation.
    (b) Failure to file an answer on a timely basis shall be deemed an 
admission of all allegations contained in the notice of charges.
    (c) Failure in an answer to deny expressly a charge shall be deemed 
to be an admission of such charge.



Sec. 8.14  Admission or failure to deny charges.

    (a) The rules of an exchange may provide that if the respondent 
admits or fails to deny any of the charges the disciplinary committee 
may find that the rule violation alleged in the notice of charges for 
which the respondent admitted or failed to deny any of the charges has 
been committed. If the exchange rules so provide, then:
    (1) The disciplinary committee shall impose a penalty no greater 
than the

[[Page 254]]

predetermined penalty, if any, stated in the notice of charges for the 
corresponding violation found to have been committed.
    (2) If no predetermined penalty was stated, the disciplinary 
committee shall impose a penalty for each violation found to have been 
committed.
    (b) The disciplinary committee shall promptly notify the respondent 
in writing of any penalty to be imposed pursuant to paragraph (a) of 
this section and shall advise him that he may request a hearing on such 
penalty within a reasonable period of time, which shall be stated in the 
notice, but that except for good cause shown no hearing shall be 
permitted on a penalty imposed pursuant to subparagraph (a)(1) of this 
section.
    (c) The rules of an exchange may provide that if a respondent fails 
to request a hearing within the period of time stated in the notice he 
shall be deemed to have accepted the penalty.

(Approved by the Office of Management and Budget under control number 
3038-0022)

[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 63036, Dec. 30, 1981]



Sec. 8.15  Denial of charges and right to hearing.

    In every instance where the respondent has requested a hearing on a 
charge which is denied, or on a penalty set by the disciplinary 
committee under Sec. 8.14(a)(2), he shall be given an opportunity for a 
hearing in accordance with the requirements of Sec. 8.17. The exchange 
rules may provide that, except for good cause, the hearing shall be 
concerned only with those charges denied and/or penalties set by the 
disciplinary committee under Sec. 8.14(a)(2) for which a hearing has 
been requested.



Sec. 8.16  Settlement offers.

    (a) The rules of an exchange may permit a respondent to submit a 
written offer of settlement to the disciplinary committee at any time 
after the investigation report is completed. The disciplinary committee 
may accept the offer of settlement, but may not alter its terms unless 
the respondent agrees.
    (b) The rules of an exchange may provide that the disciplinary 
committee, in its discretion, may permit the respondent to accept a 
penalty without either admitting or denying the rule violations upon 
which the penalty is based.
    (c) If an offer of setlement is accepted by the disciplinary 
committee, it shall issue a written decision specifying the rule 
violations it has reason to believe were committed and any penalty to be 
imposed. Where applicable, the decision shall also include a statement 
that the respondent has accepted the penalties imposed without either 
admitting or denying the rule violations.
    (d) The respondent may withdraw his offer of settlement at any time 
before final acceptance by the disciplinary committee. If an offer is 
withdrawn after submission, or is rejected by the disciplinary 
committee, the respondent shall not be deemed to have made any 
admissions by reason of the offer of settlement and shall not be 
otherwise prejudiced by having submitted the offer of settlement.

(Approved by the Office of Management and Budget under control number 
3038-0022)

[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 63036, Dec. 30, 1981]



Sec. 8.17  Hearing.

    (a) The following minimum requirements shall apply to any hearing 
required by this subpart:
    (1) The hearing shall be fair and shall be conducted before members 
of the disciplinary committee. The hearing may be conducted before all 
of the members of the disciplinary committee or a panel thereof, but no 
member of the disciplinary committee may serve on the committee or panel 
if he or any person or firm with which he is affiliated has a financial, 
personal, or other direct interest in the matter under consideration.
    (2) The respondent shall be entitled in advance of the hearing to 
examine all books, documents, or other tangible evidence in the 
possession or under the control of the exchange which are to be relied 
upon by the enforcement staff in presenting the charges contained in the 
notice of charges or which are relevant to those charges.
    (3) The hearing shall be promptly convened after reasonable notice 
to the respondent.

[[Page 255]]

    (4) The formal rules of evidence need not apply; nevertheless, the 
procedures for the hearing may not be so informal as to deny a fair 
hearing.
    (5) The enforcement staff shall be a party to the hearing and shall 
present its case on those charges and penalties which are the subject of 
the hearing.
    (6) The respondent shall be entitled to appear personally at the 
hearing.
    (7) The respondent shall be entitled to cross-examine any persons 
appearing as witnesses at the hearing.
    (8) The respondent shall be entitled to call witnesses and to 
present such evidence as may be relevant to the charges.
    (9) The exchange shall require persons within its jurisdiction who 
are called as witnesses to appear at the hearing and to produce 
evidence. It shall make reasonable efforts to secure the presence of all 
other persons called as witnesses whose testimony would be relevant.
    (10) If the respondent has requested a hearing, a substantially 
verbatim record of the hearing shall be made and shall become a part of 
the record of the proceeding. The record must be one that is capable of 
being accurately transcribed; however, it need not be transcribed unless 
the transcript is requested by Commission staff or the respondent, the 
decision is appealed under Sec. 8.19, or is reviewed by the Commission 
pursuant to section 8c of the Act or part 9 of this chapter. In all 
other instances a summary record of a hearing is permitted.
    (i) The rules of an exchange may provide that the cost of 
transcribing the record of the hearing shall be borne by a respondent 
who requests the transcript, appeals the decision pursuant to Sec. 
8.19, or whose application for Commission review of the disciplinary 
action has been granted under part 9 of this chapter. In all other 
instances, the cost of transcribing the record shall be borne by the 
exchange.
    (b) The rules of an exchange may provide that a penalty may be 
summarily imposed upon any person within its jurisdiction whose actions 
impede the progress of a hearing.

(Approved by the Office of Management and Budget under control number 
3038-0022)

[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 63036, Dec. 30, 1981]



Sec. 8.18  Decision.

    Promptly following a hearing conducted in accordance with Sec. 
8.17, the disciplinary committee shall render a written decision based 
upon the weight of the evidence contained in the record of the 
proceeding and shall provide a copy to the respondent. The decision 
shall include:
    (a) The notice of charges or a summary of the charges;
    (b) The answer, if any, or a summary of the answer;
    (c) A brief summary of the evidence produced at the hearing or, 
where appropriate, incorporation by reference of the investigation 
report;
    (d) A statement of findings and conclusions with respect to each 
charge, including the specific rules which the respondent is found to 
have violated; and
    (e) A declaration of any penalty imposed and the effective date of 
such penalty.

(Approved by the Office of Management and Budget under control number 
3038-0022)

[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 63036, Dec. 30, 1981]



Sec. 8.19  Appeal.

    The rules of an exchange may permit a respondent to appeal promptly 
an adverse decision of a disciplinary committee in all or in certain 
classes of cases. Such rules may require a respondent's notice of appeal 
to be in writing and to specify the findings, conclusions, and/or 
penalty to which objection is taken. If the rules of an exchange permit 
appeal, they shall provide for the following:
    (a) The exchange shall establish a board of appeals which shall be 
authorized to hear appeals of respondents. In addition, the rules of an 
exchange may provide that the board of appeals may, on its own 
initiative, order review of a decision by the disciplinary committee 
within a reasonable period of time after the decision has been rendered.

[[Page 256]]

    (b) No member of the board of appeals shall serve on an appeal or 
review panel if such member participated in any prior stage of the 
disciplinary proceeding or if he or any person or firm with which he is 
affiliated has a financial, personal, or other direct interest in the 
matter. The rules of an exchange may provide that the appeal or review 
proceeding may be conducted before all of the members of the board of 
appeals or a panel thereof. Except for good cause shown, the appeal or 
review shall be conducted solely on the record before the disciplinary 
committee, the written exceptions filed by the parties, and the oral or 
written arguments of the parties.
    (c) Promptly following the appeal or review proceeding, the board of 
appeals shall issue a written decision and shall provide a copy to the 
respondent. The decision shall include a statement of findings and 
conclusions with respect to each charge or penalty reviewed, including 
the specific rules which the respondent was found to have violated by 
the disciplinary committee, and a declaration of any penalty imposed and 
the effective date of such penalty.

(Approved by the Office of Management and Budget under control number 
3038-0022)

[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 63036, Dec. 30, 1981]



Sec. 8.20  Final decision.

    Each exchange shall establish rules setting forth when a decision 
rendered pursuant to this subpart B shall become the final decision of 
such exchange.



                        Subpart C_Summary Actions



Sec. 8.25  Member responsibility actions.

    An exchange may suspend at any time, or take other summary action 
against, a person subject to its jurisdiction upon a reasonable belief 
that such immediate action is necessary to protect the best interest of 
the marketplace.



Sec. 8.26  Procedure for member responsibility actions.

    An action pursuant to Sec. 8.25 shall be taken in accordance with 
an exchange procedure which provides for the following:
    (a) The respondent shall, whenever practicable, be served with a 
notice before the action is taken. If prior notice is not practicable, 
the respondent shall be served with a notice at the earliest possible 
opportunity. The notice shall:
    (1) State the action,
    (2) Briefly state the reasons for the action, and
    (3) State the effective time and date and the duration of the 
action.
    (b) The respondent shall have the right to be represented by legal 
counsel or any other representative of his choosing in all proceedings 
subsequent to the summary action taken pursuant to Sec. 8.25.
    (c) The respondent shall promptly be given opportunity for a 
subsequent hearing. The hearing shall be fair and shall be held before 
one or more persons authorized by the exchange to conduct hearings 
pursuant to this section. The hearing shall be conducted in accordance 
with the requirements set forth in Sec. Sec. 8.17(a)(4)-(9) and (b).
    (d) Promptly following the hearing provided for in paragraph (c) of 
this section, the exchange shall render a written decision based upon 
the weight of the evidence contained in the record of the proceeding and 
shall provide a copy to the respondent. The decision shall include:
    (1) A description of the summary action taken,
    (2) The reasons for the summary action,
    (3) A brief summary of the evidence produced at the hearing,
    (4) Findings and conclusions,
    (5) A determination that the summary action should be affirmed, 
modified or reversed, and
    (6) A declaration of any action to be taken pursuant to the 
determination specified in paragraph (d)(5) of this section and the 
effective date and duration of such action.
    (e) The rules of an exchange may permit the respondent to appeal 
promptly an adverse decision. Such rules shall be

[[Page 257]]

established in accordance with the requirements set forth in Sec. 8.19.

(Approved by the Office of Management and Budget under control number 
3038-0022)

[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 63036, Dec. 30, 1981]



Sec. 8.27  Violations of rules regarding decorum, submission of records or other 

similar activities.

    An exchange may adopt rules which permit the enforcement staff or a 
designated committee of officials to summarily impose minor penalties 
against persons within its jurisdiction for violating rules regarding 
decorum, attire, the timely submission of accurate records required for 
clearing or verifying each day's transactions or other similar 
activities.



Sec. 8.28  Final decision.

    Each exchange shall establish rules setting forth when a decision 
rendered pursuant to this subpart C shall become the final decision of 
such exchange.



PART 9_RULES RELATING TO REVIEW OF EXCHANGE DISCIPLINARY, ACCESS 

DENIAL OR OTHER ADVERSE ACTIONS--Table of Contents



                      Subpart A_General Provisions

Sec.
9.1 Scope of rules.
9.2 Definitions.
9.3 Provisions referenced.
9.4 Filing and service; official docket.
9.5 Motions.
9.6 Sanctions for noncompliance.
9.7 Settlement.
9.8 Practice before the Commission.
9.9 Waiver of rules; delegation of authority.

  Subpart B_Notice and Effective Date of Disciplinary Action or Access 
                              Denial Action

9.10 [Reserved]
9.11 Form, contents and delivery of notice of disciplinary or access 
          denial action.
9.12 Effective date of disciplinary or access denial action.
9.13 Publication of notice.
9.14-9.19 [Reserved]

           Subpart C_Initial Procedure With Respect to Appeals

9.20 Notice of appeal.
9.21 Record of exchange proceeding.
9.22 Appeal brief.
9.23 Answering brief.
9.24 Petition for stay pending review.
9.25 Limited participation of interested persons.
9.26 Participation of Commission staff.
9.27-9.29 [Reserved]

  Subpart D_Commission Review of Disciplinary, Access Denial or Other 
                             Adverse Action

9.30 Scope of review.
9.31 Commission review of disciplinary or access denial action on its 
          own motion.
9.32 Oral argument.
9.33 Final decision by the Commission.

    Authority: 7 U.S.C. 4a, 6c, 7a, 12a, 12c, 16a, unless otherwise 
noted.

    Source: 52 FR 25366, July 7, 1987, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 9.1  Scope of rules.

    (a) Matters included. This part governs the review by the 
Commission, pursuant to section 8c of the Act, as amended, of any 
suspension, expulsion, disciplinary or access denial action, or other 
adverse action by an exchange.
    (b) Matters excluded. This part does not apply to and the Commission 
will not accept notices of appeal, or petitions for stay pending review, 
of:
    (1) Any arbitration proceeding, regardless of whether the proceeding 
was conducted pursuant to the provisions of section 5a(a)(11) of the Act 
or involved a controversy between members of an exchange;
    (2) Except as provided in Sec. Sec. 9.11(a), 9.11(b)(1)-(5), 
9.11(c), 9.12(a) and 9.13 (concerning the notice, effective date and 
publication of a disciplinary or access denial action), any summary 
action authorized under the provisions of Sec. 8.27 of this chapter 
imposing a minor penalty for the violation of exchange rules relating to 
decorum or attire, or relating to the timely submission of accurate 
records required for clearing or verifying each day's transactions or 
other similar activities; and
    (3) Any exchange action arising from a claim, grievance, or dispute 
involving cash market transactions which are not a part of, or directly 
connected with, any transaction for the purchase,

[[Page 258]]

sale, delivery or exercise of a commodity for future delivery or a 
commodity option.

The Commission will, upon its own motion or upon motion filed pursuant 
to Sec. 9.21(b), promptly notify the appellant and the exchange that it 
will not accept the notice of appeal or petition for stay of matters 
specified in this paragraph. The determination to decline to accept a 
notice of appeal will be without prejudice to the appellant's right to 
seek alternate forms of relief that may be available in any other forum.
    (c) Applicability of these part 9 rules. Unless otherwise ordered, 
these rules will apply in their entirety to all appeals, and matters 
relating thereto filed on or after August 6, 1987. Any part 9 proceeding 
pending before the Commission on August 6, 1987, will continue to be 
governed by the Commission's former part 9 rules, 17 CFR part 9 (1987), 
except that the parties to any part 9 proceeding pending on August 6, 
1987, may, within 30 days after August 6, 1987, by written stipulation 
executed by all parties, and filed with the Proceedings Clerk before the 
Commission's final decision is rendered, elect to have the matter 
governed by the provisions of this part 9, as amended.

[52 FR 25366, July 7, 1987, as amended at 59 FR 5701, Feb. 8, 1994]



Sec. 9.2  Definitions.

    For purposes of this part:
    (a) Access denial action means any proceeding other than a 
disciplinary action by an exchange that denies or limits the privileges 
of membership, but excludes any exchange action that solely limits the 
ability of a member of an exchange to participate in the internal 
corporate affairs of the exchange.
    (b) Disciplinary action means any suspension, expulsion or other 
penalty (as defined in Sec. 8.03(i) of this chapter) imposed on a 
member of an exchange by that exchange for violations of rules of the 
exchange, including summary actions.
    (c) Exchange means any board of trade which has been designated as a 
contract market.
    (d) Exchange proceeding means any formal or informal proceeding by 
an exchange which results in a disciplinary action, access denial action 
or other adverse action.
    (e) Mail means properly addressed and postpaid first class mail, and 
includes overnight delivery service.
    (f) Member of an exchange means any person who is admitted to 
membership or has been granted membership privileges on an exchange, any 
employee, officer, partner, director or affiliate of such member or 
person with membership privileges including any associated person, and 
any other person under the supervision or control of such member or 
person with membership privileges.
    (g) Other adverse action and adverse action include any exchange 
action, other than an access denial action or disciplinary action, that 
adversely affects any person, whether or not a member of the exchange, 
but exclude any exchange action that solely involves the internal 
corporate affairs of the exchange.
    (h) Party includes the person filing a notice of appeal or petition 
for stay who has been the subject of a disciplinary, access denial or 
other adverse action by an exchange; that exchange; any person 
participating in a proceeding under this part pursuant to Sec. 9.25; 
and the Division of Market Oversight and/or the Division of Clearing and 
Intermediary Oversight when participating in a proceeding under this 
part pursuant to Sec. 9.26.
    (i) Record of the exchange proceeding means all testimony, exhibits, 
papers and records produced at or filed in an exchange disciplinary or 
access denial proceeding or served on a party to that proceeding; all 
documents, minutes or other exchange records serving as a basis for or 
reflecting the findings, rationale and conclusions concerning the 
adverse action taken by an exchange; a transcript of any proceeding 
before any body of the exchange in connection with the exchange 
proceeding; and a copy of all exchange rules which form the basis for 
the exchange proceeding.
    (j) Rules of the exchange means any constitutional provision, 
article of incorporation, bylaw, rule, regulation, resolution, or 
written and publicly available interpretation or stated policy of the 
exchange, or instrument corresponding thereto.

[[Page 259]]

    (k) Summary action means a disciplinary action resulting in the 
imposition of a penalty on a member of an exchange for violation of 
rules of the exchange authorized under the provisions of Sec. 8.17(b) 
(penalty for impeding progress of hearing), Sec. 8.25 (member 
responsibility action) or Sec. 8.27 (penalty for violation of rules 
relating to decorum, attire, submission of records or similar 
activities) of this chapter.

[52 FR 25366, July 7, 1987; 52 FR 27286, July 20, 1987, as amended at 67 
FR 62352, Oct. 7, 2002]



Sec. 9.3  Provisions referenced.

    Except as otherwise provided in this part, the following provisions 
of the Commission's rules relating to reparations contained in part 12 
of this chapter apply to this part: Sec. 12.3 (Business address; 
hours); Sec. 12.5 (Computation of time); Sec. 12.6 (Extensions of 
time; adjournments; postponements); Sec. 12.7 (Ex parte 
communications); and Sec. 12.12 (Signature).



Sec. 9.4  Filing and service; official docket.

    (a) Filing with the Proceedings Clerk; proof of filing; proof of 
service. Any document that is required by this part to be filed with the 
Proceedings Clerk must be filed by delivering it in person or by mail 
to: Proceedings Clerk, Office of Proceedings, Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581. To be timely filed under this part, a document must be 
delivered or mailed to the Proceedings Clerk within the time prescribed 
for filing. A party must use a means of filing which is at least as 
expeditious as that used in serving that document upon the other 
parties. Proof of filing must be made by attaching to the document for 
filing an affidavit of filing executed by any person 18 years of age or 
older or a proof of filing executed by an attorney-at-law qualified to 
practice before the Commission. The proof of filing must certify that 
the attached document was deposited in the mail, with first-class 
postage prepaid, addressed to the Proceedings Clerk, Office of 
Proceedings, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581, on the date specified in the affidavit. Proof of service of a 
document must be made by filing with the Proceedings Clerk, 
simultaneously with the filing of the required document, an affidavit of 
service executed by any person 18 years of age or older or a 
certification of service executed by an attorney-at-law qualified to 
practice before the Commission. The proof of service must identify the 
persons served, state that service has been made, set forth the date of 
service, and recite the manner of service.
    (b) Formalities of filing--(1) Number of copies. Unless otherwise 
specifically provided, an original and two conformed copies of all 
documents filed with the Commission in accordance with the provisions of 
this part must be filed with the Proceedings Clerk.
    (2) Title page. All documents filed with the Proceedings Clerk must 
include at the head thereof, or on a title page, the name of the 
Commission, the title of the proceeding, the docket number (if one has 
been assigned by the Proceedings Clerk), the subject of the particular 
document and the name of the person on whose behalf the document is 
being filed.
    (3) Paper, spacing, type. All documents filed with the Proceedings 
Clerk must be typewritten, must be on one grade of good white paper no 
less than 8 or more than 8\1/2\ inches wide and no less than 10\1/2\ or 
more than 11\1/2\ inches long, and must be bound on the top only. They 
must be double-spaced, except for long quotations (3 or more lines) and 
footnotes which should be single-spaced.
    (4) Signature. The original copy of all papers must be signed in ink 
by the person filing the same or by his duly authorized agent or 
attorney.
    (c) Service--(1) General requirements. All documents filed with the 
Proceedings Clerk must, at or before the time of filing, be served upon 
all parties. A party must use a means of service which is at least as 
expeditious as that used in filing that document with the Proceedings 
Clerk. One copy of all motions, petitions or applications made in the 
course of the proceeding, all notices of appeal, all briefs, and letters 
to the Commission or an employee thereof must be served by a party upon 
all other parties.
    (2) Manner of service. Service may be either personal or by mail. 
Service by

[[Page 260]]

mail is complete upon deposit of the document in the mail. Where service 
is effected by mail, the time within which the person served may respond 
thereto will be increased by three days.
    (3) Designation of person to receive service. The first document 
filed in a proceeding by or on behalf of any party must state on the 
first page the name and postal address of the person who is authorized 
to receive service for the party of all documents filed in the 
proceeding. Thereafter, service of documents must be made upon the 
person authorized unless service on a different authorized person or on 
the party himself is ordered by the Commission, or unless pursuant to 
Sec. 9.8 the person authorized is changed by the party upon due notice 
to all other parties. Parties must file and serve notification of any 
changes in the information provided pursuant to this subparagraph as 
soon as practicable after the change occurs.
    (4) Service of orders and decisions. A copy of all notices, rulings, 
opinions and orders of the Commission will be served on each of the 
parties and will be deemed served upon deposit in the mail.
    (d) Official docket. Upon receipt of a notice of appeal filed in 
accordance with Sec. 9.20, or a petition for stay pending review filed 
in accordance with Sec. 9.24, the Proceedings Clerk will establish and 
thereafter maintain the official docket of that proceeding and will 
assign a docket number to the proceeding.

[52 FR 25366, July 7, 1987, as amended at 60 FR 49334, Sept. 25, 1995]



Sec. 9.5  Motions.

    (a) In general. An application for a form of relief not otherwise 
specifically provided for in this part must be made by a written motion, 
filed with the Proceedings Clerk. The motion must state the relief 
sought and the basis for the relief and may set forth the authority 
relied upon.
    (b) Answer to motions. Any party may serve and file a written 
response to a motion within ten days after service of the motion, or 
within such longer or shorter period as established by these rules, or 
as the Commission may direct.
    (c) Motions for procedural orders. Motions for procedural orders, 
including motions for extensions of time, may be acted on at any time, 
without awaiting a response thereto. Any party adversely affected by 
such action may request reconsideration, vacation or modification of the 
action.
    (d) Dilatory motions. Frivolous or repetitive motions dealing with 
the same subject matter will not be permitted and such motions will 
summarily be denied.



Sec. 9.6  Sanctions for noncompliance.

    In the event that any party fails to file any document or make any 
appearance which is required under this part, the Commission may, in its 
discretion, and upon its own motion or upon the motion of any party to 
the proceeding, dismiss the proceeding before it, or, based on the 
record before it, affirm, modify, set aside, or remand for further 
proceedings, in whole or in part, the decision of the exchange.



Sec. 9.7  Settlement.

    At any time before there has been a final determination by the 
Commission with respect to any notice of appeal filed in accordance with 
Sec. 9.20, the parties may file a stipulation for dismissal based on a 
settlement agreement. Thereupon, the Commission may issue an order 
terminating the proceeding before the Commission as to the parties to 
the settlement agreement. The entry of such an order does not affect the 
Commission's authority under the Act.



Sec. 9.8  Practice before the Commission.

    (a) Practice--(1) By non-attorneys. An individual may appear pro se 
(on his own behalf); a general partner may represent the partnership; a 
bona fide officer of a corporation, trust or association may represent 
the corporation, trust or association.
    (2) By attorneys. An attorney-at-law who is admitted to practice 
before the highest Court in any State or territory, or of the District 
of Columbia, who has not been suspended or disbarred from appearance and 
practice before the Commission in accordance with provisions of part 14 
of this chapter may

[[Page 261]]

represent parties as an attorney in proceedings before the Commission.
    (b) Debarment of counsel or representative during the course of a 
proceeding. Whenever, while a proceeding is pending before the 
Commission, the Commission finds that a person acting as counsel or 
representative for any party to the proceeding is guilty of contemptuous 
conduct, the Commission may order that such person be precluded from 
further acting as counsel or representative in the proceeding. The 
proceeding will not be delayed or suspended pending disposition of the 
appeal; Provided, That the Commission may suspend the proceedings for a 
reasonable time for the purpose of enabling the party to obtain other 
counsel or representative.
    (c) Withdrawal of representation. Withdrawal from representation of 
a party will be only by leave of the Commission. Such leave to withdraw 
may be conditioned on the attorney's (or representative's) submission of 
an affidavit averring that the party represented has actual knowledge of 
the withdrawal, and such affidavit must include the name and address of 
a successor counsel (or representative) or a statement that the 
represented party has determined to proceed pro se, in which case, the 
statement must include the address where that party can thereafter be 
served.



Sec. 9.9  Waiver of rules; delegation of authority.

    (a) Standards for waiver; notice to parties. To prevent undue 
hardship on any party or for other good cause shown the Commission may 
waive any rule in this part in a particular case and may order 
proceedings in accordance with its direction upon a determination that 
no party will be prejudiced thereby and that the ends of justice will be 
served. Reasonable notice will be given to all parties of any action 
taken pursuant to this paragraph.
    (b) Delegation of authority. (1) The Commission hereby delegates, 
until the Commission orders otherwise, to the General Counsel, or the 
General Counsel's designee, the authority:
    (i) To waive or modify any of the requirements of Sec. Sec. 9.20-
9.25 and to waive or modify the requirements of the Commission's rules 
relating to reparations incorporated by Sec. 9.3 insofar as such 
requirements pertain to changes in time permitted for filing, and to the 
form, execution, service and filing of documents;
    (ii) To enter orders under Sec. Sec. 9.5, 9.6 and 9.7;
    (iii) To decline to accept any notice of appeal, or petition for 
stay pending review, of matters excluded from this part by Sec. Sec. 
9.1(b), 9.2(a) and 9.2(b), and to so notify the appellant and the 
exchange;
    (iv) To stay the effective date of a disciplinary action for a 
period of time, not to exceed four days, to enable the Commission to 
rule on a petition for stay filed under Sec. 9.24;
    (v) To decline to accept any document which has not been timely 
filed or perfected, as specified in these rules;
    (vi) To order the filing of the record of the exchange proceeding 
notwithstanding the submission of a motion under Sec. 9.21(b) that the 
Commission not accept a notice of appeal; and
    (vii) To enter any order which will facilitate or expedite 
Commission review.
    (2) Within seven days after service of a ruling issued pursuant to 
paragraph (b)(1) of this section, a party may file with the Proceedings 
Clerk a petition for Commission reconsideration of the ruling. Unless 
the Commission orders otherwise, the filing of a petition for 
reconsideration will not operate to stay the effective date of such 
ruling.
    (3) The General Counsel or the General Counsel's designee may submit 
to the Commission for its consideration any matter which has been 
delegated pursuant to paragraph (b)(1) of this section.
    (4) Nothing in this section will be deemed to prohibit the 
Commission, at its election, from exercising the authority delegated to 
the General Counsel under this section.

[52 FR 25366, July 7, 1987, as amended at 60 FR 54801, Oct. 26, 1995; 64 
FR 46270, Aug. 25, 1999]

[[Page 262]]



  Subpart B_Notice and Effective Date of Disciplinary Action or Access 
                              Denial Action



Sec. 9.10  [Reserved]



Sec. 9.11  Form, contents and delivery of notice of disciplinary or access denial action.

    (a) When required. Whenever an exchange decision pursuant to which a 
disciplinary action or access denial action is to be imposed has become 
final, the exchange must, within thirty days thereafter, provide written 
notice of such action to the person against whom the action was taken 
and to the Commission: Provided, That the exchange is not required to 
notify the Commission of any summary action, as authorized under the 
provisions of Sec. 8.27 of this chapter, which results in the 
imposition of minor penalties for the violation of exchange rules 
relating to decorum or attire. No final disciplinary or access denial 
action may be made effective by the exchange except as provided in Sec. 
9.12.
    (b) Contents of notice. For purposes of this part, the written 
notice of a disciplinary action or access denial action may be either a 
copy of a written decision which accords with Sec. 8.16, Sec. 8.18, or 
Sec. 8.19(c) of this chapter (including copies of any materials 
incorporated by reference) or other written notice which must include:
    (1) The name of the person against whom the disciplinary action or 
access denial action was taken;
    (2) A statement of the reasons for the disciplinary action or access 
denial action together with a listing of any rules which the person who 
was the subject of the disciplinary action or access denial action was 
charged with having violated or which otherwise serve as the basis of 
the exchange action;
    (3) A statement of the conclusions and findings made by the exchange 
with regard to each rule violation charged or, in the event of 
settlement, a statement specifying those rule violations which the 
exchange has reason to believe were committed;
    (4) The terms of the disciplinary action or access denial action;
    (5) The date on which the action was taken and the date the exchange 
intends to make the disciplinary or access denial action effective; and
    (6) Except as otherwise provided in Sec. 9.1(b), a statement 
informing the party subject to the disciplinary action or access denial 
action of the availability of Commission review of the exchange action 
pursuant to section 8c of the Act and this part.
    (c) Delivery and filing of the notice. Delivery of the notice must 
be made either personally to the person who was the subject of the 
disciplinary action or access denial action or by mail to such person at 
that person's last known address. A copy of the notice must be filed on 
the same date with the Commission, either in person during normal 
business hours or by mail to: Division of Market Oversight, Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, 
NW., Washington, DC 20581. The notice filed with the Commission must 
additionally include the date on which the notice was delivered to the 
person disciplined or denied access and state whether delivery was 
personal or by mail.
    (d) Effect of delivery and filing by mail. Filing by mail to the 
Commission and delivery by mail to the person disciplined or denied 
access will be complete upon deposit in the mail of a properly addressed 
and postpaid document. Where delivery to the person disciplined or 
denied access is effected by such mail, the time within which a notice 
of appeal or petition for stay may be filed will be increased by three 
days.
    (e) Certification. Copies of the notice and the submission of any 
additional information provided pursuant to this section must be 
certified as true and correct by a duly authorized officer, agent or 
employee of the exchange.

[52 FR 25366, July 7, 1987, as amended at 60 FR 49334, Sept. 25, 1995; 
67 FR 62352, Oct. 7, 2002]



Sec. 9.12  Effective date of disciplinary or access denial action.

    (a) Effective date. Any disciplinary or access denial action taken 
by an exchange will not become effective until at least fifteen days 
after the written notice prescribed by Sec. 9.11 is delivered

[[Page 263]]

to the person disciplined or denied access; Provided, however, That the 
exchange may cause a disciplinary action to become effective prior to 
that time if:
    (1) As authorized by Sec. 8.25 of this chapter, the exchange 
reasonably believes, and so states in its written decision, that 
immediate action is necessary to protect the best interests of the 
marketplace; or
    (2) As authorized by Sec. 8.17(b) of this chapter, the exchange 
determines, and so states in its written decision, that the actions of a 
person who is within the exchange's jurisdiction have impeded the 
progress of a disciplinary hearing; or
    (3) As authorized by Sec. 8.27 of this chapter, the exchange 
determines that a person has violated exchange rules relating to decorum 
or attire, or timely submission of accurate records required for 
clearing or verifying each day's transactions or other similar 
activities; or
    (4) The person against whom the action is taken has consented to the 
penalty to be imposed and to the timing of its effectiveness.
    (b) Notice of early effective date. If the exchange determines in 
accordance with paragraph (a)(1) of this section that a disciplinary 
action will become effective prior to the expiration of fifteen days 
after written notice thereof, it must notify the person disciplined in 
writing, either personally or by telegram or other means of written 
telecommunication to the person's last known address, stating the 
reasons for the determination. The exchange must also by telegram or 
other means of written telecommunication immediately notify the 
Commission (Attention: Contracts Markets Section, Division of Market 
Oversight). Where notice is delivered by telegram or other means of 
written telecommunication, the time within which the person so notified 
may file a petition for stay pursuant to Sec. 9.24(a)(2) will be 
increased by one day.

[52 FR 25366, July 7, 1987; 52 FR 27286, July 20, 1987, as amended at 67 
FR 62352, Oct. 7, 2002]



Sec. 9.13  Publication of notice.

    Whenever an exchange suspends, expels or otherwise disciplines, or 
denies any person access to the exchange, it must make public its 
findings by disclosing at least the information contained in the notice 
required by Sec. 9.11(b). An exchange must make such findings public as 
soon as the disciplinary action or access denial action becomes 
effective in accordance with the provisions of Sec. 9.12 by posting a 
notice in a conspicuous place on its premises to which its members and 
the public regularly have access for a period of five consecutive 
business days. Thereafter, the exchange must maintain and make available 
for public inspection a record of the information contained in the 
disciplinary or access denial notice.



Sec. Sec. 9.14-9.19  [Reserved]



           Subpart C_Initial Procedure With Respect to Appeals



Sec. 9.20  Notice of appeal.

    (a) Time to file. Except as provided in Sec. 9.1(b), any person who 
is the subject of disciplinary or access denial action by an exchange or 
any person who is otherwise adversely affected by any other action of an 
exchange may, at any time within thirty days after notice of the 
disciplinary or access denial action has been delivered to the person 
disciplined or denied access in accordance with Sec. 9.11, or within 
thirty days after notice of another adverse action, file a notice of 
appeal of such disciplinary, access denial or other adverse action. The 
Commission may dismiss any appeal for which a notice of appeal is not 
timely filed.
    (b) Contents. The notice of appeal need consist only of a brief 
statement indicating that the party is requesting Commission review of 
the exchange action, and must include:
    (1) The name and address of the appellant, and any duly authorized 
agent or officer of the appellant;
    (2) The name and docket number of the exchange proceeding;
    (3) The date on which the disciplinary, access denial or other 
adverse action was imposed by the exchange or the date on which the 
final exchange decision was rendered, and the dates upon which the 
exchange action has or will become final and effective;

[[Page 264]]

    (4) A copy of the notice provided to the appellant by the exchange 
in accordance with the provisions of Sec. 9.11, in the case of a 
disciplinary or access denial action, or otherwise, in the case of any 
other adverse exchange action;
    (5) The relief sought from the action of the exchange;
    (6) The appellant's request for a copy of the record of the exchange 
proceeding, or portions of the record not in the appellant's possession, 
and a representation that the appellant agrees to pay the exchange 
reasonable fees, as provided in the rules of the exchange, for printing 
that copy; and
    (7) A nonrefundable filing fee of $100 remitted by check, bank draft 
or money order, payable to the Commodity Futures Trading Commission.

[52 FR 25366, July 7, 1987; 52 FR 27286, July 20, 1987]



Sec. 9.21  Record of exchange proceeding.

    (a) Filing of record. Within thirty days after service of the notice 
of appeal, the exchange must file two copies of the record of the 
exchange proceeding (as defined in Sec. 9.2(i)) with the Proceedings 
Clerk, and serve a copy on the appellant and any other party to the 
proceeding, provided that such person has agreed to pay the exchange 
reasonable fees, as provided in the rules of the exchange, for printing 
the copy. The record must be bound as a unit, must be chronologically 
indexed and tabbed, must be certified as correct by a duly authorized 
official, agent or employee of the exchange, and must contain a 
certificate of service on the appellant or any other party to the 
proceeding (or waiver of service for failure to pay costs pursuant to 
this rule).
    (b) Motion that the Commission not accept notice of appeal. Within 
fifteen days after service of the notice of appeal, the exchange may 
file a motion that the Commission not accept a notice of appeal of any 
matter that the exchange contends is excluded from this part by 
Sec. Sec. 9.1(b), 9.2(a) and 9.2(g). Such motion must be accompanied by 
an affidavit averring facts in support of the motion. The filing of such 
motion will operate to stay the filing of the record and subsequent 
submissions pending the Commission's ruling on such motion. The 
appellant may serve and file a written response to such motion within 
ten days after service of the motion.



Sec. 9.22  Appeal brief.

    (a) Time to file. Any person who has filed a notice of appeal in 
accordance with the provisions of Sec. 9.20 must perfect the appeal by 
filing an appeal brief with the Proceedings Clerk within thirty days 
after service of the record of the exchange proceeding. The Commission 
may dismiss any appeal for which an appeal brief is not timely filed.
    (b) Contents. Each appeal brief submitted to the Commission pursuant 
to this section must include, in the order indicated:
    (1) A statement of the issues presented for review;
    (2) A statement of the case. The statement must first indicate 
briefly the nature of the case and include a full description of the 
disciplinary, access denial or other adverse action. There must follow a 
clear and concise statement of all facts relevant to the consideration 
of the appeal, including, if known, each alleged act or omission forming 
the basis of the exchange action, with appropriate references to the 
record of the exchange proceeding;
    (3) An argument. The argument may be preceded by a summary. The 
argument must contain the contentions of the appellant with respect to 
the issues presented, and the reasons therefor, and citations to 
relevant authorities and to parts of the record of the exchange 
proceeding; and
    (4) A conclusion stating the precise relief sought.
    (c) Length of appeal brief. Without prior leave of the Commission, 
the appeal brief may not exceed thirty-five pages, exclusive of any 
table of contents, table of cases, index and appendix containing 
transcripts of testimony, exhibits, statutes, rules, regulations or 
similar materials.



Sec. 9.23  Answering brief.

    (a) Time for filing answering brief. Within thirty days after 
service of the appeal brief, the exchange must file with the Commission 
an answering brief.
    (b) Contents of answering brief. The answering brief generally must 
follow

[[Page 265]]

the same style as prescribed for the appeal brief but may omit a 
statement of the issues or of the case if the exchange does not dispute 
the issues or the statement of the case contained in the appeal brief.
    (c) Length of answering brief. Without prior leave of the 
Commission, the answering brief may not exceed thirty-five pages, 
exclusive of any table of contents, table of cases, index and appendix 
containing transcripts of testimony, exhibits, statutes, rules, 
regulations or similar materials.



Sec. 9.24  Petition for stay pending review.

    (a) Time to file. (1) Within ten days after the notice of the 
disciplinary or access denial action has been delivered in accordance 
with Sec. 9.11 to a person disciplined or denied access, that person 
may petition the Commission to stay the disciplinary or access denial 
action pending consideration by the Commission of the notice of appeal 
and, if granted, the appeal underlying the notice of appeal. The 
petition for stay must be accompanied by the notice of appeal.
    (2) Within ten days after a notice of summary action has been 
delivered in accordance with Sec. 9.12(b) to a person who is the 
subject of a summary action authorized by Sec. 8.25 of this chapter, 
that person may petition the Commission to stay the effectiveness of the 
summary action pending completion of the exchange proceeding conducted 
as authorized by Sec. 8.26 of this chapter.
    (3) The Commission may deny any petition for stay which is not 
timely filed or which is not otherwise in accord with these rules.
    (b) Contents of petition for stay. A petition filed under this 
section must state the reasons that the stay is requested and the facts 
relied upon, as specified in Sec. 9.20. Averments of the petition must 
be supported by affidavits, other sworn statements or copies thereof, or 
a stipulation as to those facts which are not in dispute. Based upon the 
petition, the Commission, in its discretion, may order a stay of the 
disciplinary action or access denial action.
    (c) Response to petition. The exchange may serve and file a written 
response to any petition for a stay within five days after service of 
the petition.
    (d) Standards for granting petition for stay. The Commission will 
promptly determine whether to grant or deny a petition for stay and may 
act upon a petition at any time, without waiting for a response thereto. 
In determining whether to grant or deny the petition for stay, the 
Commission will consider, among other things, whether the petitioner has 
established:
    (1) Petitioner's likelihood of success on the merits; and
    (2) That denial of the stay would cause irreparable harm to the 
petitioner; and
    (3) That granting the stay would not endanger orderly trading or 
otherwise cause substantial harm to the exchange or market participants; 
and
    (4) That granting the stay would not be contrary to the Act, and the 
rules, regulations and orders of the Commission thereunder or otherwise 
contrary to the public interest.
    (e) Ex parte stays. The Commission may act upon a petition for stay, 
without waiting for the exchange's response thereto only where 
petitioner:
    (1) Expressly requests an ex parte stay;
    (2) Files a proof of service; and
    (3) Clearly establishes by affidavit that immediate and irreparable 
injury, loss or damage will result to the petitioner before the exchange 
can be heard in opposition.

Any order granting a stay prior to the filing of the exchange's reply 
will expire by its terms within such time after service of the 
Commission's ruling on the petition, not to exceed ten days, as the 
Commission fixes, unless within the time so fixed the order, for good 
cause shown, is extended for a like period or unless the exchange 
consents that it may be extended for a longer period. In any case, the 
exchange may move for dissolution or modification of the stay, and the 
Commission will proceed to determine such motion as expeditiously as the 
ends of justice require.

[52 FR 25366, July 7, 1987; 52 FR 27286, July 20, 1987]

[[Page 266]]



Sec. 9.25  Limited participation of interested persons.

    On its own motion or upon motion of any person asserting a direct 
and substantial interest in the outcome of a proceeding conducted under 
this part, the Commission, in its discretion, may permit the limited 
participation by such interested person in the proceeding. A motion for 
leave to participate in the proceeding must identify the interest of 
that person and must state the reasons why participation in the 
proceeding by that person is desirable, and must state whether that 
person requests a copy of the record of the exchange proceeding to the 
extent permitted by section 8c(a)(2) of the Act and that such person 
agrees to pay the exchange reasonable fees, as provided in the rules of 
the exchange, for printing the copy.

[52 FR 25366, July 7, 1987, as amended at 59 FR 5701, Feb. 8, 1994]



Sec. 9.26  Participation of Commission staff.

    Within twenty days after receipt of the answering brief, the 
Division of Market Oversight and/or the Division of Clearing and 
Intermediary Oversight may file with the Proceedings Clerk a notice of 
intention to participate in the proceedings as amicus curiae. Within 
thirty days after filing the notice of intention to participate, the 
Division may file a brief as amicus curiae. Without prior leave of the 
Commission, the brief may not exceed thirty-five pages. The brief must 
be filed and served on the appellant, exchange and any other parties to 
the proceeding in the manner specified by these rules. Within ten days 
after service of the Division's brief, any party may file a reply to the 
Division's brief. After the filing of the notice of intent to 
participate, no employee of the Division(s) filing the notice may 
thereafter make any communication relating to the proceeding, other than 
on the record of the proceeding before the Commission, to any 
Commissioner or Commission decisional employee.

[52 FR 25366, July 7, 1987, as amended at 67 FR 62352, Oct. 7, 2002]



Sec. Sec. 9.27-9.29  [Reserved]



  Subpart D_Commission Review of Disciplinary, Access Denial or Other 
                             Adverse Action



Sec. 9.30  Scope of review.

    On review, the Commission may, in its discretion, consider sua 
sponte any issues arising from the record before it and may base its 
determination thereon, or limit the issues to those presented in the 
statement of issues in the briefs, treating those issues not raised as 
waived. If the Commission determines to consider any issue not raised by 
the parties, it may issue an order that notifies the parties of such 
determination and provides an opportunity for the parties to address any 
issue considered sua sponte by the Commission.



Sec. 9.31  Commission review of disciplinary or access denial action on its own motion.

    (a) Request for additional information. Where a person disciplined 
or denied access has not appealed the exchange decision to the 
Commission, upon review of the notice specified in Sec. 9.11, the 
Division of Market Oversight or the Division Clearing and Intermediary 
Oversight may request that the exchange file with the Division the 
record of the exchange proceeding, or designated portions of the record, 
a brief statement of the evidence and testimony adduced to support the 
exchange's findings that a rule or rules of the exchange were violated 
and such recordings, transcripts and other documents applicable to the 
particular exchange proceeding as the Division may specify. The exchange 
must promptly advise the person who is the subject of the disciplinary 
or access denial action of the Division's request. Within thirty days 
after service of the Division's request, the exchange must file the 
information requested with the Division and, upon request, deliver that 
information to the person who is the subject of the disciplinary or 
access denial action. Delivery and filing must be in the manner 
prescribed by Sec. 9.11(c). A person subject to the disciplinary action 
or access denial action requesting a copy of

[[Page 267]]

the information furnished to the Division must, if the exchange rules so 
provide, agree to pay the exchange reasonable fees for printing the 
copy.
    (b) Review on motion of the Commission. The Commission may institute 
review of an exchange disciplinary or access denial action on its own 
motion. Other than in extraordinary circumstances, such review will be 
initiated within 180 days after the Commission has received the notice 
of exchange action provided for in Sec. 9.11. If the Commission should 
institute review on its own motion, it will issue an order permitting 
the person who is the subject of the disciplinary or access denial 
action an opportunity to file an appropriate submission, and the 
exchange an opportunity to file a reply thereto.

[52 FR 25366, July 7, 1987, as amended at 67 FR 62352, Oct. 7, 2002]



Sec. 9.32  Oral argument.

    (a) On motion of Commission. On its own motion, the Commission may, 
in its discretion, hear oral argument by the parties any time before the 
decision of the Commission is filed with the Proceedings Clerk.
    (b) On request of party. Any party may file with the Proceedings 
Clerk a request in writing for the opportunity to present oral argument 
before the Commission, which the Commission may, in its discretion, 
grant or deny. A request under this paragraph must be filed concurrently 
with the party's brief.
    (c) Reporting and transcription. Oral argument before the Commission 
will be recorded and transcribed unless the Commission directs 
otherwise. In the event the Commission affords the parties the 
opportunity to present oral argument before the Commission, the oral 
argument will proceed in accordance with the provisions of Sec. 10.103 
(b) and (d) of this chapter.



Sec. 9.33  Final decision by the Commission.

    (a) Opinion and order. Upon review, the Commission may affirm, 
modify, set aside, or remand for further proceedings, in whole or in 
part, the decision of the exchange. The Commission's decision will be 
contained in its opinion and order which will be based upon the record 
before it, including the record of the exchange proceeding, and any oral 
argument made in accordance with Sec. 9.32. Except as provided in 
paragraph (b) of this section, the opinion and order will constitute the 
final decision of the Commission, effective upon service on the parties. 
In the event the Commission is equally divided as to its decision, the 
Commission will affirm without opinion the decision of the exchange, 
which will constitute the Commission's final decision.
    (b) Order of summary affirmance. If the Commission finds that the 
result reached in the decision of the exchange is substantially correct 
and that none of the arguments on appeal made by the appellant raise 
important questions of law or policy, the Commission may, by appropriate 
order, summarily affirm the decision of the exchange without opinion, 
which will constitute the Commission's final decision. Unless the 
Commission expressly indicates otherwise in its order, an order of 
summary affirmance does not reflect a Commission determination to adopt 
the exchange final decision, including any rationale contained therein, 
as its opinion and order, and neither the exchange's final decision nor 
the Commission's order of summary affirmance will serve as a Commission 
precedent in other proceedings.
    (c) Standards of review. In reviewing an exchange disciplinary, 
access denial or other adverse action, the Commission will consider 
whether:
    (1) The exchange disciplinary, access denial or other adverse action 
was taken in accordance with the rules of the exchange;
    (2) Fundamental fairness was observed in the conduct of the 
proceeding resulting in the disciplinary, access denial or other adverse 
action;
    (3)(i) In the case of a disciplinary action, the record contains 
substantial evidence of a violation of the rules of the exchange, or 
(ii) in the case of an access denial or other adverse action, the record 
contains substantial evidence supporting the exchange action; and
    (4) The disciplinary, access denial or other adverse action 
otherwise accords with the Act and the rules, regulations

[[Page 268]]

and orders of the Commission thereunder.



PART 10_RULES OF PRACTICE--Table of Contents



                      Subpart A_General Provisions

Sec.
10.1 Scope and applicability of rules of practice.
10.2 Definitions.
10.3 Suspension, amendment, revocation and waiver of rules.
10.4 Business address; hours.
10.5 Computation of time.
10.6 Changes in time permitted for filing.
10.7 Date of entry of orders.
10.8 Presiding officers.
10.9 Separation of functions.
10.10 Ex parte communications.
10.11 Appearance in adjudicatory proceedings.
10.12 Service and filing of documents; form and execution.

  Subpart B_Institution of Adjudicatory Proceedings; Pleadings; Motions

10.21 Commencement of the proceeding.
10.22 Complaint and notice of hearing.
10.23 Answer.
10.24 Amendments and supplemental pleadings.
10.25 Form of pleadings.
10.26 Motions and other papers.

               Subpart C_Parties and Limited Participation

10.31 Parties.
10.32 Substitution of parties.
10.33 Intervention as a party.
10.34 Limited participation.
10.35 Permission to state views.
10.36 Commission review of rulings.

   Subpart D_Prehearing Procedures; Prehearing Conferences; Discovery 
                               Depositions

10.41 Prehearing conferences; procedural matters.
10.42 Discovery.
10.43 Stipulations.
10.44 Depositions and interrogatories.

                           Subpart E_Hearings

10.61 Time and place of hearing.
10.62 Appearances.
10.63 Consolidation; separate hearings.
10.64 Public hearings.
10.65 Record of hearing.
10.66 Conduct of the hearing.
10.67 Evidence.
10.68 Subpoenas.
10.69 Reopening hearings.

          Subpart F_Post Hearing Procedures; Initial Decisions

10.81 Filing the transcript of evidence.
10.82 Proposed findings and conclusions; briefs.
10.83 Oral arguments.
10.84 Initial decision.

               Subpart G_Disposition Without Full Hearing

10.91 Summary disposition.
10.92 Shortened procedure.
10.93 Obtaining default order.
10.94 Setting aside of default.

            Subpart H_Appeals to the Commission; Settlements

10.101 Interlocutory appeals.
10.102 Review of initial decisions.
10.103 Oral argument before the Commission.
10.104 Scope of review; Commission decision.
10.105 Review by Commission on its own initiative.
10.106 Reconsideration; stay pending judicial review.
10.107 Leave to adduce additional evidence.
10.108 Settlements.
10.109 Delegation of authority to Chief of the Opinions Section.

                      Subpart I_Restitution Orders

10.110 Basis for issuance of restitution orders.
10.111 Recommendation of procedure for implementing restitution.
10.112 Administration of restitution.
10.113 Right to challenge distribution of funds to customers.
10.114 Acceleration of establishment of restitution procedure.

Appendix A to Part 10--Commission Policy Relating to the Acceptance of 
          Settlements in Administrative and Civil Proceedings

    Authority: Pub. L. 93-463, sec. 101(a)(11), 88 Stat. 1391; 7 U.S.C. 
2(a)(12).

    Source: 41 FR 2511, Jan. 16, 1976, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 10.1  Scope and applicability of rules of practice.

    These rules of practice are generally applicable to adjudicatory 
proceedings before the Commodity Futures Trading Commission under the 
Commodity Exchange Act. These include proceedings for:

[[Page 269]]

    (a) Denial, suspension, revocation, conditioning, restricting or 
modifying of registration as a futures commission merchant, retail 
foreign exchange dealer, introducing broker, or associated person, floor 
broker, floor trader, commodity pool operator, commodity trading advisor 
or leverage transaction merchant pursuant to sections 6(c), 8a(2), 
8a(3), 8a(4) and 8a(11) of the Act, 7 U.S.C. 9 and 15, 12a(2), 12a(3), 
12a(4) and 12(a)(11), or denial, suspension, or revocation of 
designation as a contract market pursuant to sections 6(a) and 6(b) of 
the Act, 7 U.S.C. 8;
    (b) The issuance of cease and desist orders pursuant to sections 6b 
and 6(d) of the Act, 7 U.S.C. 13a and 13b;
    (c) Denial of trading privileges pursuant to section 6(c) of the 
Act, 7 U.S.C. 9 and 15;
    (d) The assessment of civil penalties pursuant to sections 6(c) and 
6b of the Act, 7 U.S.C. 9 and 15 and 13a;
    (e) The issuance of restitution orders pursuant to section 6(c) of 
the Act, 7 U.S.C. 9; and
    (f) Any other proceedings where the Commission declares them to be 
applicable.

These rules do not apply to:
    (g) Investigations conducted pursuant to sections 8 and 16(a) of the 
Act, 7 U.S.C. 12 and 20(a), except as specifically made applicable by 
the Rules Relating to Investigations set forth in part 11 of this 
chapter;
    (h) Reparation proceedings under section 14 of the Act, 7 U.S.C. 18, 
except as specifically made applicable by the Rules Relating to 
Reparation Proceedings set forth in part 12 of this chapter;
    (i) Public rulemaking, except as specifically made applicable by the 
Rules Relating to Public Rulemaking Procedures sets forth in part 13 of 
this title.

The rules shall be construed to secure the just, speedy and inexpensive 
determination of every proceeding with full protection for the rights of 
all parties therein.

[41 FR 2511, Jan. 16, 1976, as amended at 49 FR 8225, Mar. 5, 1984; 57 
FR 19597, Apr. 15, 1993; 59 FR 5701, Feb. 8, 1994; 63 FR 55791, Oct. 19, 
1998; 64 FR 30903, June 9, 1999; 75 FR 55449, Sept. 10, 2010]



Sec. 10.2  Definitions.

    For purposes of this part:
    (a) Act means the Commodity Exchange Act, as amended, 7 U.S.C. 1, et 
seq.;
    (b) Adjudicatory proceeding means a judicial-type proceeding leading 
to the formulation of a final order;
    (c) Administrative Law Judge means an administrative law judge 
appointed pursuant to the provisions of 5 U.S.C. 3105 (provisions of the 
rules in this part which refer to Administrative Law Judges may be 
applicable to other Presiding Officers as well, as set forth in Sec. 
10.8);
    (d) Administrative Procedure Act means those provisions of the 
Administrative Procedure Act, as codified, which are contained in 5 
U.S.C. 551 through 559;
    (e) Commission means the Commodity Futures Trading Commission;
    (f) Complaint means any document initiating an adjudicatory 
proceeding, whether designated a complaint or an order for proceeding or 
otherwise;
    (g) Division of Enforcement means that office in the Commission that 
prosecutes a complaint issued by the Commission;
    (h) Hearing means that part of a proceeding which involves the 
submission of evidence, either by oral presentation or written 
submission;
    (i) Proceedings Clerk means that member of the Commission's staff 
designated as such in the Commission's Office of Proceedings.
    (j) Order means the whole or any part of a final procedural or 
substantive disposition of a matter by the Commission or by the 
Presiding Officer in a matter other than rulemaking;
    (k) Party includes a person or agency named or admitted as a party 
to a proceeding;
    (l) Person includes an individual, partnership, corporation, 
association, exchange or other entity or organization;
    (m) Pleading means the complaint, the answer to the complaint, any 
supplement or amendment thereto, and any reply that may be permitted to 
any answer, supplement or amendment;
    (n) Presiding Officer means a member of the Commission, and 
Administrative

[[Page 270]]

Law Judge, or a hearing officer designated by the Commission to conduct 
a hearing on a specific matter, or the Commission itself, if it is to 
preside at or accept the introduction of evidence in a particular 
proceeding (provisions of the rules in this part which refer to 
Administrative Law Judges may be applicable to other Presiding Officers 
as well, as set forth in Sec. 10.8);
    (o) Respondent means a party to an adjudicatory proceeding against 
whom findings may be made or relief or remedial action may be taken.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54801, Oct. 26, 1995]



Sec. 10.3  Suspension, amendment, revocation and waiver of rules.

    (a) These rules may, from time to time, be suspended, amended or 
revoked in whole or in part. Notice of such action will be published in 
the Federal Register.
    (b) In the interest of expediting decision or to prevent undue 
hardship on any party or for other good cause the Commission may order 
the adoption of expedited procedures and may waive any rule in subparts 
A through H of this part in a particular case and may order proceedings 
in accordance with its direction upon a determination that no party will 
be prejudiced and that the ends of justice will be served. Reasonable 
notice shall be given to all parties of any action taken pursuant to 
this provision.
    (c) The Presiding Officer, to expedite decision or to prevent undue 
hardship on any party, may waive any rule in subparts A through G of 
this part when neither party is prejudiced thereby. Reasonable notice 
shall be given to all parties of any action taken pursuant to this 
provision.
    (d) Notwithstanding any provision of this part, the Commission may 
in any proceeding commenced pursuant to section 6(c) of the Act require 
a respondent to show cause why an order should not be entered against 
the respondent and may specify a day and place for the hearing not less 
than three days after service upon the respondent of the Commission's 
complaint and notice of hearing in such proceeding.

(Secs. 2(a), 6(b) and 8a, 42 Stat. 1001, as amended, 49 Stat. 1498, 
1499, as amended 88 Stat.; 49 Stat. 1500, as amended, 88 Stat. 1392; 88 
Stat. 1389, 1391; 7 U.S.C. 4a, 9 and 12a)

[41 FR 2511, Jan. 16, 1976, as amended at 44 FR 61327, Oct. 25, 1979; 59 
FR 5701, Feb. 8, 1994]



Sec. 10.4  Business address; hours.

    The Office of Proceedings is located at Three Lafayette Centre, 1155 
21st Street NW., Washington, DC 20581. It is open each day, except 
Saturdays, Sundays and legal public holidays from 8:15 a.m. to 4:45 
p.m., eastern standard time or eastern daylight savings time, whichever 
is currently in effect in Washington, DC. If Commission personnel are 
present in the offices after 4:45 p.m., they may, at their discretion, 
accept documents for filing and serve the public in other matters within 
the scope of this part. Legal holidays include New Year's Day, 
Washington's Birthday, Memorial Day, Independence Day, Labor Day, 
Columbus Day, Veterans Day, Thanksgiving Day, Christmas Day, and any 
other legal holidays recognized by the Federal Government.

[41 FR 2511, Jan. 16, 1976, as amended at 41 FR 28260, July 9, 1976; 60 
FR 54801, Oct. 26, 1995]



Sec. 10.5  Computation of time.

    In computing any period of time prescribed by these rules or allowed 
by the Commission or the Presiding Officer, the day of the act, event, 
or default from which the designated period of time begins to run shall 
not be included. The last day of the period so computed is to be 
included unless it is a Saturday, a Sunday, or a legal holiday; in which 
event the period runs until the end of the next day which is not a 
Saturday, a Sunday or a legal holiday. Intermediate Saturdays, Sundays, 
and legal holidays shall be excluded from the computation only when the 
period of time prescribed or allowed is less than seven days.



Sec. 10.6  Changes in time permitted for filing.

    Except as otherwise provided by law or by these rules, for good 
cause shown

[[Page 271]]

the Commission or the Presiding Officer before whom a matter is then 
pending, on their own motion or the motion of a party, at any time may 
extend or shorten the time limit prescribed by the rules for filing any 
document. In any instance in which a time limit is not prescribed for an 
action to be taken in a proceeding, the Commission or the Presiding 
Officer may set a time limit for that action.



Sec. 10.7  Date of entry of orders.

    In computing any period of time involving the date of the entry of 
an order the date of entry shall be the date the order is served by the 
Proceedings Clerk.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54801, Oct. 26, 1995]



Sec. 10.8  Presiding officers.

    Unless otherwise determined by the Commission, all proceedings 
within the scope of this part shall be assigned to an Administrative Law 
Judge for hearing. If the Commission determines that a proceeding within 
the scope of this subpart shall be conducted before a Presiding Officer 
who is not an Administrative Law Judge, all provisions of this part that 
refer to and grant authority to or impose obligations upon an 
Administrative Law Judge shall be read as referring to and granting 
authority to and imposing obligations upon the designated Presiding 
Officer.
    (a) Functions and responsibilities of Administrative Law Judge. The 
Administrative Law Judge shall be responsible for the fair and orderly 
conduct of the proceeding and shall have the authority to:
    (1) Administer oaths and affirmations;
    (2) Issue subpoenas;
    (3) Rule on offers of proof;
    (4) Receive relevant evidence;
    (5) Examine witnesses;
    (6) Regulate the course of the hearing;
    (7) Hold prehearing conferences;
    (8) Consider and rule upon all motions;
    (9) Make decisions in accordance with Sec. 10.84 of these rules;
    (10) Certify interlocutory matters to the Commission for its 
determination in accordance with Sec. 10.101 of these rules;
    (11) Take such action as is just or appropriate, if a party or agent 
of a party fails to comply with an order issued by the Administrative 
Law Judge;
    (12) Take any other action required to give effect to these Rules of 
Practice, including but not limited to requesting the parties to file 
briefs and statements of position with respect to any issue in the 
proceeding.
    (b) Disqualification of Administrative Law Judge--(1) At his own 
request. An Administrative Law Judge may withdraw from any proceeding 
when he considers himself to be disqualified. In such event he 
immediately shall notify the Commission and each of the parties of his 
withdrawal and of his reason for such action.
    (2) Upon the request of a party. Any party or person who has been 
granted leave to be heard pursuant to these rules may request an 
Administrative Law Judge to disqualify himself on the grounds of 
personal bias, conflict or similar bases. Interlocutory review of an 
adverse ruling by the Administrative Law Judge may be sought without 
certification of the matter by the Administrative Law Judge, in 
accordance with the procedures set forth in Sec. 10.101.



Sec. 10.9  Separation of functions.

    (a) An Administrative Law Judge will not be responsible to or 
subject to the supervision or direction of any officer, employee, or 
agent of the Commission engaged in the performance of investigative or 
prosecutorial functions for the Commission.
    (b) No officer, employee or agent of the Commission who is engaged 
in the performance of investigative or prosecuting functions in 
connection with any proceeding shall, in that proceeding or any 
factually related proceeding, participate or advise in the decision of 
the Administrative Law Judge or the Commission except as witness or 
counsel in the proceeding, without the express written consent of the 
respondents in the proceeding. This provision shall not apply to the 
members of the Commission.

[41 FR 2511, Jan. 16, 1976, as amended at 63 FR 55791, Oct. 19, 1998]

[[Page 272]]



Sec. 10.10  Ex parte communications.

    (a) Definitions. For purposes of this section:
    (1) Commission decisional employee means employees of the Commission 
who are or may reasonably be expected to be involved in the 
decisionmaking process in any proceeding, including, but not limited to:
    (i) Members of the personal staffs of the Commissioners;
    (ii) Members of the staffs of the Administrative Law Judges;
    (iii) The Deputy General Counsel for Opinions and Review and staff 
of the Office of General Counsel.
    (iv) Members of the staff of the Office of Proceedings; and
    (v) Other Commission employees who may be assigned to hear or to 
participate in the decision of a particular matter;
    (2) Ex parte communication means an oral or written communication 
not on the public record with respect to which reasonable prior notice 
to all parties is not given, but does not include requests for status 
reports on any matter or proceeding covered by this part;
    (3) Interested person includes parties and other persons who might 
be adversely affected or aggrieved by the outcome of a proceeding; their 
officers, agents, employees, associates, affiliates, attorneys, 
accountants or other representatives; and any other person having a 
direct or indirect pecuniary or other interest in the outcome of a 
proceeding;
    (4) Party includes a person or agency named or admitted as a party, 
or properly seeking and entitled as of right to be admitted as a party, 
to a proceeding, and a person or agency permitted limited participation 
or to state views in a proceeding by the Commission.
    (b) Prohibitions against ex parte communications. (1) No interested 
person outside the Commission shall make or knowingly cause to be made 
to any Commissioner, Administrative Law Judge or Commission decisional 
employee an ex parte communication relevant to the merits of a 
proceeding.
    (2) No Commissioner, Administrative Law Judge or Commission 
decisional employee shall make or knowingly cause to be made to any 
interested person outside the Commission an ex parte communication 
relevant to the merits of a proceeding.
    (c) Procedures for handling ex parte communications. A Commissioner, 
Administrative Law Judge or Commission decisional employee who receives, 
or who makes or knowingly causes to be made, an ex parte communication 
prohibited by paragraph (b) of this section shall:
    (1) Place on the public record of the proceeding:
    (i) All such written communications;
    (ii) Memoranda stating the substance of all such oral 
communications; and
    (iii) All written responses, and memoranda stating the substance of 
all oral responses, to the materials described in paragraphs (c) (1)(i) 
and (1)(ii) of this section; and
    (2) Promptly give written notice of such communication and responses 
thereto to all parties to the proceedings to which the communication or 
responses relate.
    (d) Sanctions. (1) Upon receipt of an ex parte communication 
knowingly made or knowingly caused to be made by a party in violation of 
the prohibition contained in paragraph (b)(1) of this section, the 
Commission, Administrative Law Judge or other Commission employee 
presiding at the hearing may, to the extent consistent with the 
interests of justice and the policy of the Act, require the party to 
show cause why his claim or interest in the proceeding should not be 
dismissed, denied, disregarded, or otherwise adversely affected on 
account of such violation.
    (2) Any attorney or accountant who knowingly makes or knowingly 
causes to be made, or who knowingly solicits or knowingly causes the 
solicitation of, an ex parte communication which violates the 
prohibitions contained in paragraph (b) of this section may, on that 
basis alone, be deemed to have engaged in unprofessional conduct of the 
type proscribed by 17 CFR 14.8(c).
    (3) Any Commissioner, Administrative Law Judge or Commission 
decisional employee who knowingly makes or knowingly cause to be made, 
or who knowingly solicits or knowingly causes the solicitation of, an ex 
parte communication which violates

[[Page 273]]

the prohibitions contained in paragraph (b) of this section may, on that 
basis alone, be deemed to have engaged in conduct of the type proscribed 
by 17 CFR 140.735-3(b)(3).
    (e) Applicability of prohibitions and sanctions against ex parte 
communications. (1) The prohibitions of this section against ex parte 
communications shall apply:
    (i) To any person who has actual knowledge that a proceeding has 
been or will be commenced by order of the Commission; and
    (ii) To all persons after public notice has been given that a 
proceeding has been or will be commenced by order of the Commission.
    (2) The prohibitions of this section shall remain in effect until a 
final order has been entered in the proceeding which is no longer 
subject to review or reconsideration by the Commission or to review by 
any court.
    (3) Nothing in this section shall constitute authority to withhold 
information from Congress.

(Sec. 4, Pub. L. 94-409, 90 Stat. 1246, 1247 (5 U.S.C. 551(14), 556(d) 
and 557(d)); sec. 101(a)(11), Pub. L. 93-463, 88 Stat. 1391 (7 U.S.C. 
4a(j) (Supp. V, 1975))

[42 FR 13700, Mar. 11, 1977, as amended at 60 FR 54801, Oct. 26, 1995]



Sec. 10.11  Appearance in adjudicatory proceedings.

    (a) Appearance--(1) By non-attorneys. An individual may appear pro 
se (in his own behalf), a member of a partnership may represent the 
partnership, a bona fide officer of a corporation, trust or association 
may represent the corporation, trust or association, an officer or 
employee of a State Commission or of a department or political 
subdivision of a State may represent the State Commission or the 
department or political subdivision of the State in any proceeding.
    (2) By attorneys. An attorney-at-law who is admitted to practice 
before the highest Court in any State or territory, or of the District 
of Columbia, who has not been suspended or disbarred from appearance and 
practice before the Commission in accordance with the provisions of part 
14 of this title, may represent parties in proceedings before the 
Commission.
    (b) Debarment of counsel or representative by administrative law 
judge during the course of a proceeding. (1) Whenever, while a 
proceeding is pending before him, the Administrative Law Judge finds 
that a person acting as counsel or representative for any party to the 
proceeding is guilty of contemptuous conduct, the Administrative Law 
Judge may order that such person be precluded from further acting as 
counsel or representative in such proceeding. An immediate appeal to the 
Commission may be sought from any such order, pursuant to the terms of 
Sec. 10.101, but the proceeding shall not be delayed or suspended 
pending disposition of the appeal: Provided, That the Administrative Law 
Judge may suspend the proceedings for a reasonable time for the purpose 
of enabling the party to obtain other counsel or representative.
    (2) Whenever the Administrative Law Judge has issued an order 
precluding a person from further acting as counsel for representative in 
the proceeding, the Administrative Law Judge within a reasonable time 
thereafter, shall submit to the Commission a report of the facts and 
circumstances surrounding the issuance of the order and shall recommend 
what action the Commission should take respecting the appearance of such 
person as counsel or representative in other proceedings before the 
Commission.



Sec. 10.12  Service and filing of documents; form and execution.

    (a) Service by a party or other participant in a proceeding--(1) 
Number of copies; when required. Two copies of all pleadings subsequent 
to the complaint, all motions, petitions or applications made in the 
course of a proceeding (unless made orally during a hearing), all 
proposed findings and conclusions, all petitions for review of any 
initial decision, and all briefs shall be served by the party or other 
participant upon all parties to the proceeding.
    (2) How service is made. Service shall be made by:
    (i) Personal service;
    (ii) First-class or a more expeditious form of United States mail or 
a similar commercial package delivery service;
    (iii) Transmitting the documents via facsimile machine (``fax''); or

[[Page 274]]

    (iv) Via electronic mail (``e-mail'').
    (v) Service shall be complete at the time of personal service; upon 
deposit in the mail or with a similar commercial package delivery 
service of a properly addressed document for which all postage or 
delivery service fees have been paid; or upon transmission by fax or e-
mail. Where a party effects service by mail or similar package delivery 
service (but not by fax or e-mail), the time within which the party 
being served may respond shall be extended by five (5) days. Service by 
fax or e-mail shall be permitted at the discretion of the Presiding 
Officer, with the parties' consent. Signed documents that are served by 
e-mail must be in PDF or other non-alterable form.
    (3) Proof of Service. Proof of service of a document shall be made 
by filing with the Proceedings Clerk, simultaneously with the filing of 
the required number of copies of the document, an affidavit of service 
executed by any person 18 years of age or older or a certificate of 
service executed by an attorney-at-law qualified to practice before the 
Commission. The proof of service shall identify the persons served, 
state that service has been made, set forth the date of service, and 
recite the manner of service.
    (b) Service of decisions and orders. A copy of all rulings, opinions 
and orders of the Administrative Law Judge and the Commission shall be 
served by the Proceedings Clerk on each of the parties. The Commission, 
in its discretion and with due consideration for the convenience of the 
parties, may serve the aforementioned documents to the parties by 
electronic means.
    (c) Designation of person to receive service. The first document 
filed in a proceeding by or on behalf of any party or participant 
(including the complaint and notice of hearing, the answer, and an 
application for intervention) shall state on the first page thereof the 
name and post office address of the person who is authorized to receive 
service for him of all documents filed in the proceeding. Thereafter 
service of documents shall be made upon the person authorized unless 
service on the party himself is ordered by the Administrative Law Judge 
or the Commission, or unless no person authorized to receive service can 
be found, or unless the person authorized is changed by the party upon 
due notice to all other parties.
    (d) Filing of documents with the Proceedings Clerk. (1) All 
documents which are required to be served upon a party shall be filed 
concurrently with the Proceedings Clerk. A document shall be filed by 
delivering it in person or by certified or registered mail with return 
receipt requested to Proceedings Clerk, Office of Proceedings, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581; or faxing 
the document to (202) 418-5532 or e-mailing it to (PROC--
[email protected]) in accordance with the conditions set forth in 
paragraph (a)(2) of this section.
    (2) To be timely filed, a document must be received by the 
Proceedings Clerk within the time prescribed for filing.
    (e) Formalities of filing--(1) Number of copies. Unless otherwise 
specifically provided, an original and five conformed copies of all 
documents shall be filed with the Proceedings Clerk.
    (2) Title page. All documents filed with the Proceedings Clerk must 
include at the head thereof, or on a title page, the name of the 
Commission, the docket number and title of the proceeding, the subject 
of the particular document and the name of the person in whose behalf 
the document is being filed. In the complaint the title of the action 
shall include the names of all the respondents, but in documents 
subsequently filed it is sufficient to state the name of the first 
respondent named in the complaint with an appropriate indication of 
other parties.
    (3) Paper, spacing, type. All documents filed under this part shall 
be typewritten, mimeographed, printed, or otherwise reproduced by a 
process that produces permanent and plainly legible copies, shall be on 
one grade of good unglazed white paper no less than 8 or more than 8\1/
2\ inches wide and no less than 10\1/2\ or more than 14 inches long, 
with a left-hand margin 1\1/2\ inches wide, and shall be bound on the 
top only. They shall be double spaced, except for long quotations (3 or 
more lines) and footnotes, which should be single-spaced. If printed, 
the documents shall be in either 10- or 12-point

[[Page 275]]

type with double-leaded text and single-leaded quotations and footnotes.
    (4) Signatures. The original copy of all papers must be signed in 
ink by the person filing the same or by his duly authorized agent or 
attorney.
    (5) Length and form of briefs. All briefs filed with the Proceedings 
Clerk containing more than ten pages shall include an index and a table 
of cases and other authorities cited. The date of each brief must appear 
on its front cover or title page and on its signature page. No brief 
shall exceed 60 pages in length, except with the permission of the 
Administrative Law Judge or, by the Commission, to whomever the brief is 
directed.
    (6) Documents improperly tendered for filing. No document will be 
accepted unless it complies with the requirements of this paragraph 
concerning form, filing, subscription, service and other similar 
matters. A document tendered but not accepted for filing shall not be 
entered on the Proceedings Clerk's docket, but a motion may be made to 
the Administrative Law Judge for leave to file an otherwise unauthorized 
document.
    (f) Subscriptions--(1) By whom. Pleadings, petitions, motions and 
answers thereto, briefs and other documents filed with the Commission 
shall be subscribed:
    (i) By the person or persons on whose behalf they are tendered for 
filing;
    (ii) By a partner, officer or director of a partnership, 
corporation, association, or other legal entity; or
    (iii) By an attorney-at-law having authority with respect thereto.

The Proceedings Clerk may require appropriate evidence of the authority 
of a person subscribing a document on behalf of another person.
    (2) Effect. The signature on a document of any person acting either 
for himself or as attorney or agent for another constitutes a 
certification by him that:
    (i) He has read the document subscribed and knows the contents 
thereof;
    (ii) If executed in any representative capacity, it was done with 
full power and authority to do so;
    (iii) To the best of his knowledge, information and belief, every 
statement contained in the document is true and not misleading; and
    (iv) The document is not being interposed for delay.
    (3) Sham documents. If a document is not signed or is signed with an 
intent to defeat the purpose of this rule, it may be stricken as sham 
and false. For a willful violation of this rule an attorney may be 
subjected to appropriate disciplinary action pursuant to Sec. 10.11(b). 
Similar action may be taken if scandalous matter is inserted.
    (g) Official docket. The Proceedings Clerk will maintain the 
official docket for each proceeding. The official docket is available 
for public inspection in the Commission's Office of Proceedings.

[41 FR 2511, Jan. 16, 1976, as amended at 41 FR 28260, July 9, 1976; 60 
FR 54802, Oct. 26, 1995; 63 FR 55791, Oct. 19, 1998; 73 FR 63360, Oct. 
24, 2008]



 Subpart B_Institution of Adjudica- tory Proceedings; Pleadings; Motions



Sec. 10.21  Commencement of the proceeding.

    An adjudicatory proceeding is commenced when a complaint and notice 
of hearing is filed with the Office of Proceedings.

[63 FR 55791, Oct. 19, 1998; 63 FR 68829, Dec. 14, 1998]



Sec. 10.22  Complaint and notice of hearing.

    (a) Content. The complaint and notice of hearing shall include:
    (1) The legal authority and jurisdiction under which the hearing is 
held;
    (2) The matters of fact and law to be considered and determined.

The complaint shall set forth the matters of fact alleged therein in 
such manner as will permit a specific response to each allegation. The 
notice shall notify the respondent of his right to a hearing and shall 
specify the time required by Sec. 10.23 of these rules for the filing 
of an answer and the consequence of failure to file an answer.
    (b) Service. The Proceedings Clerk shall give appropriate notice to 
each respondent by serving them with a copy of the complaint and notice 
of

[[Page 276]]

hearing. Service may be made in person, by confirmed telegraphic notice, 
or by registered mail or certified mail, addressed to the last known 
business or residence address of the person to be served or the address 
of his duly authorized agent for service. If a respondent is not found 
at his last known business or residence address and no forwarding 
address is available, additional service may be made, at the discretion 
of the Commission, as follows:
    (1) By publishing a notice of the filing of the proceeding and a 
summary of the complaint, approved by the Commission or the 
Administrative Law Judge, once a week for three consecutive weeks in one 
or more newspapers having a general circulation where the respondent's 
last known business or residence address was located and, if 
ascertainable, where the respondent is believed to reside or be doing 
business currently; and
    (2) By continuously displaying the complaint on the Commission's 
Internet web site during the period referred to in paragraph (b)(1) of 
this section.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995; 63 
FR 55791, Oct. 19, 1998]



Sec. 10.23  Answer.

    (a) When required. Following service of a complaint and notice of 
hearing as set forth in Sec. 10.22 of these rules, unless otherwise 
specified in the notice of hearing, each respondent shall file an answer 
with the Proceedings Clerk within 20 days.
    (b) Content of answer. The answer shall include:
    (1) A statement that the respondent admits, denies, or does not have 
and is unable to obtain sufficient information to admit or deny each 
allegation; a statement of a lack of information shall have the effect 
of a denial; any allegation not expressly denied shall be deemed to be 
admitted;
    (2) A statement of the facts supporting each affirmative defense.
    (c) Effect of failure to file answer. A party who fails to file an 
answer within 20 days shall be in default and, pursuant to procedures 
set forth in Sec. 10.93 of these rules, the proceeding may be 
determined against him by the Administrative Law Judge upon his 
consideration of the complaint, the allegations of which shall then be 
deemed to be true.
    (d) Admission of all allegations of fact. If a respondent's answer 
admits the truth of all the material allegations of fact contained in 
the complaint, it shall constitute a waiver of hearing on those 
allegations. However, the Administrative Law Judge may conduct a 
hearing, if so requested, by any of the parties. Following waiver, the 
parties may submit proposed findings and conclusions and briefs, as 
provided in Sec. 10.82 and may appeal any initial decision to the 
Commission as provided in Sec. 10.102 of these rules.
    (e) Motion for more definite statement. Where a reasonable showing 
is made by a respondent that he cannot frame a responsive answer based 
on the allegations in the complaint, he may move for a more definite 
statement of the charges against him before filing an answer. A motion 
for a more definite statement shall be filed within ten days after 
service of the complaint and shall specify the defects complained of and 
the particular allegation as to which a more definite statement is 
sought.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995]



Sec. 10.24  Amendments and supplemental pleadings.

    (a) Complaint and notice of hearing. The Commission may, at any 
time, amend the complaint and notice of hearing in any proceeding. If 
the Commission so amends the complaint and notice of hearing, the 
Administrative Law Judge shall adjust the scheduling of the proceeding 
to the extent necessary to avoid any prejudice to any of the parties to 
the proceeding. Upon motion to the Administrative Law Judge and with 
notice to all other parties and the Commission, the Division of 
Enforcement may amend a complaint to correct typographical and clerical 
errors or to make other technical, non-substantive revisions within the 
scope of the original complaint.
    (b) Other pleadings. Except for the complaint and notice of hearing, 
a party may amend any pleading once as a matter of course at any time 
before a responsive pleading is served or, if the

[[Page 277]]

pleading is one to which no responsive pleading is permitted, he may 
amend it within 20 days after it is served. Otherwise a party may amend 
a pleading only by leave of the Administrative Law Judge, which shall be 
freely given when justice so requires.
    (c) Response to amended pleadings. Any party may file a response to 
any amendment to any pleading, including the complaint, within ten days 
after the date of service upon him of the amendment or within the time 
provided to respond to the original pleading, whichever is later.
    (d) Pleadings to conform to the evidence. When issues not raised by 
the pleadings but reasonably within the scope of a proceeding initiated 
by the complaint are tried with the express or implied consent of the 
parties, they shall be treated in all respects as if they had been 
raised in the pleadings.

[41 FR 2511, Jan. 16, 1976, as amended at 63 FR 55791, Oct. 19, 1998]



Sec. 10.25  Form of pleadings.

    All averments of claim and defense shall be made in consecutively 
numbered paragraphs. The contents of each paragraph shall be limited as 
far as practicable to a single set of circumstances.



Sec. 10.26  Motions and other papers.

    (a) Presentation. An application for a form of relief not otherwise 
specifically provided for in these rules shall be made by motion, filed 
with the Proceedings Clerk, which shall be in writing unless made on the 
record during a hearing. The motion shall state: (1) The relief sought; 
(2) the basis for relief; and (3) the authority relied upon. If a motion 
is supported by briefs, affidavits or other papers, they shall be served 
and filed with the motion. All motions and applications, unless 
otherwise provided in these rules, shall be directed to the 
Administrative Law Judge prior to the filing of an initial decision in a 
proceeding, and to the Commission after the initial decision has been 
filed.
    (b) Answers to motions. Any party may serve and file a written 
response to a motion within ten days after service of the motion upon 
him or within such longer or shorter period as established by these 
rules or as the Administrative Law Judge or the Commission may direct. 
The absence of a response to a motion may be considered by the 
Administrative Law Judge or the Commission in deciding whether to grant 
the requested relief.
    (c) Motions for procedural orders. Motions for procedural orders, 
including motions for extension of time, may be acted on at any time, 
without awaiting a response thereto. Any party adversely affected by 
such order may request reconsideration, vacation or modification of the 
order.
    (d) Dilatory motions. Repetitive or numerous motions dealing with 
the same subject matter shall not be permitted.
    (e) Review by the Commission. Interloctory review by the Commission 
of a ruling on a motion by an Administrative Law Judge may be sought in 
accordance with the procedures and under the circumstances set forth in 
Sec. 10.101 of these rules.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995; 63 
FR 55791, Oct. 19, 1998]



               Subpart C_Parties and Limited Participation



Sec. 10.31  Parties.

    The parties to an adjudicatory proceeding shall include the Division 
of Enforcement, each respondent named in the complaint and each person 
permitted to intervene pursuant to Sec. 10.33 of these rules. A 
respondent shall cease to be a party or purposes of a pending proceeding 
when (a) a default order is entered against him pursuant to Sec. 10.93; 
or (b) the Commission accepts an offer of settlement pursuant to Sec. 
10.108 of these rules.



Sec. 10.32  Substitution of parties.

    Upon motion and for good cause shown the Administrative Law Judge 
may order a substitution of parties.



Sec. 10.33  Intervention as a party.

    (a) Petition for Leave to Intervene. Any person whose interests may 
be affected substantially by the matters to be considered in a 
proceeding may petition the Administrative Law Judge for leave to 
intervene as a party in the

[[Page 278]]

proceeding any time after the institution of a proceeding and before 
such proceeding has been submitted for final consideration. Petitions 
for leave to intervene shall be in writing and shall set forth with 
specificity the nature of the petitioner's interest in the proceeding 
and the manner in which his interests may be affected substantially. The 
Administrative Law Judge may direct a petitioner requesting intervention 
to submit himself for examination as to his interest in the proceeding.
    (b) Response to petition. A petition for leave to intervene shall be 
served by the petitioner upon all parties to the proceeding, who may 
support or oppose the petition in a document filed within ten days after 
service of the petition upon them or within such other period as the 
Administrative Law Judge may direct in a particular case.
    (c) Leave to intervene--when granted. No person shall be admitted as 
a party to a proceeding by intervention unless the Administrative Law 
Judge is satisfied that (1) a substantial interest of the person seeking 
to intervene may be adversely affected by the matter to be considered in 
the proceeding; (2) that his intervention will not materially prejudice 
the rights of any party, through delay or otherwise; (3) that his 
participation as a party will otherwise be consistent with the public 
interest; and (4) that leave to be heard pursuant to Sec. 10.34 would 
be inadequate for the protection of his interests. The burden shall be 
upon the petitioner to satisfy the Administrative Law Judge on these 
issues.
    (d) Rights of intervenor. A person who has been granted leave to 
intervene shall from that time forward have all the rights and 
responsibilities of a party to the proceeding.



Sec. 10.34  Limited participation.

    (a) Petitions for leave to be heard. Any person may, in the 
discretion of the Administrative Law Judge, be given leave to be heard 
in any proceeding as to any matter affecting his interests. Petitions 
for leave to be heard shall be in writing, shall set forth (1) the 
nature and extent of the applicant's interest in the proceeding; (2) the 
issues on which he wishes to participate; and (3) in what manner he 
wishes to participate. The Administrative Law Judge may direct any 
person requesting leave to be heard to submit himself to examination as 
to his interest in the proceeding.
    (b) Rights of a participant. Leave to be heard pursuant to Sec. 
10.34(a) may include such rights of a party as the Administrative Law 
Judge may deem appropriate, except that oral argument before the 
Commission may be permitted only by the Commission.



Sec. 10.35  Permission to state views.

    Any person may, in the discretion of the Administrative Law Judge be 
permitted to file a memorandum or make an oral statement of his views, 
and the Administrative Law Judge may, in his discretion, accept for the 
record written communications received from any person.



Sec. 10.36  Commission review of rulings.

    Interlocutory review by the Commission of a ruling as to matters 
within the scope of Sec. 10.33, Sec. 10.34 or Sec. 10.35 may be 
sought in accordance with the procedures set forth in Sec. 10.101 of 
these rules without certification by the Administrative Law Judge.



  Subpart D_Prehearing Procedures; Prehearing Conferences; Discovery; 
                               Depositions



Sec. 10.41  Prehearing conferences; procedural matters.

    In any proceeding the Administrative Law Judge may direct that one 
or more conferences be held for the purpose of:
    (a) Clarifying issues;
    (b) Examining the possibility of obtaining stipulations, admissions 
of fact and of authenticity or contents of documents;
    (c) Determining matters of which official notice may be taken;
    (d) Discussing amendments to pleadings;
    (e) Limiting the number of witnesses;
    (f) Considering objections to the introduction of documentary 
evidence and the testimony of witnesses identified in prehearing 
materials filed or

[[Page 279]]

otherwise furnished by the parties pursuant to Sec. 10.42;
    (g) Discussing adoption of shortened procedures pursuant to Sec. 
10.92;
    (h) Promoting a fair and expeditious hearing.

At or following the conclusion of a prehearing conference, the 
Administrative Law Judge shall serve a prehearing memorandum containing 
agreements reached and any procedural determinations made by him, unless 
the conference shall have been recorded and transcribed in written form 
and a copy of the transcript has been made available to each party.

[41 FR 2511, Jan. 16, 1976, as amended at 63 FR 55791, Oct. 19, 1998]



Sec. 10.42  Discovery.

    (a) Prehearing materials--(1) In general. Unless otherwise ordered 
by an Administrative Law Judge, the parties to a proceeding shall 
furnish to all other parties to the proceeding on or before a date set 
by the Administrative Law Judge in the form of a prehearing memorandum 
or otherwise:
    (i) An outline of its case or defense;
    (ii) The legal theories upon which it will rely;
    (iii) The identity, and the city and state of residence, of each 
witness, other than an expert witness, who is expected to testify on its 
behalf, along with a brief summary of the matters to be covered by the 
witness's expected testimony;
    (iv) A list of documents which it intends to introduce at the 
hearing, along with copies of any such documents which the other parties 
do not already have in their possession and to which they do not have 
reasonably ready access.
    (2) Expert witnesses. Unless otherwise ordered by the Administrative 
Law Judge, in addition to the information described in paragraph (a)(1) 
of this section, any party who intends to call an expert witness shall 
also furnish to all other parties to the proceeding on or before a date 
set by the Administrative Law Judge:
    (i) A statement identifying the witness and setting forth his or her 
qualifications;
    (ii) A list of any publications authored by the witness within the 
preceding ten years;
    (iii) A list of all cases in which the witness has testified as an 
expert, at trial or in deposition, within the preceding four years;
    (iv) A complete statement of all opinions to be expressed by the 
witness and the basis or reasons for those opinions; and
    (v) A list of any documents, data or other written information which 
were considered by the witness in forming his or her opinions, along 
with copies of any such documents, data or information which the other 
parties do not already have in their possession and to which they do not 
have reasonably ready access.
    (3) The foregoing procedures shall not be deemed applicable to 
rebuttal evidence submitted by any party at the hearing.
    (4) In any action where a party fails to comply with the 
requirements of this paragraph (a), the Administrative Law Judge may 
make such orders in regard to the failure as are just, taking into 
account all of the relevant facts and circumstances of the failure to 
comply.
    (b) Investigatory materials--(1) In general. Unless otherwise 
ordered by the Commission or the Administrative Law Judge, the Division 
of Enforcement shall make available for inspection and copying by the 
respondents, prior to the scheduled hearing date, any of the following 
documents that were obtained by the Division prior to the institution of 
proceedings in connection with the investigation that led to the 
complaint and notice of hearing:
    (i) All documents that were produced pursuant to subpoenas issued by 
the Division or otherwise obtained from persons not employed by the 
Commission, together with each subpoena or written request, or relevant 
portion thereof, that resulted in the furnishing of such documents to 
the Division; and
    (ii) All transcripts of investigative testimony and all exhibits to 
those transcripts.
    (2) Documents that may be withheld. The Division of Enforcement may 
withhold any document that would disclose:

[[Page 280]]

    (i) The identity of a confidential source;
    (ii) Confidential investigatory techniques or procedures;
    (iii) Separately the market positions, business transactions, trade 
secrets or names of customers of any persons other than the respondents, 
unless such information is relevant to the resolution of the proceeding;
    (iv) Information relating to, or obtained with regard to, another 
matter of continuing investigatory interest to the Commission or another 
domestic or foreign governmental entity, unless such information is 
relevant to the resolution of the proceeding; or
    (v) Information obtained from a domestic or foreign governmental 
entity or from a foreign futures authority that either is not relevant 
to the resolution of the proceeding or was provided on condition that 
the information not be disclosed or that it only be disclosed by the 
Commission or a representative of the Commission as evidence in an 
enforcement or other proceeding.
    (3) Nothing in paragraphs (b)(1) and (b)(2) of this section shall 
limit the ability of the Division of Enforcement to withhold documents 
or other information on the grounds of privilege, the work product 
doctrine or other protection from disclosure under applicable law. When 
the investigation by the Division of Enforcement that led to the pending 
proceeding encompasses transactions, conduct or persons other than those 
involved in the proceeding, the requirements of (b)(1) of this section 
shall apply only to the particular transaction, conduct and persons 
involved in the proceeding.
    (4) Index of withheld documents. When documents are made available 
for inspection and copying pursuant to paragraph (b)(1) of this section, 
the Division of Enforcement shall furnish the respondents with an index 
of all documents that are withheld pursuant to paragraphs (b)(2) or 
(b)(3) of this section, except for any documents that are being withheld 
because they disclose information obtained from a domestic or foreign 
governmental entity or from a foreign futures authority on condition 
that the information not be disclosed or that it only be disclosed by 
the Commission or a representative of the Commission as evidence in an 
enforcement or other proceeding, in which case the Division shall inform 
the other parties of the fact that such documents are being withheld at 
the time it furnishes its index under this paragraph, but no further 
disclosures regarding those documents shall be required. This index 
shall describe the nature of the withheld documents in a manner that, to 
the extent practicable without revealing any information that itself is 
privileged or protected from disclosure by law or these rules, will 
enable the other parties to assess the applicability of the privilege or 
protection claimed.
    (5) Arrangements for inspection and copying. Upon request by the 
respondents, all documents subject to inspection and copying pursuant to 
this paragraph (b) shall be made available to the respondents at the 
Commission office nearest the location where the respondents or their 
counsel live or work. Otherwise, the documents shall be made available 
at the Commission office where they are ordinarily maintained or at any 
other location agreed upon by the parties in writing. Upon payment of 
the appropriate fees set forth in appendix B to part 145 of this 
chapter, any respondent may obtain a photocopy of any document made 
available for inspection. Without the prior written consent of the 
Division of Enforcement, no respondent shall have the right to take 
custody of any documents that are made available for inspection and 
copying, or to remove them from Commission premises.
    (6) Failure to make documents available. In the event that the 
Division of Enforcement fails to make available documents subject to 
inspection and copying pursuant to this paragraph (b), no rehearing or 
reconsideration of a matter already heard or decided shall be required, 
unless the respondent demonstrates prejudice caused by the failure to 
make the documents available.
    (7) Requests for confidential treatment; protective orders. If a 
person has requested confidential treatment of information submitted by 
him or her, either pursuant to rules adopted by the Commission under the 
Freedom of Information Act (part 145 of this chapter)

[[Page 281]]

or under the Commission's Rules Relating to Investigations (part 11 of 
this chapter), the Division of Enforcement shall notify him or her, if 
possible, that the information is to be disclosed to parties to the 
proceeding and he or she may apply to the Administrative Law Judge for 
an order protecting the information from disclosure, consideration of 
which shall be governed by Sec. 10.68(c)(2).
    (c) Witness statements--(1) In general. Each party to an 
adjudicatory proceeding shall make available to the other parties any 
statement of any person whom the party calls, or expects to call, as a 
witness that relates to the anticipated testimony of the witness and is 
in the party's possession. Such statements shall include the following:
    (i) Transcripts of investigative, deposition, trial or similar 
testimony given by the witness,
    (ii) Written statements signed by the witness, and
    (iii) Substantially verbatim notes of interviews with the witness, 
and all exhibits to such transcripts, statements and notes. For purposes 
of this paragraph (c), ``substantially verbatim notes'' means notes that 
fairly record the exact words of the witness, subject to minor, 
inconsequential deviations. Such statements shall include memoranda and 
other writings authored by the witness that contain information relating 
to his anticipated testimony. The Division of Enforcement shall produce 
witness statements pursuant to this paragraph prior to the scheduled 
hearing date, at a time to be designated by the Administrative Law 
Judge. Respondents shall produce witness statements pursuant to this 
paragraph at the close of the Division's case in chief during the 
hearing. If necessary, the Administrative Law Judge shall, upon request, 
grant the Division a continuance of the hearing in order to review and 
analyze any witness statements produced by the respondents.
    (2) Nothing in paragraph (c)(1) of this section shall limit the 
ability of a party to withhold documents or other information on the 
grounds of privilege, the work product doctrine or other protection from 
disclosure under applicable law.
    (3) Index of withheld documents. When a party makes witness 
statements available pursuant to paragraph (c)(1) of this section, he or 
she shall furnish each of the other parties with an index of all 
documents that the party is withholding on the grounds of privilege or 
work product. This index shall describe the nature of the withheld 
documents in a manner that, to the extent practicable without revealing 
information that itself is privileged or protected from disclosure by 
law or these rules, will enable the other parties to assess the 
applicability of the privilege or protection claimed.
    (4) Failure to produce witness statements. In the event that a party 
fails to make available witness statements subject to production 
pursuant to this section, no rehearing or reconsideration of a matter 
already heard or decided shall be required, unless another party 
demonstrates prejudice caused by the failure to make the witness 
statements available.
    (d) Modification of production requirements. The Administrative Law 
Judge shall modify any of the requirements of paragraphs (a) through (c) 
of this section that any party can show is unduly burdensome or is 
otherwise inappropriate under all the circumstances.
    (e) Admissions--(1) Request for admissions. Any party may serve upon 
any other party, with a copy to the Proceedings Clerk, a written request 
for admission of the truth of any facts relevant to the pending 
proceeding set forth in the request. Each matter of which an admission 
is requested shall be separately set forth. Unless prior written 
approval is obtained from the Administrative Law Judge, the number of 
requests shall not exceed 50 in number including all discrete parts and 
subparts.
    (2) Response. A matter shall be considered to be admitted unless, 
within 15 days after service of the request, or within such other time 
as the Administrative Law Judge may allow, the party upon whom the 
request is directed serves upon the requesting party a sworn written 
answer or objection to the matter. If objection is made, the reasons 
therefor shall be stated. The response shall specifically deny the

[[Page 282]]

matter or set forth in detail the reasons why the answering party cannot 
truthfully admit or deny the matter. A denial shall fairly meet the 
substance of the requested admission and when good faith requires that a 
party qualify his answer and deny only a part of the matter, he shall 
specify so much of it as is true and qualify or deny the remainder. An 
answering party may not give a lack of information or knowledge as a 
reason for failure to admit or deny unless he states that he has made 
reasonable inquiry and that the information known or reasonably 
available to him is insufficient to enable him to admit or deny. A party 
who considers that a matter of which an admission has been requested 
presents a genuine issue for trial may not, on that ground alone, object 
to the request; he may deny the matter or set forth reasons why he 
cannot admit or deny it.
    (3) Determining sufficiency of answers or objections. The party who 
has requested the admissions may move to determine the sufficiency of 
the answers or objections. Unless the objecting party sustains his 
burden of showing that the objection is justified, the Administrative 
Law Judge shall order that an answer be served. If the Administrative 
Law Judge determines that an answer does not comply with the 
requirements of this rule, he may order either that the matter is 
admitted or that an amended answer be served.
    (4) Effect of admission. Any matter admitted under this rule is 
conclusively established and may be used at a hearing as against the 
party who made the admission. However, the Administrative Law Judge may 
permit withdrawal or amendment when the presentation on the merits of 
the proceeding will be served thereby and the party who obtains the 
admission fails to satisfy the Administrative Law Judge that withdrawal 
or amendment will prejudice him in maintaining his action or defense on 
the merits.
    (f) Objections to authenticity or admissibility of documents--(1) 
Identification of documents. The Administrative Law Judge, acting on his 
or her own initiative or upon motion by any party, may direct each party 
to serve upon the other parties, with a copy to the Proceedings Clerk, a 
list identifying the documents that it intends to introduce at the 
hearing and requesting the other parties to file and serve a response 
disclosing any objection, together with the factual or legal grounds 
therefor, to the authenticity or admissibility of each document 
identified on the list. A copy of each document identified on the list 
shall be served with the request, unless the party being served already 
has the document in his possession or has reasonably ready access to it.
    (2) Objections to authenticity or admissibility. Within 20 days 
after service or at such other time as may be designated by the 
Administrative Law Judge, each party upon whom the list described in 
paragraph (f)(1) of this section was served shall file a response 
disclosing any objection, together with the factual or legal grounds 
therefor, to the authenticity or admissibility of each document 
identified on the list. Except for relevance, waste of time or needless 
presentation of cumulative evidence, all objections not raised may be 
deemed waived.
    (3) Rulings on objections. In his or her discretion, the 
Administrative Law Judge may treat as a motion in limine any list served 
by a party pursuant to paragraph (f)(1) of this section, where any other 
party has filed a response objecting to the authenticity or the 
admissibility on any item listed. In that event, after affording the 
parties an opportunity to file briefs containing arguments on the motion 
to the degree necessary for a decision, the ALJ may rule on any 
objection to the authenticity or admissibility of any document 
identified on the list in advance of trial, to the extent appropriate.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995; 63 
FR 55792, Oct. 19, 1998; 63 FR 68829, Dec. 14, 1998]



Sec. 10.43  Stipulations.

    The parties may by stipulation in writing at any stage of the 
proceeding, or orally made at hearing, agree upon any pertinent facts in 
the proceeding. It is desirable that the facts be thus agreed upon so 
far as and whenever practicable. Stipulations may be received in 
evidence at a hearing and when received in evidence shall be binding on 
the parties thereto.

[[Page 283]]



Sec. 10.44  Depositions and interrogatories.

    (a) When permitted. If it appears that:
    (1) A prospective witness will be unable to attend or testify at a 
hearing on the basis of age, illness, infirmity, imprisonment or on the 
basis that he is or will be outside of the United States at the time of 
the hearing (unless it appears that the absence of the witness was 
procured by the party seeking to take the deposition),
    (2) His testimony is material,
    (3) It is necessary to take his deposition in the interest of 
Justice, the Administrative Law Judge may by order direct that his 
deposition be taken either orally or in the form of written 
interrogatories, and may issue a subpoena to compel the attendance of 
the witness for deposition.
    (b) Application for deposition. Any party desiring to take the 
deposition of a witness shall make application in writing to the 
Administrative Law Judge for an order to take deposition. In addition to 
the showing required in Sec. 10.44(a), the application shall include:
    (1) The name and post office address of the witness;
    (2) The specific matters concerning which the witness is expected to 
testify and their relevance;
    (3) The reasons why the deposition should be taken, supported by 
affidavits and a physician's certificate, where appropriate;
    (4) The time when, the place where, and the name and address of the 
person before whom the deposition is to be taken;
    (5) A specification of the documents and materials which the 
deponent is requested to produce;
    (6) Application for any subpoenas.
    (c) Service and reply. A copy of the application to take deposition 
shall be served upon every other party to the proceeding and upon the 
person sought to be deposed. Any party or the deponent may serve and 
file an opposition to the application within seven days after the 
application is filed.
    (d) Time when, place where, and officer before whom deposition is 
taken--(1) Where the deposition is taken. Unless otherwise ordered or 
agreed to by stipulation, depositions shall be taken in the city or 
municipality where the deponent is located.
    (2) Officer before whom taken. (i) Within the United States or a 
territory of the United States, depositions shall be taken before an 
officer authorized to administer oaths by the laws of the United States 
or of the place where the examination is held.
    (ii) Within a foreign country, depositions may be taken before an 
officer or person designated by the Administrative Law Judge or agreed 
upon by the parties by a stipulation in writing to be filed with the 
Proceedings Clerk.
    (e) Procedures for taking oral depositions. (1) Oral examination and 
crossexamination of witnesses shall be conducted in a manner similar to 
that permitted at a formal hearing. All questions and testimony shall be 
recorded verbatim, except to the extent that all parties present or 
represented may agree that a matter shall be off the record.
    (2) All objections made at the time of the examination to the 
qualifications of the officer taking the deposition, or to the manner of 
taking it, or to the evidence presented, or to the conduct of any party, 
or any other objection to the proceeding shall be noted by the officer 
upon the deposition, and shall subsequently be determined by the 
Administrative Law Judge. Evidence objected to shall be taken subject to 
the objections. However, the parties may stipulate that, except as to 
objections to the form of questions, all objections to the matters 
testified to in a deposition are preserved for the hearing, whether or 
not raised at the time of deposition.
    (3) During the taking of a deposition a party or deponent may 
request and obtain an adjournment to permit an application to be made to 
the Administrative Law Judge for an order suspending the deposition on 
grounds of bad faith in the conduct of the examination, annoyance, 
embarrassment, oppression of a deponent or party, or improper questions. 
An attorney who requests and obtains an adjournment for this purpose but 
fails, without good cause, promptly to apply for relief to the 
Administrative Law Judge may be found guilty of contemptuous conduct

[[Page 284]]

in accordance with Sec. 10.11(b) of these rules.
    (f) Procedures for use of interrogatories. (1) If depositions are to 
be taken and submitted on written interrogatories, the interrogatories 
shall be filed in triplicate with the application for deposition and 
served on the parties. Within ten days after service, any party may 
file, in triplicate, with the Proceedings Clerk, his objections, if any, 
to such interrogatories and may file such cross-interrogatories as he 
desires to submit. Other parties shall have ten days to file their 
objections to cross-interrogatories. Objections shall be settled by the 
Administrative Law Judge.
    (2) When a deposition is taken upon written interrogatories and 
cross-interrogatories, no party shall be present or represented and no 
person other than the witness, a stenographic reporter, and the officer 
shall be present. The officer shall propound the interrogatories and 
cross-interrogatories to the witness, and the interrogatories and 
responses thereto shall be transcribed and reduced to writing.
    (g) Use of depositions at hearing. (1) Any part or all of a 
deposition, to the extent admissible under rules of evidence applied as 
though the witness were then present and testifying at the hearing, may 
be used against any party who had reasonable notice of the taking of the 
deposition, if the Administrative Law Judge finds that:
    (i) The witness is dead;
    (ii) The witness is unable to attend or testify because of age, 
illness, infirmity, or imprisonment;
    (iii) The witness is out of the United States at the time of the 
hearing, unless it appears that the absence of the witness was procured 
by the party offering the deposition.
    (2) If only part of a deposition is offered in evidence by a party, 
an adverse party may require him to introduce any other part which ought 
in fairness to be considered with the part introduced, and any party may 
introduce any other parts.
    (3) Objection may be made at a hearing to receiving in evidence any 
deposition or part thereof for any reason which would require the 
exclusion of the evidence if the witness were then present and 
testifying.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995]



                           Subpart E_Hearings



Sec. 10.61  Time and place of hearing.

    (a) Notice. All parties shall be notified of the time and place of 
hearing, which shall be fixed with due regard for the public interest 
and the convenience and necessity of the parties and their 
representatives.
    (b) Requests for change. A request for postponement of a hearing or 
for a change in the place assigned for hearing will be granted by the 
Administrative Law Judge only for good cause shown.



Sec. 10.62  Appearances.

    (a) Who may appear. The parties may appear in person, by counsel or 
by other representatives of their choosing, subject to the provisions of 
Sec. 10.11 of these rules and part 14 of this chapter, dealing with 
appearance and practice before the Commission.
    (b) Effect of failure to appear. (1) If any party to the proceeding, 
after filing an answer fails to appear at the hearing or any part 
thereof, he shall to that extent be deemed to have waived the right to 
an oral hearing in the proceeding. In the event that a party appears at 
the hearing and no party appears for the opposing side, the party who is 
present may present his evidence, in whole or in part, in the form of 
affidavits or by oral testimony, before the Administrative Law Judge.
    (2) A failure to appear at a hearing shall not constitute a waiver 
of a party's right to propose findings of fact based on the record in 
the proceeding, to propose conclusions of law or to submit briefs, in 
the manner provided in Sec. 10.82, if the non-appearing party submits 
prior to the scheduled hearing or within three days thereafter, a notice 
of appearance indicating his intent to continue to participate in the 
proceeding. Otherwise, his failure to appear will constitute a default, 
and a default order may be sought in accordance with procedures set 
forth in Sec. 10.93 of these rules.

[[Page 285]]



Sec. 10.63  Consolidation; separate hearings.

    (a) Consolidation. Two or more proceedings involving a common 
question of law or fact may be joined for hearing of any or all the 
matters in issue or may be consolidated by order of the Administrative 
Law Judge. The Administrative Law Judge may make such rulings concerning 
the conduct of such proceedings as may tend to avoid unnecessary costs 
or delay.
    (b) Separate Hearings. The Administrative Law Judge, for the 
convenience of the parties, to avoid prejudice, or to expedite final 
resolution of the issues, may order a separate hearing of any claim or 
issue, or grant a separate hearing to any respondent.



Sec. 10.64  Public hearings.

    All hearings shall be public, except that upon application of a 
respondent or affected witness the Administrative Law Judge may direct 
that specific documents or testimony be received and retained non-
publicly in order to prevent unwarranted disclosure of trade secrets or 
sensitive commercial or financial information or an unwarranted invasion 
of personal privacy.



Sec. 10.65  Record of hearing.

    (a) Reporting and transcription. Hearings for the purpose of taking 
evidence shall be recorded and transcribed in written form under the 
supervision of the Administrative Law Judge by a reporter employed by 
the Commission for that purpose. The original transcript shall be a part 
of the record and shall be the sole official transcript. Copies of 
transcripts, except those portions granted non-public treatment, shall 
be available from the reporter at rates not to exceed the maximum rates 
fixed by the contract between the Commission and the reporter.
    (b) Corrections. Any party may submit a timely request to the 
Administrative Law Judge to correct the transcript. Corrections may be 
submitted to the Administrative Law Judge by stipulation of the parties, 
or by motion by any party, and upon notice to all parties to the 
proceeding, the Administrative Law Judge may specify corrections of the 
transcript. A copy of such specification shall be furnished to all 
parties and made a part of the record. Corrections shall be made by the 
official reporter, who shall furnish substitute pages of the transcript, 
under the usual certificate of the reporter, for insertion in the 
official record. The original uncorrected pages shall be retained in the 
files of the Proceedings Clerk.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995]



Sec. 10.66  Conduct of the hearing.

    (a) Expedition. Hearings shall proceed expeditiously and insofar as 
practicable hearings shall be held at one place and shall continue, 
without suspension, until concluded.
    (b) Rights of parties. Every party shall be entitled to due notice 
of hearings, the right to be represented by counsel, and the right to 
cross-examine witnesses, present oral and documentary evidence, submit 
rebuttal evidence, raise objections, make arguments and move for 
appropriate relief. Nothing in this paragraph limits the authority of 
the Commission or the Administrative Law Judge to exercise authority 
under other provisions of the Commission's rules, to enforce the 
requirement that evidence presented be relevant to the proceeding or to 
limit cross-examination to the subject matter of the direct examination 
and matters affecting the credibility of the witness.
    (c) Examination of witnesses. All witnesses at a hearing for the 
purpose of taking evidence shall testify under oath or affirmation, 
which shall be administered by the Administrative Law Judge. A witness 
may be cross-examined by each adverse party and, in the discretion of 
the Administrative Law Judge, may be cross-examined, without regard to 
the scope of direct examination, as to any matter which is relevant to 
the issues in the proceeding.
    (d) Expert witnesses. The Administrative Law Judge, at his 
discretion, may order that direct testimony of expert witnesses be made 
by verified written statement rather than presented orally at the 
hearing. Any expert witness whose testimony is presented in this manner 
shall be available for oral cross-examination, and may be examined 
orally upon re-direct following cross-examination.

[[Page 286]]

    (e) Exhibits. The original of each exhibit introduced in evidence or 
marked for identification shall be filed and retained in the docket of 
the proceeding, unless the Administrative Law Judge permits the 
substitution of copies for the original documents. A copy of each 
exhibit introduced by a party or marked for identification at his 
request shall be supplied by him to the Administrative Law Judge and to 
each other party to the proceeding.

[41 FR 2511, Jan. 16, 1976, as amended at 63 FR 55793, Oct. 19, 1998; 63 
FR 68829, Dec. 14, 1998]



Sec. 10.67  Evidence.

    (a) Admissibility. Relevant, material and reliable evidence shall be 
admitted. Irrelevant, immaterial, unreliable and unduly repetitious 
evidence shall be excluded.
    (b) Official notice. (1) Official notice may be taken of
    (i) Any material fact which might be judicially noticed by a 
district court of the United States; or
    (ii) Any matter in the public official records of the Commission.
    (2) If official notice is requested or taken of a material fact, any 
party, upon timely request, shall be afforded an opportunity to 
establish the contrary.
    (c) Objections. A party shall timely and briefly state the grounds 
relied upon for any objection made to the introduction of evidence. If a 
party has had no opportunity to object to a ruling at the time it is 
made, he shall not thereafter be prejudiced by the absence of an 
objection.
    (d) Exceptions. Formal exception to an adverse ruling is not 
required. It shall be sufficient that a party, at the time the ruling is 
sought or entered, makes known to the Administrative Law Judge the 
action he wishes the Administrative Law Judge to take or his objection 
to the action being taken and his grounds therefor.
    (e) Excluded evidence. When an objection to a question propounded to 
a witness is sustained, the examining attorney may make a specific offer 
of what he expects to prove by the answer of the witness, or the 
Administrative Law Judge may, in his discretion, receive the evidence in 
full. Rejected exhibits, adequately marked for identification, shall be 
retained in the record so as to be available for consideration by any 
reviewing authority.
    (f) Affidavits. Affidavits may be admitted by the Administrative Law 
Judge only if the evidence is otherwise admissible and the parties agree 
that affidavits may be used.
    (g) Official government records. An official government record or 
any entry therein, when admissible for any purpose, may be evidenced by 
an official publication thereof or by a copy attested by the officer 
having legal custody of the record or by his deputy, accompanied by a 
certificate that such officer has custody. If the office in which the 
record is kept is within the United States the certificate may be made 
by a judge of a court of record in the district or political subdivision 
in which the record is kept, authenticated by the seal of his office. If 
the office in which the record is kept is in a foreign state or country, 
the certificate may be made by any officer in the Foreign Service of the 
United States stationed in the foreign state or country in which the 
record is kept and authenticated by the seal of his office. A written 
statement signed by an officer having custody of an official record or 
by his deputy, that after diligent search, no record or entry dealing 
with a specific matter is found to exist, accompanied by a certificate 
as provided above, is admissible as evidence that the records of his 
office contain no such record or entry.
    (h) Entries in the regular course of business. Any writing or 
record, whether in the form of an entry in a book or otherwise, made as 
a memorandum or record of any act, transaction, occurrence, or event, 
will be admissible as evidence thereof if it shall appear that it was 
made in the regular course of business by a person who had a duty to 
report or record it.



Sec. 10.68  Subpoenas.

    (a) Application for and issuance of subpoenas--(1) Application for 
and issuance of subpoena ad testificandum. Any party may apply to the 
Administrative Law Judge for the issuance of a subpoena requiring a 
person to appear and testify (subpoena ad testificandum)

[[Page 287]]

at the hearing. All requests for the issuance of a subpoena ad 
testificandum shall be submitted in duplicate and in writing and shall 
be served upon all other parties to the proceeding, unless the request 
is made on the record at the hearing or the requesting party can 
demonstrate why, in the interest of fairness or justice, the requirement 
of a written submission or service on one or more of the other parties 
is not appropriate. A subpoena ad testificandum shall be issued upon a 
showing by the requesting party of the general relevance of the 
testimony being sought and the tender of an original and two copies of 
the subpoena being requested, except in those situations described in 
paragraph (b) of this section, where additional requirements are set 
forth.
    (2) Application for subpoena duces tecum. An application for a 
subpoena requiring a person to produce specified documentary or tangible 
evidence (subpoena duces tecum) at any designated time or place may be 
made by any party to the Administrative Law Judge. All requests for the 
issuance of a subpoena duces tecum shall be submitted in duplicate and 
in writing and shall be served upon all other parties to the proceeding, 
unless the request is made on the record at the hearing or the 
requesting party can demonstrate why, in the interest of fairness or 
justice, the requirement of a written submission or service on one or 
more of the other parties is not appropriate. Except in those situations 
described in paragraph (b) of this section, where additional 
requirements are set forth, each application for the issuance of a 
subpoena duces tecum shall contain a statement or showing of general 
relevance and reasonable scope of the evidence being sought and be 
accompanied by an original and two copies of the subpoena being 
requested, which shall describe the documentary or tangible evidence to 
be subpoenaed with as much particularity as is feasible.
    (3) Standards for issuance of subpoena duces tecum. The 
Administrative Law Judge considering any application for a subpoena 
duces tecum shall issue the subpoena requested if he is satisfied the 
application complies with this section and the request is not 
unreasonable, oppressive, excessive in scope or unduly burdensome. No 
attempt shall be made to determine the admissibility of evidence in 
passing upon an application for a subpoena duces tecum and no detailed 
or burdensome showing shall be required as a condition to the issuance 
of any subpoena.
    (4) Denial of application. In the event the Administrative Law Judge 
determines that a requested subpoena or any of its terms are 
unreasonable, oppressive, excessive in scope, or unduly burdensome, he 
may refuse to issue the subpoena, or may issue it only upon such 
conditions as he determines fairness requires.
    (b) Special requirements relating to application for and issuance of 
subpoenas for commission records and for the appearance of commission 
employees or employees of other agencies--(1) Form. An application for 
the issuance of subpoena shall be made in the form of a written motion 
served upon all other parties, if the subpoena would require
    (i) The production of documents, papers, books, physical exhibits, 
or other material in the records of the Commission;
    (ii) The appearance of a Commissioner or an official or employee of 
the Commission;
    (iii) The appearance of a Commissioner or an official or employee of 
any other state or federal agency in his official capacity.
    (2) Content. The motion shall specifically describe the material to 
be produced, the information to be disclosed, or the testimony to be 
elicited from the witness, and shall show
    (i) The relevance of the material, information, or testimony to the 
matters at issue in the proceeding;
    (ii) The reasonableness of the scope of the proposed subpoena; and
    (iii) That such material, information, or testimony is not available 
from other sources.
    (3) Rulings. The motion shall be decided by the Administrative Law 
Judge and shall provide such terms or conditions for the production of 
the material, the disclosure of the information or the appearance of the 
witness as may appear necessary and appropriate for the protection of 
the public interest.

[[Page 288]]

    (4) Commission review of rulings. Interlocutory review by the 
Commission of a ruling made under this section may be sought in 
accordance with the procedures set forth in Sec. 10.101 without 
certification by the Administrative Law Judge.
    (c) Motions to quash subpoenas; protective orders--(1) Application. 
Within 10 days after a subpoena has been served or at any time prior to 
the return date thereof, a motion to quash or modify the subpoena or for 
a protective order limiting the use or disclosure of any information, 
documents or testimony covered by the subpoena may be filed with the 
Administrative Law Judge who issued it. At the same time, a copy of the 
motion shall be served on the party who requested the subpoena and all 
other parties to the proceeding. The motion shall include a brief 
statement setting forth the basis for the requested relief. If the 
Administrative Law Judge to whom the motion has been directed has not 
acted upon the motion by the return date, the subpoena shall be stayed 
pending his or her final action.
    (2) Disposition. After due notice to the person upon whose request 
the subpoena was issued, and after opportunity for response by that 
person, the Administrative Law Judge may (i) quash or modify the 
subpoena, or (ii) condition denial of the application to quash or modify 
the subpoena upon just and reasonable terms, including, in the case of a 
subpoena duces tecum, a requirement that the person in whose behalf the 
subpoena was issued shall advance the reasonable cost of producing 
documentary or other tangible evidence. The Administrative Law Judge may 
issue a protective order sought under paragraph (c)(1) of this section 
or under any other section of these rules upon a showing of good cause. 
In considering whether good cause exists to issue a protective order, 
the Administrative Law Judge shall weigh the harm resulting from 
disclosure against the benefits of disclosure. Good cause shall only be 
established upon a showing that the person seeking the protective order 
will suffer a clearly defined and serious injury if the order is not 
issued, provided, however, that any such injury shall be balanced 
against the public's right of access to judicial records. No protective 
order shall be granted that will prevent the Division of Enforcement or 
any respondent from adequate presenting its case.
    (d) Attendance and mileage fees. Persons summoned to testify either 
by deposition or at a hearing under requirement of subpoena are entitled 
to the same fees and mileage as are paid to witnesses in the courts of 
the United States. Fees and mileage are paid by the party at whose 
instance the persons are called.
    (e) Service of subpoenas--(1) How effected. Service of a subpoena 
upon a party shall be made in accordance with Sec. 10.12(a) of these 
rules except that only one copy of a subpoena need be served. Service of 
a subpoena upon any other person shall be made by delivering a copy of 
the subpoena to him as provided in paragraphs (e)(2) or (e)(3) of this 
section, as applicable, and by tendering to him or her the fees for one 
day's attendance and mileage as specified in paragraph (d) of this 
section. When the subpoena is issued at the instance of the Commission, 
fees and mileage need not be tendered at the time of service.
    (2) Service upon a natural person. Delivery of a copy of a subpoena 
and tender of the fees to a natural person may be effected by
    (i) Handing them to the person;
    (ii) Leaving them at his office with the person in charge thereof 
or, if there is no one in charge, by leaving them in a conspicuous place 
therein;
    (iii) Leaving them at his dwelling place or usual place of abode 
with some person of suitable age and discretion then residing therein;
    (iv) Mailing them by registered or certified mail to him at his last 
known address; or
    (v) Any other method whereby actual notice is given to him and the 
fees and mileage are timely made available.
    (3) Service upon other persons. When the person to be served is not 
a natural person, delivery of a copy of the subpoena and tender of the 
fees and mileage may be effected by

[[Page 289]]

    (i) Handing them to a registered agent for service, or to any 
officer, director, or agent in charge of any office of such person;
    (ii) Mailing them by registered or certified mail to any such 
representative at his last known address; or
    (iii) Any other method whereby actual notice is given to any such 
representative and the fees and mileage are timely made available.
    (f) Enforcement of subpoenas. Upon failure of any person to comply 
with a subpoena issued at the request of a party, that party may 
petition the Commission in its discretion to institute an action in an 
appropriate U.S. District Court for enforcement of that subpoena. When 
instituting an action to enforce a subpoena requested by the Division of 
Enforcement, the Commission, in its discretion, may delegate to the 
Director of the Division or any Commission employee designated by the 
Director and acting under his or her direction, or to any other employee 
of the Commission, authority to serve as the Commission's counsel in 
such subpoena enforcement action.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995; 63 
FR 55794, Oct. 19, 1998; 63 FR 68829, Dec. 14, 1998; 64 FR 30903, June 
9, 1999]



Sec. 10.69  Reopening hearings.

    Any party may petition the Administrative Law Judge to reopen a 
hearing to adduce additional evidence at any time prior to issuance of 
the initial decision. The petition shall show that the evidence sought 
to be adduced is relevant and material and that there were reasonable 
grounds for failure to adduce such evidence at the time of the original 
hearing.



          Subpart F_Post Hearing Procedures; Initial Decisions



Sec. 10.81  Filing the transcript of evidence.

    As soon as practicable after the close of the hearing, the reporter 
shall transmit to the Proceedings Clerk the transcript of the testimony 
and the exhibits introduced in evidence at the hearing, except such 
portions of the transcript and exhibits as shall have been delivered to 
the Administrative Law Judge.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995]



Sec. 10.82  Proposed findings and conclusions; briefs.

    In any proceeding involving a hearing or an opportunity for hearing, 
the parties may file written proposed findings of fact and conclusions 
of law. Briefs may be filed in support of proposed findings and 
conclusions either as part of the same document or in a separate 
document. Any proposed finding or conclusion not briefed may be regarded 
as waived.
    (a) Proposed findings and briefs; time for filing. Where the parties 
file proposed findings and briefs, the following schedule shall apply, 
unless otherwise determined by the Administrative Law Judge:
    (1) Initial submission. Proposed findings, conclusions and an 
initial brief shall be served and filed by the Division of Enforcement 
and intervenors on the side of the Division of Enforcement within 45 
days of the close of the hearing;
    (2) Answering submission. Proposed findings, conclusions, and an 
answering brief shall be served and filed by the respondents and 
intervenors on the side of the respondents within 30 days after service 
of the initial findings, conclusions and briefs upon the respondents;
    (3) Reply. A reply brief may be filed by the Division of Enforcement 
and intervenors on the side of the Division of Enforcement within 15 
days after filing of the answering submission;
    (4) Submissions by limited participants. Submissions by a person 
admitted as a limited participant pursuant to Sec. 10.34 of these 
rules, are permitted under such terms as determined by the 
Administrative Law Judge.
    (b) Alternative procedures for submissions. In his discretion the 
Administrative Law Judge may lengthen or shorten the periods for the 
filing of submissions, may direct simultaneous filings, may direct that 
respondents make the first filing, or may otherwise modify the 
procedures set forth in paragraph (a) of this section for purposes of a 
particular proceeding.

[[Page 290]]

    (c) Briefs. (1) The initial brief should include:
    (i) A short, clear and concise statement of the case;
    (ii) Specification of the questions to be resolved; and
    (iii) The argument, presenting clearly the points of fact and law 
relied upon in support of the position taken on each question.
    (2) The answering brief shall generally follow the same style as 
prescribed for the initial brief but may omit a statement of the case if 
the party does not dispute the statement of the case contained in the 
initial brief;
    (3) Reply briefs should be limited to rebuttal of matters in the 
prior briefs.
    (d) Content and form of proposed findings and conclusions. (1) The 
findings of fact shall be confined to the material issues of fact 
presented on the record, with exact citations to the transcripts of 
record and exhibits in support of each proposed finding.
    (2) The proposed findings and conclusions of the party filing 
initially shall be set forth in consecutively numbered paragraphs and 
all counter-statement of proposed findings and conclusions shall, in 
addition to any other matter, indicate which paragraphs of initial 
proposals are not disputed.



Sec. 10.83  Oral arguments.

    In his discretion the Administrative Law Judge may hear oral 
arguments by the parties any time before he files his initial decision 
with the Proceedings Clerk. The argument shall be recorded and 
transcribed in written form.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995]



Sec. 10.84  Initial decision.

    (a) When initial decision is required. The Administrative Law Judge 
shall make an initial decision in any proceeding in which a hearing is 
required to be conducted in conformity with the requirements of the 
Administrative Procedure Act, as codified, 5 U.S.C. 557. He shall make 
an initial decision in other proceedings in which the Commission directs 
him to make such a decision.
    (b) Filing of initial decision. After the parties have been afforded 
an opportunity to file their proposed findings of fact, proposed 
conclusions of law and supporting briefs pursuant to Sec. 10.82, the 
Administrative Law Judge shall prepare upon the basis of the record in 
the proceeding and shall file with the Proceedings Clerk his or her 
decision, a copy of which shall be served by the Proceedings Clerk upon 
each of the parties.
    (c) Effect of initial decision. The initial decision shall become 
the decision of the Commission 30 days after service thereof, except:
    (1) The decision shall not become final as to any party who shall 
have filed a notice of appeal pursuant to Sec. 10.102 of these rules; 
and
    (2) The decision shall not become final as to any party to the 
proceeding if, within 30 days after the initial decision and order, the 
Commission itself shall have placed the case on its own docket for 
review or stayed the effective date of the decision.

In the event that the initial decision becomes the final decision of the 
Commission with respect to a party, that party shall be duly notified 
thereof by the Proceedings Clerk. The notice shall state that the time 
for filing a notice of appeal by the party has expired, that the 
Commission has determined not to review the initial decision on its own 
initiative and shall specify the date on which a final order in the 
proceeding shall become effective as against that party.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995; 61 
FR 21954, May 13, 1996; 63 FR 55794, Oct. 19, 1998]



               Subpart G_Disposition Without Full Hearing



Sec. 10.91  Summary disposition.

    (a) Filing of motions, answers. Any party who believes that there is 
no genuine issue of material fact to be determined and that he is 
entitled to a decision as a matter of law may move for a summary 
disposition in his favor of all or any part of the proceeding. Such 
motion shall be filed at or before the first prehearing conference or at 
such later time as may be allowed by the Administrative Law Judge. Any 
adverse party within 20 days after service

[[Page 291]]

of the motion, may serve opposing papers or may countermove for summary 
disposition.
    (b) Supporting papers. A motion for summary judgment shall include a 
statement of material facts as to which the moving party contends there 
is no genuine issue, supported by the pleadings, and by affidavits, 
other verified statements, including investigative transcripts, 
admissions, stipulations, and depositions. The motion may also be 
supported by briefs containing points and authorities in support of the 
contention of the party making the motion. When a motion is made and 
supported as provided in this section, an adverse party may not rest 
upon the mere allegations, but shall serve and file in response a 
statement setting forth those material facts as to which he contends a 
genuine issue exists, supported by affidavits or otherwise. He may also 
submit a brief of points and authorities.
    (c) Form of affidavits. Supporting and opposing affidavits shall be 
made upon personal knowledge, shall set forth such facts as would be 
admissible in evidence, and shall show affirmatively that the affiant is 
competent to testify on the matters stated therein. Sworn or certified 
copies of all papers or parts thereof referred to in an affidavit shall 
be attached thereto or served therewith.
    (d) Oral argument. Oral argument may be granted at the discretion of 
the Administrative Law Judge.
    (e) Ruling on motion. The Administrative Law Judge shall grant a 
motion for summary disposition if the undisputed pleaded facts, 
affidavits, other verified statements, admissions, stipulations, and 
depositions, and matters of official notice show that (1) there is no 
genuine issue as to any material fact, (2) there is no necessity that 
further facts be developed in the record, and (3) such party is entitled 
to a decision as a matter of law.
    (f) Review of ruling; appeal. An order denying a motion for summary 
disposition is subject to interlocutory review under the provisions of 
Sec. 10.101 on the same terms as a ruling on any other motion. An order 
granting a motion for summary disposition is reviewable by the 
Commission in accordance with the provisions of Sec. 10.102 relating to 
appeals of initial decisions.



Sec. 10.92  Shortened procedure.

    (a) How initiated. With the consent of the parties, in lieu of a 
full oral hearing, the Administrative Law Judge may order a shortened 
procedure as to the submission of direct evidence may be ordered in a 
proceeding. An order for shortened procedure shall list the names and 
addresses of all persons who are parties to the proceeding and shall 
direct compliance with the procedures established in this section. The 
order shall be served by the Proceedings Clerk upon all parties.
    (b) Filing of Statements--(1) Opening statement. Within 20 days 
after receipt of notice that the shortened procedure will be used, the 
Division of Enforcement shall serve upon all other parties and file with 
the Proceedings Clerk, in triplicate, an opening statement, in support 
of the complaint;
    (2) Answering statement. Within 20 days after receipt of the opening 
statement of the Division, each respondent may serve upon all other 
parties and file with the Proceedings Clerk, in triplicate, in support 
of his answer, an answering statement.
    (3) Statement in reply. Within ten days after receipt of all 
answering statements, or within ten days after the expiration of the 
period within which answering statements may be served, the Division of 
Enforcement may serve upon all other parties and file with the 
Proceedings Clerk, in triplicate, a statement in reply, which shall be 
confined strictly to replying to the facts and arguments set forth in 
the answering statements.
    (c) Joint statements. Parties having a common interest may serve and 
file joint statements.
    (d) Failure to file statement. Any party who, without the express 
permission of the Administrative Law Judge, should fail to file a 
statement within the time prescribed by this section after service upon 
him of an order for shortened procedures shall be in default and shall 
be deemed to have waived any further hearing.
    (e) Content of statements. As used in this section, the term 
``statement'' includes

[[Page 292]]

    (1) Statements of fact signed and sworn to by persons having 
knowledge of those facts;
    (2) Documents filed as part of the proof of the alleged facts (which 
shall be duly authenticated under oath or otherwise in a manner that 
would render them admissible in evidence at an oral hearing under the 
rules in this part); and
    (3) Briefs containing argument to sustain the contentions of the 
party submitting the statement.
    (f) Verification. The facts asserted in any statement filed under 
shortened procedure must be sworn to by persons having knowledge thereof 
and, except under unusual circumstances, the persons should be those who 
would appear as witnesses to substantiate the facts asserted should a 
full oral hearing become necessary.
    (g) Hearings--(1) Request for cross-examination or other hearings. 
If cross-examination is desired of any witness whose affidavit or other 
verified statement has been submitted, the name of the witness and the 
subject matter of the desired cross-examination shall be stated at the 
end of the answering statement or statement in reply as the case may be. 
Oral hearings under other circumstances may also be requested but will 
be granted only under exceptional circumstances. Any request filed under 
this subparagraph shall include a justification of the need for oral 
hearing.
    (2) Hearings issues limited. The order setting the proceeding for 
oral hearing, if hearing is found necessary, will specify the matters 
upon which the parties are not in agreement and concerning which oral 
evidence is to be introduced. Unless material facts are in dispute, oral 
hearing will not be held.
    (h) Subsequent procedure. Post-hearing procedures shall be the same 
as those in proceedings in which the shortened procedures have not been 
followed.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995; 64 
FR 30903, June 9, 1999]



Sec. 10.93  Obtaining default order.

    When a respondent has failed to (a) file an answer as provided in 
Sec. 10.23 of these rules or (b) failed to appear or file a notice of 
appearance as provided in Sec. 10.62 of these rules or (c) failed to 
file a statement under the shortened procedures as provided in Sec. 
10.92 of these rules, the Division of Enforcement may move the 
Administrative Law Judge to enter findings and conclusions and a default 
order against that respondent based upon the matters set forth in the 
complaint, which shall be deemed to be true for purposes of this 
determination.



Sec. 10.94  Setting aside of default.

    In order to prevent injustice and on such conditions as may be 
appropriate, (a) the Commission may at any time set aside a default 
order obtained under Sec. 10.93; and (b) the Administrative Law Judge 
may set aside a default order obtained under Sec. 10.93 at any time 
prior to filing of his initial decision in a proceeding in which there 
are remaining respondents. Any motion to set aside a default shall be 
made within a reasonable time, and shall state the reasons for the 
failure to file or appear and specify the nature of the proposed defense 
in the proceeding.



            Subpart H_Appeals to the Commission; Settlements



Sec. 10.101  Interlocutory appeals.

    Interlocutory review by the Commission of a ruling on a motion by an 
Administrative Law Judge may be sought in accordance with the following 
procedures:
    (a) Scope of review. The Commission will not review a ruling of the 
Administrative Law Judge prior to the Commission's consideration of the 
entire proceeding in the absence of extraordinary circumstances. An 
interlocutory appeal may be permitted, in the discretion of the 
Commission, under the following circumstances:
    (1) Appeal from an adverse ruling pursuant to Sec. 10.8(b) on a 
motion to disqualify an Administrative Law Judge;
    (2) Appeal from a ruling pursuant to Sec. 10.11(b) suspending an 
attorney from participation in a particular proceeding.
    (3) Appeal from a ruling pursuant to Sec. Sec. 10.33 and 10.34 
denying intervention or limited participation;

[[Page 293]]

    (4) Appeal from a ruling pursuant to Sec. 10.68(b) requiring the 
appearance of an officer or employee of the Commission or another 
government agency or the production of Commission records;
    (5) Upon a determination by the Administrative Law Judge, certified 
to the Commission either in writing or on the record, that
    (i) A ruling sought to be appealed involves a controlling question 
of law or policy;
    (ii) An immediate appeal may materially advance the ultimate 
resolution of the issues in the proceeding; and
    (iii) Subsequent reversal of the ruling would cause unnecessary 
delay or expense to the parties.
    (b) Procedure to obtain interlocutory review--(1) In general. An 
application for interlocutory review may be filed within five days after 
notice of the Administrative Law Judge's ruling on a matter described in 
paragraphs (a)(1), (a)(2), (a)(3) or (a)(4) of this section, except if a 
request for certification under paragraph (a)(5) of this section has 
been filed with the Administrative Law Judge within five days after 
notice of the Administrative Law Judge's ruling on the matter. If a 
request for certification has been filed, an Application for 
interlocutory review under paragraphs (a)(1) through (a)(5) of this 
section may be filed within five days after notification of the 
Administrative Law Judge's ruling on such request.
    (2) An application for review shall:
    (i) Designate the ruling or part thereof from which appeal is being 
taken;
    (ii) Present the points of fact and law relied upon in support of 
the position taken; and
    (iii) Not exceed 15 pages.
    (3) Any party that opposes the application may file a response, not 
to exceed 15 pages, within five days after service of the application.
    (4) The Commission will determine whether to grant a review based 
upon the application for review and the response thereto, without oral 
argument or further written presentation, unless the Commission shall 
otherwise direct.
    (c) Proceedings not stayed. The filing of an application for review 
and the grant of review shall not stay proceedings before an 
Administrative Law Judge unless the Administrative Law Judge or the 
Commission shall so order. The Commission will not consider a motion for 
a stay unless the motion shall have first been made to the 
Administrative Law Judge and denied.

[41 FR 2511, Jan. 16, 1976, as amended at 63 FR 55794, Oct. 19, 1998; 64 
FR 30903, June 9, 1999]



Sec. 10.102  Review of initial decisions.

    (a) Notice of appeal--(1) In general. Any party to a proceeding may 
appeal to the Commission an initial decision or a dismissal or other 
final disposition of the proceeding by the Administrative Law Judge as 
to any party. The appeal shall be initiated by serving and filing with 
the Proceedings Clerk a notice of appeal within 15 days after service of 
the initial decision or other order terminating the proceeding; where 
service of the initial decision or other order terminating the 
proceeding is effected by mail or commercial carrier, the time within 
which the party served may file a notice of appeal shall be increased by 
3 days.
    (2) Cross appeals. If a timely notice of appeal is filed by one 
party, any other party may file a notice of appeal within 15 days after 
service of the first notice or within 15 days after service of the 
initial decision or other order terminating the proceeding, whichever is 
later.
    (3) Confirmation of filing. The Proceedings Clerk shall confirm the 
filing of a notice of appeal by mailing a copy thereof to each other 
party.
    (b) Briefs: Time for filing. The appeal shall be perfected through 
the filing of an appeal brief.
    (1) Appeal brief. The appeal brief shall be filed within 30 days 
after filing of the notice of appeal.
    (2) Answering brief. Within 30 days after service of the appeal 
brief upon any other party that party may file an answering brief.
    (3) Reply brief. Within 14 days after service of an answering brief, 
the party that filed the first brief may file a reply brief.
    (4) No further briefs shall be permitted, unless so ordered by the 
Commission on its own motion.
    (5) Cross appeals. In the event that any party files a notice of 
cross appeal

[[Page 294]]

pursuant to paragraph (a)(2) of this section, the Commission shall, to 
the extent practicable, adjust the briefing schedule and any page 
limitations otherwise applicable under this section so as to accommodate 
consolidated briefing by the parties.

If the appeal brief is not filed within the time specified the opposing 
party may move for dismissal of the appeal.
    (c) Briefs: Number of copies. An original and 10 copies of all 
briefs submitted under this section shall be filed with the Proceedings 
Clerk.
    (d) Briefs: Content and form. (1) The appeal brief should include, 
in the order indicated:
    (i) A statement of the issues presented for review.
    (ii) A statement of the case. The statement shall first indicate 
briefly the nature of the case. There shall follow a statement of the 
facts relevant to the issues presented for review, with appropriate 
references to the record.
    (iii) An argument. The argument may be preceded by a summary. The 
argument shall contain the contentions of the party to the appeal with 
respect to the issues presented, and the reasons therefor, and citations 
to supporting authorities, statutes and parts of the record.
    (iv) A conclusion stating the precise relief sought.
    (2) The answering brief generally shall follow the same style as 
prescribed for the appeal brief but may omit a statement of the issues 
or of the case if the party does not dispute the issues and statement of 
the case contained in the appeal brief. Any reply brief shall be 
confined to matters raised in the answering brief and shall be limited 
to 15 pages in length.
    (3) Any matter not briefed shall be deemed waived, and may not be 
argued before the Commission.
    (e) Appendix to briefs--(1) Designation of contents of appendix. At 
the time an appellant serves and files its appeal brief, it shall also 
serve and file a designation of those specific parts of the record to 
which it wishes to direct the particular attention of the Commission and 
that it wishes to have included in the appendix, including, but not 
necessarily limited to, particular pages of the transcript and portions 
of exhibits filed in the proceeding. The designation shall be set forth 
in a document wholly separate and apart from the brief, shall enumerate 
those specific parts of the record that the appellant wishes to have 
included in the appendix and shall not incorporate by reference 
citations to the record contained in its brief or in any other document. 
If an appellee deems it necessary to direct the particular attention of 
the Commission to specific parts of the record not designated by any 
appellant, it shall serve and file with its answering brief a 
designation of additional portions of the record for inclusion in the 
appendix. Any reply brief filed by the appellant may, if necessary, 
supplement the appellant's previous designation. In designating parts of 
the record for inclusion in the appendix, the principal parts of the 
record relied upon should be designated, but the parties shall have 
regard to the fact that the entire record is always available to the 
Commission for reference and examinations and shall not engage in 
unnecessary designation. The fact that a part of the record is not 
included in an appendix shall not prevent any party or the Commission 
from relying thereon.
    (2) Preparation of the appendix. Within 15 days after the last 
answering brief or reply brief of a party was due to be filed, the 
Office of Proceedings shall prepare an appendix to the briefs which will 
contain a list of the relevant docket entries filed in the proceedings 
before the Administrative Law Judge, the initial decision and order of 
the Administrative Law Judge, the pleadings filed on behalf of the 
parties who are participating in the appeal and such other parts of the 
record designated by the parties to the appeal in accordance with the 
procedures set forth in paragraph (e)(1) of this section. The 
Proceedings Clerk shall cause one copy of the appendix to be served on 
each of the parties to the appeal and shall cause ten copies of the 
appendix to be placed in the docket of the proceeding for the use of the 
Commission.
    (3) Objections to appendix. Any party who believes that an error or 
omission has been made in the preparation of the appendix or that the 
appendix is

[[Page 295]]

misleading, prejudicial or otherwise inadequate may on that basis file a 
motion with the Commission to amend or supplement the appendix within 30 
days of the date of the mailing of the appendix.

The Commission has determined that once an appeal goes to the 
Commission, it is in a better position than the Chief Administrative Law 
Judge to review motions objecting to the appendix or seeking to 
supplement the appendix. Consequently, upon the adoption of this 
amendment, the Commission and not the Chief Administrative Law Judge 
will consider any objection to the appendix pursuant to paragraph (e)(3) 
of this section. As provided by the amendment, a motion raising 
objections to the appendix must be filed within 30 days after the date 
of the mailing of the appendix.
    (f) Effect of failure to file an appeal. Timely appeal to the 
Commission for review of an initial decision is mandatory as a 
prerequisite to seeking judicial review of a final decision entered 
pursuant to these Rules of Practice.

(7 U.S.C. Secs. 4a, 12a; 5 U.S.C. Sec. 10)

[41 FR 2511, Jan. 16, 1976, as amended at 41 FR 18071, Apr. 30, 1976; 41 
FR 19932, May 14, 1976; 47 FR 5999, Feb. 10, 1982; 60 FR 54802, Oct. 26, 
1995; 61 FR 21954, May 13, 1996; 63 FR 55794, Oct. 19, 1998; 63 FR 
68829, Dec. 14, 1998; 64 FR 30903, June 9, 1999]



Sec. 10.103  Oral argument before the Commission.

    (a) Request. Any party may file with the Proceedings Clerk a request 
in writing for the opportunity to present oral argument before the 
Commission, which the Commission may in its discretion grant or deny. A 
request for oral argument must be made within the time provided for 
filing the initial briefs.
    (b) Time allowed. Unless otherwise directed by the Commission, not 
more than one-half hour will be allowed for oral argument by any 
participant. Where the same or similar interests are represented by more 
than one participant, an aggregate of not more than one-half hour will 
be allowed the interests so represented irrespective of the number of 
participants, the time to be divided equally among such participants or 
as they may agree among themselves. In appropriate cases the Commission 
may, in its discretion, extend, shorten or reallocate the time 
prescribed herein.
    (c) Reporting and transcription. Oral arguments before the 
Commission shall be reported and transcribed in written form unless the 
Commission shall direct otherwise.
    (d) Commissioners not present at oral argument. A member of the 
Commission who was not present at the oral argument may participate in 
the decision of the proceeding. Any Commissioner participating in the 
decision who was not present at the argument will review the transcript 
of argument.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995]



Sec. 10.104  Scope of review; Commission decision.

    (a) Scope of review. The Commission will ordinarily consider the 
whole record on review, and base its determination thereon. However, it 
may limit the issues to those presented in the statement of issues in 
the brief.
    (b) Decision on review. On review, the Commission may affirm, 
reverse, modify, set aside or remand for further proceedings, in whole 
or in part, the initial decision by the Administrative Law Judge and 
make any findings or conclusions which in its judgment are proper based 
on the record in the proceeding. The Commission's decision shall be 
contained in its opinion and order. In the event the Commission is 
equally divided as to its decision the initial decision will be 
affirmed, without opinion.
    (c) Contents of record. The record of the proceeding before the 
Commission for final decision shall include:
    (1) The complaint, notice of hearing, answers and any amendments 
thereto;
    (2) Any application, motion or objection made during the course of 
the proceeding, briefs in support thereof, rulings thereon and 
exceptions thereto;
    (3) Any admission or stipulations between the parties, and documents 
or papers filed in connection with prehearing conferences; and the 
record of prehearing conferences, if recorded;
    (4) The transcript of testimony taken at the hearing, together with 
exhibits received at the hearing;

[[Page 296]]

    (5) Any statements filed under the shortened procedure;
    (6) Portions of the official public records of the Commission 
specified in any of the above;
    (7) Any proposed findings of fact, conclusions of law and briefs in 
support thereof, which were filed in connection with the hearing;
    (8) Any written communication accepted by the Administrative Law 
Judge pursuant to Sec. Sec. 10.34 and 10.35 relating to limited 
participation;
    (9) The initial decision and the petition for review;
    (10) Any other documents which appear on the docket of the 
proceeding.



Sec. 10.105  Review by Commission on its own initiative.

    The Commission may on its own initiative, within 30 days after the 
initial decision has been served on all parties, direct review of any 
initial decision of an Administrative Law Judge. The Commission shall 
determine the scope of the review and the issues which will be 
considered and make provisions for the filing of briefs and oral 
argument, if deemed appropriate by the Commission. Notice that the 
Commission has directed review on its own initiative shall be served on 
all parties by the Proceedings Clerk.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995]



Sec. 10.106  Reconsideration; stay pending judicial review.

    (a) Reconsideration. Within 15 days after service of a Commission 
opinion and order any party may file with the Commission a petition for 
reconsideration of the opinion and order, setting forth the relief 
desired and the grounds in support thereof. Any petition filed under 
this section must be confined to new questions raised by the opinion or 
order and concerning which the petitioner had no opportunity to argue 
before the Commission. The filing of a petition for reconsideration 
shall not operate to stay the effective date of the Commission's order.
    (b) Stay pending judicial appeal--(1) Application for stay. Within 
15 days after service of a Commission opinion and order imposing upon 
any party any of the sanctions listed in Sec. Sec. 10.1(a) through 
10.1(e), that party may file an application with the Commission 
requesting that the effective date of the order be stayed pending 
judicial review. The application shall state the reasons why a stay is 
warranted and the facts relied upon in support of the stay. Any 
averments contained in the application must be supported by affidavits 
or other sworn statements or verified statements made under penalty of 
perjury in accordance with the provisions of 28 U.S.C. 1746.
    (2) Standards for issuance of stay. The Commission may grant an 
application for a stay pending judicial appeal upon a showing that:
    (i) The applicant is likely to succeed on the merits of his appeal;
    (ii) Denial of the stay would cause irreparable harm to the 
applicant; and
    (iii) Neither the public interest nor the interest of any other 
party will be adversely affected if the stay is granted.
    (3) Civil monetary penalties and restitution. Nothwithstanding the 
requirements set forth in paragraph (b)(2) of this section, the 
Commission shall grant any application to stay the imposition of a civil 
monetary penalty or an order to pay a specific sum as restitution if the 
applicant has filed with the Proceedings Clerk a surety bond 
guaranteeing full payment of the penalty or restitution plus interest in 
the event that the Commission's opinion and order is sustained or the 
applicant's appeal is not perfected or is dismissed for any reason and 
the Commission has determined that neither the public interest nor the 
interest of any other party will be affected by granting the 
application. The required surety bond shall be in the form of an 
undertaking by a surety company on the approved list of sureties issued 
by the Treasury Department of the United States, and the amount of 
interest shall be calculated in accordance with 28 U.S.C. 1961(a) and 
(b), beginning on the date 30 days after the Commission's opinion and 
order was served on the applicant. In the event the Commission denies 
the applicant's motion for a stay, the Proceedings Clerk shall return 
the surety bond to the applicant.

[[Page 297]]

    (c) Response. Unless otherwise requested by the Commission, no 
response to a petition for reconsideration pursuant to paragraph (a) of 
this section or an application for a stay pursuant to paragraph (b) of 
this section shall be filed. The Commission shall set the time for 
filing any response at the time it asks for a response. the Commission 
shall not grant any such petition or application without providing other 
parties to the proceeding with an opportunity to respond.

[41 FR 2511, Jan. 16, 1976, as amended at 63 FR 55795, Oct. 19, 1998; 63 
FR 68829, Dec. 14, 1998; 64 FR 30903, June 9, 1999]



Sec. 10.107  Leave to adduce additional evidence.

    Any time prior to issuance of the final decision the Commission may, 
upon its own motion or upon application in writing by any party, after 
notice to the parties and an opportunity for them to be heard, reopen 
the hearing for the reception of further evidence. The application shall 
show to the satisfaction of the Commission that the additional evidence 
is material, and that there were reasonable grounds for failure to 
adduce such evidence at the hearing. The Commission may hear the 
additional evidence or may refer the proceeding to the Administrative 
Law Judge for the taking of the additional evidence.



Sec. 10.108  Settlements.

    (a) When offers may be made. Parties may at any time during the 
course of the proceeding propose offers of settlement. All offers of 
settlement shall be in writing.
    (b) Content of offer of settlement. Each offer of settlement made by 
a respondent shall:
    (1) Acknowledge service of the Complaint;
    (2) Admit the jurisdiction of the Commission with respect to the 
matters set forth in the Complaint;
    (3) Include a waiver of:
    (i) A hearing,
    (ii) All post-hearing procedures,
    (iii) Judicial review, and
    (iv) Any objection to the staff's participation in the Commission's 
consideration of the offer;
    (4) Stipulate the record basis on which an order may be entered, 
which may consist solely of the complaint and the findings contained in 
the offer of settlement; and
    (5) Consent to the entry of an order reflecting the terms of 
settlement agreed upon, including, where appropriate:
    (i) Findings by the Commission that the respondent has violated 
specified provisions of the Act, and
    (ii) The imposition of sanctions.
    (c) Submission of offer of settlement. Offers of settlement made by 
a respondent shall be submitted in writing to the Division of 
Enforcement, which shall present them to the Commission with the 
Division's recommendation. The respondent will be informed if the 
recommendation will be unfavorable, in which event the offer shall not 
be presented to the Commission unless the respondent so requests. Any 
offer of settlement not presented to the Commission shall be null and 
void with respect to any acknowledgement, admission, waiver, stipulation 
or consent contained in the offer and shall not be used in any manner in 
the proceeding by any party thereto.
    (d) Acceptance of offer by the Commission. The Commission will 
accept an offer of settlement only by issuing its opinion and order 
based on the offer. Upon issuance of the opinion and order, the 
proceeding shall be terminated as to the respondent involved and so 
noted on the docket by the Proceedings Clerk.
    (e) Rejection of offer of settlement; effect of rejection. When the 
Commission rejects an offer of settlement, the party making the offer 
shall be notified of the Commission's action and the offer of settlement 
shall be deemed withdrawn. A rejected offer of settlement and any 
documents relating thereto shall not constitute a part of the record in 
the proceeding; and the offer will be null and void with respect to any 
acknowledgment, admission, waiver, stipulation or consent contained in 
the offer and shall not be used in any manner in the proceeding by any 
party thereto.

[41 FR 2511, Jan. 16, 1976, as amended at 60 FR 54802, Oct. 26, 1995]

[[Page 298]]



Sec. 10.109  Delegation of authority to Chief of the Opinions Section.

    The Commodity Futures Trading Commission hereby delegates, until 
such time as it orders otherwise, the following function to the General 
Counsel, to be performed by him or by such person or persons under his 
direction as he may designate from time to time:
    (a) With respect to proceedings conducted pursuant to the Commodity 
Exchange Act, as amended, 7 U.S.C. 1 et seq., and subject to the 
Commission's Rules of Practice as set forth in part 10 of this chapter, 
to:
    (1) Consider and decide miscellaneous motions for procedural orders 
that may be directed to the Commission pursuant to part 10 of these 
rules after the initial decision or other order disposing of the entire 
proceeding has been filed; such motions may be acted upon at anytime, 
without awaiting a response;
    (2) Remand, with or without specific instructions, initial decisions 
or other orders disposing of the entire proceeding to the appropriate 
officer in the following situations:
    (i) Where a default order has been made pursuant to Sec. 10.93 of 
these rules and a motion to vacate the default or equivalent request has 
been directed to the Commission under Sec. 10.94 without the benefit of 
a prior ruling by the Administrative Law Judge;
    (ii) Where, in his judgment, clarification or supplementation of the 
initial decision or other order disposing of the entire proceeding prior 
to Commission review is appropriate; however, the General Counsel or his 
designee may not direct that the record be reopened;
    (iii) Where, in his judgment, a ministerial act necessary to the 
proper conduct of the proceeding has not been performed;
    (3) Deny applications for interlocutory Commission review of a 
ruling of the Administrative Law Judge in cases in which the 
Administrative Law Judge has not certified the ruling to the Commission 
in the manner prescribed by Sec. 10.101(a) of the rules; and the ruling 
does not concern the disqualification of, or a motion to disqualify, an 
Administrative Law Judge; and the ruling does not concern the suspension 
of, or failure to suspend, an attorney from participation in a 
particular proceeding, or the denial of intervention or limited 
participation;
    (4) Deny any application for interlocutory review in a proceeding if 
it is not filed in accordance with Sec. 10.101(b) of these rules;
    (5) Dismiss any appeal from an initial decision or other disposition 
of the entire proceeding by an Administrative Law Judge, where such 
appeal is not filed and perfected in accordance with Sec. 10.102 of 
these rules;
    (6) Strike any filing that does not meet the requirements of, or is 
not perfected in accordance with, part 10 of these rules;
    (7) Stay, for a limited period of time not to exceed ten working 
days, any order of the Commission entered in a proceeding subject to 
these rules;
    (b) Notwithstanding the provisions of paragraph (a) of this section, 
in any case in which the General Counsel or his designee believes it 
appropriate, he may submit the matter to the Commission for its 
consideration;
    (c) Within seven (7) days after service of a ruling issued pursuant 
to paragraph (a) of this section, a party may file with the Proceedings 
Clerk a petition for Commission reconsideration of the ruling. Unless 
the Commission orders otherwise, the filing of a petition for 
reconsideration shall not operate to stay the effective date of such 
ruling.

[50 FR 33515, Aug. 20, 1985, as amended at 60 FR 54802, Oct. 26, 1995; 
64 FR 43071, Aug. 9, 1999]



                      Subpart I_Restitution Orders

    Source: 63 FR 55795, Oct. 19, 1998, unless otherwise noted.



Sec. 10.110  Basis for issuance of restitution orders.

    (a) Appropriateness of restitution as a remedy. In any proceeding in 
which an order requiring restitution may be entered, the Administrative 
Law Judge shall, as part of his or her initial decision, determine 
whether restitution is appropriate. In deciding whether restitution is 
appropriate, the Administrative Law Judge, in his or her discretion, may 
consider the degree of complexity likely to be involved in establishing 
claims, the likelihood that

[[Page 299]]

claimants can obtain compensation through their own efforts, the ability 
of the respondent to pay claimants damages that his or her violations 
have caused, the availability of resources to administer restitution and 
any other matters that justice may require.
    (b) Restitution order. If the Administrative Law Judge determines 
that restitution is an appropriate remedy in a proceeding, he or she 
shall issue an order specifying the following:
    (1) All violations that form the basis for restitution;
    (2) The particular persons, or class or classes of persons, who 
suffered damages proximately caused by each such violation;
    (3) The method of calculating the amount of damages to be paid as 
restitution; and
    (4) If then determinable, the amount of restitution the respondent 
shall be required to pay.



Sec. 10.111  Recommendation of procedure for implementing restitution.

    Except as provided by Sec. 10.114, after such time as any order 
requiring restitution becomes effective (i.e., becomes final and is not 
stayed), the Division of Enforcement shall petition the Commission for 
an order directing the Division to recommend to the Commission or, in 
the Commission's discretion, the Administrative Law Judge a procedure 
for implementing restitution. Each party that has been ordered to pay 
restitution shall be afforded an opportunity to review the Division of 
Enforcement's recommendations and be heard.



Sec. 10.112  Administration of restitution.

    Based on the recommendations submitted pursuant to Sec. 10.111, the 
Commission or the Administrative Law Judge, as applicable, shall 
establish in writing a procedure for identifying and notifying 
individual persons who may be entitled to restitution, receiving and 
evaluating claims, obtaining funds to be paid as restitution from the 
party and distributing such funds to qualified claimants. As necessary 
or appropriate, the Commission or the Administrative Law Judge may 
appoint any person, including an employee of the Commission, to 
administer, or assist in administering, such restitution procedure. 
Unless otherwise ordered by the Commission, all costs incurred in 
administering an order of restitution shall be paid from the restitution 
funds obtained from the party who was so sanctioned; provided, however, 
that if the administrator is a Commission employee, no fee shall be 
charged for his or her services or for services performed by any other 
Commission employee working under his or her direction.



Sec. 10.113  Right to challenge distribution of funds to customers.

    Any order of an Administrative Law Judge directing or authorizing 
the distribution of funds paid as restitution to individual customers 
shall be considered a final order for appeal purposes to be subject to 
Commission review pursuant to Sec. 10.102.



Sec. 10.114  Acceleration of establishment of restitution procedure.

    The procedures provided for by Sec. Sec. 10.111 through 10.113 may 
be initiated prior to the issuance of the initial decision of the 
Administrative Law Judge and may be combined with the hearing in the 
proceeding, either upon motion by the Division of Enforcement or if the 
Administrative Law Judge, acting on his own initiative or upon motion by 
a respondent, concludes that the presentation, consideration and 
resolution of the issues relating to the restitution procedure will not 
materially delay the conclusion of the hearing or the issuance of the 
initial decision.



Sec. Appendix A to Part 10--Commission Policy Relating to the Acceptance 
         of Settlements in Administrative and Civil Proceedings

    It is the policy of the Commission not to accept any offer of 
settlement submitted by any respondent or defendant in an administrative 
or civil proceeding, if the settling respondent or defendant wishes to 
continue to deny the allegations of the complaint or the findings of 
fact or conclusions of law to be made in the settlement order entered by 
the Commission or a court. In accepting a settlement and entering an 
order finding violations of the Act and/or regulations promulgated under 
the Act, the Commission makes uncontested findings of fact and 
conclusions

[[Page 300]]

of law. Similarly, in settling a civil proceeding with a defendant the 
Commission invites the federal court to make conclusions of law and, in 
some instances, findings of fact. The Commission does not believe it 
would be appropriate for it to be making or inviting a court to make 
such uncontested findings of violations if the party against whom the 
findings and conclusions are to be entered is continuing to deny the 
alleged misconduct.
    The refusal of a settling respondent or defendant to admit the 
allegations in a Commission-instituted complaint or the findings of fact 
or conclusions of law in the settlement order entered by the Commission 
or a court shall be treated as a denial, unless the party states that he 
or she neither admits nor denies the allegations or the findings and 
conclusions. In that event, the proposed offer of settlement, consent or 
consent order must include a provision stating that, by neither 
admitting nor denying the allegations, findings or conclusions, the 
settling respondent or defendant agrees that neither he or she nor any 
of his or her agents or employees under his authority or control shall 
take any action or make any public statement denying, directly or 
indirectly, any allegation in the complaint or findings or conclusions 
in the order, or creating, or tending to create, the impression that the 
complaint or the order is without a factual basis; provided, however, 
that nothing in this provision shall affect the settling respondent's or 
defendant's--
    i. Testimonial obligation, or
    ii. Right to take legal positions in other proceedings to which the 
Commission is not a party.

[64 FR 30903, June 9, 1999]



PART 11_RULES RELATING TO INVESTIGATIONS--Table of Contents



Sec.
11.1 Scope and applicability of rules.
11.2 Authority to conduct investigations.
11.3 Confidentiality of investigations.
11.4 Subpoenas.
11.5 Transcripts.
11.6 Oath; false statements.
11.7 Rights of witnesses.
11.8 Sequestration.

Appendix A to Part 11--Informal Procedure Relating to the Recommendation 
          of Enforcement Proceedings

    Authority: 7 U.S.C. 4a(j), 9 and 15, 12, 12a(5), 12(f).

    Source: 41 FR 29799, July 19, 1976, unless otherwise noted.



Sec. 11.1  Scope and applicability of rules.

    The rules of this part apply to investigatory proceedings conducted 
by the Commission or its staff pursuant to sections 6(c) and 8 and 12(f) 
of the Commodity Exchange Act, as amended, 7 U.S.C. 9 and 15 and 12 and 
16(f) (Supp. IV, 1974), to determine whether there have been violations 
of that Act, or the rules, regulations or orders adopted thereunder, or, 
in accordance with the provisions of section 12(f) of the Act, whether 
there have been violations of the laws, rules or regulations relating to 
futures or options matters administered or enforced by a foreign futures 
authority, or whether an application for designation or registration 
under the Act should be denied. Except as otherwise specified herein, 
the rules will apply to the conduct of investigation whether or not the 
Commission has authorized the use of subpoenas in the particular matter 
to compel the production of evidence.

[63 FR 5233, Feb. 2, 1998]



Sec. 11.2  Authority to conduct investigations.

    (a) The Director of the Division of Enforcement and members of the 
Commission staff acting pursuant to his authority and under his 
direction may conduct such investigations as he deems appropriate to 
determine whether any persons have violated, are violating, or are about 
to violate the provisions of the Commodity Exchange Act, as amended, or 
the rules, regulations or orders adopted by the Commission pursuant to 
that Act, or, in accordance with the provisions of section 12(f) of the 
Act, whether any persons have violated, are violating or are about to 
violate the laws, rules or regulations relating to futures or options 
matters administered or enforced by a foreign futures authority, or 
whether an applicant for registration or designation meets the requisite 
statutory criteria. For this purpose, the Director may obtain evidence 
through voluntary statements and submissions, through exercise of 
inspection powers over boards of trade, reporting traders, and persons 
required by law to register with the Commission, or when authorized by 
order of the Commission,

[[Page 301]]

through the issuance of subpoenas. The Director shall report to the 
Commission the results of his investigations and recommend to the 
Commission such enforcement action as he deems appropriate. In 
particular matters the Director of the Division of Clearing and 
Intermediary Oversight and the Chief Economist and Director of the 
Division of Market Oversight, and members of their staffs acting within 
the scope of their respective responsibilities, are also authorized to 
investigate, report and recommend to the Commission in accordance with 
these rules.
    (b) The Commission hereby delegates, until the Commission orders 
otherwise, to its Regional Directors and to the Director, the Deputy 
Directors, the Program Coordinator, the Chief Counsel, the Associate 
Directors, and the Regional Counsel of the Division of Enforcement the 
authority to grant to any employee of the Division of Enforcement all or 
a portion of the authority which the Commission, by order, has 
authorized specified employees of the Commission to perform in 
connection with a Commission investigation conducted by the Division of 
Enforcement. With the approval of the Executive Director, the Director 
of the Division of Enforcement may also grant such authority to any 
Commission employee under the direction of the Executive Director.

(Secs. 2a(11) and 6(b) of the Act, 7 U.S.C. 4a(j) and 15 (1976), as 
amended by the Futures Trading Act of 1978, Pub. L. 95-405, sec. 13, 92 
Stat. 871 (1978))

[41 FR 29799, July 19, 1976, as amended at 43 FR 55348, Nov. 28, 1978; 
60 FR 54802, Oct. 26, 1995; 61 FR 1709, Jan. 23, 1996; 62 FR 17702, Apr. 
11, 1997; 63 FR 5233, Feb. 2, 1998; 67 FR 62352, Oct. 7, 2002]



Sec. 11.3  Confidentiality of investigations.

    All information and documents obtained during the course of an 
investigation, whether or not obtained pursuant to subpoena, and all 
investigative proceedings shall be treated as non-public by the 
Commission and its staff except to the extent that (a) the Commission 
directs or authorizes the public disclosure of the investigation; (b) 
the information or documents are made a matter of public record during 
the course of an adjudicatory proceeding; or (c) disclosure is required 
by the Freedom of Information Act, 5 U.S.C. 552, and the rules adopted 
by the Commission thereunder, 17 CFR part 145. Procedures by which 
persons submitting information to the Commission during the course of an 
investigation may specifically seek confidential treatment of 
information for purposes of Freedom of Information Act disclosure are 
set forth in 17 CFR 145.9. A request for confidential treatment of 
information for purposes of the Freedom of Information Act shall not, 
however, prevent disclosure for law enforcement purposes or when 
disclosure is otherwise found appropriate in the public interest and 
permitted by law.



Sec. 11.4  Subpoenas.

    (a) Issuance of subpoenas. The Commission or any member of the 
Commission or of its staff who, by order of the Commission, has been 
authorized to issue subpoenas in the course of a particular 
investigation may issue a subpoena directing the person named therein to 
appear before a designated person at a specified time and place to 
testify or to produce documentary evidence, or both, relating to any 
matter under investigation.
    (b) Authorization to issue subpoenas. An order of the Commission 
authorizing one or more members of the Commission or of its staff to 
issue subpoenas in the course of a particular investigation shall 
include:
    (1) A general description of the scope of the investigation;
    (2) The authority under which the investigation is being conducted; 
and
    (3) A designation of the members of the Commission or of its staff 
authorized by the Commission to issue subpoenas.
    (c) Service. Service of subpoenas issued for investigative purposes 
shall be effected in the following manner:
    (1) Service upon a natural person. Delivery of a copy of a subpoena 
to a natural person may be effected by
    (i) Handing it to the person;
    (ii) Leaving it at his office with the person in charge thereof or, 
if there is no one in charge, by leaving it in a conspicuous place 
therein;

[[Page 302]]

    (iii) Leaving it at his dwelling place or usual place of abode with 
some person of suitable age and discretion then residing therein;
    (iv) Mailing it by registered or certified mail to him at his last 
known address; or
    (v) Any other method whereby actual notice is given to him.
    (2) Service upon other persons. When the person to be served is not 
a natural person, delivery of a copy of the subpoena may be effected by 
(i) handing it to a registered agent for service, or to any officer, 
director, or agent in charge of any office of such person; (ii) mailing 
it by registered or certified mail to any such representative at his 
last known address; or (iii) any other method whereby actual notice is 
given to any such representative.
    (d) Witness fees and mileage. Witnesses appearing pursuant to 
subpoena shall be paid the same fees and mileage that are paid to 
witnesses in the courts of the United States.
    (e) Pursuant to the authority granted under Sections 2(a)(11) and 
8a(5) of the Act, the Commission hereby delegates to the Director of the 
Division of Enforcement, with the concurrence of the General Counsel or 
General Counsel's delegee, and until such time as the Commission orders 
otherwise, the authority to invoke, in case of contumacy by, or refusal 
to obey a subpoena issued to, any person, the aid of any court of the 
United States within the jurisdiction in which the investigation or 
proceeding is conducted, or where such person resides or transacts 
business, in requiring the attendance and testimony of witnesses and the 
production of books, papers, correspondence, memoranda and other records 
pursuant to subpoenas issued in accordance with section 6(c) of the Act 
for the purpose of securing effective enforcement of the provisions of 
this Act, for the purpose of any investigation or proceeding under this 
Act, and for the purpose of any action taken under section 12(f) of the 
Act.
    (f) Notwithstanding the delegation of authority to the Director set 
forth in paragraph (e) of this section, in any case in which the 
Director believes it appropriate the matter may be submitted to the 
Commission for its consideration. Nothing in this section shall prohibit 
the Commission from exercising the authority delegated in paragraph (e) 
of this section.

[41 FR 29799, July 19, 1976, as amended at 67 FR 37322, May 29, 2002]



Sec. 11.5  Transcripts.

    Transcripts of testimony taken in the course of an investigative 
proceeding shall be recorded solely by an official reporter or other 
person or by other means authorized by the Commission or by a member of 
the Commission or its staff conducting the investigation for the 
Commission.



Sec. 11.6  Oath; false statements.

    (a) Oath. At the discretion of the member of the Commission or staff 
member conducting the investigation, testimony of a witness may be taken 
under oath.
    (b) Penalties for false statements and other false information. Any 
person making false statements under oath during the course of a 
Commission investigation is subject to the criminal penalties for 
perjury in 18 U.S.C. 1621. Any person who knowingly and willfully makes 
false or fraudulent statements, whether under oath or otherwise, or who 
falsifies, conceals or covers up a material fact, or submits any false 
writing or document, knowing it to contain false, fictitious or 
fraudulent information, is subject to the criminal penalties set forth 
in 18 U.S.C. 1001.



Sec. 11.7  Rights of witnesses.

    (a) Orders authorizing issuance of subpoenas. Any person upon whom a 
subpoena has been served compelling him to furnish documentary evidence 
or testimony in an investigation shall, upon his request, be permitted 
to examine a copy of the Commission's order pursuant to which the 
subpoena has been issued. However, a copy of the order shall not be 
furnished for his retention except with the express approval of either 
the Director, a Deputy Director, the Program Coordinator, the Chief 
Counsel, an Associate Director, or a Regional Counsel of the Division of 
Enforcement, or a Regional Director of the Commission; approval shall 
not be given unless it has been shown by

[[Page 303]]

the person seeking to retain a copy that his retention of a copy would 
be consistent both with the protection of privacy of persons involved in 
the investigation and with the unimpeded conduct of the investigation.
    (b) Copies of testimony or data. A person compelled to submit data 
or evidence in the course of an investigatory proceeding shall be 
entitled to retain or, upon payment of appropriate fees as set forth in 
the Schedule of Fees for records services, 17 CFR part 145b, procure a 
copy or transcript thereof, except that the witness may for good cause 
be limited to inspection of the official transcript of his testimony.
    (c) Right to counsel. A person compelled to appear, or who appears 
in person by request or permission of the Commission or its staff during 
an investigation, may be accompanied, represented, and advised by 
counsel. Subject to the provisions of Sec. 11.8(b) of this part, he may 
be represented by any attorney-at-law who is admitted to practice before 
the highest court in any State or territory or the District of Columbia, 
who has not been suspended or disbarred from appearance and practice 
before the Commission in accordance with the provisions of part 14 of 
this title, and who has not been excluded from further participation in 
the particular investigatory proceeding for good cause established in 
accordance with paragraph (c)(2) of this section.
    (1) The right to be accompanied, represented and advised by counsel 
shall mean the right of a person testifying to have an attorney present 
with him during any aspect of an investigative proceeding and to have 
this attorney advise his client before, during and after the conclusion 
of such examination. At the conclusion of the examination, counsel may 
request the person presiding to permit the witness to clarify any of his 
answers which may need clarification in order that his answers not be 
left equivocal or incomplete on the record. For his use in protecting 
the interests of his client with respect to that examination counsel may 
make summary notes during the examination.
    (2) With due regard for the rights of a witness, the Commission may 
for good cause exclude a particular attorney from further participation 
in any investigation in which the Commission has found the attorney to 
have engaged in dilatory, obstructionist or contumacious conduct. The 
person conducting an investigation may report to the Commission 
instances of apparently dilatory, obstructionist or contumacious conduct 
on the part of an attorney. After due notice to the attorney, the 
Commission may take such action as the circumstances warrant based upon 
a written transcript evidencing the conduct of the attorney in that 
investigation or such other or additional written or oral presentation 
as the Commission may permit or direct.
    (d) Self-Incrimination; immunity--(1) Self-Incrimination. Except as 
provided in paragraph (d)(2) of this section, a witness testifying or 
otherwise giving information in an investigation may refuse to answer 
questions on the basis of the right against self-incrimination granted 
by the Fifth Amendment of the Constitution of the United States.
    (2) Immunity. \2\ If the Commission believes that the testimony or 
other information sought to be obtained from any individual may be 
necessary to the public interest and that individual has refused or is 
likely to refuse to testify or provide other information on the basis of 
his privilege against self-incrimination, the Commission, with the 
approval of the Attorney General, may issue an order requiring the 
individual to give testimony or provide other information which he 
previously refused to give on the basis of self-incrimination. Whenever 
a witness refuses, on the basis of his privilege against self-
incrimination, to testify or provide other information in an 
investigation under this part, and the person presiding over the 
investigation communicates to the witness an order issued by the 
Commission requiring the witness to give testimony or provide other 
information, the witness may not

[[Page 304]]

refuse to comply with the order on the basis of his privilege against 
self-incrimination; but no testimony or other information compelled 
under the order (or any information directly or indirectly derived from 
such testimony or other information) may be used against the witness in 
any criminal case, except a prosecution for perjury, giving a false 
statement, or otherwise failing to comply with the order.
---------------------------------------------------------------------------

    \2\ This subsection shall be effective on and after such date as 
section 6001 of Title 18 of the United States Code has been amended to 
include the Commodity Futures Trading Commission among those agencies 
which may, with the approval of the Attorney General, grant immunity to 
witnesses to the extent and in the manner prescribed in 18 U.S.C. 6001 
et seq.

[41 FR 29799, July 19, 1976, as amended at 61 FR 1709, Jan. 23, 1996]



Sec. 11.8  Sequestration.

    (a) Sequestration of witnesses. All witnesses and potential 
witnesses shall be sequestered and prohibited from being present during 
the examination of any other witness unless otherwise permitted in the 
discretion of the person conducting the investigation.
    (b) Sequestration of counsel. When a reasonable basis exists to 
believe that an investigation may be obstructed or impeded, directly or 
indirectly, by an attorney's representation of more than one witness 
during the course of an investigation, the member of the Commission or 
of the Commission's staff conducting the investigation may prohibit that 
attorney from being present during the testimony of any witness other 
than the witness in whose behalf counsel first appeared in the 
investigatory proceeding. To the extent practicable, consistent with the 
integrity of the investigation, the attorney will be advised of the 
reasons for his having been sequestered.



     Sec. Appendix A to Part 11--Informal Procedure Relating to the 
                Recommendation of Enforcement Proceedings

    The Division of Enforcement (``Division''), in its discretion, may 
inform persons who may be named in a proposed enforcement proceeding of 
the nature of the allegations pertaining to them. The Division, in its 
discretion, may advise such persons that they may submit a written 
statement prior to the consideration by the Commission of any staff 
recommendation for the commencement of such proceeding. Unless otherwise 
provided for by either the Director, a Deputy Director, the Program 
Coordinator, the Chief Counsel, an Associate Director, or a Regional 
Counsel of the Division, or a Regional Director of the Commission, such 
written statements shall be submitted within 14 days after persons are 
informed by the Division of Enforcement of the nature of the proposed 
allegations pertaining to them and shall be no more than 20 pages, 
double spaced on 8\1/2\ by 11 inch paper, setting forth their views of 
factual, legal or policy matters relevant to the commencement of an 
enforcement proceeding. Any statement of fact included in the submission 
must be sworn to by a person with personal knowledge of such fact. 
Statements shall be forwarded to the Director, Division of Enforcement, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581, with copies to the staff conducting 
the investigation, shall clearly identify the specific investigation, 
and, if desired, may request that the statement be forwarded to the 
Commission. Similarly, persons who become involved in an investigation, 
and submit a written statement on their initiative, should follow the 
relevant procedures described herein. In the event the Division 
recommends the commencement of an enforcement proceeding to the 
Commission, any written statement will be forwarded to the Commission if 
so requested. The Commission may, in its discretion, consider all, any 
portion or none of the submission when it considers the staff 
recommendation to commence an enforcement proceeding.

[52 FR 19501, May 26, 1987, as amended at 60 FR 49334, Sept. 25, 1995; 
61 FR 1709, Jan. 23, 1996]



PART 12_RULES RELATING TO REPARATIONS--Table of Contents



Subpart A_General Information and Preliminary Consideration of Pleadings

Sec.
12.1 Scope and applicability of rules of practice relating to 
          reparations.
12.2 Definitions.
12.3 Business address; hours.
12.4 Suspension, amendment, revocation and waiver of rules.
12.5 Computation of time.
12.6 Extensions of time; adjournments; postponements.
12.7 Ex parte communications in reparation proceedings.
12.8 Separation of functions.
12.9 Practice before the Commission.
12.10 Service.
12.11 Formalities of filing of documents with the Proceedings Clerk.
12.12 Signature.
12.13 Complaint; election of procedure.
12.14 Withdrawal of complaint.
12.15 Notification of complaint.
12.16 Response to complaint.
12.17 Satisfaction of complaint.

[[Page 305]]

12.18 Answer; election of procedure.
12.19 Counterclaim.
12.20 Response to counterclaim; reply; election of procedure.
12.21 Voluntary dismissal.
12.22 Default proceedings.
12.23 Setting aside of default.
12.24 Parallel proceedings.
12.25 Filing fees.
12.26 Commencement of a reparation proceeding.
12.27 Termination of consideration of pleadings.

                           Subpart B_Discovery

12.30 Methods of discovery.
12.31 Production of documents and tangible items.
12.32 Depositions on written interrogatories.
12.33 Admissions.
12.34 Discovery by a decisionmaking official.
12.35 Consequences of a party's failure to comply with a discovery 
          order.
12.36 Subpoenas to compel discovery.

     Subpart C_Rules Applicable to Voluntary Decisional Proceedings

12.100 Scope and applicability of rules.
12.101 Functions and responsibilities of the Judgment Officer.
12.102 Disqualification of Judgment Officer.
12.103 Filing of documents; subscription; service.
12.104 Amendments to pleadings; motions.
12.105 Submission of proof only in documentary or tangible form.
12.106 Final decision and order.

      Subpart D_Rules Applicable to Summary Decisional Proceedings

12.200 Scope and applicability of rules.
12.201 Functions and responsibilities of the Judgment Officer.
12.202 Disqualification of Judgment Officer.
12.203 Filing of documents; subscription; service.
12.204 Amended and supplemental pleadings.
12.205 Motions.
12.206 Pre-decision conferences.
12.207 Summary disposition.
12.208 Submissions of proof.
12.209 Oral testimony.
12.210 Initial decision.

       Subpart E_Rules Applicable to Formal Decisional Proceedings

12.300 Scope and applicability of rules.
12.301-12.302 [Reserved]
12.303 Pre-decision conferences.
12.304 Functions and responsibilities of the Administrative Law Judge.
12.305 Disqualification of Administrative Law Judge.
12.306 Filing of documents; subscription; service.
12.307 Amended and supplemental pleadings.
12.308 Motions.
12.309 Interlocutory review by the Commission.
12.310 Summary disposition.
12.311 Disposition of proceeding or issues without oral hearing.
12.312 Oral hearing.
12.313 Subpoenas for attendance at an oral hearing.
12.314 Initial decision.
12.315 Consequences of overstating damages claims not in excess of 
          $30,000.

                Subpart F_Commission Review of Decisions

12.400 Scope and applicability of rules.
12.401 Appeal to the Commission.
12.402 Appeal of disposition of less than all claims or parties in a 
          proceeding.
12.403 Commission review on its own motion.
12.404 The record of proceedings.
12.405 Leave to adduce additional evidence.
12.406 Final decision of the Commission.
12.407 Satisfaction of reparation award; enforcement; sanctions.
12.408 Delegation of authority to the Deputy General Counsel for 
          Opinions.

    Authority: 7 U.S.C. 2(a)(12), 12a(5), and 18.

    Source: 49 FR 6621, Feb. 22, 1984, unless otherwise noted.



Subpart A_General Information and Preliminary Consideration of Pleadings



Sec. 12.1  Scope and applicability of rules of practice relating to reparations.

    (a) Part 12 Reparation Rules. These rules of practice are applicable 
to reparation applications filed pursuant to section 14 of the Commodity 
Exchange Act, as amended, 7 U.S.C. section 18. The rules in this part 
shall be construed liberally so as to secure the just, speedy and 
inexpensive determination of the issues presented with full protection 
for the rights of all parties.
    (b) Other rules of practice. Unless specifically made applicable, 
other Rules of Practice promulgated under the Commodity Exchange Act, as 
amended, shall not apply to reparation matters.
    (c) Applicability of these part 12 Reparation Rules. These rules 
shall apply in

[[Page 306]]

their entirety to all reparation complaints and matters relating 
thereto.

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9635, Mar. 1, 1994]



Sec. 12.2  Definitions.

For purposes of this part:
    Act means the Commodity Exchange Act, as amended, 7 U.S.C. 1, et 
seq.;
    Administrative Law Judge means an administrative law judge appointed 
pursuant to the provisions of 5 U.S.C. 3105;
    Commission means the Commodity Futures Trading Commission;
    Commission decisional employee means an employee or employees of the 
Commission who are or may reasonably be expected to be involved in the 
decisionmaking process in any proceeding, including, but not limited to: 
A Judgment Officer; members of the personal staffs of the Commissioners, 
but not the Commissioners themselves; members of the staffs of the 
Administrative Law Judges, but not an Administrative Law Judge; members 
of the staffs of the Judgment Officers; members of the Office of the 
General Counsel; members of the staff of the Office of Proceedings; and 
other Commission employees who may be assigned to hear or to participate 
in the decision of a particular matter.
    Complainant means a person who, individually or jointly with others, 
has applied to the Commission for a reparation award pursuant to section 
14(a) of the Act, but shall not include a cross claimant or any other 
type of third party claimant. The term ``complainant'' under these rules 
applies equally to two or more persons who have applied jointly for a 
reparation award;
    Complaint means any document which constitutes an application for a 
reparation award pursuant to section 14(a) of the Act, regardless of 
whether it is denominated as such;
    Counterclaim means an application for a reparation award by a 
respondent against a complainant which satisfies the requirements of 
Sec. 12.19. A counterclaim does not mean a cross claim or other type of 
third party claim;
    Director of the Office of Proceedings means an employee of the 
Commission who serves as the administrative head of that Office, with 
responsibility and authority to assure that these part 12 Reparation 
Rules are administered in a manner which will effectuate the purposes of 
section 14(b) of the Act. The Director is authorized to convene meetings 
of all personnel in the Office of Proceedings, including Administrative 
Law Judges and their personally assigned law clerks. The Director shall 
have the authority to delegate his duties to administer Sec. Sec. 
12.15, 12.24, 12.26 and 12.27, and, shall have the authority to assign 
and, if necessary, reassign the duties of, and set reasonable standards 
for performance for, all personnel in the Office, including the Judgment 
Officers, but not including Administrative Law Judges and their 
personally assigned law clerks;
    Ex parte communication means an oral or written communication not on 
the public record with respect to which reasonable prior notice to all 
parties is not given, but does not include:
    (1) A discussion, after consent has been obtained from all of the 
named parties, between a party and a Judgment Officer or Administrative 
Law Judge, or the staffs of the foregoing, pertaining solely to the 
possibility of settling the case without the need for a decision;
    (2) Requests for status reports, including questions relating to 
service of the complaint, and the registration status of any persons, on 
any matter or proceeding covered by these rules; or
    (3) Requests made to the Office of Proceedings or the Office of the 
General Counsel for interpretation of these rules.
    Formal decisional procedure means, where the amount of total damages 
claimed exceeds $30,000, exclusive of interest and costs, a procedure 
elected by the complainant or a respondent where the parties may be 
granted an oral hearing. A formal decisional proceeding is governed by 
subpart E;
    Hearing means that part of a proceeding which involves the 
submission of proof, either by oral presentation or written submission;
    Interested person means any party, and includes any person or agency 
permitted limited participation or to state views in a reparation 
proceeding, or other person who might be adversely affected or aggrieved 
by the outcome of

[[Page 307]]

a proceeding (including the officers, agents, employees, associates, 
affiliates, attorneys, accountants or other representatives of such 
persons), and any other person having a direct or indirect pecuniary or 
other interest in the outcome of a proceeding;
    Judgment Officer means an employee of the Commission who is 
authorized to conduct the proceeding and render a decision in a summary 
decisional proceeding or a voluntary decisional proceeding. In 
appropriate circumstances, the functions of a Judgment Officer may be 
performed by an Administrative Law Judge;
    Office of the General Counsel refers to the members of the 
Commission's staff who provide assistance to the Commission in its 
direct review of any proceeding conducted pursuant to these rules;
    Office of Proceedings means that Office within the Commission 
comprised of the Administrative Law Judges, Judgment Officers, the 
Director of that Office, the Proceedings Clerk, and members of the 
staffs of the foregoing, which administers these part 12 Reparation 
Rules, other than the rules authorizing direct review by the Commission;
    Order means the whole or any part of a final procedural or 
substantive disposition of a reparation proceeding by the Commission, an 
Administrative Law Judge, a Judgment Officer, or the Proceedings Clerk;
    Party means a complainant, respondent or any other person or agency 
named or admitted as a party in a reparation matter;
    Person means any individual, association, partnership, corporation 
or trust;
    Pleading means the complaint, the answer to the complaint, any 
supplement or amendment thereto, and any reply to the foregoing;
    Proceeding means a case in which the pleadings have been forwarded 
and in which a procedure has been commenced pursuant to Sec. 12.26;
    Proceedings Clerk means that member of the Commission's staff in the 
Office of Proceedings who shall maintain the Commission's reparation 
docket, assign reparation cases to an appropriate decisionmaking 
official, and act as custodian of the records of proceedings;
    Punitive damages means damages awarded (no more than two times the 
amount of actual damages) in the case of any action arising from a 
willful and intentional violation in the execution of an order on the 
floor of a contract market. An order does not have to be actually 
executed to render a violation subject to punitive damages. As a 
prerequisite to an award of punitive damages, a complainant must claim 
actual and punitive damages, prove actual damages, and demonstrate that 
punitive damages are appropriate;
    Registrant means any person who--
    (1) Was registered under the Act at the time of the alleged 
violation;
    (2) Is subject to reparation proceedings by virtue of section 4m of 
the Commodity Exchange Act, regardless of whether such person was ever 
registered under the Act; or
    (3) Is otherwise subject to reparation proceedings under the Act;
    Reparation award means the amount of monetary damages a party may be 
ordered to pay;
    Respondent means any person or persons against whom a complainant 
seeks a reparation award pursuant to section 14(a) of the Act;
    Summary decisional procedure means, where the amount of total 
damages claimed does not exceed $30,000, exclusive of interest and 
costs, a procedure elected by the complainant or the respondent wherein 
an oral hearing need not be held and proof in support of each party's 
case may be supplied in the form and manner prescribed by Sec. 12.208. 
A summary decisional proceeding is governed by subpart D;
    Voluntary decisional procedure means, regardless of the amount of 
damages claimed, a procedure which the complainant and the respondent 
have chosen voluntarily to submit their claims and counterclaims, 
allowable under these rules, for an expeditious resolution by a Judgment 
Officer. By electing the voluntary decisional procedure, parties agree 
that a decision issued by a Judgment Officer shall be without 
accompanying findings of fact and shall be final without right of 
Commission review or judicial review. A voluntary decisional proceeding 
is governed by subpart C of these rules.

[59 FR 9635, Mar. 1, 1994]

[[Page 308]]



Sec. 12.3  Business address; hours.

    The principal office of the Commission is located at Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581. It is open each 
day, except Saturdays, Sundays, and legal public holidays, from 8:15 
a.m. until at least 4:45 p.m., eastern standard time or eastern daylight 
savings time, whichever is currently in effect in Washington, DC.

[49 FR 6621, Feb. 22, 1984, as amended at 60 FR 49335, Sept. 25, 1995]



Sec. 12.4  Suspension, amendment, revocation and waiver of rules.

    (a) Suspension or change of rules. These rules may, from time to 
time, be suspended, amended or revoked in whole or in part. Notice of 
such action will be published in the Federal Register.
    (b) Commission waiver of procedures. In the interest of expediting 
decision or to prevent undue hardship on any party or for other good 
cause the Commission may order the adoption of expedited procedures, may 
waive any rule in this part in a particular case, and may order 
proceedings in accordance with its direction upon a determination that 
no party will be prejudiced thereby, and that the ends of justice will 
be served. Reasonable notice shall be given to all parties of any action 
taken pursuant to this provision.



Sec. 12.5  Computation of time.

    (a) In general. In computing any period of time prescribed by these 
rules or allowed by the Commission, the Director of the Office of 
Proceedings, a Judgment Officer, or an Administrative Law Judge, the day 
of the act, event, or default from which the designated period of time 
begins to run is not to be included. The last day of the period so 
computed is to be included unless it is a Saturday, a Sunday, or a legal 
holiday, in which event the period runs until the end of the next day 
which is not a Saturday, a Sunday or a legal holiday.

Intermediate Saturday, Sundays, and legal holidays shall be excluded 
from the computation only when the period of time prescribed or allowed 
is less than seven (7) days.
    (b) Date of service of orders. In computing any period of time 
involving the date of service of an order, the date of service shall be 
the date the order is served by the Proceedings Clerk, which, unless 
otherwise indicated, shall be the date stamped on the order by the 
Proceedings Clerk.

[49 FR 6621, Feb. 22, 1984, as amended at 57 FR 20638, May 14, 1992]



Sec. 12.6  Extensions of time; adjournments; postponements.

    (a) In general. Except as otherwise provided by law or by these 
rules, for good cause shown, the Commission, or a Judgment Officer, 
Administrative Law Judge, or the Director of the Office of Proceedings, 
before whom a matter is then pending, on their own motion or the motion 
of a party, may at any time extend or shorten the time limit prescribed 
by the rules for filing any document. In any instance in which a time 
limit is not prescribed for an action to be taken concerning any matter, 
the Commission or one of the other officials mentioned above may set a 
time limit for that action.
    (b) Motions for extension of time. Absent extraordinary 
circumstances, in any instance in which a time limit that has been 
prescribed for an action to be taken concerning any matter exceeds seven 
days from the date of the order establishing the time limit, requests 
for extension of time shall be filed at least five (5) days prior to the 
expiration of the time limit and shall explain why an extension of time 
is necessary.

[49 FR 6621, Feb. 22, 1984, as amended at 57 FR 20638, May 14, 1992; 59 
FR 9636, Mar. 1, 1994]



Sec. 12.7  Ex parte communications in reparation proceedings.

    (a) Prohibitions against ex parte communications. (1) No interested 
person outside the Commission shall make or knowingly cause to be made 
to any Commissioner, Administrative Law Judge, or Commission decisional 
employee an ex parte communication relevant to the merits of a 
proceeding.
    (2) No Commissioner, Administrative Law Judge, or Commission 
decisional employee shall make or knowingly cause to be made to any 
interested person outside the Commission an ex parte

[[Page 309]]

communication relevant to the merits of a proceeding.
    (b) Procedures for handling ex parte communications. A Commissioner, 
Administrative Law Judge or Commission decisional employee who receives, 
or who makes or knowingly causes to be made, an ex parte communication 
prohibited by paragraph (a) of this section shall:
    (1) Place on the public record of the proceeding:
    (i) All such written communications;
    (ii) Memoranda stating the substance of all such oral 
communications; and
    (iii) All written responses, and memoranda stating the substance of 
all oral responses, to the materials described in paragraphs (b)(1) (i) 
and (ii) of this section; and
    (2) Promptly give written notice of such communication and responses 
thereto to all parties to the proceedings to which the communication or 
responses relate.
    (c) Sanctions. (1) Upon receipt of an ex parte communication 
knowingly made or knowingly caused to be made by a party in violation of 
the prohibition contained in paragraph (a)(1) of this section, the 
Commission, Administrative Law Judge, or Judgment Officer may, to the 
extent consistent with the interests of justice and the policy of the 
Act, require the party to show cause why his claim or interest in the 
proceeding should not be dismissed, denied, disregarded, or otherwise 
adversely affected on account of such violation.
    (2) Any attorney or accountant who knowingly makes or knowingly 
causes to be made, or who knowingly solicits or knowingly causes the 
solicitation of, an ex parte communication which violates the 
prohibitions contained in paragraph (a) of this section may be deemed to 
have engaged in unprofessional conduct of the type proscribed by 17 CFR 
14.8(c).
    (3) Any Commissioner, Administrative Law Judge, or Commission 
decisional employee who knowingly makes or knowingly causes to be made, 
or who knowingly solicits or knowingly causes the solicitation of, an ex 
parte communication which violates the prohibitions contained in 
paragraph (a) of this section may be deemed to have engaged in conduct 
of the type proscribed by 5 CFR 2635.101(b).
    (d) Applicability of prohibitions and sanctions against ex parte 
communications. (1) The prohibitions of this section against ex parte 
communications shall apply:
    (i) To any person who has actual knowledge that a proceeding has 
been or will be commenced by order of the Commission; and
    (ii) To all persons after public notice has been given that a 
proceeding has been or will be commenced by order of the Commission.
    (2) The prohibitions of this section shall remain in effect until a 
final order has been entered in the proceeding which is no longer 
subject to review by the Commission or to appellate review by a court.

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9636, Mar. 1, 1994]



Sec. 12.8  Separation of functions.

    (a) A Judgment Officer, or Administrative Law Judge will not be 
responsible to or subject to the supervision or direction of any 
officer, employee, or agent of the Commission engaged in the performance 
of investigative or prosecutorial functions for the Commission.
    (b) No officer, employee, or agent of the Federal Government engaged 
in the performance of investigative or prosecutorial functions in 
connection with any proceeding shall, in that proceeding or a factually 
related proceeding, participate or advise in the decision of a Judgment 
Officer, or Administrative Law Judge, except as a witness in the 
proceeding, without the express written consent of the parties to the 
proceeding. This provision shall not apply to the Commissioners.

[49 FR 6621, Feb. 22, 1984, as amended at 57 FR 20638, May 14, 1992]



Sec. 12.9  Practice before the Commission.

    (a) Practice--(1) By non-attorneys. An individual may appear pro se 
(on his own behalf); a general partner may represent the partnership; a 
bona fide officer of a corporation, trust or association may represent 
the corporation, trust or association.

[[Page 310]]

    (2) By attorneys. An attorney-at-law who is admitted to practice 
before the highest Court in any State or territory, or of the District 
of Columbia, who has not been suspended or disbarred from appearance and 
practice before the Commission in accordance with provisions of part 14 
of this chapter may represent parties as an attorney in proceedings 
before the Commission.
    (b) Debarment of counsel or representative during the course of a 
proceeding. (1) Whenever, while a proceeding is pending before him, a 
Judgment Officer or an Administrative Law Judge finds that a person 
acting as counsel or representative for any party to the proceeding is 
guilty of contemptuous conduct, such official may order that such person 
be precluded from further acting as counsel or representative in the 
proceeding. An immediate appeal to the Commission may be taken from any 
such order, pursuant to the provisions of Sec. 12.309, but the 
proceeding shall not be delayed or suspended pending disposition of the 
appeal; Provided, That the official may suspend the proceedings for a 
reasonable time for the purpose of enabling the party to obtain other 
counsel or representative.
    (2) Whenever the Judgment Officer or Administrative Law Judge has 
issued an order precluding a person from further acting as counsel or 
representative in a proceeding, such official, within a reasonable time 
thereafter, shall submit to the Commission a report of the facts and 
circumstances surrounding the issuance of the order and shall recommend 
what action the Commission should take respecting the appearance of such 
person as counsel or representative in other proceedings before the 
Commission.
    (c) Withdrawal of representation. Withdrawal from representation of 
a party shall be only by leave of the decisionmaking official (or the 
Commission) before whom the proceeding is then pending. Such leave to 
withdraw may be conditioned on the attorney's (or representative's) 
submission of an affidavit averring that the party represented has 
actual knowledge of the withdrawal, and such affidavit shall include the 
name and address of a successor counsel (or representative) or a 
statement that the represented party has determined to proceed pro se, 
in which case, the statement shall include the address where that party 
can thereafter be served.



Sec. 12.10  Service.

    (a) General requirements--(1) When service is required; number of 
copies. One copy of all motions, petitions or applications made in the 
course of a proceeding (unless made orally during a hearing), all 
proposed findings and conclusions (to the extent permitted by these 
rules), all notices of appeal, all briefs, and letters to the 
Commission, an employee thereof, or an Administrative Law Judge, shall 
be served by a party upon all other parties to the proceeding. This rule 
does not apply to a complaint filed pursuant to Sec. 12.13 of these 
rules, which shall only be filed with the Commission.
    (2) Filing with the Proceedings Clerk; proof of service. All 
documents which are required to be served upon a party shall be filed 
concurrently with the Proceedings Clerk, and shall meet the requirements 
as to form prescribed by Sec. Sec. 12.11 and 12.12 of this part. Unless 
otherwise provided in these rules, a document shall be filed by:
    (i) Delivering it in person;
    (ii) Mailing it by first-class or a more expeditious form of United 
States mail, or delivering it to a similar commercial package delivery 
service;
    (iii) Transmitting the documents via facsimile machine (``fax''); or
    (iv) Via electronic mail (``e-mail.'')
    (v) Mailed documents must be addressed to: Proceedings Clerk, Office 
of Proceedings, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581. Faxed documents 
should be sent to (202) 418-5532 and e-mailed documents to (PROC--
[email protected]), directed to the Proceedings Clerk. Electronic filing 
and service in a given case shall be at the discretion of the Presiding 
Officer, with the parties' consent. Signed documents that are served by 
e-mail attachment must be in PDF or other non-alterable form. To be 
timely filed under this part, a document must be delivered; mailed by 
first-class or a more expeditious form of United States mail or a 
similar commercial package delivery service; or

[[Page 311]]

faxed or e-mailed to the Proceedings Clerk within the time prescribed 
for filing. Proof of filing shall be made by attaching to the document 
to be filed an affidavit certifying that the attached document was 
either deposited in the mail or with the commercial package delivery 
service, with postage or delivery service fees prepaid, addressed to the 
Proceedings Clerk, Office of Proceedings, Three Lafayette Centre, 1155 
21st Street, NW., Washington, DC 20581; or faxed or e-mailed to the 
Proceeding Clerk on the date specified in the affidavit. Proof of 
service of a document shall be made by filing with the Proceedings 
Clerk, simultaneously with the filing of the required document, an 
affidavit of service executed by any person 18 years of age or older or 
a certificate of service executed by an attorney-at-law qualified to 
practice before the Commission. The proof of service shall identify the 
persons served, state that service has been made, set forth the date of 
service, and recite the manner of service.
    (3) Service of orders and decisions. A copy of all notices, rulings, 
opinions, and orders of the Proceedings Clerk, the Director of the 
Office of Proceedings, a Judgment Officer, Administrative Law Judge, the 
Deputy General Counsel for Opinions and Review or the Commission shall 
be served by the Proceedings Clerk on each of the parties. The 
Commission, in its discretion and with due consideration for the 
convenience of the parties, may serve the aforementioned documents to 
the parties by electronic means.
    (b) How service is made. (1) Service shall be made by:
    (i) Personal service;
    (ii) First-class or a more expeditious form of United States mail or 
a similar commercial package delivery service;
    (iii) Fax; or
    (iv) E-mail in accordance with the conditions set forth in paragraph 
(a)(2) of this section.
    (v) Service shall be complete at the time of personal service upon 
deposit in the mail or with a commercial package delivery service of a 
properly addressed document for which postage or delivery service fees 
have been prepaid; or upon transmission by fax or e-mail. Where service 
is effected by mail or a commercial package delivery service (but not by 
fax or e-mail), the time within which the person served may respond 
thereto shall be increased by five (5) days. Signed documents that are 
served by e-mail attachment must be in PDF or other non-alterable form. 
For the purposes of this Rule, service of any document by the 
Proceedings Clerk upon the Commission shall be regarded as service by 
mail.
    (2) [Reserved]
    (c) Designation of person to receive service. The first document 
filed in a proceeding by or on behalf of any party shall state on the 
first page thereof the name and post office address of the person who is 
authorized to receive service for him of all documents filed in the 
proceeding. Thereafter, service of documents shall be made upon the 
person authorized unless service on a different authorized person or on 
the party himself is ordered by a Judgment Officer, Administrative Law 
Judge or the Commission, or unless the person authorized is changed by 
the party upon due notice to all other parties. Parties shall file and 
serve notification of any changes in the information provided pursuant 
to this subparagraph as soon as practicable after the change occurs.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984, as amended at 57 
FR 20638, May 14, 1992; 59 FR 9636, Mar. 1, 1994; 60 FR 49335, Sept. 25, 
1995; 73 FR 63360, Oct. 24, 2008]



Sec. 12.11  Formalities of filing of documents with the Proceedings Clerk.

    (a) Number of copies. Unless otherwise specifically provided, or 
unless filed by fax or e-mail in accordance with the requirements of 
Sec. 12.10(a)(2), an original and one conformed copy of all documents 
shall be filed with the Proceedings Clerk.
    (b) Title page. All documents filed with the Proceedings Clerk must 
include at the head thereof, or on a title page, the name of the 
Commission, the title of the proceeding, the docket number (if one has 
yet been assigned by the Proceedings Clerk), the subject of the 
particular document and the name of the person on whose behalf the 
document is being filed. In the complaint the title of the proceeding 
shall

[[Page 312]]

include the names of all the complainants and respondents, but in 
documents subsequently filed it is sufficient to state the name of the 
first complainant and first respondent named in the complaint.
    (c) Format. All documents filed under the Reparation Rules shall be 
typewritten, printed, or, if a party is not represented by counsel, in 
plainly legible handwriting. Documents sent in hardcopy must be on good 
quality white paper, 8\1/2\ by 11\1/2\ inches and bound at the top only. 
Documents e-mailed in accordance with the requirements of Sec. 
12.10(a)(2) must be in PDF or other non-alterable form. All documents 
must be double-spaced, except for quotations more than 3 lines and 
footnotes, both of which should be single-spaced.
    (d) Signature. The original copy of all papers must be signed in ink 
by the person filing the same or by his duly authorized agent or 
attorney.
    (e) Length and form of briefs. All briefs filed with the Proceedings 
Clerk containing more than 10 pages shall include an index and a table 
of cases and other authorities cited. The date of each brief shall 
appear on its front cover or title page and on its signature page. No 
brief shall exceed 35 pages in length, except with the permission of the 
Commission, or the Judgment Officer or Administrative Law Judge, before 
whom the matter is then pending.

[49 FR 6621, Feb. 22, 1984, as amended at 73 FR 63361, Oct. 24, 2008]



Sec. 12.12  Signature.

    (a) By whom. All documents filed with the Commission shall be signed 
personally:
    (1) By the person or persons on whose behalf they are tendered for 
filing;
    (2) By a general partner, officer or director of a partnership, 
corporation, association, or other legal entity; or
    (3) By an attorney-at-law having authority with respect thereto.

The Proceedings Clerk may require appropriate evidence of the authority 
of a person subscribing a document on behalf of another person.
    (b) Effect. The signature on any document of any person acting 
either for himself or as attorney or agent for another constitutes 
certification by him that:
    (1) He has read the document subscribed and knows the contents 
thereof;
    (2) If executed in any representative capacity, it was done with 
full power and authority to do so;
    (3) To the best of his knowledge, information, and belief, every 
statement contained in the document is true and not misleading; and
    (4) The document is not being interposed for delay.



Sec. 12.13  Complaint; election of procedure.

    (a) In general. Any person complaining of a violation of any 
provision of the Act or a rule, regulation or order of the Commission 
thereunder by any person who is a registrant (as defined in Sec. 12.2) 
may, at any time within two years after the cause of action accrues, 
apply to the Commission for a reparation award by filing a written 
complaint which satisfies the requirements of this rule.
    (b) Form of complaint. The form of each complaint filed under 
paragraph (a) of this section shall meet the following requirements:
    (1) Content. Each complaint shall include:
    (i) The name, residence address, and telephone number (during 
business hours) of the complainant;
    (ii) The name, address, and telephone number, if known, of each 
person alleged in the complaint to have violated the Act or any rule, 
regulation or order thereunder;
    (iii) If known, the specific provisions of the Act, rule, 
regulation, or order claimed to have been violated;
    (iv) A complete description of complainant's case, including, but 
not limited to:
    (A) A description of all relevant facts concerning each and every 
act or omission which it is claimed constitutes a violation of the Act; 
and
    (B) A description of all facts which show or tend to show the manner 
in which it is claimed that the complainant was injured by the alleged 
violations;
    (v) The amount of damages the complainant claims to have suffered 
and

[[Page 313]]

the method by which those damages have been computed, the amount of 
punitive damages (no more than two times the amount of such actual 
damages) the complainant claims, if any, and how complainant plans to 
demonstrate that punitive damages are appropriate;
    (vi) A statement indicating whether an arbitration proceeding or 
civil court litigation, based on the same set of facts set forth and 
involving any party named as a respondent in the complaint, has been 
instituted, and whether such a proceeding has reached a final 
disposition or is presently pending;
    (vii) A statement indicating whether any of the respondents is the 
subject of receivership or bankruptcy proceedings that are presently 
pending;
    (viii) An election of a decisional procedure pursuant to subpart C, 
D, or E. (A procedure pursuant to subpart D may be elected only if the 
total amount of damages claimed, exclusive of interest and costs, does 
not exceed $30,000. A procedure pursuant to subpart E may be elected 
only if the total amount claimed as damages, exclusive of interest and 
costs, exceeds $30,000); and
    (ix) A filing fee in the amount prescribed by Sec. 12.25 of these 
rules shall be submitted with the complaint at the time of its filing.
    (2) Subscription and verification of the complaint. Each complaint 
shall be signed personally by an individual complainant or by a duly 
authorized officer or agent of a complainant who is not a natural 
person. His signature shall be given under oath or affirmation under 
penalty of law attesting either that he knows the facts set forth in the 
complaint to be true, or that he believes the facts set forth to be 
true, in which event the information upon which he formed that belief 
shall be set forth with particularity.
    (3) Time and place of filing of complaint. A complaint shall be 
filed by delivering a copy thereof, in proper form, to the Commission at 
its principal offices in Washington, DC, addressed to the Office of 
Proceedings, attention of the Proceedings Clerk. The complaint may be 
filed in person, during normal business hours, or by certified mail, or 
registered mail with return receipt requested. If filing is by mail, it 
shall be addressed to the Proceedings Clerk, Office of Proceedings, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581. The complaint shall not be served on 
any person or party named therein. Upon the filing of the complaint and 
the appropriate filing fee, the Proceedings Clerk shall assign a docket 
number to the matter and shall maintain the official docket.
    (4) Bond required if complainant is nonresident; filing date of 
nonresident's complaint. (i) If a complaint in reparations is filed by a 
nonresident of the United States, the complaint shall not be considered 
duly filed in proper form unless it is accompanied by:
    (A) A bond in double the amount of the claim either with a surety 
company approved by the Treasury Department of the United States or two 
personal sureties, each of whom shall be a citizen of the United States 
and shall qualify as financially responsible for the entire amount of 
the bond, which bond shall run to the respondent and be conditioned upon 
the payment of costs (including reasonable attorney's fees, for the 
respondent if the respondent shall prevail) and any reparation award 
that may be issued by the Commission against the complainant on any 
counterclaim asserted by respondent; or
    (B) A written request that the bond requirement be waived in 
accordance with section 14(c) of the Commodity Exchange Act, accompanied 
by sufficient proof that the country of which the complainant is a 
resident permits the filing of a complaint by a resident of the United 
States against a citizen of that country without the furnishing of a 
bond.
    (ii) The provisions of paragraphs (b)(4)(i)(A) or (b)(4)(i)(B) of 
this section must be satisfied within two years after the complainant's 
cause of action accrues.
    (iii) When mailed from a foreign country, a nonresident's complaint 
shall be deemed filed on the date that it is received in proper form by 
the Commission's Proceedings Clerk, not

[[Page 314]]

on the date of mailing from the country of origin.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984, as amended at 51 
FR 35507, Oct. 6, 1986; 59 FR 9636, Mar. 1, 1994; 60 FR 49335, Sept. 25, 
1995]



Sec. 12.14  Withdrawal of complaint.

    At any time prior to service of notification to the complainant 
pursuant to Sec. 12.15(a) of the Director of the Office of Proceedings' 
determination to forward the complaint to a registrant, complainant may 
file a written notice of withdrawal of the complaint which shall 
terminate the Commission's consideration of the complaint without 
prejudice to complainant's right to re-file a reparations complaint 
based upon the same set of facts within two years after the cause of 
action accrues. If the complainant has previously filed a notice of 
withdrawal of a complaint based upon the same set of facts, the notice 
of withdrawal of complaint shall terminate the case with prejudice to 
complainant's rights to re-file a complaint in reparations based on the 
same set of facts, but such termination shall be regarded by the 
Commission as without prejudice to complainant's right to seek redress 
in such alternative forums as may be available for adjudication of his 
claims.



Sec. 12.15  Notification of complaint.

    (a) Forwarding of complaint to registrant. If, in the opinion of the 
Director of the Office of Proceedings, the facts set forth in a 
complaint warrant such action as to any of the registrants, a copy of 
the complaint, together with any attachments thereto, shall be forwarded 
by serving by registered mail or certified mail any such registrant 
named therein at an address previously designated with the Commission by 
the registrant for receipt of reparation complaints, as provided in 
Commission Regulation 17 CFR 3.30, or, if no such designation has been 
filed with the Commission, at such address as will accomplish actual 
notice to the respondent. Should the Director determine to forward the 
complaint, the complainant shall be notified of this determination at 
the time the complaint is forwarded.
    (b) Determination not to forward complaint. The Director may, in his 
discretion, refuse to forward a complaint as to a particular respondent 
if it appears that the matters alleged therein are not cognizable in 
reparations, or that grounds exist pursuant to Sec. 12.24 (c) or (d) 
for refusing to forward the complaint. If the Director of the Office of 
Proceedings should determine not to forward the complaint to all 
registrants named in the complaint in accordance with this Section, no 
proceeding shall be held thereon and the complainant shall be notified 
to that effect. If the Director determines to forward the complaint as 
to less than all of the registrants, the complainant shall be so 
notified. A termination of the complaint as to any registrant shall be 
regarded by the Commission as without prejudice to the right of the 
complainant to seek such alternative forms of relief as may be 
available.



Sec. 12.16  Response to complaint.

    Within 25 days after the complaint has been served by the Office of 
Proceedings on the registrant, or within such additional time (not to 
exceed 10 days absent extraordinary circumstances) as the Director of 
the Office of Proceedings, or his/her delegee may grant, for good cause 
shown, each registrant shall either--
    (a) Satisfy the complaint in accordance with Sec. 12.17 of these 
rules; or
    (b) Answer the complaint in the manner prescribed by Sec. 12.18 of 
these rules.

[59 FR 9636, Mar. 1, 1994]



Sec. 12.17  Satisfaction of complaint.

    A respondent may satisfy the complaint (a) by paying to the 
complainant either the amount to which the complainant claims to be 
entitled as set forth in the complaint or such other amount as the 
complainant will accept in satisfaction of his claim; and (b) by 
submitting to the Commission notice of satisfaction and withdrawal of 
the complaint, duly executed by the complainant and the respondent.



Sec. 12.18  Answer; election of procedure.

    An answer filed pursuant to Sec. 12.16 of these rules shall meet 
the following requirements:

[[Page 315]]

    (a) Content. Each answer shall contain:
    (1) The full name, current address and telephone number (during 
business hours) of each respondent on whose behalf the answer is filed;
    (2) A complete description of each registrant's case, including but 
not limited to, a precise and detailed statement of the facts which 
constitute each registrant's ground for defense;
    (3) Admissions, if any, as to the registrant's liability for the 
amount (or any portion thereof) claimed as damages;
    (4) A statement indicating whether the registrant is (and if the 
answer is filed on behalf of two or more registrants, which if any of 
them are) in receivership or subject to bankruptcy proceedings;
    (5) A statement indicating whether an arbitration or civil court 
litigation, based on the same set of facts set forth in the complaint 
(involving any or all of the parties named therein), is pending;
    (6) A counterclaim which the registrant wishes to pursue under Sec. 
12.19 of these rules;
    (7) An election of an alternative decisional procedure pursuant to 
subparts C, D, or E of these rules. (A proceeding pursuant to subpart D 
may be elected only if the amount of actual damages claimed in the 
complaint or as counterclaims, exclusive of interest, costs, and 
punitive damages, does not exceed $30,000. A procedure pursuant to 
subpart E may be elected only if the amount of actual damages claimed in 
the complaint or as counterclaims, exclusive of interest, costs, and 
punitive damages exceeds $30,000;
    (8) If appropriate, a filing fee in the amount prescribed by Sec. 
12.25 shall be submitted with an answer at the time of its filing.
    (b) Motion for reconsideration of determination to forward the 
complaint. An answer may include a motion for reconsideration of the 
determination to forward the complaint, specifying the grounds therefor, 
which the Director of the Office of Proceedings, in his discretion, may 
grant by terminating the case pursuant to Sec. 12.27, or deny by 
forwarding the pleadings and matters of record for an elected decisional 
proceeding pursuant to Sec. 12.26. The inclusion in an answer of a 
motion for reconsideration shall not preclude a respondent, if the 
motion is denied, from moving for dismissal at a later stage of the 
proceeding for the same reasons cited in a motion for reconsideration 
pursuant to this paragraph.
    (c) Subscription and verification of the answer. An answer shall be 
signed personally by each registrant on behalf of whom it is filed or by 
a duly authorized officer or agent of any such registrant who is not a 
natural person. Each registrant's signature shall be given under oath, 
or by affirmation under penalty of law, attesting that he has read the 
answer; that to the best of his knowledge all of the statements in the 
answer, the counterclaim (if any), and the materials required by these 
rules to be appended thereto, are accurate and true, and that the answer 
(and counterclaim, if any) has not been interposed for delay.
    (d) Affidavit of service. The registrant shall file with his answer 
an affidavit showing that he has served a true copy of the answer upon 
the complainant, either personally or by first-class mail addressed to 
the complainant at the address set forth in the complaint.
    (e) Time and place of filing an answer. An answer shall be filed by 
mailing or delivering a copy thereof, in proper form, to the Commission 
at its principal office in Washington, DC, addressed to the Office of 
Proceedings, Attention of the Proceedings Clerk. The answer may be filed 
in person, during normal business hours, or by certified mail, or 
registered mail with return receipt requested. If filing is by mail, it 
shall be addressed to the Proceedings Clerk, Office of Proceedings, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9637, Mar. 1, 1994; 60 
FR 49335, Sept. 25, 1995]



Sec. 12.19  Counterclaim.

    A registrant may, at the time of filing an answer to a complaint, 
set forth as a counterclaim: (a) Facts alleging a violation and a 
request for a reparation award that would be a proper subject

[[Page 316]]

for a complaint under Sec. 12.13 of these rules; or
    (b) Any claim which at the time the complaint is served the 
registrant has against the complainant if it arises out of the 
transaction or occurrence or series of transactions or occurrences set 
forth in the complaint.



Sec. 12.20  Response to counterclaim; reply; election of procedure.

    (a) Response to counterclaim. If an answer asserts a counterclaim, 
the complainant shall, within thirty (30) days after service upon him of 
the answer by the respondent: (1) Satisfy the counterclaim as if it were 
a complaint, in the manner prescribed by Sec. 12.17 of these rules; or 
(2) file a reply to the counterclaim with the Commission.
    (b) Form and content of reply. Should the complainant, under this 
paragraph, elect to file a reply to a counterclaim, the reply shall be 
strictly confined to the matters alleged in the counterclaim and shall 
conform to the form and content and other requirements set forth in 
Sec. 12.18 of these rules.
    (c) Election of decisional procedure. If neither the complainant nor 
the respondent, in the complaint or answer respectively, has previously 
made an election of the summary decisional procedure or the formal 
decisional procedure, the complainant may make such an election in his 
reply.



Sec. 12.21  Voluntary dismissal.

    (a) At any time after the Director of the Office of Proceedings has 
served notification to the parties pursuant to Sec. 12.15 of these 
rules of his determination to forward the complaint to the respondent 
for a response, either the complainant or the respondent may obtain 
dismissal of the complaint (or the proceeding, if one has commenced) by 
filing a stipulation of dismissal, duly executed by all of the 
complainants and each respondent against whom the complaint has been 
forwarded (or added as a party in the course of a proceeding); Provided 
however, That if the stipulation is filed after any respondent has filed 
an answer, the terms of the stipulation shall include a dismissal of any 
counterclaims in the answer.
    (b) A dismissal of a complaint pursuant to this paragraph shall be 
with prejudice to complainant's right to re-file a claim in reparations 
based upon the same set of facts as alleged in the dismissed complaint. 
Unless otherwise stated in the stipulation, a dismissal ordered pursuant 
to this paragraph shall be regarded by the Commission as without 
prejudice to the parties' right to seek redress in such alternative 
forums as may be available for adjudication of their claims.
    (c) Upon receiving a written stipulation of dismissal which 
satisfies the requirements of this rule, the official before whom the 
matter or proceeding is pending shall issue an order of dismissal, and 
serve a copy thereof upon each of the parties.
    (d) This rule shall be applicable at all stages of a reparation 
proceeding.



Sec. 12.22  Default proceedings.

    (a) Institution of a default proceeding. Failure timely to respond 
to a complaint or a counterclaim, as required by Sec. Sec. 12.16 and 
12.20 of these rules, or, if applicable, to pay a filing fee required by 
Sec. 12.25(b) or (c), shall be treated as an admission of the 
allegations of the complaint or counterclaim by the non-responding 
party, shall constitute a waiver by such party of any decisional 
procedure afforded by these Rules on the facts set forth in the 
complaint or counterclaim, and shall result in the institution of a 
default proceeding.
    (b) Default procedure. Upon a party's failure to respond timely to a 
complaint or counterclaim as prescribed in Sec. Sec. 12.16 and 12.20 of 
these rules, or timely to comply with Sec. 12.25 (b) or (c), the 
Director of the Office of Proceedings shall forward the pleadings, and 
other materials then of record, to a Judgment Officer or Administrative 
Law Judge who may thereafter enter findings and conclusions concerning 
the questions of violations and damages and, if warranted, enter a 
reparation award against the non-responding party. If the facts which 
are treated as admitted are considered insufficient to support a 
violation or the amount of reparations sought, the Judgment Officer or 
Administrative Law Judge may order production of supplementary evidence 
from the party not in default and

[[Page 317]]

may enter a default order and an award based thereon.
    (c) Finality. A default order issued pursuant to this rule, or 
pursuant to any other provisions of these part 12 Reparation Rules, 
shall become the final decision and order of the Commission thirty (30) 
days after service thereof, unless the order is set aside pursuant to 
Sec. 12.23(a) of these rules, or unless the Commission takes review of 
such order on its own motion on or before the thirtieth day.

[49 FR 6621, Feb. 22, 1984, as amended at 57 FR 20638, May 14, 1992]



Sec. 12.23  Setting aside of default.

    (a) Default order not final. In order to prevent injustice or for 
good cause shown, and on such conditions as may be appropriate, a non-
final default order (including any award therein) may be set aside by 
the official who issued the order.
    (1) Procedure for setting aside non-final default order. Any party 
or person who is the subject of a default order issued pursuant to these 
rules may, at any time before the order becomes final pursuant to Sec. 
12.22(c), file and serve a motion to set aside the default, which shall 
set forth reasons why the act or omission for which the party was 
defaulted was not willful, why there is a reasonable likelihood of 
success for the party's claim or defense if heard on the merits, and why 
no prejudice will be sustained by other parties if the default is set 
aside. A motion to set aside a default order filed pursuant to this 
paragraph (a)(1) shall be decided, in the first instance, by the 
official who issued the default order.
    (2) Review. A denial of a motion to set aside a non-final default 
order by the official who issued the order shall be treated as an 
initial decision, which may be appealed to the Commission in accordance 
with the requirements of Sec. 12.401 of these rules. A grant of a 
motion to set aside a non-final default order may be appealed only in 
accordance with the requirements of Sec. 12.309 of these rules.
    (b) Default order final. A default order that has become final 
pursuant to Sec. 12.22(c) shall not be set aside except upon a motion 
filed and served by the defaulted party showing that he should be 
relieved from the default order because of fraud perpetrated on a 
decisionmaking official or the Commission, mistake, excusable neglect, 
or because the order is void for want of jurisdiction. Such a motion 
shall also show that, if the default order were set aside, there would 
be a reasonable likelihood of success for his claim or defense on the 
merits and that no party would be prejudiced thereby. Motions to set 
aside a final default order for fraud, mistake, or excusable neglect 
shall be filed within one year after the order was issued. All motions 
to set aside default orders shall be decided, in the first instance, by 
the official who issued the order. A denial of a motion to set aside a 
default order that has become final shall be treated as an initial 
decision, which may be appealed to the Commission in accordance with the 
requirements of Sec. 12.401 of these rules. A grant of a motion to set 
aside a final default order shall be treated as a non-final order which 
may be appealed only in accordance with the requirements of Sec. 12.309 
of these rules.



Sec. 12.24  Parallel proceedings.

    (a) Definition. For purposes of this section, a parallel proceeding 
shall include:
    (1) An arbitration proceeding or civil court proceeding, involving 
one or more of the respondents as a party, which is pending at the time 
the reparation complaint is filed and involves claims or counterclaims 
that are based on the same set of facts which serve as a basis for all 
of the claims in the reparations complaint, and which either:
    (i) Was commenced at the instance of the complainant in reparations; 
or
    (ii) Involves counterclaims by the complainant in reparations 
alleging violations of the Commodity Exchange Act, or any regulation or 
order issued thereunder; or
    (iii) Is governed by a compulsory counterclaim rule of federal court 
procedure which required the complainant in reparations to assert all of 
his claims (including those based on alleged violations of the Commodity 
Exchange Act, and any regulation or order issued thereunder) as 
counterclaims in that proceeding;

[[Page 318]]

    (2) The appointment by a court of a receivership over the assets, 
property or proceeds of a respondent named in a reparation complaint 
where the responsibility of the receivership includes the resolution of 
claims made by customers; or
    (3) A petition filed under any chapter of the Bankruptcy Code, 11 
U.S.C. 101 et seq., as amended, commenced pursuant to 11 U.S.C. 301 or 
302 by a respondent in a reparation proceeding, or the issuance by a 
bankruptcy court of an order for relief after the filing against a 
respondent in a reparation proceeding of an involuntary petition in 
bankruptcy pursuant to 11 U.S.C. 303.
    (b) Notice. At the time a complaint in reparations is filed pursuant 
to these rules, or at any time thereafter, any party, receiver or 
trustee, or counsel to any of the foregoing with knowledge of a parallel 
proceeding shall promptly notify the Commission, by first-class mail 
addressed to the Office of Proceedings, attention of the Proceedings 
Clerk, and serve notice on all other parties, including the receiver or 
trustee. The notice shall include the following information:
    (1) The caption of the parallel proceeding;
    (2) The name of the court or the arbitration tribunal (including 
address and phone number, if known);
    (3) The docket number or numbers;
    (4) The date the parallel proceeding was filed (and the current 
status if known); and
    (5) If a proceeding in bankruptcy or receivership is pending, the 
date of the appointment and name and address of the receiver or trustee.

A copy of any relevant complaint, petition or order shall be attached to 
the notice.
    (c) Effect of pending arbitration or civil court litigation. (1) The 
Director of the Office of Proceedings shall refuse to institute an 
elected decisional procedure concerning a reparation complaint filed 
under this part in which there is a parallel proceeding described in 
paragraph (a)(1) of this section and shall return the complaint to the 
complaining person. The effective date of the Director's termination of 
the complaint without prejudice shall be fifteen (15) days from the date 
of service of notice of the action taken pursuant to this paragraph.
    (2) If notice of a parallel proceeding described in paragraph (a)(1) 
of this section is received before the initial decision is filed (or 
before a final decision under Sec. 12.106 of the rules is entered), a 
proceeding in which a decisional procedure has been commenced shall be 
dismissed, without prejudice. The effective date of the order of 
dismissal shall be fifteen (15) days from the date of service of the 
order by the Proceedings Clerk.
    (d) Effect of receivership or bankruptcy proceedings. (1) The 
Director of the Office of Proceedings shall refuse to institute an 
elected decisional procedure as to a respondent in any reparation 
complaint filed pursuant to this part who is the subject of a parallel 
proceeding described in paragraph (a)(2) or (a)(3) of this section, and 
shall notify all parties, including the receiver or trustee, that as to 
that respondent a reparation proceeding shall not be instituted. The 
effective date of the Director's action shall be fifteen (15) days from 
the date of service of the notice thereof.
    (2) A proceeding in which an elected decisional procedure has been 
commenced shall be ordered dismissed, without prejudice, as to any 
respondent who becomes the subject of a parallel proceeding described in 
paragraph (a)(2) or (a)(3) of this section if notice pursuant to 
paragraph (b) of this section is received before the filing of an 
initial decision (or before a final decision is issued pursuant to Sec. 
12.106) as to that respondent. The Proceedings Clerk shall notify all 
parties, including the receiver or trustee, of the order. The effective 
date of the order shall be fifteen (15) days from the date of the 
service of the order by the Proceedings Clerk.
    (e) Exceptions. At the time notice of a parallel proceeding is filed 
pursuant to paragraph (b) of this section, or any time thereafter, any 
party, or the receiver or trustee, may file and serve upon other parties 
a statement in support of or in opposition to any action taken or to be 
taken pursuant to paragraph (c) or (d) of this section. This statement 
shall be addressed to the Office of Proceedings, attention of the

[[Page 319]]

Proceedings Clerk. Upon receipt of any such statement, the Proceedings 
Clerk shall immediately forward the statement to the official with 
responsibility over the case. The notice and the statements filed by the 
parties shall be reviewed by that official who, on or before the 
effective date of action taken pursuant to paragraphs (c)(1), (c)(2), 
(d)(1), and (d)(2), of this section, may take such actions as, in his 
opinion, are necessary to ensure that the parties to the matter or 
proceedings are not unduly prejudiced.
    (f) No right of appeal to the Commission. Any action taken, or order 
issued, pursuant to paragraphs (c)(1), (c)(2), (d)(1), or (d)(2), of 
this section that has become effective shall be deemed a final order 
which is not subject to appeal pursuant to subpart F of these rules.



Sec. 12.25  Filing fees.

    (a) Fees payable upon filing a complaint. (1) A complainant who, in 
the complaint, has elected the voluntary decisional procedure shall, at 
the time of filing the complaint, pay a filing fee of $50.00;
    (2) A complainant who, in the complaint wherein the amount of 
damages claimed does not exceed $30,000, exclusive of interest and 
costs, has not elected the voluntary decisional procedure shall, at the 
time of filing the complaint, pay a filing fee of $125.00.
    (3) A complainant who, in the complaint wherein the amount of 
damages claimed exceeds $30,000, exclusive of interest and costs, has 
not elected the voluntary decisional procedure shall, at the time of 
filing the complaint, pay a filing fee of $250.00.
    (b) Fees payable upon filing an answer. (1) If a complainant, in the 
complaint, has elected the voluntary decisional procedure, a respondent 
who, in his answer, elects the summary decisional procedure (available 
only where the amount of damages claimed in the complaint or as 
counterclaims does not exceed $30,000) shall, at the time of filing the 
answer, pay a filing fee of $75.00.
    (2) If a complainant, in the complaint, has elected the voluntary 
decisional procedure, a respondent who, in his answer, elects the formal 
decisional procedure (available only where the amount of damages claimed 
in the complaint or as counterclaims exceeds $30,000) shall, at the time 
of filing the answer, pay a filing fee of $200.00.
    (c) Fees payable upon filing a reply. In any case in which a 
counterclaim has been made, unless a complainant in the complaint, or 
the respondent in an answer, has elected the summary decisional 
procedure or the formal decisional procedure a complainant, who in his 
reply elects either of these procedures, shall, at the time of filing 
the reply, pay a filing fee of $75.00 or $200.00, respectively, 
depending whether the procedure elected by complainant is pursuant to 
subparts D or E.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984, as amended at 59 
FR 9637, Mar. 1, 1994]



Sec. 12.26  Commencement of a reparation proceeding.

    (a) Commencement of voluntary decisional proceeding. Where 
complainant and respondent in the complaint and answer have elected the 
voluntary decisional procedure pursuant to subpart C of these rules and 
the complainant has paid the filing fee required by Sec. 12.25 of these 
rules, the Director of the Office of Proceedings shall, if in his 
opinion the facts warrant taking such action, forward the pleadings and 
all materials of record to the Proceedings Clerk for a proceeding to be 
conducted in accordance with subpart C of these rules. The Proceedings 
Clerk shall forthwith notify the parties of such action. Such 
notification shall be accompanied by an order issued by the Proceedings 
Clerk requiring the parties to complete all discovery, as provided in 
subpart B of these rules, within 50 days thereafter. A voluntary 
decisional proceeding commences upon service of such notification and 
order. As soon as practicable after service of such notification, the 
Proceedings Clerk shall assign the case to a Judgment Officer for a 
final decision.
    (b) Commencement of summary decisional proceeding. Where the amount 
claimed as damages, exclusive of interest and costs, in the complaint or 
in counterclaim does not exceed $30,000, and either a complainant or a 
respondent in the complaint, answer, or reply,

[[Page 320]]

has elected the summary decisional procedure pursuant to subpart D of 
these rules, and has paid the filing fee required by Sec. 12.25, the 
Director of the Office of Proceedings shall, if in his opinion the facts 
warrant taking such action, forward the pleadings and all materials of 
record to the Proceedings Clerk for a proceeding to be conducted in 
accordance with subpart D of these rules. The Proceedings Clerk shall 
forthwith notify the parties of such action. Such notification shall be 
accompanied by an order issued by the Proceedings Clerk requiring the 
parties to complete all discovery, as provided in subpart B of these 
rules, within 50 days thereafter. A summary decisional proceeding 
commences upon service of such notification. As soon as practicable 
after service of such notification, the Proceedings Clerk shall assign 
the case to a Judgment Officer for disposition.
    (c) Commencement of formal decisional proceeding. Where the amount 
claimed as damages in the complaint or as counterclaims exceeds $30,000, 
exclusive of interest and costs, and either a complainant or a 
respondent in the complaint, answer or reply, has elected the formal 
decisional procedure pursuant to subpart E of these rules, and has paid 
the filing fee required by Sec. 12.25, the Director of the Office of 
Proceedings shall, if in his opinion the facts warrant taking such 
action, forward the pleadings and the materials of record to the 
Proceedings Clerk for a proceeding to be conducted in accordance with 
subpart E of these rules. The Proceedings Clerk shall forthwith notify 
the parties of such action. Such notification shall be accompanied by an 
order issued by the Proceedings Clerk requiring the parties to complete 
all discovery, as provided in subpart B, within 50 days thereafter. A 
formal decisional proceeding commences upon service of such notification 
and order. As soon as practicable after service of such notification, 
the Proceedings Clerk shall assign the case to an Administrative Law 
Judge for disposition.

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9637, Mar. 1, 1994]



Sec. 12.27  Termination of consideration of pleadings.

    If the Director of the Office of Proceedings should determine not to 
proceed in a manner set forth in Sec. 12.26 (a), (b), or (c), 
consideration of the complaint and the answer (and reply, if any) shall 
terminate, and no proceeding shall be held on the allegations in any 
such pleadings. Such termination shall be regarded by the Commission as 
without prejudice to the right of the parties to seek such alternative 
forms of relief as may be available to them. If the consideration of the 
pleadings should be terminated, the Proceedings Clerk shall immediately 
notify the parties to that effect by registered or certified mail. A 
determination by the Director not to proceed in the manner set forth in 
Sec. 12.26 (a), (b), or (c) of these rules is not subject to appeal 
pursuant to subpart F of these rules.



                           Subpart B_Discovery



Sec. 12.30  Methods of discovery.

    (a) In general. Parties may obtain discovery by the following 
methods in accordance with the procedures and limitations set forth in 
the section indicated:
    (1) Production of documents or other items (Sec. 12.31);
    (2) Deposition on written interrogatories (Sec. 12.32);
    (3) Admissions (Sec. 12.33).
    (b) Scope of discovery. The scope of discovery is as follows:
    (1) Relevancy. Except as provided below, discovery may be obtained 
regarding any matter not privileged, which is relevant to the subject 
matter in the pending proceeding, including the existence, description, 
nature, custody, condition and location of any books, documents, or 
other tangible items, and the identity and location of persons having 
knowledge of any discoverable matters. Tax returns and personal bank 
account records shall not be discoverable, except upon motion by the 
party seeking discovery showing the need for disclosure of information 
contained therein, and that the same information could not be obtained 
through other means.

[[Page 321]]

    (2) Protective orders. Upon motion by a party or the person from 
whom discovery is sought, filed within twenty days after the 
objectionable discovery notice or request is served, and for good cause 
shown, the official presiding over discovery may issue any order to 
protect a party or person from annoyance, embarrassment, oppression, or 
undue burden or expense, or to prevent the raising of issues untimely or 
inappropriate to the proceeding, or the inappropriate disclosure of 
trade secrets or sensitive commercial or financial information. Relief 
through a protective order may include one or more of the following:
    (i) That discovery not be had;
    (ii) That discovery may be had only on specified terms and 
conditions;
    (iii) That certain matters not be inquired into, or that the scope 
of the discovery be limited to certain matters;
    (iv) That a trade secret or other confidential commercial 
information not be disclosed or be disclosed only in a designated way; 
and
    (v) That the parties simultaniously file specified documents or 
information in sealed envelopes to be opened only as directed by the 
decisionmaking official.
    (3) Motions for order compelling discovery. It shall be the duty of 
a party to obtain an order compelling discovery from another party if 
the latter party fails to comply with a discovery notice, by filing a 
motion therefor within twenty days after the time allowed by these rules 
for compliance with the notice has expired.
    (c) Sanctions for abuse of discovery. If an Administrative Law Judge 
or a Judgement Officer finds that any party, without substanial 
justification, has necessitated the filing of a motion for a protective 
order or for an order compelling discovery, or any other discovery-
related motions, that party shall, if the motion is granted, be ordered 
to pay, at the termination of the proceeding, the reasonable expenses of 
the moving party incurred in filing the motion, unless the 
decisionmaking official finds that circumstances exist which would make 
an award of such expenses unjust. If a decisionmaking official finds 
that any party, without substantial justification, has filed a motion 
for a protective order or for an order compelling discovery, or any 
discovery-related motions, that party shall, if the motion is denied, be 
ordered to pay, at the termination of the proceeding, the reasonable 
expenses of an adverse party incurred in opposing the motion, unless the 
decisionmaker finds that circumstances exist which would make an award 
of such expenses unjust.
    (d) Time limit. Absent an extension of time, all discovery notices 
or requests shall be served within (30) days (and all discovery shall be 
completed within (50) days) after the notification and the order 
required by Sec. 12.26 (a), (b), or (c) has been served on the parties. 
Upon motion by a party and for good cause shown, the time allowed for 
discovery may be enlarged for one additional period not to exceed thirty 
(30) days.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984; 49 FR 17750, 
Apr. 25, 1984; 59 FR 9637, Mar. 1, 1994]



Sec. 12.31  Production of documents and tangible items.

    (a) By a party. Any party, within the time prescribed in Sec. 
12.30(d) and subject to the limitations in Sec. 12.30(a), may serve on 
any other party, a notice to produce copies of specifically designated 
categories of documents, papers, books, accounts, letters, photographs, 
objects, or tangible things which are in the party's possession, custody 
or control. A copy of the notice shall be served on all other parties to 
the proceeding. All documents requested in the notice to produce shall 
be served on the party seeking the discovery within twenty (20) days 
after service of the notice to produce.
    (b) By a non-party. Any party may, by filing an appropriate motion 
showing the need for the materials and an application for a subpoena in 
accordance with the procedure precribed in Sec. 12.313 and within the 
time prescribed by Sec. 12.30(d) of these rules, seek leave to serve 
upon a non-party a notice to produce copies of any specifically 
designated categories of materials as are described in paragraph (a) of 
this section. After an appropriate order and subpoena has been issued, 
such party may serve upon a non-party a notice to

[[Page 322]]

produce such materials. All materials requested in the notice to 
produce, and, if applicable, a detailed explanation of why any of the 
specified materials cannot be produced, shall be served on the party 
seeking discovery within such time (not to exceed thirty (30) days) as 
the subpoena shall specify. Enforcement of the order and subpoena may be 
sought in accordance with Sec. 12.313.



Sec. 12.32  Depositions on written interrogatories.

    (a) Notice. Any party, within the time prescribed by Sec. 12.30(d), 
may serve on any other party or any officer or agent of a party a notice 
of the taking of a deposition on written interrogatories.
    (b) Number. The number of written interrogatories served upon any 
one party shall not exceed thirty. For the purpose of this rule, each 
sub-interrogatory or divisible part of an interrogatory shall be 
regarded as one interrogatory. Leave to serve additional interrogatories 
shall not be granted absent extraordinary circumstances.
    (c) Reply. (1) Each interrogatory served shall be answered by the 
party served or if the party is a corporation, partnership, association, 
or government agency, by any officer or agent thereof selected by the 
responding party.
    (2) Each interrogatory shall be answered separately and fully in 
writing, unless objected to, in which event the reasons for objection 
shall be stated in lieu of an answer. For the purposes of this rule, an 
evasive or incomplete answer shall be treated as a failure to answer. 
The answers are to be signed and verified by the person making them. The 
person upon whom a notice to take a deposition on written 
interrogatories has been served shall serve a copy of the answers and 
objections within twenty (20) days after service of the interrogatories.
    (d) Deposition of a non-party. The deposition on written 
interrogatories of a non-party may be taken only within the time 
prescribed by Sec. 12.30(d), and only pursuant to an order entered and 
subpoena issued in accordance with the provisions of Sec. 12.313 of 
these rules; provided however, that the deposition on written 
interrogatories of a Commission member or employee may only be taken 
upon a showing that the Commission member or employee has personal 
knowledge of the matters sought to be discovered (i.e., not obtained 
pursuant to a Commission investigation), that the information sought to 
be discovered is material and that the information sought to be 
discovered is not available from other sources.
    (e) Filing of depositions on written interrogatories in a voluntary 
or summary decisional proceeding. In proceedings commenced pursuant to 
Sec. 12.26 (a) and (b) of these rules, copies of all depositions on 
written interrogatories shall be filed by the party on whose behalf the 
discovery was obtained.



Sec. 12.33  Admissions.

    (a) Request for admissions. Any party may, within the time permitted 
by Sec. 12.30(d) of these rules, serve upon any other party a written 
request for admissions of the truth of any matters set forth in the 
request that relate to statements or opinions of fact or of the 
application of law to fact, including the genuineness of any document 
described in the request. Copies of documents shall be served with the 
request unless they have been or are otherwise furnished or made 
available for inspection and copying. A copy of the request shall be 
filed with the Proceedings Clerk.
    (b) Reply. Each matter of which an admission is requested shall be 
separately set forth. The matter is admitted unless within twenty (20) 
days after service of the request, the party upon whom the request is 
directed files and serves upon the party requesting the admission a 
verified written answer or objection to the matter. If objection is 
made, the reasons therefor shall be stated. The answer shall 
specifically deny the matter or set forth in detail the reasons why the 
answering party cannot truthfully admit or deny the matter. A denial 
shall fairly meet the substance of the requested admission and when good 
faith requires that a party qualify his answer and deny only a part of 
the matter of which an admission is requested, he shall specify so much 
of it as is true and qualify or deny the remainder. An answering

[[Page 323]]

party may not give a lack of information or knowledge as a reason for 
failure to admit or deny unless he states that he has made reasonable 
inquiry and that the information known or reasonably available to him is 
insufficient to enable him to admit or deny. A party who considers that 
a matter of which an admission has been requested presents a genuine 
issue for trial may not, on that ground alone, object to the request; he 
may deny the matter or set forth reasons why he cannot admit or deny it.
    (c) Determining sufficiency of answers or objections. The party who 
has requested the admissions may move to determine the sufficiency of 
the answers or objections. Unless the objecting party sustains his 
burden of showing that the objection is justified, the official 
presiding over discovery shall order that an answer be served. If such 
official determines that an answer does not comply with the requirements 
of this rule, he may order either that the matter is admitted or that an 
amended answer be served.
    (d) Effect of admission. Any matter admitted under this rule is 
conclusively established and may be used as proof against the party who 
made the admission. However, the discovery or decisionmaking official 
may permit withdrawal or amendment when the presentation of the merits 
of the proceeding will be served thereby and the party who obtains the 
admission fails to satisfy such official that withdrawal or amendments 
will prejudice him in maintaining his action or defense on the merits.



Sec. 12.34  Discovery by a decisionmaking official.

    (a) Applicability. The provisions of this rule apply only to summary 
decisional proceedings and formal decisional proceedings commenced 
pursuant to Sec. 12.26 (b) and (c). This rule does not apply to a 
voluntary decisional proceeding commenced pursuant to Sec. 12.26(a). 
For the purposes of this rule, the term ``decisionmaking official'' 
shall mean a Judgment Officer or Administrative Law Judge assigned to 
render a decision in the proceeding.
    (b) Production of documents and tangible things--(1) Order for 
production. A decisionmaking official may, upon his own motion, order a 
party or non-party to produce copies of specifically designated 
documents, papers, books, accounts, or tangible things (or categories of 
any of the foregoing) which are in the possession, custody or control of 
the party, non-party or agent thereof, against whom the order is 
directed. Except as provided in paragraph (b)(2) of this section, a 
party or non-party ordered to produce documents or any of the above 
items under this rule shall file and serve the documents and items 
listed in the order within twenty (20) days from the date of service of 
the order, or within such period of time as the decisionmaking official 
may direct. The decisionmaking official may issue subpoenas to compel 
the production by parties or non-parties of such documents and tangible 
things as are described in this section.
    (2) Trade secrets, commercially sensitive or confidential 
information. If any party or person against whom an order to produce has 
been directed acting in good faith has reason to believe that any 
documents or other tangible thing ordered to be produced contains a 
trade secret, or commercially sensitive or other confidential 
information, the party or person may, in lieu of serving any such 
document, in accordance with paragraph (b)(1) of this section, file and 
serve a written request for confidential treatment of such documents. 
Any such request for confidential treatment shall be accompanied by a 
verified statement identifying with particularity the information on 
those documents considered to be trade secrets, commercially sensitive 
or confidential information, with reasons therefor, and indicating which 
portions, if any, of those documents may be served on other parties 
without disclosure of such information. Upon considering a request for 
confidential treatment in accordance with this subsection, the 
decisionmaking official may, if he finds that the information identified 
in the request warrants confidential treatment and is not probative of 
any material fact in controversy, make copies of the documents produced, 
delete such information from the copies, and serve the copies as 
modified upon the other parties, with or without an appropriate

[[Page 324]]

protective order limiting dissemination to the parties and their 
counsel, if any.
    (3) Inability to produce. Any party or person who cannot produce 
documents or other tangible things called for in an order for 
production, because those documents or things are not in his possession, 
custody or control, shall file and serve within the time provided in 
paragraph (b)(1) of this section a verified statement identifying the 
documents which cannot be produced and setting forth with particularity 
the reasons for non-production.
    (c) Order for written testimony. The decisionmaking official may, 
upon his own motion, order a party or non-party witness to submit 
verified statements or written responses to interrogatories, or both, as 
to all relevant matters within the party's personal knowledge which are 
required in response to the order. A party or person ordered to file 
affidavits and/or verified written responses to interrogatories shall 
file and serve the documents within such period of time as the 
decisionmaking official may direct. The official may issue subpoenas to 
compel the filing by parties or non-parties of such verified statements 
and written responses as are described in this subsection.



Sec. 12.35  Consequences of a party's failure to comply with a discovery order.

    If a party fails to comply with an order compelling discovery, or an 
order issued pursuant to Sec. 12.34, the official assigned to render 
the decision in the case may, upon motion by a party or on his own 
motion, take such action in regard thereto as is just, including but not 
limited to the following:
    (a) Infer that the documents or things not produced would have been 
adverse to the party;
    (b) Rule that for the purposes of the proceeding the information in 
or contents of the documents or things not produced be taken as 
established adversely to the party;
    (c) Rule that the party may not be heard to object to introduction 
and use of secondary evidence to show what the withheld documents or 
other evidence would have shown;
    (d) Rule that a pleading, or part of a pleading, or a motion or 
other submission by the party, to which the order for production 
related, be stricken;
    (e) Dismiss the entire proceeding with prejudice to matters alleged 
in the complaint, but without prejudice to counterclaims; and
    (f) Issue a default order and render a decision against the party, 
whose rights shall thereafter be determined by Sec. Sec. 12.22 and 
12.23 of these rules.



Sec. 12.36  Subpoenas to compel discovery.

    An application for a subpoena requiring a party or non-party to 
comply with a discovery order issued pursuant to Sec. Sec. 12.31 and 
12.32, may be made, in writing, by any party without notice to other 
parties, and may be filed simultaneously with the motion for the 
discovery order. The standards for issuance or denial of such an 
application, the service requirement, and the method for enforcing such 
subpoenas shall be determined by the provisions of Sec. 12.313 of these 
rules.



     Subpart C_Rules Applicable to Voluntary Decisional Proceedings



Sec. 12.100  Scope and applicability of rules.

    (a) In general. The rules set forth in this subpart are applicable 
only to proceedings forwarded pursuant to Sec. 12.26(a) of the 
Reparation Rules. The rules of subpart B permitting discovery are 
applicable in a voluntary decisional proceeding. Unless specifically 
made applicable, the rules prescribed in subparts D, E, and F shall not 
apply in a voluntary decisional proceeding.
    (b) Waiver by electing the voluntary decisional procedure. By 
electing the voluntary decisional procedure, parties waive the 
opportunity for an oral hearing and whatever rights they may have 
otherwise had: to receive a written statement of the findings of fact 
upon which the final decision is based; to prejudgment interest in 
connection with a reparation award; to appeal to the Commission the 
final decision; and to appeal the final decision to a U.S. Court of 
Appeals pursuant to section 14(e) of the Commodity Exchange Act, 7 
U.S.C. 18(e).

[[Page 325]]



Sec. 12.101  Functions and responsibilities of the Judgment Officer.

    The Judgment Officer shall be responsible for the fair and orderly 
conduct of the proceeding and shall have the authority:
    (a) To rule upon discovery-related motions, and to issue orders 
pertaining to discovery;
    (b) To take such action pursuant to Sec. 12.35 as is appropriate if 
a party fails to comply with a discovery order;
    (c) To issue subpoenas pursuant to Sec. 12.36 of these rules;
    (d) To issue orders of default for good cause shown against any 
party who fails to participate in the proceeding, or to comply with any 
provisions of these rules;
    (e) To receive submissions of proof;
    (f) Make the final decision in accordance with Sec. 12.106 of these 
rules; and
    (g) Issue such orders as are necessary and appropriate to effectuate 
the orderly conduct of the proceeding.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984]



Sec. 12.102  Disqualification of Judgment Officer.

    (a) At his own request. A Judgment Officer may withdraw from a 
voluntary decisional proceeding when he considers himself to be 
disqualified on the grounds of personal bias, conflict of interest, or 
similar bases. In such event he shall immediately notify the Commission 
and each of the parties of his withdrawal and of his basis for such 
action.
    (b) Upon the request of a party. Any party may request a Judgment 
Officer to disqualify himself on the grounds of personal bias, conflict 
of interest, or similar bases. Interlocutory review of an adverse ruling 
by the Judgment Officer may be sought without certification of the 
matter by the Judgment Officer only in accordance with the procedures 
set forth in Sec. 12.309 of the Reparation Rules.



Sec. 12.103  Filing of documents; subscription; service.

    Except as otherwise specifically provided in these rules, all 
documents filed in a voluntary decisional proceeding, including (but not 
limited to) amended or supplemental pleadings, motions, discovery 
requests and responses thereto, and submissions of proof, shall meet the 
requirements of Sec. Sec. 12.11 and 12.12 of the Reparation Rules as to 
form, and shall be filed and served in accordance with Sec. 12.10 of 
the Reparation Rules.



Sec. 12.104  Amendments to pleadings; motions.

    (a) Amendments and supplemental pleadings. At any time prior to the 
issuance of the final decision, the parties may, by unanimous express 
written consent, amend or supplement the pleadings. Supplemental 
pleadings may set forth transactions or occurrences or events which have 
happened since the date of the pleadings to be amended or supplemented, 
and which are relevant to any of the issues involved.
    (b) Motions. Except as specifically permitted by rule in this 
subpart, motions, other than discovery-related motions and motions 
relating to procedural orders, shall be prohibited. Motions for 
procedural orders, including motions for extension of time, may be acted 
upon at any time.



Sec. 12.105  Submission of proof only in documentary or tangible form.

    Proof in support of the complaint and in support of the respondent's 
answer (including counterclaims, if any), and any reply thereto, may be 
found in those verified documents, in verified statements of non-party 
witnesses, in other verified statements of fact, and in other documents 
and tangible evidence. No oral testimony by, or examination of, the 
parties or their witnesses shall be permitted.



Sec. 12.106  Final decision and order.

    (a) When a final decision is required. After all submissions of 
proof have been received, the Judgment Officer shall make the final 
decision. Upon its issuance, the final decision shall forthwith be filed 
with the Proceedings Clerk, and immediately served on the parties. The 
Proceedings Clerk shall also serve a notice, to accompany the final 
decision, of the effect of a failure by a party ordered to pay a 
reparation award to file the documents required by Sec. 12.407(c) of 
these rules.

[[Page 326]]

    (b) Content of final decision. The final decision shall contain:
    (1) A briefly stated conclusion, not accompanied by findings of 
fact, as to whether the respondent violated any provision of the Act, 
Commission's regulations or orders, resulting in damages to the 
complainant; and
    (2) If one or more counterclaims have been permitted in the 
proceeding, a brief conclusion, not accompanied by findings of fact, as 
to whether the complainant is liable to the respondent for such 
counterclaims; and
    (3) A determination of the amount of damages, if any, sustained by 
complainant or respondent in connection with reparation claims or 
counterclaims, and an order against a party found liable for damages 
directing that party to pay an award. An award in favor of the 
complainant shall not exceed the amount of damages in the complaint 
(including any amendment thereto), and an award in favor of a respondent 
shall not exceed the amount of damages claimed in a counterclaim 
(including any amendment thereto).

A conclusion made pursuant to paragraph (b)(1) of this section shall not 
be deemed a finding of the Commission for the purposes of Section 8a of 
the Commodity Exchange Act.
    (c) No assessment of prejudgment interest or costs; assessment of 
post-judgment interest. A party found liable for damages in a voluntary 
decisional proceeding shall not be assessed prejudgment interest, 
attorney's fees, or costs (other than the filing fee and costs assessed 
as a sanction for abuse of discovery). Post-judgment interest shall be 
awarded at a rate determined in accordance with 28 U.S.C. 1961(a).
    (d) Effect of final decision and order: No appeal. A party may not 
appeal to the Commission a final decision issued pursuant to subpart C 
of these rules. In accordance with the election and waivers described in 
Sec. 12.100(b), a final decision may not be appealed to a U.S. Court of 
Appeals pursuant to section 14(e) of the Commodity Exchange Act, but a 
final decision shall be recognized as a final order of the Commission 
for all other purposes including the judicial enforcement of an award 
made in connection with the final decision pursuant to section 14(d) of 
the Commodity Exchange Act.
    (e) Effective date of final decision. A final decision and order 
shall become effective thirty (30) days after service, unless the 
Commission pursuant to Sec. 12.403 takes review of the decision on its 
own motion on or before the thirtieth day. Any reparation award ordered 
in a final decision pursuant to this rule shall be satisfied in full 
within forty-five (45) days after service thereof, unless the Commission 
pursuant to Sec. 12.403(b) stays the duty of satisfaction. Any party 
who fails timely to satisfy such an award is subject to the automatic 
suspension provisions of Sec. 12.407(c).

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9637, Mar. 1, 1994; 73 
FR 70275, Nov. 20, 2008]



      Subpart D_Rules Applicable to Summary Decisional Proceedings



Sec. 12.200  Scope and applicability of rules.

    The rules set forth in this subpart are applicable only to 
proceedings forwarded pursuant to Sec. 12.26(b) of the Reparation 
Rules. The rules in subpart B permitting discovery are applicable in a 
summary decisional proceeding. Unless specifically made applicable, the 
rules prescribed in subparts C and E shall not apply to such 
proceedings. Parties to a proceeding forwarded pursuant to Sec. 
12.26(b) may, by signed agreement filed at any time prior to the 
issuance of the initial decision, or of any other order disposing of all 
issues in the proceeding, elect to have all of the issues in the 
proceeding decided pursuant to the voluntary decisional procedure. Upon 
receiving a timely filed stipulation signed by all parties evidencing 
such an election, the Judgment Officer shall conduct the proceeding and 
render a decision pursuant to subpart C of these rules.



Sec. 12.201  Functions and responsibilities of the Judgment Officer.

    The Judgment Officer shall be responsible for the fair and orderly 
conduct of the proceeding and shall have the authority:

[[Page 327]]

    (a) In his discretion, to conduct pre-decision conferences in 
accordance with Sec. 12.206 of these rules;
    (b) To rule upon all discovery-related motions, and to take such 
action pursuant to Sec. 12.35 as is appropriate if a party fails to 
comply with a discovery order;
    (c) To issue orders for the production of documents and tangible 
things and orders for written testimony, as provided in Sec. 12.34 of 
these rules;
    (d) To take such action as is appropriate under Sec. 12.35 of these 
rules, if a party fails to comply with an order issued by the Judgment 
Officer pursuant to Sec. 12.34;
    (e) To rule on all motions permitted pursuant to Sec. 12.205;
    (f) To issue default orders for good cause against parties who fail 
to participate in the proceeding or to comply with these rules;
    (g) If an oral hearing is ordered, to preside at the hearing, which 
shall include the authority to receive relevant evidence, to administer 
oaths and affirmations, to examine witnesses, and to rule on offers of 
proof;
    (h) To issue subpoenas in accordance with the provisions of 
Sec. Sec. 12.34, 12.36 and 12.209 of these rules;
    (i) To make the initial decision in accordance with Sec. 12.210 of 
these rules; and
    (j) To issue such orders as are necessary and appropriate to 
effectuate the orderly conduct of the proceeding.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984, as amended at 59 
FR 9637, Mar. 1, 1994]



Sec. 12.202  Disqualification of Judgment Officer.

    (a) At his own request. A Judgment Officer may withdraw from a 
summary decisional proceeding when he considers himself to be 
disqualified on the grounds of personal bias, conflict of interest, or 
similar bases. In such event, he shall immediately notify the Commission 
and each of the parties of his withdrawal and of his basis for such 
action.
    (b) Upon the request of a party. Any party may request a Judgment 
Officer to disqualify himself on the grounds of personal bias, conflict 
of interest, or similar bases. Interlocutory review of an order denying 
such a request may be sought without certification of the matter by the 
Judgment Officer only in accordance with the procedures set forth in 
Sec. 12.309 of the Reparation Rules.



Sec. 12.203  Filing of documents; subscription; service.

    Except as otherwise specifically provided in these rules, all 
documents filed in a summary decisional proceeding, including (but not 
limited to) amended or supplemental pleadings, motions, discovery 
notices and responses thereto, documents produced or filed pursuant to 
Sec. 12.34 of these rules, and submissions of proof, shall meet the 
requirements of Sec. Sec. 12.11 and 12.12 of these rules as to form, 
and shall be filed and served in accordance with Sec. 12.10 of the 
Reparation Rules.



Sec. 12.204  Amended and supplemental pleadings.

    (a) Amendments to pleadings. At any time before the parties have 
concluded their submission of proof, the Judgment Officer may allow 
amendments of the pleadings either upon written consent of the parties, 
or for good cause shown, provided however, that any pleading as amended 
shall not contain an allegation of damages in excess of $30,000. Any 
party may file a response to a motion to amend the pleadings within ten 
(10) days after the date of service upon him of the motion;
    (b) Supplemental pleadings. At any time before the parties have 
concluded their submissions of proof, and upon such terms as are just, 
the Judgment Officer may, upon motion by a party, permit a party to 
serve a supplemental pleading setting forth transactions, occurrences or 
events which have happened since the date of the pleadings sought to be 
supplemented and which are relevant to any of the issues in the 
proceeding: Provided However, That any pleading as supplemented may not 
contain an allegation of damages in excess of $30,000. Any party may 
file a response to a motion to supplement the pleadings within ten (10) 
days after the date of service upon him of the motion.
    (c) Pleadings to conform to the evidence. When issues not raised by 
the pleadings but reasonably within the

[[Page 328]]

scope of a summary decisional proceeding are tried with the express or 
implied consent of the parties, they shall be treated in all respects as 
if they had been raised in the pleadings.

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9637, Mar. 1, 1994]



Sec. 12.205  Motions.

    (a) In general. Motions for relief not otherwise specifically 
provided for in subpart D of these rules, other than discovery-related 
motions and motions for extensions of time and similar procedural 
orders, shall not be allowed. Except as otherwise specifically provided 
in these rules, all motions permitted under these rules shall be 
directed to the Judgment Officer prior to the filing of the initial 
decision, and to the Commission after the initial decision has been 
filed. Motions for extensions of time and similar procedural orders may 
be acted upon at any time, without awaiting a response thereto. Any 
party adversely affected by such action may request reconsideration, 
vacation or modification of such action.
    (b) Answer to motions. Any party may serve and file a written 
response to a motion within ten (10) days after service of the motion 
upon him, or within such longer or shorter period as is established by 
these rules, or as the Judgment Officer or the Commission may direct.
    (c) Dismissal--(1) By the Judgment Officer. A Judgment Officer, 
acting upon his own motion, may
    (i) Dismiss the entire proceeding without prejudice to 
counterclaims, if he finds that the matters alleged in the complaint 
fail to state a claim cognizable in reparations; or
    (ii) Order dismissal of any claim, counterclaim, or party from the 
proceeding if he finds, after review of the record, that such claim or 
counterclaim (by itself or as applied to any party) is not cognizable in 
reparations.
    (2) Motion for dismissal by a party. Any party who believes that 
grounds exist for dismissal of the entire complaint, or of any claim 
therein, or of any counterclaim or party from the proceeding, may file a 
motion for dismissal specifying the claims or parties to be dismissed 
and the reasons therefor. Upon consideration of the whole record, the 
Judgment Officer may grant or deny such motion, in whole or in part.
    (3) Content and effect of order of dismissal. Any order of dismissal 
entered pursuant to this rule shall contain a brief statement of the 
findings and conclusions which serve as the basis for the order. An 
order of dismissal of the entire proceeding pursuant to this rule shall 
have the effect of an initial decision (see Sec. 12.213(d)), and may be 
appealed to the Commission in accordance with the requirements of Sec. 
12.401 of these rules.



Sec. 12.206  Pre-decision conferences.

    At any time after a summary decisional proceeding has been commenced 
pursuant to Sec. 12.26(b), the Judgment Officer may, in his discretion, 
conduct one or more pre-decision conferences to be held in Washington, 
DC or by telephone, with all parties, for the purposes of:
    (a) Discussing the advisability of electing the voluntary decisional 
procedure;
    (b) Encouraging settlement of the entire case, or any part thereof, 
(such discussions may be ex parte with the consent of all parties);
    (c) Simplifying or clarifying issues;
    (d) Obtaining stipulations, admissions of fact and of authenticity 
of documents;
    (e) Discussing amendments or supplements to the pleadings;
    (f) Encouraging an early settlement of disputes relating to 
discovery; and
    (g) Discussing any matters of relevance in the proceeding.

At or following the conclusion of such a conference, the Judgment 
Officer may serve a pre-decision memorandum and order setting forth the 
agreements, if any, reached by the parties, any procedural 
determinations made by him, and the issues for resolution not disposed 
of by the admissions or agreements by the parties. Such order, when 
issued, shall control the subsequent course of the proceeding unless 
modified to prevent injustice.



Sec. 12.207  Summary disposition.

    (a) Filing of motions, answers. Any party who believes that there is 
no

[[Page 329]]

genuine issue of material fact to be determined and that he is entitled 
to a decision as a matter of law concerning all issues of liability in 
the proceeding may file a motion for summary disposition at any time 
until the parties have concluded their submissions of proof. Any adverse 
party, within ten (10) days after service of the motion, may file and 
serve opposing papers or may countermove for summary disposition.
    (b) Supporting papers. A motion for summary disposition shall 
include a statement of the material facts as to which the moving party 
contends there is no genuine issue, supported by the pleadings, and by 
affidavits, other verified statements, admissions, stipulations, and 
interrogatories. The motion may also be supported by briefs containing 
points and authorities in support of the contention of the party making 
the motion. When a motion is made and supported as provided in this 
section, unless otherwise ordered by the Judgment Officer, an adverse 
party may not rest upon the mere allegations, but shall serve and file 
in response a statement setting forth those material facts as to which 
he contends a genuine issue exists, supported by affidavits and other 
verified material. He may also submit a brief of points and authorities.
    (c) Summary disposition upon motion of the Judgment Officer. If the 
Judgment Officer believes that there may be no genuine issue of material 
fact to be determined and that one of the parties may be entitled to a 
decision as a matter of law, he may direct the parties to submit papers 
in support of and in opposition to summary disposition, substantially as 
provided in paragraphs (a) and (b) of this section.
    (d) Ruling on summary disposition. The Judgment Officer may grant 
summary disposition if the undisputed pleaded facts, affidavits, other 
verified statements, admissions, stipulations, and matters of official 
notice show that (1) there is no genuine issue as to any material fact; 
(2) there is no necessity that further facts be developed in the record; 
and (3) a party is entitled to a decision in his favor as a matter of 
law.
    (e) Review of ruling; appeal. An application for interlocutory 
review of an order denying a motion for summary disposition shall not be 
allowed. An order granting summary disposition as to all of the issues 
and all of the parties in the proceeding shall have the same effect as 
an initial decision (see Sec. 12.210(d)), and may be appealed to the 
Commission, in accordance with Sec. 12.401 of these rules.



Sec. 12.208  Submissions of proof.

    (a) Documentary evidence. Each party may file and serve verified 
statements of fact and affidavits of non-party witnesses with personal 
knowledge of the facts which they aver to be true. Proof in support of 
the complaint and in support of the respondent's answer may be found in 
those verified documents, in affidavits of non-party witnesses, in other 
verified statements of fact, and in other documents and tangible 
exhibits.
    (b) Oral testimony and examination. The Judgment Officer may order 
an oral hearing for the presentation of testimony and examination of the 
parties and their witnesses when appropriate and necessary for the 
resolution of factual issues, upon motion by either a party or the 
Judgment Officer. An oral hearing held under this section will be 
convened by conference telephone call as provided in Sec. 12.209(b), 
except that an in-person hearing may be held in Washington, DC, under 
the circumstances set forth in Sec. 12.209(c).

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9637, Mar. 1, 1994]



Sec. 12.209  Oral testimony.

    (a) Generally. When the Judgment Officer determines that an oral 
hearing is necessary and appropriate, such oral hearing will be held 
either by telephone or in person in Washington, DC, as set forth below. 
The Judgment Officer, in his or her discretion with consideration for 
the convenience of the parties and their witnesses, will determine the 
time and date of such hearing. During an oral hearing, in his or her 
discretion, the Judgment Officer may regulate appropriately the course 
and sequence of testimony and examination of the parties and their 
witnesses and limit the issues.
    (b) Telephonic hearings. When a Judgment Officer has determined to 
hold an oral hearing by telephone, an order to

[[Page 330]]

that effect will be issued at least 15 days prior to the hearing 
notifying the parties of the date and time of the hearing. The order 
will direct the parties to confirm, at least 48 hours in advance of the 
hearing, that the correct telephone numbers for the parties and their 
witnesses are on file with the Office of Proceedings, and warn that 
failure to provide correct telephone numbers may be deemed waiver of 
that party's right to participate in the hearing, to present evidence, 
or to cross-examine other witnesses. If a party is unavailable by 
telephone at the appointed time, any other party in attendance may 
present testimony, and the Judgment Officer also may impose any 
appropriate sanction listed in Sec. 12.35. All telephonic hearings will 
be recorded electronically but will be transcribed only upon direction 
of the Judgment Officer (if necessary) or in the event of Commission 
review. The parties may secure a copy of the recording of the hearing 
from the Proceedings Clerk upon written request and payment of the cost 
of the recording.
    (c) Washington, DC hearings. In exceptional circumstances and when 
an in-person hearing is determined to be necessary in resolving the 
issues, the Judgment Officer may order an in-person hearing in 
Washington, DC upon written request by a party and the agreement of at 
least one opposing party. The Judgment Officer will issue notice of the 
time, date, and location of an in-person hearing to the parties at least 
30 days in advance of the hearing. Except as otherwise provided herein, 
an in-person hearing will be held and recorded in the manner prescribed 
in Sec. 12.312(c) through (f) of these rules. A party not agreeing to 
appear at the hearing in Washington, DC, may be ordered to participate 
by telephone. Any party not appearing in person or by telephone will be 
deemed to have waived the right to participate in the hearing, to 
present evidence, or to cross-examine other witnesses; further, that 
party may be subject to such action under Sec. 12.35 as the Judgment 
Officer may find appropriate. The Judgment Officer may order any party 
who requests or agrees to appear at a hearing in Washington, DC and 
fails to appear without good cause, to pay any reasonable costs 
unnecessarily incurred by parties appearing at such a hearing.
    (d) Compulsory process. An application for a subpoena requiring a 
non-party to participate in a telephonic hearing or to appear at an in-
person hearing in Washington, DC, may be made in writing to the Judgment 
Officer without notice to the other parties. The standards for issuance 
or denial of an application for a subpoena, the service and travel fee 
requirements, and the method for enforcing such subpoenas are set forth 
at Sec. 12.313 of these rules.

[59 FR 9637, Mar. 1, 1994]



Sec. 12.210  Initial decision.

    (a) In general. Proposed findings of fact and conclusions of law 
briefs shall not be allowed. As soon as practicable after all 
submissions of proof have been received, the Judgment Officer shall make 
the initial decision, which he shall forthwith file with the Proceedings 
Clerk. Upon filing of an initial decision, the Proceedings Clerk shall 
immediately serve upon the parties a copy of the initial decision and a 
notification of the effect of a party's failure timely to appeal the 
initial decision to the Commission, as provided in paragraphs (d) and 
(e) of this section, as well as the effect of a failure by a party who 
has been ordered to pay a reparation award timely to file the documents 
required by Sec. 12.407(c).
    (b) Content of initial decision. In the initial decision in a 
summary decisional proceeding, the Judgment Officer shall:
    (1) Include a brief statement of his findings as to the facts, with 
references to those portions of the record which support his findings;
    (2) Make a determination whether or not the respondent has violated 
any provision of the Commodity Exchange Act, or rule, regulation or 
order thereunder;
    (3) Make a determination whether the complainant is liable to any 
respondent who has made a counterclaim in the proceeding;
    (4) Determine the amount of damages, if any, that the complainant 
has sustained as a result of respondent's violations, the amount of 
punitive damages, if any, for which respondent

[[Page 331]]

is liable to complainant, which shall not exceed $30,000, exclusive of 
interest and costs; and the amount, if any, for which complainant is 
liable to respondents based on counterclaims, which, in aggregate, shall 
not exceed $30,000, exclusive of interest and costs; and
    (5) Include an order directing either the respondent or the 
complainant, depending upon whose liability is greater, to pay an amount 
based on the difference in the amounts determined pursuant to paragraph 
(b)(4) of this section, on or before a date fixed in the order.
    (c) Costs; prejudgment interest. The Judgment Officer may, in the 
initial decision, award costs (including the costs of instituting the 
proceeding, and if appropriate, reasonable attorneys' fees) and, if 
warranted as a matter of law under the circumstances of the particular 
case, prejudgment interest to the party in whose favor a judgment is 
entered.
    (d) Effect of initial decision. The initial decision shall become 
the final decision and order of the Commission thirty (30) days after 
service thereof, except:
    (1) The initial decision shall not become the final decision as to a 
party who shall have timely filed and perfected an appeal thereof to the 
Commission in accordance with Sec. 12.401 of these rules; and
    (2) The initial decision shall not become final as to any party to 
the proceeding if, within thirty (30) days after service of the initial 
decision, the Commission itself shall have placed the case on its own 
docket for review or stayed the effective date of the initial decision.
    (e) Effect of failure to file and perfect an appeal to the 
Commission. Unless the Commission takes review on its own motion, the 
timely filing and perfection of an appeal to the Commission of the 
initial decision is mandatory as a prerequisite to appellate judicial 
review of a final decision and order entered pursuant to these rules.

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9638, Mar. 1, 1994]



       Subpart E_Rules Applicable to Formal Decisional Proceedings



Sec. 12.300  Scope and applicability of rules.

    The rules set forth in this subpart are applicable to proceedings 
forwarded pursuant to Sec. 12.26(c) of the Reparation Rules. The rules 
in subpart B permitting discovery are applicable in a formal decisional 
proceeding, as supplemented by Sec. 12.301. Unless specifically made 
applicable, the rules prescribed in subparts C and D shall not apply to 
formal decisional proceedings. Parties to a proceeding forwarded 
pursuant to Sec. 12.26(c) may, by written agreement filed at any time 
prior to the issuance of an initial decision, or of any other order 
disposing of all issues in the proceeding, elect to have all issues in 
the proceeding decided pursuant to the voluntary decisional procedure. 
Upon receiving a timely filed stipulation signed by all parties 
evidencing such an election, the Administrative Law Judge shall conduct 
the proceeding and render a decision pursuant to subpart C of these 
rules.



Sec. Sec. 12.301-12.302  [Reserved]



Sec. 12.303  Pre-decision conferences.

    During the time period permitted for discovery pursuant to Sec. 
12.30(d), and thereafter, the Administrative Law Judge may, in his 
discretion, conduct one or more pre-decision conferences to be held in 
Washington, DC or by telephone, with all parties for the purposes of:
    (a) Discussing the advisability of electing the voluntary decisional 
procedure;
    (b) Encouraging a settlement of the entire case, or any part thereof 
(such discussions may be ex parte with the consent of all parties);
    (c) Simplifying or clarifying issues;
    (d) Obtaining stipulations, admissions of fact and of authenticity 
of documents;
    (e) Discussing amendments or supplements to the pleadings;
    (f) Encouraging an early settlement of disputes relating to 
discovery; and
    (g) Discussing any matters of relevance in the proceeding.

[[Page 332]]


At or following the conclusion of a pre-decision conference, the 
Administrative Law Judge may serve a pre-decision memorandum and order 
setting forth the agreements reached by the parties, any procedural 
determinations made by him, and the issues for resolution not disposed 
of by admissions or agreements by the parties. Such an order shall 
control the subsequent course of the proceeding unless modified to 
prevent injustice.

[49 FR 6621, Feb. 22, 1984, as amended at 57 FR 20638, May 14, 1992]



Sec. 12.304  Functions and responsibilities of the Administrative Law Judge.

    Once he has been assigned the case, the Administrative Law Judge 
shall be responsible for the fair and orderly conduct of a formal 
decisional proceeding and shall have the authority:
    (a) To issue such orders as are described in Sec. 12.34 of these 
rules;
    (b) To issue subpoenas pursuant to Sec. Sec. 12.34, 12.36, and 
12.313 of these rules;
    (c) To take such action as is appropriate pursuant to Sec. 12.35 if 
a party fails to comply with a discovery order, or an order issued 
pursuant to Sec. 12.34 of these rules;
    (d) [Reserved]
    (e) In his discretion, to conduct pre-decision conferences, for the 
purposes prescribed in Sec. 12.303, at any time after a proceeding has 
commenced pursuant to Sec. 12.26(c);
    (f) To issue pre-hearing orders as required by Sec. 12.312(a);
    (g) To certify interlocutory matters to the Commission for its 
determination in accordance with Sec. 12.309;
    (h) To issue orders of dismissal pursuant to Sec. 12.308;
    (i) To issue default orders for good cause against parties who fail 
to participate in the proceeding, or to comply with these rules;
    (j) If appropriate, to issue orders for summary disposition in the 
manner prescribed by Sec. 12.310;
    (k) If an oral hearing is ordered, to preside at the oral hearing, 
which shall include the authority to receive relevant evidence, to 
administer oaths and affirmations, to examine witnesses, and to rule on 
offers of proof;
    (l) To make the initial decision; and
    (m) To issue such orders, and take any other actions as are required 
to give effect to these rules.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984; 49 FR 17750, 
Apr. 25, 1984, as amended at 57 FR 20637, May 14, 1992]



Sec. 12.305  Disqualification of Administrative Law Judge.

    (a) At his own request. An Administrative Law Judge may withdraw 
from a formal decisional proceeding when he considers himself to be 
disqualified on the grounds of personal bias, conflict of interest, or 
similar bases. In such event, he shall immediately notify the Commission 
and each of the parties of his withdrawal and of his basis for such 
action.
    (b) Upon the request of a party. Any party may request an 
Administrative Law Judge to disqualify himself on the grounds of 
personal bias, conflict of interest, or similar bases. Interlocutory 
review of an order denying such a request may be sought without 
certification of the matter by an Administrative Law Judge, only in 
accordance with the procedures set forth in Sec. 12.309 of these rules.



Sec. 12.306  Filing of documents; subscription; service.

    Except as otherwise specifically provided in these rules, all 
documents filed in a formal decisional proceeding including, but not 
limited to, amended or supplemental pleadings, motions, discovery 
notices or requests, and responses thereto, documents filed or produced 
pursuant to Sec. 12.34 of these rules, and submissions of proof, shall 
meet the requirements of Sec. Sec. 12.11 and 12.12 of the rules as to 
form, and shall be filed and served in accordance with Sec. 12.10 of 
the Reparation Rules.



Sec. 12.307  Amended and supplemental pleadings.

    (a) Amendments to pleadings. At any time before the parties have 
concluded their submissions of proof, the Administrative Law Judge may 
allow amendments of the pleadings either upon written consent of the 
parties or for good cause shown. Any party may file a response to a 
motion to amend the pleadings within ten (10) days after the date of 
service upon him of the motion.

[[Page 333]]

    (b) Supplemental pleadings. At any time before the parties have 
concluded their submissions of proof, and upon such terms as are just, 
an Administrative Law Judge may, upon motion by a party, permit a party 
to serve a supplemental pleading setting forth transactions, occurrences 
or events which have happened since the date of the pleadings sought to 
be supplemented and which are relevant to the issues in the proceeding. 
Any party may file a response to a motion to supplement the pleadings 
with ten (10) days after the date of service upon him of the motion.
    (c) Pleadings to conform to the evidence. When issues not raised by 
the pleadings but reasonably within the scope of a formal decisional 
proceeding are tried with the express or implied consent of the parties, 
they shall be treated in all respects as if they had been raised in the 
pleadings.



Sec. 12.308  Motions.

    (a) In general. An application for a form of relief not otherwise 
specifically provided for in this subpart E shall be made by a motion, 
which shall be in writing (unless made on the record during an oral 
hearing). The motion shall state the relief sought and the basis for the 
relief and may set forth the authority relied upon. All motions, unless 
otherwise provided in these rules, shall be directed to the 
Administrative Law Judge before the initial decision is filed, and to 
the Commission after the initial decision is filed.
    (b) Answer to motions. Any party may serve and file a written 
response to a motion within ten (10) days after service of the motion 
upon him, or within such longer or shorter period as established by 
these rules, or as the Administrative Law Judge or the Commission may 
direct.
    (c) Dismissal--(1) By the Administrative Law Judge. The 
Administrative Law Judge, acting on his own motion, may, at any time 
after he has been assigned the case:
    (i) Dismiss the entire proceeding, without prejudice to 
counterclaims, if he finds that none of the matters alleged in the 
complaint state a claim that is cognizable in reparations; or
    (ii) Order dismissal of any claim, counterclaim, or party from the 
proceeding if he finds that such claim or counterclaim (by itself, or as 
applied to a party) is not cognizable in reparations.
    (2) Motion for dismissal by a party. Any party who believes that 
grounds exist for dismissal of the entire complaint, of any claim 
therein, of any counterclaim, or of a party from the proceeding, may 
file a motion for dismissal specifying the claims, counterclaims, or 
parties to be dismissed and the reasons therefor. Upon consideration of 
the whole record, the Administrative Law Judge may grant or deny such 
motion, in whole or in part.
    (3) Content and effect of order of dismissal. Any order of dismissal 
entered pursuant to this rule shall contain a brief statement of the 
findings and conclusions which serve as the basis for the order. An 
order of dismissal of the entire proceeding pursuant to this rule shall 
have the effect of an initial decision which may be appealed to the 
Commission in accordance with the requirements set forth in Sec. 12.401 
of these rules.
    (d) Motions for procedural orders. Motions for procedural orders, 
including motions for extensions of time, may be acted on at any time, 
without awaiting a response thereto. Any party adversely affected by 
such action may request reconsideration, vacation or modification of 
such action.
    (e) Dilatory motions. Repetitive or numerous motions dealing with 
the same subject matter shall not be permitted.



Sec. 12.309  Interlocutory review by the Commission.

    Interlocutory review by the Commission of a ruling on a motion by an 
Administrative Law Judge may be sought only as prescribed in this rule:
    (a) When interlocutory appeal may be taken. An interlocutory appeal 
may be permitted, in the discretion of the Commission, under the 
following circumstances:
    (1) The appeal is from a ruling pursuant to Sec. 12.102, Sec. 
12.202, or Sec. 12.305 refusing to grant a motion to disqualify a 
Judgment Officer or Administrative Law Judge;
    (2) The appeal is from a ruling pursuant to Sec. 12.9 suspending an 
attorney

[[Page 334]]

from participation in a reparation proceeding;
    (3) Upon a determination by the Administrative Law Judge certified 
to the Commission either in writing or on the record, that
    (i) A ruling sought to be appealed involves a controlling question 
of law or policy;
    (ii) An immediate appeal may materially advance the ultimate 
resolution of the issues in the proceeding; and
    (iii) Subsequent reversal of the ruling would cause unnecessary 
delay or expense to the parties; or
    (4) The appeal is from a ruling which satisfies the conditions of 
paragraphs (a)(3) (i)-(iii) of this section, despite the absence of 
certification, and extraordinary circumstances are shown to exist.
    (b) Procedure to obtain interlocutory review. An application for 
interlocutory review may be served and filed within ten (10) days after 
service of a ruling described in paragraphs (a)(1), (a)(2), and (a)(4) 
of this section or of notice that a determination has been made pursuant 
to paragraph (a)(3) of this section. The application for interlocutory 
review shall contain:
    (1) A statement of the facts necessary to an understanding of the 
controlling questions determined by the Administrative Law Judge, and to 
an understanding of the extraordinary circumstances warranting 
interlocutory review by the Commission;
    (2) A statement of the question or issue involved in the ruling upon 
which the application for review is based;
    (3) A statement of the reasons why, in the opinion of the party 
requesting review, the ruling was erroneous and should be reversed or 
modified; and
    (4) A copy of all papers filed by the parties that relate to the 
subject matter of the ruling at issue, including the order containing 
the ruling.

Within seven (7) days after service of the application for interlocutory 
review, any party may file a response in opposition to the application.
    (c) Standard for review. In the absence of extraordinary 
circumstances, the Commission will not review a ruling of an 
Administrative Law Judge prior to the Commission's consideration of the 
proceeding pursuant to subpart F of these rules. A Commission denial of 
an application for interlocutory review shall be without prejudice to 
the applying party's right to raise any argument made in the application 
as an issue in an appeal taken pursuant to subpart F of these rules.
    (d) Proceedings not stayed. The filing of an application for 
interlocutory review and a grant of review shall not stay proceedings 
before an Administrative Law Judge (or a Judgment Officer, if 
applicable) unless that official or the Commission shall so order. The 
Commission will not consider a motion for a stay unless the motion shall 
have first been made to the Administrative Law Judge (or, if applicable, 
the Judgment Officer) and denied.
    (e) Interlocutory review by the Commission on its own motion. 
Nothing in this rule should be construed as restricting the Commission 
from acting on its own motion to review on an interlocutory basis any 
ruling of an Administrative Law Judge, Proceedings Officer or a Judgment 
Officer in any proceeding commenced pursuant to Sec. 12.26 of these 
rules.



Sec. 12.310  Summary disposition.

    (a) Filing of motions, answers. Any party who believes that there is 
no genuine issue of material fact to be determined and that he is 
entitled to a decision as a matter of law concerning all issues of 
liability in the proceeding may file a motion for summary disposition at 
any time before a determination is made by the Administrative Law Judge 
to order an oral hearing in the proceeding. Any adverse party, within 
ten (10) days after service of the motion, may file and serve opposing 
papers or may countermove for summary disposition.
    (b) Supporting papers. A motion for summary disposition shall 
include a statement of all material facts as to which the moving party 
contends that there is no genuine issue, supported by the pleadings, and 
by affidavits, other verified statements, admissions, stipulations, and 
interrogatories. The motion may also be supported by briefs containing 
points and authorities in support of the contention of the party making 
the motion. When a motion is made and supported as provided in this

[[Page 335]]

section, unless otherwise ordered by the Administrative Law Judge, an 
adverse party may not rest upon the mere allegations, but shall serve 
and file in response a statement setting forth those material facts as 
to which he contends a genuine issue exists, supported by affidavits and 
other verified material. He may also submit a brief of points and 
authorities.
    (c) Oral argument. Oral argument may be heard at the discretion of 
the Administrative Law Judge and shall be heard in Washington, DC, or by 
telephonic conference call. Such argument shall be recorded, and written 
transcripts shall be made in the event that a grant or denial of summary 
disposition is reviewed by the Commission.
    (d) Summary disposition upon motion of the Administrative Law Judge. 
If the Administrative Law Judge believes that there may be no genuine 
issue of material fact to be determined and that one of the parties may 
be entitled to a decision as a matter of law, he may direct the parties 
to submit papers in support of and in opposition to summary disposition, 
and may hear oral argument, substantially as provided in paragraphs (a), 
(b) and (c) of this section.
    (e) Ruling on summary disposition. The Administrative Law Judge 
shall grant summary disposition if the undisputed pleaded facts, 
affidavits, other verified statements, admissions, stipulations, and 
matters of official notice, show that (1) there is no genuine issue as 
to any material fact; (2) there is no necessity that further facts be 
developed in the record; and (3) a party is entitled to a decision as a 
matter of law.
    (f) Review of ruling; appeal. An application for interlocutory 
review of an order denying a motion for summary disposition shall not be 
allowed. Interlocutory review of an order granting summary disposition 
which disposes of less than all of the issues in the proceeding may be 
sought only in accordance with Sec. 12.309 of these rules. An order 
granting summary disposition which is dispositive of all issues, and as 
to all parties, in the proceeding may be appealed to the Commission in 
accordance with the requirements set forth in Sec. 12.401 of these 
rules.



Sec. 12.311  Disposition of proceeding or issues without oral hearing.

    If the Administrative Law Judge determines that the documentary 
proof and other tangible forms of proof submitted by the parties are 
sufficient to permit resolution of some or all of the factual issues in 
the proceeding without the need for oral testimony, he may order that 
all proof relating to such issues be submitted in documentary and 
tangible form, and dispose of such issues without an oral hearing. In 
such an event, proof in support of the complaint, answer, and reply, may 
be found in those verified documents, in depositions on written 
interrogatories, in admissible documents obtained through discovery, in 
other verified statements of fact, documents and tangible evidence.



Sec. 12.312  Oral hearing.

    (a) Notification; prehearing order. If and when the proceeding has 
reached the stage of an oral hearing, the Administrative Law Judge, 
giving due regard for the convenience of the parties, shall set a time 
for hearing, as well as a location prescribed by paragraph (b) of this 
section, and shall file with the Proceedings Clerk, for immediate 
service upon the parties:
    (1) An order requiring the parties to file and serve, within fifteen 
days after service of the order, a prehearing memorandum setting forth 
briefly:
    (i) A statement of all issues to be tried at the hearing;
    (ii) An identification of each witness expected to be called by that 
party;
    (iii) A summary of the testimony each witness is expected to 
provide; and
    (2) A notice stating the time and location of the hearing.

Prior to the hearing, the Administrative Law Judge may issue an order 
based on the contents of the parties' memoranda filed pursuant to 
paragraph (a)(1) of this section, which, unless modified to prevent 
injustice, shall control the scope of matters to be tried at the oral 
hearing. If any change in the time or place of the hearing becomes 
necessary, it shall be made by the Administrative Law Judge, who, in 
such event, shall file with the Proceedings Clerk a notice of the 
change.

[[Page 336]]

Such notice shall be served upon the parties, unless it is made during 
the course of an oral hearing and made a part of the transcript. 
Hearings shall proceed expeditiously and, absent extraordinary 
circumstances, shall be held in one location and shall continue, without 
suspension, until concluded.
    (b) Location of hearing. Unless the Director of the Office of 
Proceedings for reasons of administrative economy or practical necessity 
determines otherwise, and except as provided in this subparagraph, the 
location of an oral hearing shall be in one of the following cities: 
Albuquerque, N.M.; Atlanta, Ga.; Boston, Mass.; Chicago, Ill.; 
Cincinnati, Ohio; Columbia, S.C.; Denver, Colo.; Houston, Tex.; Kansas 
City, Mo.; Los Angeles, Cal.; Minneapolis, Minn.; New Orleans, La.; New 
York, N.Y.; Oklahoma City, Okla.; Phoenix, Ariz.; San Diego, Cal.; San 
Francisco, Cal.; Seattle, Wash.; St. Petersburg, Fla.; and Washington, 
DC. The Administrative Law Judge may, in any case where a party avers, 
in an affidavit, that none of the foregoing cities is located within 300 
miles of his principal residence, waive this paragraph and, upon giving 
due regard for the convenience of all of the parties, order that the 
hearing be held in a more convenient locale.
    (1) Who may appear. The parties may appear in person, by counsel, or 
by other representatives of their choosing, subject to the provisions of 
Sec. 12.9 of these rules concerning practice before the Commission.
    (2) Effect of failure to appear. If any party to the proceeding 
fails to appear at the hearing, or at any part thereof, he shall to that 
extent be deemed to have waived the opportunity for an oral hearing in 
the proceeding. The Administrative Law Judge, for just cause, may take 
such action as is appropriate pursuant to Sec. 12.35 of these rules 
against a party who fails to appear at the hearing. In the event that a 
party appears at the hearing and no party appears for the opposing side, 
the party who is present may present his evidence, in whole or in part, 
in the form of affidavits or by oral testimony, before the 
Administrative Law Judge.
    (c) Public hearings. All oral hearings shall be public except that 
upon application of a party or affected witness the Administrative Law 
Judge may direct that specific documents or testimony be received and 
retained non-publicly in order to prevent unwarranted disclosure of 
trade secrets or sensitive commercial or financial information or an 
unwarranted invasion of personal privacy.
    (d) Conduct of the hearing. Subject to paragraph (e) of this 
section, and except as otherwise provided, at an oral hearing every 
party shall be entitled to:
    (1) Conduct direct and cross-examination of parties and witnesses. 
All witnesses at a hearing for the purpose of taking evidence shall 
testify under oath or affirmation, which shall be administered by the 
Administrative Law Judge. Unless otherwise ordered by the Administrative 
Law Judge, parties shall be entitled to present oral direct testimony 
and other documentary proof, and to conduct direct examination and cross 
examine adverse parties and witnesses. To expedite the hearing, the 
Administrative Law Judge may, in his discretion, order that the direct 
testimony of the parties and their witnesses be presented in documentary 
form, by affidavit, interrogatory, and other documents. In any event, 
the Administrative Law Judge, in his discretion, may permit cross 
examination, without regard to the scope of direct testimony, as to any 
matter which is relevant to the issues in the proceeding;
    (2) Introduce exhibits. The original of each exhibit introduced in 
evidence or marked for identification shall be filed unless the 
Administrative Law Judge permits the substitution of copies for the 
original documents. A copy of each exhibit introduced by a party or 
marked for identification at his request shall be supplied by him to the 
Administrative Law Judge and to each other party to the proceeding. 
Exhibits shall be maintained by the reporter who shall serve as 
custodian of the exhibits until they are transmitted to the Proceedings 
Clerk pursuant to paragraph (f) of this section;
    (3) Make objections. A party shall timely and briefly state the 
grounds relied upon for any objection made to the

[[Page 337]]

introduction of evidence. Formal exception to an adverse ruling shall 
not be required; and
    (4) Make offers of proof. When an objection to a question propounded 
to a witness is sustained, the examiner may make a specific offer of 
what he expects to prove by the answer of the witness. Rejected 
exhibits, adequately marked for identification, shall be retained in the 
record so as to be available for consideration by any reviewing 
authority.
    (e) Admissibility of evidence. Relevant, material and reliable 
evidence shall be admitted. Irrelevant, immaterial, unreliable and 
unduly repetitious evidence shall be excluded.
    (f) Record of an oral hearing. Oral hearings for the purpose of 
taking evidence shall be recorded and shall be transcribed in written 
form under the supervision of the Administrative Law Judge by a reporter 
employed by the Commission for that purpose. The original transcript 
shall be a part of the record and shall be the sole official transcript. 
Copies of transcripts, except those portions granted non-public 
treatment, shall be available from the reporter at rates not to exceed 
the maximum rates fixed by the contract between the Commission and the 
reporter. As soon as practicable after the close of the hearing, the 
reporter shall transmit to the Proceedings Clerk the transcript of the 
testimony and the exhibits introduced in evidence at the hearing, except 
such portions of the transcript and exhibits as shall have already been 
delivered to the Administrative Law Judge.
    (g) Proposed findings of fact and conclusions law; briefs. An 
Administrative Law Judge, upon his own motion or upon motion of a party, 
may permit the filing of post-hearing proposed findings of fact and 
conclusions of law. Absent an order permitting such findings and 
conclusions, none shall be allowed. Unless otherwise ordered by the 
Administrative Law Judge and for good cause shown, the proposed findings 
and conclusions (including briefs in support thereof), shall not exceed 
twenty-five (25) pages and shall be filed not later than forty-five (45) 
days after the close of the oral hearing.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984]



Sec. 12.313  Subpoenas for attendance at an oral hearing.

    (a) In general--(1) Application for issuance of subpoenas. An 
application for a subpoena requiring a party or other person to appear 
and testify at an oral hearing (subpoena ad testificandum) or to appear 
and testify and to produce specified documentary or tangible evidence at 
the hearing (subpoena duces tecum), shall (unless made orally at a 
hearing) be filed in writing and in duplicate, but need not be served 
upon other parties. The application shall be accompanied by the original 
and one copy of the subpoena.
    (2) Standards for issuance or denial of subpoenas. The 
Administrative Law Judge considering any application for a subpoena 
shall issue the subpoena if he is satisfied the application complies 
with this rule and the request is not unreasonable, oppressive, 
excessive in scope or unduly burdensome. In the event the Adminstrative 
Law Judge determines that a requested subpoena or any of its terms is 
unreasonable, oppressive, excessive in scope, or unduly burdensome, he 
may refuse to issue the subpoena, or may issue it only upon such 
conditions as he determines fairness requires.
    (b) Special requirements relating to application for an issuance of 
subpoenas for the appearance of commission employees--(1) Form. An 
application for the issuance of a subpoena shall be made in the form of 
a written motion served upon all other parties, if the subpoena would 
require the appearance of a Commissioner or an official or employee of 
the Commission.
    (2) Content. The motion shall specifically describe the material to 
be produced, the information to be disclosed, or the testimony to be 
elicited from the witness, and shall show
    (i) The relevance of the material, information, or testimony to the 
matters at issue in the proceeding;
    (ii) The reasonableness of the scope of the proposed subpoena; and

[[Page 338]]

    (iii) That such material, information, or testimony is not available 
from other sources.
    (3) Rulings. The motion shall be decided by the Administrative Law 
Judge and his order shall provide such terms and conditions for the 
production of the material, the disclosure of the information, or the 
appearance of the witnesses as may appear necessary and appropriate for 
the protection of the public interest.
    (c) Service of subpoenas--(1) How effected. Service of a subpoena 
upon a party shall be made in accordance with Sec. 12.10 of these 
rules. Service of a subpoena upon any other person shall be made by 
delivering a copy of the subpoena to him as provided in paragraph (c) 
(2) or (3) of this section, and by tendering to him the fees for one 
day's attendance and the mileage as specified in paragraph (e) of this 
section. When the subpoena is issued at the instance of any officer or 
agency of the United States, fees and mileage need not be tendered at 
the time of service.
    (2) Service upon a natural person. Delivery of a copy of a subpoena 
and tender of fees and mileage to a natural person may be effected by 
(i) handing them to the person; (ii) leaving them at his office with the 
person in charge thereof or, if there is no one in charge, by leaving 
the subpoena in a conspicuous place therein; (iii) leaving them at his 
dwelling place or usual place of abode with some person of suitable age 
and discretion then residing therein; (iv) mailing them by registered or 
certified mail to him at his last known address; or (v) any other method 
whereby actual notice is given to him and the fees and mileage are 
timely made available.
    (3) Service upon other persons. When the person to be served is not 
a natural person, delivery of a copy of the subpoena and tender of the 
fees and mileage may be effected by
    (i) Handing them to a registered agent for service, or to any 
officer, director, or agent in charge of any office of such person;
    (ii) Mailing them by registered or certified mail to any such 
representative at his last known address; or
    (iii) Any other method whereby actual notice is given to any such 
representative and the fees and mileage are timely made available.
    (d) Motion to quash subpoena. At or any time before the time 
specified in the subpoena for compliance therewith, a person upon whom a 
subpoena has been served may file a motion to quash or modify the 
subpoena with the Administrative Law Judge who issued the subpoena, and 
serve a copy of the motion on the party who requested the subpoena. Such 
motion shall include a brief statement of the reasons therefor. After 
due notice to the person upon whose request the subpoena was issued, and 
an opportunity for that person to respond, the Administrative Law Judge 
may (1) quash or modify the subpoena, or (2) condition denial of the 
application to quash or modify the subpoena upon just and reasonable 
terms, including, on the case of a subpoena duces tecum, a requirement 
that the person on whose behalf the subpoena was issued shall advance 
the reasonable cost of producing documentary or other tangible evidence.
    (e) Attendance and mileage fees. Persons summoned to testify at a 
hearing under requirement of subpoenas are entitled to the same fees and 
mileage as are paid to witnesses in the courts of the United States. 
Fees and mileage shall be paid by the party at whose instance the 
persons are subpoenaed or called.
    (f) Enforcement of subpoenas. Upon failure of any person to comply 
with a subpoena issued at the request of a party, that party may 
petition the Commission, in its discretion, to institute an action in an 
appropriate U.S. District Court for enforcement of the subpoena.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984]



Sec. 12.314  Initial decision.

    (a) In general. The Administrative Law Judge as soon as practicable 
after the parties have completed their submissions of proof, or after 
the conclusion of an oral hearing if one is held, shall render the 
initial decision, which he shall forthwith file with the Proceedings 
Clerk, and a copy of which shall be served immediately by the 
Proceedings Clerk upon each of the parties. The Proceedings Clerk shall

[[Page 339]]

also serve a notice, to accompany the initial decision, of the effect of 
a party's failure timely to appeal to the Commission the initial 
decision, as provided in paragraphs (d) and (e) of this section, and the 
effect of a failure of a party who has been ordered to pay a reparation 
award timely to file the documents required by Sec. 12.407(c).
    (b) Content of initial decision. In the initial decision the 
Administrative Law Judge shall:
    (1) Include a brief statement of his findings as to the facts, with 
references to those portions of the record which support his findings;
    (2) Make a determination whether or not the respondent has violated 
any provision of the Commodity Exchange Act, or rule, regulation or 
order thereunder;
    (3) Make a determination whether the complainant is liable to any 
respondent who has made a counterclaim in the proceeding;
    (4) Determine the amount of damages, if any, that the complainant 
has sustained as a result of respondent's violations, the amount of 
punitive damages if warranted, and the amount, if any, for which 
complainant is liable to a respondent based on a counterclaim; and
    (5) Include an order directing either the respondent or the 
complainant, depending upon whose liability is greater, to pay an amount 
based on the difference in the amounts determined pursuant to paragraph 
(b)(4) of this section, on or before a date fixed in the order.
    (c) Costs, prejudgment interest. Except as provided in Sec. Sec. 
12.30(c) and 12.315 of these rules, the Administrative Law Judge may, in 
the initial decision, award costs (including the cost of instituting the 
proceeding and, if appropriate, reasonable attorney's fees) and, if 
warranted as a matter of law under the cirumstances of the particular 
case, prejudgment interest, to the party in whose favor a judgment is 
entered.
    (d) Effect of initial decision. The initial decision and order shall 
become the final decision and order of the Commission, without further 
order by the Commission, thirty (30) days after service thereof, except 
that:
    (1) The initial decision shall not become the final decision as to a 
party who shall have timely filed and perfected an appeal thereof to the 
Commission, in accordance with Sec. 12.401 of these rules; and
    (2) The initial decision shall not become final as to any party to 
the proceeding if, within thirty (30) days after service of the initial 
decision, the Commission itself shall have placed the case on its own 
docket for review or stayed the effective date of the initial decision.
    (e) Effect of failure to file and perfect an appeal to the 
Commission. Unless the Commission takes review of an initial decision on 
its own motion, the timely filing and perfection of an appeal to the 
Commission of the initial decision is mandatory as a prerequisite to 
appellate judicial review of a final decision and order entered pursuant 
to these rules.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984, as amended at 59 
FR 9638, Mar. 1, 1994]



Sec. 12.315  Consequences of overstating damages claims not in excess of $30,000.

    If a party, who has claimed damages in excess of $30,000, is 
adjudged to be entitled to recover less than the sum or value of 
$30,000, computed without regard to a damage award to which an opposing 
party may be adjudged to be entitled, and exclusive of interest and 
costs, the Administrative Law Judge may assess such party the cost of 
the transcript of an oral hearing, if such a hearing is held, and, 
depending upon whether such party paid any part of the filing fee for 
the proceeding, deny the party such costs or impose such costs on that 
party.

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9638, Mar. 1, 1994]



                Subpart F_Commission Review of Decisions



Sec. 12.400  Scope and applicability of rules.

    The rules set forth in this subpart are applicable to proceedings 
forwarded pursuant to Sec. 12.26 (b) and (c) of these rules. Except as 
provided in Sec. Sec. 12.106(e) and 12.403(b) of these rules, the rules

[[Page 340]]

set forth in this subpart are not applicable to proceedings forwarded 
pursuant to Sec. 12.26(a) of the Reparation Rules.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984]



Sec. 12.401  Appeal to the Commission.

    (a) How effected. Any aggrieved party to a proceeding forwarded 
pursuant to Sec. 12.26 (b) or (c) of these rules may appeal to the 
Commission an initial decision or other disposition of the entire 
proceeding by complying with the requirements of this section. An 
appealing party shall serve upon all parties and file with the 
Proceedings Clerk a notice of appeal within fifteen (15) days after 
service of the initial decision or other order disposing of the entire 
proceeding. The notice need consist only of a brief statement indicating 
the filing party's intent to appeal the initial decision, and shall 
include the date upon which the initial decision was rendered, the names 
of all parties, and the docket number of the proceeding. A non-
refundable appellate filing fee in the amount of $50 shall be paid at 
the time of filing a notice of appeal. The failure of a party timely to 
file and serve a notice of appeal, and to pay the appellate filing fee, 
in accordance with this paragraph, or to perfect the appeal in 
accordance with paragraph (b) of this section, shall constitute a 
voluntary waiver of any objection to the initial decision, or other 
order disposing of the proceeding, and of all further administrative or 
judicial review under these rules and the Commodity Exchange Act.
    (b) Perfecting the appeal; appeal brief. An appeal shall be 
perfected by the appealing party by timely filing with the Proceedings 
Clerk an appeal brief which meets the requirements of paragraphs (b) and 
(d) of this section. An original and one copy of the appeal brief shall 
be filed within thirty (30) days after filing of the notice of appeal. 
By motion of the appealing party, the Commission may, for good cause 
shown, extend the time for filing the appeal brief. If the appeal brief 
is not filed within the time prescribed in this subparagraph, the 
Commission may, upon its own motion or upon motion by a party, dismiss 
the appeal, in which event the initial decision shall become the final 
decision and order of the Commission, effective upon service of the 
order of dismissal.
    (c) Answering brief. Any party upon whom the appealing party serves 
a brief may, within thirty (30) days after service of the appeal brief, 
file an original and one copy of an answering brief, and serve one copy 
thereof, unless the time limit is extended by the Commission upon motion 
of the party and for good cause shown.
    (d) Briefs. Parties filing an appeal brief or answering brief 
pursuant to this section shall meet the requirements of Sec. 12.11 of 
these rules as to form. The content of briefs shall satisfy the 
requirements of Sec. 10.102(d) of the Commission's regulations, 17 CFR 
10.102(d), except that any party, with leave of the Commission, may file 
an informal document in lieu of a brief. No brief shall exceed thirty-
five (35) pages in length without leave of the Commission.
    (e) Oral argument. Any party may request, in writing and within the 
time provided for filing the initial briefs, the opportunity to present 
oral argument before the Commission, which the Commission may, in its 
discretion, grant or deny. In the event the Commission affords the 
parties the opportunity to present oral argument before the Commission, 
the oral argument shall proceed in accordance with the provisions of 
Sec. 10.103 of the Commission's regulations, 17 CFR 10.103.
    (f) Scope of review. On review, the Commission may, in its 
discretion, consider sua sponte any issues arising from the record and 
may base its determination thereon, or limit the issues to those 
presented in the statement of issues in the briefs, treating those 
issues not raised as waived.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 7, 1984]



Sec. 12.402  Appeal of disposition of less than all claims or parties in a proceeding.

    (a) In general. Where two or more different claims for relief are 
presented, or where multiple parties are involved, in a proceeding 
forwarded pursuant to Sec. 12.26 (b) or (c) of these rules, the 
Judgment Officer or Administrative Law

[[Page 341]]

Judge, may upon his own motion or by motion of a party, direct that an 
initial decision or other order disposing of one or more, but fewer than 
all of the claims or parties, shall be final and immediately appealable 
to the Commission. Such a direction may be made only upon an express 
determination that there is no just reason for delay. When such a 
direction is made, a party may appeal the initial decision or order in 
accordance with the procedure prescribed by Sec. 12.401 of these rules.
    (b) When decision is not appealable. In the absence of such a 
direction by the Judgment Officer or an Administrative Law Judge, an 
initial decision or order disposing of fewer than all of the claims or 
all of the parties shall be subject to revision by the decisionmaker at 
any time before a disposition is made of all remaining claims or 
parties, and no appeal may be taken to the Commission pursuant to this 
rule.



Sec. 12.403  Commission review on its own motion.

    (a) In general. The Commission may on its own motion, within 30 days 
after it has been served on all parties, determine to review an initial 
decision, or other order disposing of all issues in the proceeding as to 
all claims and all parties, in a proceeding forwarded pursuant to Sec. 
12.26 (b) and (c) of these rules. In such event, the Commission may 
determine the scope of the issues on review, and make provisions for the 
filing of briefs or, if deemed appropriate, such other means for the 
parties to present their views. The parties shall be duly notified 
thereof by the Proceedings Clerk.
    (b) Commission review of a final decision in a voluntary decisional 
proceeding. If such action is necessary to prevent manifest injustice, 
the Commission may, upon its own motion, review a final decision issued 
pursuant to Sec. 12.106 of these rules by appropriate order filed with 
the Proceedings Clerk within 30 days after service upon the parties of 
the final decision. In such event, the Commission may determine the 
scope of the issue on review, make provisions for the filing of briefs 
(or, if deemed appropriate, such other means for the parties to present 
their views). The parties shall be duly notified thereof by the 
Proceedings Clerk.



Sec. 12.404  The record of proceedings.

    The record of proceedings on appeal before the Commission shall 
include: The pleadings; motions and requests filed, and rulings thereon; 
the transcript of the testimony taken at an oral hearing, together with 
the exhibits filed therein; the transcript of testimony taken during an 
oral examination by telephone; any statements or stipulations filed in 
any proceeding; any documents or papers filed in connection with 
prehearing conferences; such proposed findings of fact, conclusions, and 
orders and briefs as may have been permitted to be filed in connection 
with an oral hearing; such statements of objections, and briefs in 
support thereof, as may have been filed in the proceedings; and the 
initial (or final) decision, or other order disposing of issues in the 
proceeding.

[49 FR 6621, Feb. 22, 1984, as amended at 59 FR 9638, Mar. 1, 1994]



Sec. 12.405  Leave to adduce additional evidence.

    Any time prior to issuance of its final decision pursuant to Sec. 
12.406, the Commission may, after notice to the parties and an 
opportunity for them to present their views, reopen the hearing to 
receive further evidence. The application shall show to the satisfaction 
of the Commission that the additional evidence is material, and that 
there were reasonable grounds for failure to adduce such evidence at the 
hearing. The Commission may receive the additional evidence or may 
remand the proceeding to the Judgment Officer or Administrative Law 
Judge to receive the additional evidence.



Sec. 12.406  Final decision of the Commission.

    (a) Opinion and order. Unless the Commission, in accordance with 
paragraph (b) of this section, orders summary affirmance of the initial 
decision, the Commission's opinion and order in a proceeding appealed 
pursuant to Sec. 12.401 of these rules shall constitute the 
Commission's final decision, effective upon service. On review, the 
Commission may affirm, reverse, modify,

[[Page 342]]

set aside or remand for further proceedings, in whole or in part, the 
initial decision and make any findings or conclusions which in its 
judgment are warranted based on the record in the proceeding.
    (b) Order on summary affirmance. If the Commission, in its opinion, 
finds that the result reached in the initial decision is substantially 
correct and that none of the arguments on appeal made by the appealing 
party raise any important question of law or policy, the Commission may, 
by appropriate order, summarily affirm the initial decision and order 
without opinion, which shall constitute the Commission's final decision, 
effective upon service. Unless the Commission expressly indicates 
otherwise in its order, an order of summary affirmance does not reflect 
a Commission determination to adopt the initial decision, including any 
rationale contained therein, as its opinion and order, and neither 
initial decision nor the Commission's order of summary affirmance shall 
serve as a Commission precedent in other proceedings.
    (c) Filing and service of final decision. The Commission shall, upon 
issuance of a final decision pursuant to this Sec. 12.406, file the 
final decision with the Proceeding's Clerk, who shall forthwith serve 
upon each of the parties a copy of the final decision as well as notice 
of the effect of a party's failure to pay a reparation award as provided 
in Sec. 12.407 of these rules, and of an aggrieved party's right to 
obtain judicial review of the final decision pursuant to section 14(e) 
of the Act, 7 U.S.C. 18(e).
    (d) Date of the reparation order. For purposes of computing the 30-
day period for filing the appeal bond required by section 14(e) of the 
Act, 7 U.S.C. 18(e), ``the date of the reparation order'' shall be the 
date that the Commission's opinion and order (or order of summary 
affirmance, as the case may be) is filed with the Proceedings Clerk. 
This date shall be reflected by the date stamp on the first page of the 
Commission's order.

[49 FR 6621, Feb. 22, 1984, as amended at 53 FR 17692, May 18, 1988]



Sec. 12.407  Satisfaction of reparation award; enforcement; sanctions.

    (a) Satisfaction of reparation award--(1) Where initial decision has 
become the final decision. Any reparation award ordered in an initial 
decision, or similar dispositive order (but not a final decision issued 
pursuant to Sec. 12.106 of these rules), shall be satisfied in full 
within forty-five (45) days after service of the initial decision, 
unless a timely appeal thereof has been perfected pursuant to Sec. 
12.401, or unless the Commission, pursuant to Sec. 12.403(a), has 
stayed the effective date of the initial decision.
    (2) Final decision pursuant to Sec. 12.406. Any reparation award 
ordered in a final decision of the Commission issued pursuant to Sec. 
12.406 of these rules shall be satisfied in full within fifteen (15) 
days after service of the final decision, or such other longer period of 
time as may be specified in the final decision, unless a petition for 
review is filed in accordance with section 14(e) of the Act, 7 U.S.C. 
18(e).
    (b) Enforcement of reparation award. If any person against whom a 
reparation award has been made does not timely comply with paragraph (a) 
or (b) of this section, the party in whose favor the award is made is 
entitled to seek enforcement of award in accordance with the procedure 
prescribed in section 14(d) of the Commodity Exchange Act, 7 U.S.C. 
18(d).
    (c) Automatic suspension. A person required to pay a reparation 
award shall be prohibited from trading on all contract markets and if 
such person is registered, his registration shall be suspended 
automatically, without further notice, unless such person shall, within 
fifteen (15) days after the time limit for satisfaction of an award (as 
prescribed in paragraph (a) or (b) of this section) expires, file with 
the Proceedings Clerk and serve on the other parties:
    (1) A copy of a certified check or the equivalent showing 
statisfaction of the award; or
    (2) A sworn release executed by each recipient of a reparation 
award, which has not been satisfied by payment with a certified check or 
the equivalent; or
    (3) A verified statement that a judicial appeal has been filed and 
perfected in accordance with section 14(e) of the Act, 7 U.S.C. 18(e). 
(This paragraph is

[[Page 343]]

applicable only in proceedings commenced pursuant to Sec. 12.26 (b) or 
(c), and only if the person has timely filed and perfected an appeal to 
the Commission as prescribed in Sec. 12.401.)
    (d) Reinstatement. The sanctions imposed in accordance with 
paragraph (c) of this section shall remain in effect until the person 
required to pay the reparation award demonstrates to the satisfaction of 
the Commission that he has paid the amount required in full including 
prejudgment interest if awarded and post-judgment interest at the 
prevailing rate computed in accordance with 28 U.S.C. 1961 from the date 
directed in the final order to the date of payment, compounded annually. 
In the event an award of post-judgment interest is inadvertently 
omitted, such interest nevertheless shall run as calculated in 
accordance with 28 U.S.C. 1961 and the part 12 Rules.
    (e) Automatic suspension after appeal. If on appeal to the U.S. 
Court of Appeals the appellee prevails, or if the appeal is dismissed, 
the automatic prohibition against trading and suspension of registration 
shall become effective at the expiration of thirty (30) days from the 
date of judgment on the appeal, but if the judgment is stayed by a court 
of competent jurisdiction, the suspension shall become effective ten 
(10) days after the expiration of such stay, unless prior thereto the 
judgment of the court or the final order of the Commission has been 
satisfied.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984, as amended at 50 
FR 40332, Oct. 3, 1985; 73 FR 70275, Nov. 20, 2008]



Sec. 12.408  Delegation of authority to the Deputy General Counsel for Opinions.

    Pursuant to the authority granted under section 2(a)(4) and 2(a)(11) 
of the Commodity Exchange Act, as amended, 7 U.S.C. 4a(c) and 4a(j), the 
Commission hereby delegates, until such time as it orders otherwise, the 
following functions to the General Counsel, to be performed by him or 
such person or persons under his direction as he may designate from time 
to time:
    (a) With respect to reparation proceedings conducted pursuant to 
section 14 of the Commodity Exchange Act, as amended, 7 U.S.C. 18, and 
subject to the Commission's Reparation Rules as set forth in part 12 of 
this chapter, to:
    (1) Consider and decide miscellaneous procedural motions that may be 
directed to the Commission pursuant to part 12 of these rules after the 
initial decision or other order disposing of the entire proceeding has 
been filed;
    (2) Remand, with or without specific instructions, initial decisions 
or other orders disposing of the entire proceeding to the appropriate 
officer (Director of the Office of Proceedings, Judgment Officer, or 
Administrative Law Judge) in the following situations:
    (i) Where a default order or award has been made pursuant to part 12 
of these rules and a motion to vacate the default or an equivalent 
request has been made; or
    (ii) Where, in his judgment, clarification or supplementation of an 
initial decision or other order disposing of the entire proceeding prior 
to Commission review is appropriate; and
    (iii) Where, in his judgment, a ministerial act necessary to the 
proper conduct of the proceeding has not been performed.
    (3) Deny applications for interlocutory review by the Commission of 
a ruling of an Administrative Law Judge in cases in which the 
Administrative Law Judge has not certified the ruling to the Commission 
in the manner prescribed by Sec. 12.309 of these rules, and the ruling 
does not concern the disqualification of, or a motion to disqualify, an 
Administrative Law Judge, or Judgment Officer, or the suspension of, or 
failure to suspend, an attorney from participating in reparation 
proceedings;
    (4) Dismiss any appeal from an initial decision or other disposition 
of the entire proceeding by an Administrative Law Judge (or Judgment 
Officer), in a proceeding where such appeal is not filed or perfected in 
accordance with Sec. 12.401, and deny any application for interlocutory 
review if it is not filed in accordance with Sec. 12.309 of these 
rules;
    (5) Strike any filing that does not meet the requirements of, or is 
not perfected in accordance with, these part 12 rules; and
    (6) Enter any order that, in his judgment, will facilitate or 
expedite Commission review of an initial decision or

[[Page 344]]

other order disposing of the entire proceeding.
    (b) Notwithstanding the provisions of paragraph (a) of this section, 
in any case in which he believes it appropriate, the General Counsel or 
his designee may submit the matter to the Commission for its 
consideration.
    (c) Within seven (7) days after service of a ruling issued pursuant 
to this Sec. 12.408, a party may file with the Commission a petition 
for reconsideration of the ruling. Unless the Commission orders 
otherwise, the filing of a petition for reconsideration shall not 
operate to stay the effective date of such ruling.

[49 FR 6621, Feb. 22, 1984; 49 FR 15070, Apr. 17, 1984; 49 FR 17750, 
Apr. 25, 1984, as amended at 57 FR 20638, May 14, 1992; 59 FR 9638, Mar. 
1, 1994; 64 FR 43071, Aug. 9, 1999]



PART 13_PUBLIC RULEMAKING PROCEDURES--Table of Contents



Sec.
13.1 Scope.
13.2 Petition for issuance, amendment, or repeal of a rule.
13.3 Notice of proposed rulemaking.
13.4 Public participation in rulemaking.
13.5 Exceptions to notice requirement and public participation.
13.6 Promulgation of rules; publication.

    Authority: Pub. L. 93-463, Sec. 101(a) (11), 88 Stat. 1391, 7 U.S.C. 
4a(j), unless otherwise noted.

    Source: 41 FR 17537, Apr. 27, 1976, unless otherwise noted.



Sec. 13.1  Scope.

    The rules of part 13 set forth the procedures of the Commodity 
Futures Trading Commission for the formulation, amendment or repeal of a 
rule or regulation, insofar as those procedures directly affect the 
public. Unless otherwise stated, the rules apply to all rulemaking by 
the Commission, except to the extent the rulemaking involves Commission 
management or personnel or public property, loans, grants, benefits or 
contracts.



Sec. 13.2  Petition for issuance, amendment, or repeal of a rule.

    Any person may file a petition with the Secretariat of the 
Commission for the issuance, amendment or repeal of a rule of general 
application. The petition shall be directed to Secretariat, Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, 
NW., Washington, DC 20581, and shall set forth the text of any proposed 
rule or amendment or shall specify the rule the repeal of which is 
sought. The petition shall further state the nature of the petitioner's 
interest and may state arguments in support of the issuance, amendment 
or repeal of the rule. The Secretariat shall acknowledge receipt of the 
petition, refer it to the Commission for such action as the Commission 
deems appropriate, and notify the petitioner of the action taken by the 
Commission. Except in affirming a prior denial or when the denial is 
self-explanatory, notice of a denial in whole or in part of a petition 
shall be accompanied by a brief statement of the grounds of denial.

[41 FR 17537, Apr. 27, 1976, as amended at 60 FR 49335, Sept. 25, 1995]



Sec. 13.3  Notice of proposed rulemaking.

    Whenever the Commission proposes to issue, amend, or repeal any rule 
or regulation of general application, there shall first be published in 
the Federal Register a notice of the proposed action. The notice shall 
include:
    (a) A statement of the time, place and nature of the rulemaking 
procedures, with particular reference to the manner in which interested 
persons shall be afforded the opportunity to participate in such 
proceedings;
    (b) Reference to the authority under which the rule is proposed; and
    (c) Either the terms or substance of the proposed rule or a 
description of the subjects and issues involved.



Sec. 13.4  Public participation in rulemaking.

    (a) Written comments. Interested persons will be afforded an 
opportunity to participate in a rulemaking proceeding of which notice 
has been given pursuant to Sec. 13.3 of these rules through the 
submission of statements, information, opinion, and arguments in the 
manner stated in the notice.
    (b) Hearings. When required or permitted by law the Commission may 
hold hearings in connection with a

[[Page 345]]

rulemaking proceeding at which interested persons may be heard, either 
by oral presentation or upon written submission, and may adopt such 
procedures as in its judgment will best serve the purpose of the 
rulemaking proceeding.



Sec. 13.5  Exceptions to notice requirement and public participation.

    (a) Notice under Sec. 13.3 and public participation under Sec. 
13.4 shall not be required when persons subject to the rules are named 
and are either personally served or otherwise given actual notice of 
proposed rulemaking in accordance with law.
    (b) Except when notice or hearing is required by statute the 
provisions of Sec. Sec. 13.3 and 13.4 shall not apply:
    (1) To interpretative rules, general statements of policy, or rules 
of agency organization, procedure or practice; or
    (2) When the Commission for good cause finds (and incorporates the 
finding and a brief statement of reasons therefor in the release issued) 
that notice and public procedure thereon are impracticable, unnecessary, 
or contrary to the public interest.



Sec. 13.6  Promulgation of rules; publication.

    After consideration of all relevant matters of fact, law, and 
policy, including all relevant matters presented by interested persons 
in the proceedings, the Commission will take such action on the proposed 
rule as it deems appropriate. Any rule adopted will be published in the 
Federal Register and the announcement of the rule will incorporate a 
concise statement of the rule's basis and purpose, as well as any 
necessary findings. Announcement will also be made in the Federal 
Register if a proposal is subsequently withdrawn. The required 
publication or service of a substantive rule shall be made not less than 
30 days before its effective date, except:
    (a) A substantive rule which grants or recognizes an exception or 
relieves a restriction;
    (b) Interpretative rules and statements of policy; or
    (c) As otherwise provided by the Commission for good cause found and 
published with the rule.



PART 14_RULES RELATING TO SUSPENSION OR DISBARMENT FROM APPEARANCE AND PRACTICE--Table of Contents



Sec.
14.1 Scope.
14.2 Definitions of appearance and practice.
14.3 Hearings.
14.4 Violation of Commodity Exchange Act.
14.5 Criminal conviction.
14.6 Disbarment or suspension by licensing authority.
14.7 Finding of violation of Commodity Exchange Act or Federal 
          securities laws in another proceeding.
14.8 Lack of requisite qualifications, character and integrity.
14.9 Duty to file information concerning adverse judicial or 
          administrative action.
14.10 Reinstatement.

    Authority: Pub. L. 93-463, sec. 101(a) (11), 88 Stat. 1391, 7 U.S.C. 
4a(j), unless otherwise noted.

    Source: 41 FR 28472, July 12, 1976, unless otherwise noted.



Sec. 14.1  Scope.

    The rules of this part describe the circumstances under which 
persons may be denied, either temporarily or permanently, the privilege 
of appearing or practicing before the Commission as an attorney or 
accountant. An attorney may also be excluded from further participation 
in a particular adjudicatory proceeding in accordance with the 
provisions of Sec. 10.11(b) of this chapter or from further 
participation in a particular investigatory proceeding in accordance 
with the provisions of Sec. 11.7(c)(2) of this chapter.



Sec. 14.2  Definitions of appearance and practice.

    (a) Appearance. For the purpose of this part, ``appearance'' refers 
to the representation of a person by another who appears in his behalf 
at any adjudicatory, investigatory or rulemaking proceeding conducted 
before the Commission, including but not limited to those proceedings 
encompassed in parts 10 through 13 of the Commission's rules.
    (b) Practice. For the purpose of this part, practicing before the 
Commission shall include but shall not be limited to:
    (1) The preparation of any statement, opinion or other paper by any 
attorney

[[Page 346]]

or accountant filed with or submitted to the Commission on behalf of 
another person in or in connection with any application, notification, 
report or other document; and
    (2) Transacting any other formal business with the Commission, on 
behalf of another person, in the capacity of an attorney or accountant.



Sec. 14.3  Hearings.

    Hearings required or permitted to be held under provisions of this 
part shall be held before an Administrative Law Judge, utilizing the 
procedures established in the rules of practice (part 10) for 
adjudicatory proceedings. Any proceeding brought under provisions of 
this part shall, unless otherwise determined by the Commission, be 
prosecuted by the General Counsel of the Commission or by such attorneys 
in his office as he may assign.



Sec. 14.4  Violation of Commodity Exchange Act.

    The Commission may deny, temporarily or permanently, the privilege 
of appearing or practicing before it in any way to any person who is 
found by the Commission, after notice of and opportunity for hearing in 
the matter, to have violated, caused, or aided and abetted any violation 
of the Commodity Exchange Act, as amended, 7 U.S.C. 1 et seq., or the 
rules and regulations adopted thereunder.



Sec. 14.5  Criminal conviction.

    Any person who after licensing or certification to practice his 
profession by any competent authority has been convicted of any felony 
or of a misdemeanor involving fraud or involving moral turpitude in 
matters related to the regulatory responsibilities of the Commission, 
and whose conviction has not been reversed by an appellate court, may 
not appear or practice before the Commission. A conviction within the 
meaning of this section shall be deemed to have occurred when the 
convicting court enters its judgment or order, regardless of whether an 
appeal is pending or could be taken, and includes a judgment on a plea 
of nolo contendere.



Sec. 14.6  Disbarment or suspension by licensing authority.

    Any attorney who has been suspended or disbarred by a Court of the 
United States or any state or territory or the District of Columbia and 
any person whose license to practice as an accountant has been revoked 
or suspended in any state or territory or the District of Columbia may 
not appear or practice before the Commission during the period when such 
suspension or revocation is in effect. A suspension or revocation shall 
be deemed to have occurred when the disbarring, suspending or revoking 
agency or tribunal enters its order, regardless of whether appeal is 
pending or could be taken, and includes a judgment or order on a plea of 
nolo contendere or the procedural equivalent of such a plea. For 
purposes of this section it shall be irrelevant that any attorney or 
accountant who has been suspended, disbarred, or otherwise disqualified 
from practice before a court or in a jurisdiction continues in 
professional good standing before other courts or in other 
jurisdictions.



Sec. 14.7  Finding of violation of Commodity Exchange Act or Federal securities 

laws in another proceeding.

    (a) Temporary suspension. The Commission, with due regard to the 
public interest, and without preliminary hearing, may by order 
temporarily suspend from appearing or practicing before it any person 
who, on or after the effective date of this rule has been by name:
    (1) Permanently enjoined by reason of his misconduct by any court of 
competent jurisdiction (i) whether by consent, default, upon summary 
judgment or after trial, in any action brought by the Commission based 
upon violations of any provision of the Commodity Exchange Act, as 
amended, or of the rules and regulations adopted thereunder, or (ii) 
after trial or upon summary judgment in any action brought by the U.S. 
Securities and Exchange Commission based upon any violation of the 
federal securities laws (15 U.S.C. 77a to 80b-20) or of rules and 
regulations adopted thereunder;
    (2) Found by any court of competent jurisdiction (whether by 
consent, default, upon summary judgment or after trial) in any action 
brought by the

[[Page 347]]

Commission to which he is a party, or found by the Commission (whether 
by consent, default, upon summary disposition or after hearing) in any 
administrative proceeding in which the Commission is a complainant and 
to which he is a party, to have committed, caused, or aided and abetted 
a violation of any provision of the Commodity Exchange Act, as amended, 
or of the rules and regulations promulgated under any of those statutes;
    (3) Found upon summary judgment or after trial by any court of 
competent jurisdiction in any action brought by the U.S. Securities and 
Exchange Commission to which he is a party, or found by the Securities 
and Exchange Commission, upon summary disposition or after hearing, in 
any administrative proceeding in which the Securities and Exchange 
Commission is a complainant and to which he is a party, to have 
committed, caused, or aided or abetted a violation of any provision of 
the federal securities laws (15 U.S.C. 77a to 80b-20) or of the rules 
and regulations adopted thereunder.
    (b) Petition to lift suspension. Any person temporarily suspended 
from appearing and practicing before the Commission in accordance with 
paragraph (a) of this section may, within 30 days after service upon him 
of temporary suspension, petition the Commission to lift the temporary 
suspension. If no petition has been received by the Commission within 30 
days after service of the order by mail the suspension shall become 
permanent.
    (c) Consideration of petition. Within 30 days after the filing of 
the petition described in paragraph (b) of this section the Commission 
shall either lift the temporary suspension or set the matter down for 
hearing or both. After opportunity for hearing, the Commission may 
censure the petitioner or may disqualify the petitioner from appearing 
or practicing before the Commission for a period of time or permanently 
or may determine that no action is appropriate.
    (d) Hearing. A showing that the petitioner has been enjoined or has 
been found to have committed, caused or aided or abetted violations as 
described in paragraph (a) of this section, without more, may be a basis 
for censure or disqualification; that showing having been made, the 
burden shall then be on the petitioner to show why he should not be 
censured or disqualified. A petitioner will not be heard to contest any 
findings against him or admissions made by him in the judicial or 
administrative proceedings upon which the proposed censure or 
disqualification is based. A petitioner who has consented to the entry 
of a permanent injunction as described in paragraph (a)(1) of this 
section without admitting the facts set forth in the complaint shall 
nevertheless be presumed for all purposes under this section to have 
been enjoined by reason of the misconduct alleged in the complaint.



Sec. 14.8  Lack of requisite qualifications, character and integrity.

    In addition to those matters specifically referred to in Sec. Sec. 
14.4 through 14.7, the Commission may, after notice and opportunity for 
hearing in the matter, deny, temporarily or permanently, the privilege 
of appearing or practicing before it to any person who is found by the 
Commission by a preponderance of the evidence:
    (a) Not to possess the requisite qualifications to represent others; 
or
    (b) To be lacking in character or integrity; or
    (c) To have engaged in unethical or improper unprofessional conduct 
either in the course of an adjudicatory, investigative, rulemaking or 
other proceeding before the Commission or otherwise.



Sec. 14.9  Duty to file information concerning adverse judicial or administrative action.

    Any person appearing or practicing before the Commission who has 
been the subject of a conviction, suspension, disbarment, revocation, 
injunction or finding of the kind described in Sec. Sec. 14.5 through 
14.7, unless based on action instituted by the Commission, shall 
promptly file a copy of the relevant order, judgment or decree with the 
Secretariat of the Commission at Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581, together with any related opinion or 
statement of the

[[Page 348]]

agency or tribunal involved. Any person who has been the subject of 
administrative or judicial action of the kind described in Sec. Sec. 
14.5 through 14.7 and who has not filed a copy of the order, judgment or 
decree within thirty days after its entry shall for that reason alone be 
disqualified from appearing or practicing before the Commission until 
such time as the appropriate filing shall be made, but neither the 
filing of these documents nor the failure of a person to file them shall 
in any way affect the operations of any other provision of this part.

[41 FR 28472, July 12, 1976, as amended at 60 FR 49335, Sept. 25, 1995]



Sec. 14.10  Reinstatement.

    Any person who is disqualified from appearing or practicing before 
the Commission under any of the provisions of this part may at any time 
file an application of reinstatement and the applicant may, in the 
Commission's discretion, be afforded a hearing on the application. 
However, denial of the privilege of appearing or practicing before the 
Commission shall continue unless and until the applicant has been 
reinstated by order of the Commission.



PART 15_REPORTS_GENERAL PROVISIONS--Table of Contents



Sec.
15.00 Definitions of terms used in parts 15 to 21 of this chapter.
15.01 Persons required to report.
15.02 Reporting forms.
15.03 Reporting levels.
15.04 [Reserved]
15.05 Designation of agent for foreign persons.
15.06 Delegations.

    Authority: 7 U.S.C. 2, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 7, 7a, 9, 
12a, 19, and 21, as amended by Title XIII of the Food, Conservation and 
Energy Act of 2008, Public Law 110-246, 122 Stat. 1624 (June 18, 2008).



Sec. 15.00  Definitions of terms used in parts 15 to 21 of this chapter.

    As used in parts 15 to 21 of this chapter:
    (a) Cash or Spot, when used in connection with any commodity, means 
the actual commodity as distinguished from a futures or options contract 
in such commodity.
    (b) Clearing member means any person who is a member of, or enjoys 
the privilege of clearing trades in his own name through, the clearing 
organization of a designated contract market, registered derivatives 
transaction execution facility, or registered entity under section 
1a(29) of the Act.
    (c) Clearing organization means the person or organization which 
acts as a medium for clearing transactions in commodities for future 
delivery or commodity option transactions, or for effecting settlements 
of contracts for future delivery or commodity option transactions, for 
and between members of any designated contract market, registered 
derivatives transaction execution facility or registered entity under 
section 1a(29) of the Act.
    (d) Compatible data processing media means data processing media 
approved by the Commission or its designee.
    (e) Customer means ``customer'' (as defined in Sec. 1.3(k) of this 
chapter) and ``options customer'' (as defined in Sec. 1.3(jj) of this 
chapter).
    (f) Customer trading program means any system of trading offered, 
sponsored, promoted, managed or in any other way supported by, or 
affiliated with, a futures commission merchant, an introducing broker, a 
commodity trading advisor, a commodity pool operator, or other trader, 
or any of its officers, partners or employees, and which by agreement, 
recommendations, advice or otherwise, directly or indirectly controls 
trading done and positions held by any other person. The term includes, 
but is not limited to, arrangements where a program participant enters 
into an expressed or implied agreement not obtained from other customers 
and makes a minimum deposit in excess of that required of other 
customers for the purpose of receiving specific advice or 
recommendations which are not made available to other customers. The 
term includes any program which is of the character of, or is commonly 
known to the trade as, a managed account, guided account, discretionary 
account, commodity pool or partnership account.
    (g) Discretionary account means a commodity futures or commodity 
option trading account for which buying

[[Page 349]]

or selling orders can be placed or originated, or for which transactions 
can be effected, under a general authorization and without the specific 
consent of the customer, whether the general authorization for such 
orders or transactions is pursuant to a written agreement, power of 
attorney, or otherwise.
    (h) Exclusively self-cleared contract means a cleared contract for 
which no persons, other than a reporting market and its clearing 
organization, are permitted to accept any money, securities, or property 
(or extend credit in lieu thereof) to margin, guarantee, or secure any 
trade.
    (i) Foreign clearing member means a ``clearing member'' (as defined 
by paragraph (b) of this section) who resides or is domiciled outside of 
the United States, its territories or possessions.
    (j) Foreign trader means any trader (as defined in paragraph (s) of 
this section) who resides or is domiciled outside of the United States, 
its territories or possessions.
    (k) Futures, futures contract, future delivery or contract for 
future delivery, means any contract for the purchase or sale of any 
commodity for future delivery that is executed on or subject to the 
rules of a reporting market, including all agreements, contracts and 
transactions that are treated by a clearing organization as fungible 
with such contracts.
    (l) Guided account program means any customer trading program which 
limits trading to the purchase or sale of a particular contract for 
future delivery of a commodity or a particular commodity option that is 
advised or recommended to the participant in the program.
    (m) Managed account program means a customer trading program which 
includes two or more discretionary accounts traded pursuant to a common 
plan, advice or recommendations.
    (n) Open contracts means ``open contracts'' (as defined in Sec. 
1.3(t) of this chapter) and commodity option positions held by any 
person on or subject to the rules of a board of trade which have not 
expired, been exercised, or offset.
    (o) Option, options, option contract, or options contract, unless 
specifically provided otherwise, means any contract for the purchase or 
sale of a commodity option that is executed on or subject to the rules 
of a reporting market, including all agreements, contracts and 
transactions that are treated by a clearing organization as fungible 
with such contracts.
    (p) Reportable position means:
    (1) For reports specified in parts 17, 18 and Sec. 19.00(a)(2) and 
(a)(3) of this chapter any open contract position that at the close of 
the market on any business day equals or exceeds the quantity specified 
in Sec. 15.03 of this part in either:
    (i) Any one futures of any commodity on any one reporting market, 
excluding futures contracts against which notices of delivery have been 
stopped by a trader or issued by the clearing organization of a 
reporting market; or
    (ii) Long or short put or call options that exercise into the same 
future of any commodity, or long or short put or call options for 
options on physicals that have identical expirations and exercise into 
the same physical, on any one reporting market.
    (2) For the purposes of reports specified in Sec. 19.00(a)(1) of 
this chapter, any combined futures and futures-equivalent option open 
contract position as defined in part 150 of this chapter in any one 
month or in all months combined, either net long or net short in any 
commodity on any one reporting market, excluding futures positions 
against which notices of delivery have been stopped by a trader or 
issued by the clearing organization of a reporting market, which at the 
close of the market on the last business day of the week exceeds the net 
quantity limit in spot, single or in all-months fixed in Sec. 150.2 of 
this chapter for the particular commodity and reporting market.
    (q) Reporting market means a designated contract market, registered 
entity under section 1a(29) of the Act, and unless determined otherwise 
by the Commission with respect to the facility or a specific contract 
listed by the facility, a registered derivatives transaction execution 
facility.
    (r) Special account means any commodity futures or option account in 
which there is a reportable position.
    (s) Trader means a person who, for his own account or for an account 
which

[[Page 350]]

he controls, makes transactions in commodity futures or options, or has 
such transactions made.

[74 FR 12188, Mar. 23, 2009]



Sec. 15.01  Persons required to report.

    Pursuant to the provisions of the Act, the following persons shall 
file reports with the Commission with respect to such commodities, on 
such forms, at such time, and in accordance with such directions as are 
hereinafter set forth:
    (a) Reporting markets--as specified in parts 16, 17, and 21 of this 
chapter.
    (b) Futures commission merchants, clearing members, foreign brokers, 
introducing brokers, and traders--as specified in parts 17 and 21 of 
this chapter.
    (c) Traders who hold or control reportable positions as specified in 
part 18 of this chapter.
    (d) Persons, as specified in part 19 of this chapter, either:
    (1) Who hold or control futures and option positions that exceed the 
amounts set forth in Sec. 150.2 of this chapter for the commodities 
enumerated in that section, any part of which constitutes bona fide 
hedging positions (as defined in Sec. 1.3(z) of this chapter); or
    (2) Who are merchants or dealers of cotton holding or controlling 
positions for future delivery in cotton that equal or exceed the amount 
set forth in Sec. 15.03.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0009)

[41 FR 3206, Jan. 21, 1976, as amended at 41 FR 48112, Nov. 2, 1976; 43 
FR 45827, Oct. 4, 1978; 46 FR 59964, Dec. 8, 1981; 46 FR 63036, Dec. 30, 
1981; 47 FR 57013, Dec. 22, 1982; 56 FR 14194, Apr. 8, 1991; 62 FR 6113, 
Feb. 11, 1997; 62 FR 13301, Mar. 20, 1997; 71 FR 37817, July 3, 2006; 74 
FR 12189, Mar. 23, 2009]



Sec. 15.02  Reporting forms.

    Forms on which to report may be obtained from any office of the 
Commission or via the Internet (http://www.cftc.gov). Forms to be used 
for the filing of reports follow, and persons required to file these 
forms may be determined by referring to the rule listed in the column 
opposite the form number.

------------------------------------------------------------------------
          Form  No.                          Title                 Rule
------------------------------------------------------------------------
40...........................  Statement of Reporting Trader....   18.04
'01..........................  Positions of Special Accounts....   17.00
102..........................  Identification of Special           17.01
                                Accounts.
204..........................  Cash Positions of Grain Traders     19.00
                                (including Oilseeds and
                                Products).
304..........................  Cash Positions of Cotton Traders.   19.00
------------------------------------------------------------------------


(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0009)

[69 FR 76397, Dec. 21, 2004]



Sec. 15.03  Reporting levels.

    (a) Definitions. For purposes of this section:
    Broad-based security index is a group or index of securities that 
does not constitute a narrow-based security index.
    HedgeStreet products are contracts offered by HedgeStreet, Inc., a 
designated contract market, that pay up to $10.00 if in the money upon 
expiration.
    Major foreign currency is the currency, and the cross-rates between 
the currencies, of Japan, the United Kingdom, Canada, Australia, 
Switzerland, Sweden and the European Monetary Union.
    Narrow-based security index has the same meaning as in section 
1a(25) of the Commodity Exchange Act.
    Security futures product has the same meaning as in section 1a(32) 
of the Commodity Exchange Act.
    (b) The quantities for the purpose of reports filed under parts 17 
and 18 of this chapter are as follows:

------------------------------------------------------------------------
                                                               Number of
                          Commodity                            contracts
------------------------------------------------------------------------
Agricultural:
  Cocoa......................................................        100
  Coffee.....................................................         50
  Corn.......................................................        250
  Cotton.....................................................        100
  Feeder Cattle..............................................         50
  Frozen Concentrated Orange Juice...........................         50
  Lean Hogs..................................................        100
  Live Cattle................................................        100
  Milk, Class III............................................         50
  Oats.......................................................         60
  Rough Rice.................................................         50
  Soybeans...................................................        150
  Soybean Meal...............................................        200
  Soybean Oil................................................        200
  Sugar No. 11...............................................        500
  Sugar No. 14...............................................        100
  Wheat......................................................        150
Broad-Based Security Indexes:
  Municipal Bond Index.......................................        300

[[Page 351]]

 
  S&P 500 Stock Price Index..................................      1,000
  Other Broad-Based Securities Indexes.......................        200
Financial:
  30-Day Fed Funds...........................................        600
  3-Month (13-Week) U.S. Treasury Bills......................        150
  2-Year U.S. Treasury Notes.................................      1,000
  3-Year U.S. Treasury Notes.................................        750
  5-Year U.S. Treasury Notes.................................      2,000
  10-Year U.S. Treasury Notes................................      2,000
  30-Year U.S. Treasury Bonds................................      1,500
  1-Month LIBOR Rates........................................        600
  3-Month Eurodollar Time Deposit Rates......................      3,000
  3-Month Euroyen............................................        100
  2-Year German Federal Government Debt......................        500
  5-Year German Federal Government Debt......................        800
  10-Year German Federal Government Debt.....................      1,000
  Goldman Sachs Commodity Index..............................        100
  Major Foreign Currencies...................................        400
  Other Foreign Currencies...................................        100
  U.S. Dollar Index..........................................         50
Natural Resources:
  Copper.....................................................        100
  Crude Oil, Sweet...........................................        350
  Crude Oil, Sweet--No. 2 Heating Oil Crack Spread...........        250
  Crude Oil, Sweet--Unleaded Gasoline Crack Spread...........        150
  Gold.......................................................        200
  Natural Gas................................................        200
  No. 2 Heating Oil..........................................        250
  Platinum...................................................         50
  Silver Bullion.............................................        150
  Unleaded Gasoline..........................................        150
  Unleaded Gasoline--No. 2 Heating Oil Spread Swap...........        150
Security Futures Products:
  Individual Equity Security.................................      1,000
  Narrow-Based Security Index................................        200
Hedge Street Products........................................        \1\
                                                                 125,000
TRAKRS.......................................................        \1\
                                                                  50,000
All Other Commodities........................................        25
------------------------------------------------------------------------
\1\ For purposes of part 17, positions in HedgeStreet Products and
  TRAKRS should be reported by rounding down to the nearest 1,000
  contracts and dividing by 1,000.


[69 FR 76397, Dec. 21, 2004, as amended at 71 FR 37817, July 3, 2006]



Sec. 15.04  [Reserved]



Sec. 15.05  Designation of agent for foreign persons.

    (a) For purposes of this section, the term ``futures contract'' 
means any contract for the purchase or sale of any commodity for future 
delivery, or a contract identified under section 36.3(b)(1)(i) as traded 
in reliance on the exemption in section 2(h)(3) of the Act, traded or 
executed on or subject to the rules of any designated contract market or 
registered derivatives transaction execution facility, or for the 
purposes of paragraph (i) of this section, a reporting market (including 
all agreements, contracts and transactions that are treated by a 
clearing organization as fungible with such contracts); the term 
``option contract'' means any contract for the purchase or sale of a 
commodity option, or as applicable, any other instrument subject to the 
Act pursuant to section 5a(g) of the Act, traded or executed on or 
subject to the rules of any designated contract market or registered 
derivatives transaction execution facility, or for the purposes of 
paragraph (i) of this section, a reporting market (including all 
agreements, contracts and transactions that are treated by a clearing 
organization as fungible with such contracts); the term ``customer'' 
means any person for whose benefit a foreign broker makes or causes to 
be made any futures contract or option contract; and the term 
``communication'' means any summons, complaint, order, subpoena, special 
call, request for information, or notice, as well as any other written 
document or correspondence.
    (b) Any futures commission merchant who makes or causes to be made 
any futures contract or option contract for the account of any foreign 
broker or foreign trader, and any introducing broker who introduces such 
an account to a futures commission merchant, shall thereupon be deemed 
to be the agent of the foreign broker or the foreign trader for purposes 
of accepting delivery and service of any communication issued by or on 
behalf of the Commission to the foreign broker or the foreign trader 
with respect to any futures or option contracts which are or have been 
maintained in such accounts carried by the futures commission merchant. 
In the case of a futures commission merchant who makes or causes to be 
made any futures or option contract for the account of a foreign broker, 
the futures commission merchant and the introducing broker, if any, 
shall also be the agent of the customers of the foreign broker 
(including any customer who is also a foreign broker and its customers) 
who have positions in the foreign broker's futures or option contract 
account carried by the futures commission merchant for purposes of 
accepting delivery and service of any communication issued by or on 
behalf of the Commission to the customer with respect to any futures or 
option contracts which

[[Page 352]]

are or have been maintained in such accounts carried by the futures 
commission merchant. Service or delivery of any communication issued by 
or on behalf of the Commission to a futures commission merchant or to an 
introducing broker pursuant to such agency shall constitute valid and 
effective service or delivery upon the foreign broker, a customer of the 
foreign broker or the foreign trader. A futures commission merchant or 
an introducing broker who has been served with, or to whom there has 
been delivered, a communication issued by or on behalf of the Commission 
to a foreign broker, a customer of the foreign broker or the foreign 
trader shall transmit the communication promptly and in a manner which 
is reasonable under the circumstances, or in a manner specified by the 
Commission in the communication, to the foreign broker, a customer of 
the foreign broker or the foreign trader.
    (c) It shall be unlawful for any futures commission merchant and for 
any introducing broker to open or cause to be opened a futures or 
options contract account for, or to effect or cause to be effected 
transactions in futures contracts or option contracts for an existing 
account of, a foreign broker or foreign trader unless the futures 
commission merchant or introducing broker informs the foreign broker or 
foreign trader prior thereto, in any reasonable manner which the futures 
commission merchant or introducing broker deems to be appropriate, of 
the requirements of this section.
    (d) The requirements of paragraphs (b) and (c) of this section shall 
not apply to any account carried by a futures commission merchant or 
introduced by an introducing broker if the foreign broker, customer of a 
foreign broker, or foreign trader for whose benefit such account is 
carried or introduced has duly executed and maintains in effect a 
written agency agreement in compliance with this paragraph with a person 
domiciled in the United States and has provided a copy of the agreement 
to the futures commission merchant and to the introducing broker, if 
any, prior to the opening of an account, or placing orders for 
transactions in futures contracts or option contracts of an existing 
account, with the futures commission merchant or introducing broker. 
This agreement must authorize the person domiciled in the United States 
to serve as the agent of the foreign broker and customers of the foreign 
broker or the foreign trader for purposes of accepting delivery and 
service of all communications issued by or on behalf of the Commission 
to the foreign broker, customers of the foreign broker, or foreign 
trader and must provide an address in the United States where the agent 
will accept delivery and service of communications from the Commission. 
This agreement must be filed with the Commission by the futures 
commission merchant or introducing broker prior to the opening of an 
account for the foreign broker or foreign trader or the effecting of a 
transaction in futures or option contracts for an existing account of a 
foreign broker or foreign trader. Unless otherwise specified by the 
Commission, the agreements required to be filed with the Commission 
shall be filed with the Secretary of the Commission at Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581. A foreign broker, 
customer of a foreign broker, or foreign trader shall notify the 
Commission immediately if the written agency agreement is terminated, 
revoked or is otherwise no longer in effect. If a futures commission 
merchant carrying, or an introducing broker introducing, an account for 
a foreign broker or foreign trader knows or should know that the 
agreement has expired, has been terminated or is otherwise no longer in 
effect, the futures commission merchant or introducing broker shall 
notify the Secretary of the Commission immediately. If the written 
agency agreement expires, terminates or is not in effect, the futures 
commission merchant, introducing broker, and the foreign broker, 
customers of the foreign broker, or foreign trader are subject to the 
provisions of paragraphs (b) and (c) of this section.
    (e) Any designated contract market or registered derivatives 
transaction execution facility that permits a foreign broker to 
intermediate contracts, agreements or transactions, or permits a foreign 
trader to effect contracts,

[[Page 353]]

agreements or transactions on the facility or exchange, shall be deemed 
to be the agent of the foreign broker and any of its customers for whom 
the transactions were executed, or the foreign trader, for purposes of 
accepting delivery and service of any communication issued by or on 
behalf of the Commission to the foreign broker, any of its customers or 
the foreign trader with respect to any contracts, agreements or 
transactions executed by the foreign broker or the foreign trader on the 
designated contract market or registered derivatives transaction 
execution facility. Service or delivery of any communication issued by 
or on behalf of the Commission to a designated contract market or 
registered derivatives transaction execution facility shall constitute 
valid and effective service upon the foreign broker, any of its 
customers, or the foreign trader. A designated contract market or 
registered derivatives transaction execution facility which has been 
served with, or to which there has been delivered, a communication 
issued by or on behalf of the Commission to a foreign broker, any of its 
customers, or a foreign trader shall transmit the communication promptly 
and in a manner which is reasonable under the circumstances, or in a 
manner specified by the Commission in the communication, to the foreign 
broker, any of its customers or the foreign trader.
    (f) It shall be unlawful for any designated contract market or 
registered derivatives transaction execution facility to permit a 
foreign broker, any of its customers or a foreign trader to effect 
contracts, agreements or transactions on the facility unless the 
designated contract market or registered derivatives transaction 
execution facility prior thereto informs the foreign broker, any of its 
customers or the foreign trader, in any reasonable manner the facility 
deems to be appropriate, of the requirements of this section.
    (g) The requirements of paragraphs (e) and (f) of this section shall 
not apply to any contracts, transactions or agreements traded on any 
designated contract market or registered derivatives transaction 
execution facility if the foreign broker, any of its customers or the 
foreign trader has duly executed and maintains in effect a written 
agency agreement in compliance with this paragraph with a person 
domiciled in the United States and has provided a copy of the agreement 
to the designated contract market or registered derivatives transaction 
execution facility prior to effecting any contract, agreement or 
transaction on the facility. This agreement must authorize the person 
domiciled in the United States to serve as the agent of the foreign 
broker, any of its customers or the foreign trader for purposes of 
accepting delivery and service of all communications issued by or on 
behalf of the Commission to the foreign broker, any of its customers or 
the foreign trader and must provide an address in the United States 
where the agent will accept delivery and service of communications from 
the Commission. This agreement must be filed with the Commission by the 
designated contract market or registered derivatives transaction 
execution facility prior to permitting the foreign broker, any of its 
customers or the foreign trader to effect any transactions in futures or 
option contracts. Unless otherwise specified by the Commission, the 
agreements required to be filed with the Commission shall be filed with 
the Secretary of the Commission at Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581. A foreign broker, any of its 
customers or a foreign trader shall notify the Commission immediately if 
the written agency agreement is terminated, revoked, or is otherwise no 
longer in effect. If the designated contract market or registered 
derivatives transaction execution facility knows or should know that the 
agreement has expired, been terminated, or is no longer in effect, the 
designated contract market or registered derivatives transaction 
execution facility shall notify the Secretary of the Commission 
immediately. If the written agency agreement expires, terminates, or is 
not in effect, the designated contract market or registered derivatives 
transaction execution facility and the foreign broker, any of its 
customers or the foreign trader are subject to the provisions of 
paragraphs (e) and (f) of this section.

[[Page 354]]

    (h) The provisions of paragraphs (e), (f) and (g) of this section 
shall not apply to a designated contract market or registered 
derivatives transaction execution facility on which all transactions of 
foreign brokers, their customers or foreign traders in futures or option 
contracts are executed through, or the resulting transactions are 
maintained in, accounts carried by a registered futures commission 
merchant or introduced by a registered introducing broker subject to the 
provisions of paragraphs (a), (b), (c) and (d) of this section.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0009)
    (i) Any reporting market that is a registered entity under section 
1a(29)(E) of the Act that permits a foreign clearing member or foreign 
trader to clear or effect contracts, agreements or transactions on the 
trading facility or its clearing organization, shall be deemed to be the 
agent of the foreign clearing member or foreign trader with respect to 
any such contracts, agreements or transactions cleared or executed by 
the foreign clearing member or the foreign trader. Service or delivery 
of any communication issued by or on behalf of the Commission to the 
reporting market shall constitute valid and effective service upon the 
foreign clearing member or foreign trader. The reporting market which 
has been served with, or to which there has been delivered, a 
communication issued by or on behalf of the Commission to a foreign 
clearing member or foreign trader shall transmit the communication 
promptly and in a manner which is reasonable under the circumstances, or 
in a manner specified by the Commission in the communication, to the 
foreign clearing member or foreign trader.
    (1) It shall be unlawful for any such reporting market to permit a 
foreign clearing member or a foreign trader to clear or effect 
contracts, agreements or transactions on the facility or its clearing 
organization unless the reporting market prior thereto informs the 
foreign clearing member or foreign trader of the requirements of this 
section.
    (2) The requirements of paragraphs (i) and (i)(1) of this section 
shall not apply to any contracts, transactions or agreements if the 
foreign clearing member or foreign trader has duly executed and 
maintains in effect a written agency agreement in compliance with this 
paragraph with a person domiciled in the United States and has provided 
a copy of the agreement to the reporting market prior to effecting or 
clearing any contract, agreement or transaction on the trading facility 
or its clearing organization. This agreement must authorize the person 
domiciled in the United States to serve as the agent of the foreign 
clearing member or foreign trader for the purposes of accepting delivery 
and service of all communications issued by or on behalf of the 
Commission to the foreign clearing member or the foreign trader and must 
provide an address in the United States where the agent will accept 
delivery and service of communications from the Commission. This 
agreement must be filed with the Commission by the reporting market 
prior to permitting the foreign clearing member or the foreign trader to 
clear or effect any transactions in futures or option contracts. Unless 
otherwise specified by the Commission, the agreements required to be 
filed with the Commission shall be filed with the Secretary of the 
Commission at Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581.
    (3) A foreign clearing member or a foreign trader shall notify the 
Commission immediately if the written agency agreement is terminated, 
revoked, or is otherwise no longer in effect. If the reporting market 
knows or should know that the agreement has expired, been terminated, or 
is no longer in effect, the reporting market shall notify the Secretary 
of the Commission immediately. If the written agency agreement expires, 
terminates, or is not in effect, the reporting market, the foreign 
clearing member and the foreign trader shall be subject to the 
provisions of paragraphs (i) and (i)(1) of this section.

[46 FR 63036, Dec. 30, 1981, and 47 FR 57013, Dec. 22, 1982, as amended 
at 48 FR 35300, Aug. 3, 1983; 60 FR 49335, Sept. 25, 1995; 66 FR 42269, 
Aug. 10, 2001; 71 FR 37818, July 3, 2006; 74 FR 12189, Mar. 23, 2009]

[[Page 355]]



Sec. 15.06  Delegations.

    (a) The Commission hereby delegates, until the Commission orders 
otherwise, the authority to approve data processing media, as referenced 
in Sec. 15.00(d), for data submissions to the Director of the Division 
of Market Oversight, to be exercised by such Director or by such other 
employee or employees of such Director as designated from time to time 
by the Director. The Director may submit to the Commission for its 
consideration any matter which has been delegated in this paragraph. 
Nothing in this paragraph prohibits the Commission, at its election, 
from exercising the authority delegated in this paragraph.
    (b) [Reserved]

[74 FR 12190, Mar. 23, 2009]



PART 16_REPORTS BY REPORTING MARKETS--Table of Contents



Sec.
16.00 Clearing member reports.
16.01 Trading volume, open contracts, prices, and critical dates.
16.02 Daily trade and supporting data reports.
16.03-16.05 [Reserved]
16.06 Errors or omissions.
16.07 Delegation of authority to the Director of the Division of Market 
          Oversight.

    Authority: 7 U.S.C. 2, 6a, 6c, 6g, 6i, 7, 7a and 12a, as amended by 
Title XIII of the Food, Conservation and Energy Act of 2008, Public Law 
110-246, 122 Stat. 1624 (June 18, 2008), unless otherwise noted.



Sec. 16.00  Clearing member reports.

    (a) Information to be provided. Each reporting market shall submit 
to the Commission, in accordance with paragraph (b) of this section, a 
report for each business day, showing for each clearing member, by 
proprietary and customer account, the following information separately 
for futures by commodity and by future, and, for options, by underlying 
futures contract for options on futures contracts or by underlying 
physical for options on physicals, and by put, by call, by expiration 
date and by strike price:
    (1) The total of all long open contracts and the total of all short 
open contracts carried at the end of the day covered by the report, 
excluding from open futures contracts the number of contracts against 
which delivery notices have been stopped or against which delivery 
notices have been issued by the clearing organization of the reporting 
market;
    (2) The quantity of contracts bought and the quantity of contracts 
sold during the day covered by the report;
    (3) [Reserved]
    (4) The quantity of purchases of futures for commodities or for 
derivatives positions and the quantity of sales of futures for 
commodities or for derivatives positions which are included in the total 
quantity of contracts bought and sold during the day covered by the 
report, and the names of the clearing members who made the purchases or 
sales;
    (5) For futures, the quantity of the commodity for which delivery 
notices have been issued by the clearing organization of the reporting 
market and the quantity for which notices have been stopped during the 
day covered by the report.
    (b) Form, manner and time of filing reports. Unless otherwise 
approved by the Commission or its designee, reporting markets shall 
submit the information required by paragraph (a) of this section as 
follows:
    (1) Using the format, coding structure, and electronic data 
transmission procedures approved in writing by the Commission or its 
designee; provided however, the information shall be made available to 
the Commission or its designee in hard copy upon request; and
    (2) When such data is first available but not later than 12:00 p.m. 
on the business day following the day to which the information pertains. 
Unless otherwise specified by the Commission or its designee, the stated 
time is eastern time for information concerning markets located in that 
time zone, and central time for information concerning all other 
markets.
    (c) Exclusively self-cleared contracts. Unless determined otherwise 
by the

[[Page 356]]

Commission, paragraph (a) of this section shall not apply to 
transactions involving exclusively self-cleared contracts.

(Approved by the Office of Management and Budget under control number 
3038-0009)

[46 FR 54526, Nov. 3, 1981, as amended at 46 FR 63036, Dec. 30, 1981; 47 
FR 57014, Dec. 22, 1982; 51 FR 4717, Feb. 7, 1986; 52 FR 18910, May 20, 
1987; 62 FR 24031, May 2, 1997; 69 FR 76398, Dec. 21, 2004; 71 FR 37818, 
July 3, 2006]



Sec. 16.01  Trading volume, open contracts, prices, and critical dates.

    (a) Trading volume and open contracts. Each reporting market shall 
record for each business day the following information separately for 
futures by commodity and by future, and, for options, by underlying 
futures contract for options on futures contracts or by underlying 
physical for options on physicals, and by put, by call, by expiration 
date and by strike price:
    (1) The option delta, where a delta system is used;
    (2) The total gross open contracts, excluding from futures those 
contracts against which notices have been stopped;
    (3) For futures, open contracts against which delivery notices have 
been stopped on that business day;
    (4) The total volume of trading, excluding transfer trades or office 
trades;
    (5) The total volume of futures exchanged for commodities or for 
derivatives positions which are included in the total volume of trading;
    (6) The total volume of block trades which are included in the total 
volume of trading.
    (b) Prices. Each reporting market shall record the following 
information separately for futures, by commodity and by future, and, for 
options, by underlying futures contract for options on futures contracts 
or by underlying physical for options on physicals, and by put, by call, 
by expiration date and by strike price:
    (1) For the trading session and for the opening and closing periods 
of trading as determined by each reporting market:
    (i) The lowest price of a sale or offer, whichever is lower, and the 
highest price of a sale or bid, whichever is higher, that the reporting 
market reasonably determines accurately reflect market conditions. If 
vacated or withdrawn, bids and offers shall not be used in making this 
determination. A bid is vacated if followed by a higher bid or price and 
an offer is vacated if followed by a lower offer or price.
    (ii) If there are no transactions, bids, or offers during the 
opening or closing periods, the reporting market may record as 
appropriate:
    (A) The first price (in lieu of opening price data) or the last 
price (in lieu of closing price data) occurring during the trading 
session, clearly indicating that such prices are the first and the last 
price; or
    (B) Nominal opening or nominal closing prices which the reporting 
market reasonably determines accurately reflect market conditions, 
clearly indicating that such prices are nominal.
    (2) The settlement price established by each reporting market or its 
clearing organization.
    (3) Additional information. Each reporting market shall record the 
following information with respect to transactions in commodity futures 
and commodity options on that reporting market:
    (i) The method used by the reporting market in determining nominal 
prices and settlement prices; and
    (ii) If discretion is used by the reporting market in determining 
the opening and closing ranges or the settlement prices, an explanation 
that certain discretion may be employed by the reporting market and a 
description of the manner in which that discretion may be employed.
    (c) Critical dates. Each reporting market shall report to the 
Commission for each futures contract the first notice date and the last 
trading date and for each option contract the expiration date in 
accordance with paragraph (d) of this section.
    (d) Form, manner and time of filing reports. Unless otherwise 
approved by the Commission or its designee, reporting markets shall 
submit to the Commission the information specified in paragraphs (a)(1) 
through (a)(5), (b) and (c) of this section as follows:
    (1) Using the format, coding structure and electronic data 
transmission procedures approved in writing by the

[[Page 357]]

Commission or its designee; provided however, the information shall be 
made available to the Commission or its designee in hard copy upon 
request; and
    (2) When each such form of the data is first available but not later 
than 7:00 a.m. on the business day following the day to which the 
information pertains for the delta factor and settlement price and not 
later than 12:00 p.m. for the remainder of the information. Unless 
otherwise specified by the Commission or its designee, the stated time 
is eastern time for information concerning markets located in that time 
zone, and central time for information concerning all other markets.
    (e) Publication of recorded information. (1) Reporting markets shall 
make the information in paragraph (a) of this section readily available 
to the news media and the general public without charge, in a format 
that readily enables the consideration of such data, no later than the 
business day following the day to which the information pertains. The 
information in paragraphs (a)(4) through (a)(6) of this section shall be 
made readily available in a format that presents the information 
together.
    (2) Reporting markets shall make the information in paragraphs 
(b)(1) and (b)(2) of this section readily available to the news media 
and the general public, and the information in paragraph (b)(3) of this 
section readily available to the general public, in a format that 
readily enables the consideration of such data, no later than the 
business day following the day to which the information pertains.

(Approved by the Office of Management and Budget under control number 
3038-0012)

[46 FR 54526, Nov. 3, 1981, as amended at 46 FR 63036, Dec. 30, 1981; 47 
FR 57014, Dec. 22, 1982; 51 FR 4717, Feb. 7, 1986; 51 FR 17474, May 13, 
1986; 62 FR 24032, May 2, 1997; 69 FR 76399, Dec. 21, 2004; 71 FR 37818, 
July 3, 2006; 74 FR 12190, Mar. 23, 2009]



Sec. 16.02  Daily trade and supporting data reports.

    Reporting markets shall provide trade and supporting data reports to 
the Commission on a daily basis. Such reports shall include transaction-
level trade data and related order information for each futures or 
options contract. Reports shall also include time and sales data, 
reference files and other information as the Commission or its designee 
may require. All reports must be submitted at the time, and in the 
manner and format, and with the specific content specified by the 
Commission or its designee. Upon request, such information shall be 
accompanied by data that identifies or facilitates the identification of 
each trader for each transaction or order included in a submitted trade 
and supporting data report if the reporting market maintains such data.

[74 FR 12190, Mar. 23, 2009]



Sec. Sec. 16.03-16.05  [Reserved]



Sec. 16.06  Errors or omissions.

    Unless otherwise approved by the Commission or its designee, 
reporting markets shall file corrections to errors or omissions in data 
previously filed with the Commission pursuant to Sec. Sec. 16.00 and 
16.01 in the format and using the coding structure and electronic data 
submission procedures approved in writing by the Commission or its 
designee.

[71 FR 37819, July 3, 2006]



Sec. 16.07  Delegation of authority to the Director of the Division of Market Oversight.

    The Commission hereby delegates, until the Commission orders 
otherwise, the authority set forth in paragraphs (a), (b) and (c) of 
this section to the Director of the Division of Market Oversight, to be 
exercised by such Director or by such other employee or employees of 
such Director as may be designated from time to time by the Director. 
The Director of the Division of Market Oversight may submit to the 
Commission for its consideration any matter which has been delegated in 
this paragraph. Nothing in this paragraph prohibits the Commission, at 
its election, from exercising the authority delegated in this paragraph.
    (a) Pursuant to Sec. Sec. 16.00(b) and 16.01(d), as applicable, the 
authority to determine whether reporting markets must submit data in 
hard copy, and the time that such data may be submitted where

[[Page 358]]

the Director determines that a reporting market is unable to meet the 
requirements set forth in the regulations;
    (b) Pursuant to Sec. Sec. 16.00(b)(1), 16.01(d)(1), and 16.06, the 
authority to approve the format, coding structure and electronic data 
transmission procedures used by reporting markets.
    (c) Pursuant to Sec. 16.02, the authority to determine the specific 
content of any daily trade and supporting data report, request that such 
reports be accompanied by data that identifies or facilitates the 
identification of each trader for each transaction or order included in 
a submitted trade and supporting data report, and establish the time for 
the submission of and the manner and format of such reports.

[62 FR 24032, May 2, 1997, as amended at 67 FR 62352, Oct. 7, 2002; 71 
FR 37819, July 3, 2006; 74 FR 12190, Mar. 23, 2009]



PART 17_REPORTS BY REPORTING MARKETS, FUTURES

COMMISSION MERCHANTS, CLEARING MEMBERS, AND FOREIGN BROKERS--Table of Contents



Sec.
17.00 Information to be furnished by futures commission merchants, 
          clearing members and foreign brokers.
17.01 Special account designation and identification.
17.02 Form, manner and time of filing reports.
17.03 Delegation of authority to the Director of the Division of Market 
          Oversight.
17.04 Reporting omnibus accounts to the carrying futures commission 
          merchant or foreign broker.

    Authority: 7 U.S.C. 2, 6a, 6c, 6d, 6f, 6g, 6i, 7, 7a and 12a, as 
amended by Title XIII of the Food, Conservation and Energy Act of 2008, 
Public Law No. 110-246, 122 Stat. 1624 (June 18, 2008), unless otherwise 
noted.



Sec. 17.00  Information to be furnished by futures commission merchants, clearing 

members and foreign brokers.

    (a) Special accounts--reportable futures and options positions, 
delivery notices, and exchanges of futures. (1) Each futures commission 
merchant, clearing member and foreign broker shall submit a report to 
the Commission for each business day with respect to all special 
accounts carried by the futures commission merchant, clearing member or 
foreign broker, except for accounts carried on the books of another 
futures commission merchant or clearing member on a fully-disclosed 
basis. Except as otherwise authorized by the Commission or its designee, 
such report shall be made in accordance with the format and coding 
provisions set forth in paragraph (g) of this section. The report shall 
show each futures position, separately for each reporting market and for 
each future, and each put and call options position separately for each 
reporting market, expiration and strike price en each special account as 
of the close of market on the day covered by the report and, in 
addition, the quantity of exchanges of futures for commodities or for 
derivatives positions and the number of delivery notices issued for each 
such account by the clearing organization of a reporting market and the 
number stopped by the account. The report shall also show all positions 
in all contract months and option expirations of that same commodity on 
the same reporting market for which the special account is reportable.
    (2) A report covering the first day upon which a special account is 
no longer reportable shall also be filed showing the information 
specified in paragraph (a)(1) of this section.
    (b) Interest in or control of several accounts. Except as otherwise 
instructed by the Commission or its designee and as specifically 
provided in Sec. 150.4 of this chapter, if any person holds or has a 
financial interest in or controls more than one account, all such 
accounts shall be considered by the futures commission merchant, 
clearing member or foreign broker as a single account for the purpose of 
determining special account status and for reporting purposes. For 
purposes of this section, the following shall apply:
    (1) Accounts of eligible entities--Accounts of eligible entities as 
defined in Sec. 150.1 of this chapter that are traded by an independent 
account controller shall, together with other accounts traded by the 
independent account controller or in which the independent controller 
has a financial interest, be considered a single account.

[[Page 359]]

    (2) Accounts controlled by two or more persons--Accounts that are 
subject to day-to-day trading control by two or more persons shall, 
together with other accounts subject to control by exactly the same 
persons, be considered a single account.
    (3) Account ownership. Multiple accounts owned by a trader shall be 
considered a single account as provided under Sec. Sec. 150.4(b), (c) 
and (d) of this chapter.
    (c) [Reserved]
    (d) Net positions. Futures commission merchants, clearing members 
and foreign brokers shall report positions net long or short in each 
future of a commodity and each strike price of a put or call option for 
each expiration month in all special accounts, except as specified in 
paragraph (e) of this section.
    (e) Gross positions. In the following cases, the futures commission 
merchant, clearing member or foreign broker shall report gross long and 
short positions in each future of a commodity and each strike price of a 
put or call option for each expiration month in all special accounts:
    (1) Positions which are reported to an exchange or the clearinghouse 
of an exchange on a gross basis, which the exchange uses for calculating 
total open interest in a commodity;
    (2) Positions in accounts owned or held jointly with another person 
or persons;
    (3) Positions in multiple accounts subject to trading control by the 
same trader; and
    (4) Positions in omnibus accounts.
    (f) Omnibus accounts. If the total open long positions or the total 
open short positions for any future of a commodity carried in an omnibus 
account is a reportable position, the omnibus account is in Special 
Account status and shall be reported by the futures commission merchant 
or foreign broker carrying the account in accordance with paragraph (a) 
of this section.
    (g) Media and file characteristics. (1) Except as otherwise approved 
by the Commission or its designee, all required records shall be 
submitted together in a single file. Each record will be 80 characters 
long. The specific record format is shown in the table below:

                              Record Layout
------------------------------------------------------------------------
                                       Type
      Beginning column        Length    \1\              Name
------------------------------------------------------------------------
1...........................       2  AN      Report Type.
3...........................       3  AN      Reporting Firm.
6...........................       2  ......  Reserved.
8...........................      12  AN      Account Number.
20..........................       8  AN      Report Date.
28..........................       2  AN      Exchange Code.
30..........................       1  AN      Put or Call.
31..........................       5  AN      Commodity Code (1).
36..........................       8  AN      Expiration Date (1).
44..........................       7  S       Strike Price.
51..........................       1  AN      Exercise Style.
52..........................       7  N       Long--Buy--Stopped.
59..........................       7  N       Short--Sell--Issued.
66..........................       5  AN      Commodity Code (2).
71..........................       8  AN      Expiration Date (2).
79..........................       2  ......  Reserved.
80..........................       1  AN      Record Type.
------------------------------------------------------------------------
\1\ AN--Alpha--numeric, N--Numeric, S--Signed numeric.

    (2) Field definitions are as follows:
    (i) Report type. This report format will be used to report three 
types of data: long and short futures and options positions, futures 
delivery notices issued and stopped, and exchanges of futures for a 
commodity or for a derivatives position bought and sold. Valid values 
for the report type are ``RP'' for reporting positions, ``DN'' for 
reporting notices, and ``EP'' for reporting exchanges of futures for a 
commodity or for a derivatives position.
    (ii) Reporting firm. The clearing member number assigned by an 
exchange or clearing house to identify reporting firms. If a firm is not 
a clearing member, a three-character alpha-numeric identifier assigned 
by the Commission.
    (iii) Account number. A unique identifier assigned by the reporting 
firm to each special account. The field is zero filled with account 
number right-justified. Assignment of the account number is subject to 
the provisions of Sec. Sec. 17.00 (b) and (c) and 17.01(a).
    (iv) Report date. The format is YYYYMMDD, where YYYY is the year, MM 
is the month, and DD is the day of the month.
    (v) Exchange. This is a two-character field approved by the 
Commission to identify the exchange on which a position is held.
    (vi) Put or Call. Valid values for this field are ``C'' for a call 
option and ``P'' for a put option. For futures, the field is blank.

[[Page 360]]

    (vii) Commodity (1). An exchange-assigned commodity code for the 
futures or options contract.
    (viii) Expiration date (1). The date format is YYYYMMDD and 
represents the expiration date or delivery date of the reported futures 
or options contract. For date-specific instruments such as flexible 
products, the full date must be reported. For other options and futures, 
this field is used to report the expiration year and month for an 
options contract or a delivery year and month for a futures contract. 
The day portion of the field for these contracts contains spaces.
    (ix) Strike price. This is a signed numeric field for reporting 
options strike prices. The strike prices should be right-justified and 
the field zero-filled. Strike prices must be reported in the same 
formats that are used by an exchange. For futures, the field is left 
blank.
    (x) Exercise style. Valid values for this field are ``A'' for 
American style options, i.e., those that can be exercised at any time 
during the life of the options; and ``E'' for European, i.e., those that 
can be exercised only at the end of an option's life. This field is 
required only for flexible instruments or as otherwise specified by the 
Commission.
    (xi) Long-Buy-Stopped (Short-Sell-Issued). When report type is 
``RP'', report long (short) positions open at the end of a trading day. 
When report is ``DN'', report delivery notices stopped (issued) on 
behalf of the account. When report type is ``EP'', report purchases 
(sales) of futures for a commodity or for a derivatives position for the 
account. Report all information in contracts. Position data are reported 
on a net or gross basis in accordance with paragraphs (d) and (e) of 
this section.
    (xii) Commodity (2). The exchange assigned commodity code for a 
futures contract or other instrument that a position is exercised into 
from a date-specific or flexible option.
    (xiii) Expiration date (2). Similar to other dates, the format is 
YYYYMMDD and represents the expiration date or delivery month and year 
of the future or other instrument that a position is exercised into from 
a date-specific or flexible option.
    (xiv) Record type (1). Record type is used to correct errors or 
delete records that have previously been submitted. Valid values are 
``A'', ``C'', ``D'' or ``blank''. An A or ``blank'' is used in this 
field for all new records. If the record corrects information for a 
previously provided record, this field must contain a ``C'' or ``blank'' 
and the record must contain all information on the previously 
transmitted record. If the record deletes information on a previously 
provided record, this field must contain a ``D'' and all information on 
the previously transmitted record.
    (h) Correction of errors and omissions. Unless otherwise approved by 
the Commission or its designee, corrections to errors and omissions in 
data provided pursuant to Sec. 17.00(a) shall be filed on series `01 
forms or in the format, coding structure and data transmission 
procedures approved in writing by the Commission or its designee.
    (i) Exclusively self-cleared contracts. Unless determined otherwise 
by the Commission, reporting markets that list exclusively self-cleared 
contracts shall meet the requirements of paragraphs (a) through (h) of 
this section, as they apply to trading in such contracts by all clearing 
members, on behalf of all clearing members.

(Approved by the Office of Management and Budget under control number 
3038-0009)

[41 FR 3207, Jan. 21, 1976]

    Editorial Note: For Federal Register citations affecting Sec. 
17.00, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.fdsys.gov.



Sec. 17.01  Special account designation and identification.

    When a special account is reported for the first time, the futures 
commission merchant, clearing member, or foreign broker shall identify 
the account to the Commission on Form 102, in the form and manner 
specified in Sec. 17.02, showing the information in paragraphs (a) 
through (f) of this section.
    (a) Special account designator. A unique identifier for the account, 
provided, that the same designator is assigned for option and futures 
reporting, and the designator is not changed or assigned to another 
account without

[[Page 361]]

prior approval of the Commission or its designee.
    (b) Special account identification. The name, address, business 
phone, and for individuals, the person's job title and employer for the 
following:
    (1) The person originating the account, if the special account is a 
house omnibus or customer omnibus account; or
    (2) The person (i.e., individual, corporation, partnership, etc.) 
who owns the special account, if such person (or an employee or officer) 
also controls the trading of the special account. And, in addition:
    (i) The registration status of the person as a commodity trading 
advisor or a securities investment advisor;
    (ii) The legal organization of the person and the person's principal 
business or occupation;
    (iii) Account numbers and account names included in the special 
account, if different than supplied in paragraph (b)(2) of this section;
    (iv) The name and location of all persons not identified in 
paragraph (b)(2) of this section having a ten percent or more financial 
interest in the special account, indicating those having discretionary 
trading over the account; and
    (v) For special accounts with five or fewer persons having trading 
authority, the names and locations of all persons with trading authority 
that have not been identified in paragraphs (b)(2) or (b)(2)(iv) of this 
section; or
    (3) The account controller, if trading of the special account is 
controlled by a person or legal entity who is an independent account 
controller for the account owners as defined in Sec. 150.1(e). And, in 
addition:
    (i) The registration status of the person as a commodity trading 
advisor or a securities investment advisor;
    (ii) [Reserved]
    (iii) If fewer than ten accounts are under control of the 
independent advisor, for each account the account number and the name 
and location of each person having a ten percent or more financial 
interest in the account; and
    (iv) On call by the Commission or its designee, for each account 
controlled by the independent advisor, the account number and account 
name and the name and location of each person having a ten percent or 
more financial interest in the account.
    (c) [Reserved]
    (d) Commercial use. For futures or options, commodities in which 
positions or transactions in the account are associated with a 
commercial activity of the account owner in a related cash commodity or 
activity (i.e., those considered as hedging, risk-reducing, or otherwise 
off-setting with respect to the cash commodity or activity).
    (e) Account executive. The name and business telephone number of the 
associated person of the futures commission merchant who has solicited 
and is responsible for the account or, in the case of an introduced 
account, the name and business telephone number of the introducing 
broker who introduced the account.
    (f) Reporting firms. The name and address of the futures commission 
merchant, clearing member, or foreign broker carrying the account, and 
the name, title and business phone of the authorized representative of 
the firm filing the Form 102 and the date of the Form 102. The 
authorized representative shall sign the Form 102 or satisfy such other 
requirements for authenticating the report as instructed in writing by 
the Commission or its designee.
    (g) Form 102 updates. If, at the time an account is in special 
account status and a Form 102 filed by a futures commission merchant, 
clearing member, or foreign broker is then no longer accurate because 
there has been a change in the information required under paragraph (b) 
of this section since the previous filing, the futures commission 
merchant, clearing member, or foreign broker shall file an updated Form 
102 with the Commission within three business days after such change 
occurs.
    (h) Exclusively self-cleared contracts. Unless determined otherwise 
by the Commission, reporting markets that list exclusively self-cleared 
contracts shall meet the requirements of paragraphs (a) through (g) of 
this section,

[[Page 362]]

as they apply to trading in such contracts by all clearing members, on 
behalf of all clearing members.

[61 FR 6312, Feb. 20, 1996, as amended at 65 FR 14458, Mar. 17, 2000; 69 
FR 76400, Dec. 21, 2004; 71 FR 37820, July 3, 2006]



Sec. 17.02  Form, manner and time of filing reports.

    Unless otherwise instructed by the Commission or its designee, the 
reports required to be filed by reporting markets, futures commission 
merchants, clearing members and foreign brokers under Sec. Sec. 17.00 
and 17.01 shall be filed as specified in paragraphs (a) and (b) of this 
section.
    (a) Section 17.00(a) reports. Reports filed under Sec. 17.00(a) 
shall be submitted through electronic data transmission procedures 
approved in writing by the Commission or its designee not later than 9 
a.m. on the business day following that to which the information 
pertains. Unless otherwise specified by the Commission or its designee, 
the stated time is eastern time for information concerning markets 
located in that time zone, and central time for information concerning 
all other markets.
    (b) Section 17.01 reports. For data submitted pursuant to Sec. 
17.01 on Form 102:
    (1) On call by the Commission or its designee, identify the type of 
special account specified by items 1(a), 1(b), or 1(c) of Form 102, and 
the name and location of the person to be identified in item 1(d) on the 
Form 102, and submit such information by facsimile or telephone, in 
accordance with instructions by the Commission or its designee, on the 
same day that the special account in question is first reported to the 
Commission; and
    (2) Submit a completed Form 102 within three business days of the 
first day that the special account in question is reported to the 
Commission in accordance with instructions by the Commission or its 
designee.

[71 FR 37820, July 3, 2006]



Sec. 17.03  Delegation of authority to the Director of the Division of Market Oversight.

    The Commission hereby delegates, until the Commission orders 
otherwise, the authority set forth in the paragraphs below to the 
Director of the Division of Market Oversight to be exercised by such 
Director or by such other employee or employees of such Director as 
designated from time to time by the Director. The Director of the 
Division of Market Oversight may submit to the Commission for its 
consideration any matter which has been delegated in this paragraph. 
Nothing in this paragraph prohibits the Commission, at its election, 
from exercising the authority delegated in this paragraph.
    (a) Pursuant to Sec. 17.00(a) and (h), the authority to determine 
whether futures commission merchants, clearing members and foreign 
brokers can report the information required under paragraphs (a) and (h) 
of Sec. 17.00 on series '01 forms or using some other format upon a 
determination that such person is unable to report the information using 
the format, coding structure or electronic data transmission procedures 
otherwise required.
    (b) Pursuant to Sec. 17.02, the authority to instruct or approve 
the time at which the information required under Sec. Sec. 17.00 and 
17.01 must be submitted by futures commission merchants, clearing 
members and foreign brokers provided that such persons are unable to 
meet the requirements set forth in Sec. Sec. 17.01(g) and 17.02.
    (c) Pursuant to Sec. 17.01(f), the authority to determine whether 
to permit an authorized representative of a firm filing the Form 102 to 
use a means of authenticating the report other than by signing the Form 
102 and, if so, to determine the alternative means of authentication 
that shall be used.
    (d) Pursuant to Sec. 17.00(a), the authority to approve a format 
and coding structure other than that set forth in Sec. 17.00(g).

[62 FR 24034, May 2, 1997, as amended at 67 FR 62352, Oct. 7, 2002; 69 
FR 76400, Dec. 21, 2004; 71 FR 37820, July 3, 2006; 74 FR 12191, Mar. 
23, 2009]



Sec. 17.04  Reporting omnibus accounts to reporting firms.

    (a) Any futures commission merchant, clearing member or foreign 
broker who establishes an omnibus account with another futures 
commission merchant, clearing member or foreign

[[Page 363]]

broker shall report to that futures commission merchant, clearing member 
or foreign broker the total open long positions and the total open short 
positions in each future of a commodity and, for commodity options 
transactions, the total open long put options, the total open short put 
options, the total open long call options, and the total open short call 
options for each commodity options expiration date and each strike price 
in such account at the close of trading each day. The information 
required by this section shall be reported in sufficient time to enable 
the futures commission merchant, clearing member or foreign broker with 
whom the omnibus account is established to comply with the regulations 
of this part and the reporting requirements established by the reporting 
markets.
    (b) In determining open long and open short futures positions, and 
open purchased long and open granted short option positions, in an 
omnibus account for purposes of complying with Sec. Sec. 17.00(f), 
1.37(b) and 1.58 of this chapter, a futures commission merchant, 
clearing member or foreign broker shall total the open long positions of 
all traders and the open short positions of all traders in each future 
of a commodity and, for commodity options transactions, shall total the 
open long put options, the open short put options, the open long call 
options, and the open short call options of all traders for each 
commodity option expiration date and each strike price. The futures 
commission merchant, clearing member or foreign broker shall, if both 
open long and short positions in the same future or option are carried 
for the same trader, compute open long or open short positions as 
instructed in this paragraph.
    (1) Include both the total open long and the total open short 
positions of the trader if:
    (i) The positions represent transactions on a reporting market which 
requires long and short positions in the same future or option held in 
accounts for the same trader to be recorded and reported on a gross 
basis; or
    (ii) The account is an omnibus account of another futures commission 
merchant, clearing member or foreign broker; or
    (2) Include only the net long or net short positions of the trader 
if the positions represent transactions on a reporting market which does 
not require long and short positions in the same future or option held 
in accounts for the same trader to be recorded and reported on a gross 
basis.

(Approved by the Office of Management and Budget under control number 
3038-0009)

[46 FR 63036, Dec. 30, 1981, and 47 FR 21028, May 17, 1982, as amended 
at 62 FR 24034, May 2, 1997; 69 FR 76400, Dec. 21, 2004; 71 FR 37820, 
July 3, 2006; 74 FR 12191, Mar. 23, 2009]



PART 18_REPORTS BY TRADERS--Table of Contents



Sec.
18.00 Information to be furnished by traders.
18.01 Interest in or control of several accounts.
18.02 [Reserved]
18.03 Delegation of authority to the Director of the Division ofMarket 
          Oversight.
18.04 Statement of reporting trader.
18.05 Maintenance of books and records.
18.06 [Reserved]

    Authority: 7 U.S.C. 2, 4, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 12a and 
19, as amended by Title XIII of the Food, Conservation and Energy Act of 
2008, Public Law 110-246, 122 Stat. 1624 (June 18, 2008); 5 U.S.C. 552 
and 552(b), unless otherwise noted.



Sec. 18.00  Information to be furnished by traders.

    Every trader who owns, holds or controls, or has held, owned or 
controlled, a reportable futures or options position in a commodity 
shall within one business day after a special call upon such trader by 
the Commission or its designee file reports to the Commission concerning 
transactions and positions in such futures or options. Reports shall be 
filed for the period of time that the trader held or controlled a 
reportable position and shall be prepared and submitted as instructed in 
the call. The report shall show for each day covered by the report the 
following information, as specified in the call, separately for each 
future or option and for each reporting market:
    (a) Open contracts;
    (b) Purchases and sales;

[[Page 364]]

    (c) Delivery notices issued and stopped;
    (d) Purchases and sales of futures for commodities or for 
derivatives positions; and
    (e) Options exercised.

(Approved by the Office of Management and Budget under control number 
3038-0009)

[69 FR 76400, Dec. 21, 2004, as amended at 71 FR 37821, July 3, 2006]



Sec. 18.01  Interest in or control of several accounts.

    If any trader holds, has a financial interest in or controls 
positions in more than one account, whether carried with the same or 
with different futures commission merchants or foreign brokers, all such 
positions and accounts shall be considered as a single account for the 
purpose of determining whether such trader has a reportable position 
and, unless instructed otherwise in the special call to report under 
Sec. 18.00 for the purpose of reporting.

[74 FR 12191, Mar. 23, 2009]



Sec. 18.02  [Reserved]



Sec. 18.03  Delegation of authority to the Director of the Division of Market and Oversight.

    The Commission hereby delegates, until the Commission orders 
otherwise, the authority to make special calls on traders for 
information as set forth in Sec. Sec. 18.00, 18.04 and 18.05 to the 
Director of the Division of Market Oversight to be exercised by the 
Director or by such other employee or employees of the Director as may 
be designated from time to time by the Director. The Director of the 
Division of Market Oversight may submit to the Commission for its 
consideration any matter which has been delegated in this paragraph. 
Nothing in this paragraph prohibits the Commission, at its election, 
from exercising the authority delegated in this paragraph.

[62 FR 6114, Feb. 11, 1997, as amended at 67 FR 62352, Oct. 7, 2002]



Sec. 18.04  Statement of reporting trader.

    Every trader who holds or controls a reportable futures and option 
position shall after a special call upon such trader by the Commission 
or its designee file with the Commission a ``Statement of Reporting 
Trader'' on the Form 40 at such time and place as directed in the call. 
All traders shall complete part A of the Form 40 and, in addition, shall 
complete:

Part B--If the trader is an individual, a partnership or a joint tenant.
Part C--If the trader is a corporation or type of trader other than an 
individual, partnership, or joint tenant.

    (a) Information to be furnished by all traders in part A of the Form 
40 shall include:
    (1) Name and address of reporting trader.
    (2) Principal business and occupation of the reporting trader and, 
in addition, whether transactions are made for, on behalf of, or in 
association with, a customer trading program of a futures commission 
merchant, a commodity pool, a producer cooperative, any business 
activities in which the trader is commercially engaged, or for personal 
use.
    (3) Type of trader.
    (4) Registration status with the Commission, if any.
    (5) The name and address of each person whose option or futures 
trading is controlled by the reporting trader. Provided that if the 
reporting trader is a customer trading program, or the commodity trading 
advisor thereof, that is a managed or guided account program in which 
ten or more persons participate, the information furnished may be 
limited to the name of any commodity pool which participates in the 
program and the name and address of the CPO.
    (6) The name, address and business phone of each person who controls 
the trading of the reporting trader.
    (7) The names and locations of all futures commission merchants, 
clearing members, introducing brokers, and foreign brokers through whom 
accounts owned or controlled by the reporting trader are carried or 
introduced at the time of filing a Form 40, if such accounts are carried 
through more than one futures commission merchant, clearing member or 
foreign broker or carried through more than one office of the same 
futures commission merchant, clearing member or foreign broker, or 
introduced by more than one introducing broker clearing accounts

[[Page 365]]

through the same futures commission merchant, and the name of the 
reporting trader's account executive at each firm or office of the firm.
    (8) The names and locations (city and state) of persons who 
guarantee the futures or option trading accounts of the reporting trader 
or who have a financial interest of 10 percent or more in the reporting 
trader or the accounts of the reporting trader.
    (9) The following information concerning other option or futures 
trading accounts which the reporting trader guarantees or other futures 
or option traders or accounts in which the reporting trader has a 
financial interest of 10 percent or more:
    (i) The names of traders for whom the reporting trader guarantees 
accounts or in which the reporting trader has a financial interest;
    (ii) The names of the accounts that the reporting trader guarantees 
or in which the reporting trader has a financial interest; and
    (iii) The names and locations of the brokerage firms at which the 
accounts are carried.
    (10) Information concerning ownership or control by a foreign 
government, agent of a foreign government entity specially acknowledged 
by a statute or regulation of a foreign jurisdiction or entity financed 
by a foreign government either through ownership of capital assets or 
provision of operating expenses.
    (11) Signature of the trader and date of signing the report. If the 
reporting trader is an organization, the signature must be that of a 
partner, officer or trustee authorized to sign on behalf of that 
organization.
    (b) Information to be furnished in part B of the Form 40 shall 
include:
    (1) Business telephone number of the reporting trader.
    (2) Employer and job title if the reporting trader is an individual.
    (3) The following information if a trader makes transactions or 
holds positions in a futures or option contract where such transactions 
or positions normally represent a substitute for transactions to be made 
or positions to be taken at a later time in a physical marketing 
channel, and the transactions or positions are economically appropriate 
to the reduction of risks in the conduct and management of a commercial 
enterprise:
    (i) Commercial activity associated with use of the option or futures 
market (such as and including production, merchandising or processing of 
a cash commodity, asset or liability risk management by depository 
institutions, or security portfolio risk management).
    (ii) Physical commodities underlying use of the futures or option 
markets.
    (iii) Futures or option markets used.
    (4) The name, address, and type of any organization in which the 
reporting trader participates in the management if such organization 
holds another futures or option trading account.
    (5) If the reporting trader is a partnership or joint tenant, the 
name and address of each partner (excluding limited partners in 
commodity pools) or joint tenant and the name of the partner or joint 
tenant who ordinarily places orders.
    (c) Information to be furnished in part C of the Form 40 shall 
include:
    (1) Whether or not the reporting trader is organized under the laws 
of any state (including the District of Columbia) or territory or 
possession of the United States or under the laws of any foreign 
jurisdiction. Reporting traders organized outside the jurisdiction of 
the United States must indicate the country of origin.
    (2) The names of parent firms and whether or not they are organized 
under the laws of any state (including the District of Columbia) or 
territory of possession of the United States and the location of each 
headquarter's office.
    (3) Names and locations of all subsidiary firms that trade in 
commodity futures or options and whether or not the subsidiary firms are 
organized under the law of any state (including the District of 
Columbia) or territory or possession of the United States.
    (4) Name, address, and business telephone number of person(s) 
actually controlling the trading and, if different persons are 
responsible for different commodities or options, the commodities or 
options for which each controller has responsibility.

[[Page 366]]

    (5) Name, office address and business telephone number of person or 
persons to contact regarding trading.
    (6) The following information if a trader makes transactions or 
holds positions in a futures or option contract where such transactions 
or positions normally represent a substitute for transactions to be made 
or positions to be taken at a later time in a physical marketing channel 
and the transactions or positions are economically appropriate to the 
reduction of risks in the conduct and management of a commercial 
enterprise:
    (i) Commercial activity associated with use of the option or futures 
market (e.g., production, merchandising or processing of a cash 
commodity, asset/liability risk management by depository institutions, 
security portfolio risk management, etc.)
    (ii) Physical commodities underlying use of the futures or option 
markets.
    (iii) Futures or option markets used.

(Approved by the Office of Management and Budget under control number 
3038-0009)

[43 FR 60149, Dec. 26, 1978, as amended at 46 FR 59967, Dec. 8, 1981; 46 
FR 63036, Dec. 30, 1981; 47 FR 57015, Dec. 22, 1982; 48 FR 35300, Aug. 
3, 1983; 48 FR 52703, Nov. 22, 1983; 51 FR 4720, Feb. 7, 1986; 58 FR 
33330, June 17, 1993; 62 FR 6114, Feb. 11, 1997; 62 FR 13301, Mar. 20, 
1997; 74 FR 12191, Mar. 23, 2009]



Sec. 18.05  Maintenance of books and records.

    (a) Every trader who holds or controls a reportable futures or 
option position shall keep books and records showing all details 
concerning all positions and transactions in the commodity:
    (1) On all reporting markets;
    (2) Over the counter or pursuant to sections 2(d), 2(g) or 2(h)(1)-
(2) of the Act or part 35 of this chapter;
    (3) On exempt commercial markets operating pursuant to sections 
2(h)(3)-(5) of the Act;
    (4) On exempt boards of trade operating pursuant to section 5d of 
the Act; and
    (5) On foreign boards of trade.
    (b) Every such trader shall also keep books and records showing all 
details concerning all positions and transactions in the cash commodity, 
its products and byproducts, and all commercial activities that the 
trader hedges in the futures or option contract in which the trader is 
reportable.
    (c) The trader shall upon request furnish to the Commission any 
pertinent information concerning such positions, transactions, or 
activities in a form acceptable to the Commission.

[72 FR 60771, Oct. 26, 2007, as amended at 74 FR 12192, Mar. 23, 2009]



Sec. 18.06  [Reserved]



PART 19_REPORTS BY PERSONS HOLDING BONA FIDE HEDGE POSITIONS 

PURSUANT TO   1.3(z) OF THIS CHAPTER AND BY MERCHANTS AND DEALERS IN COTTON--Table of Contents



Sec.
19.00 General provisions.
19.01 Reports on stocks and fixed price purchases and sales pertaining 
          to futures positions in wheat, corn, oats, soybeans, soybean 
          oil, soybean meal or cotton.
19.02 Reports pertaining to cotton call purchases and sales.
19.03-19.10 [Reserved]

    Authority: 7 U.S.C. 6g(a), 6i, and 12a(5), as amended by Title XIII 
of the Food, Conservation and Energy Act of 2008, Public Law 110-246, 
122 Stat. 1624 (June 18, 2008), unless otherwise noted.

    Source: 43 FR 45828, Oct. 4, 1978; 46 FR 63036, Dec. 30, 1981, 
unless otherwise noted.



Sec. 19.00  General provisions.

    (a) Who must file series '04 reports. The following persons are 
required to file series '04 reports:
    (1) All persons holding or controlling futures and option positions 
that are reportable pursuant to Sec. 15.00(p)(2) of this chapter and 
any part of which constitute bona fide hedging positions as defined in 
Sec. 1.3(z) of this chapter;
    (2) Merchants and dealers of cotton holding or controlling positions 
for futures delivery in cotton that are reportable pursuant to Sec. 
15.00(p)(1)(i) of this chapter, or
    (3) All persons holding or controlling positions for future delivery 
that are reportable pursuant to Sec. 15.00(p)(1) of this chapter who 
have received a special call for series '04 reports from the Commission 
or its designee. Filings in response to a special call shall be made

[[Page 367]]

within one business day of receipt of the special call unless otherwise 
specified in the call. For the purposes of this paragraph, the 
Commission hereby delegates to the Director of the Division of Market 
Oversight, or to such other person designated by the Director, authority 
to issue calls for series '04 reports.
    (b) Manner of reporting. The manner of reporting the information 
required in Sec. 19.01 is subject to the following:
    (1) Excluding products or byproducts of the cash commodity hedged. 
If the regular business practice of the reporting trader is to exclude 
certain products or byproducts in determining his cash positions for 
bona fide hedging (as defined in Sec. 1.3(z) of this chapter), the same 
shall be excluded in the report. Such persons shall furnish to the 
Commission upon request detailed information concerning the kind and 
quantity of product or byproduct so excluded.
    (2) Cross hedges. Cash positions that represent a commodity or 
products or byproducts of a commodity that is different from the 
commodity for future delivery in which such cash position is being 
hedged shall be shown both in terms of the commodity for future delivery 
and in terms of the cash commodity as provided for on the appropriate 
series '04 form.
    (3) Standards and conversion factors. In computing their cash 
position, every person shall use such standards and conversion factors 
that are usual in the particular trade or that otherwise reflect the 
value-fluctuation-equivalents of the cash position in terms of the 
commodity for future delivery. Such person shall furnish to the 
Commission upon request detailed information concerning the basis for 
and derivation of such conversion factors.

(Approved by the Office of Management and Budget under control number 
3038-0009)

[43 FR 45828, Oct. 4, 1978, as amended at 46 FR 63036, Dec. 30, 1981; 56 
FR 14194, Apr. 8, 1991; 57 FR 41390, Sept. 10, 1992; 62 FR 6114, Feb. 
11, 1997; 62 FR 13301, Mar. 20, 1997; 71 FR 37821, July 3, 2006; 74 FR 
12192, Mar. 23, 2009]



Sec. 19.01  Reports on stocks and fixed price purchases and sales pertaining to

futures positions in wheat, corn, oats, soybeans, soybean oil, soybean meal or 
          cotton.

    (a) Information required. Persons required to file '04 reports under 
Sec. 19.00(a)(1) or Sec. 19.00(a)(3) of this chapter shall file CFTC 
Form 304 reports for cotton and Form 204 reports for other commodities 
showing the composition of the fixed price cash position of each 
commodity hedged including:
    (1) The quantity of stocks owned of such commodities and their 
products and byproducts.
    (2) The quantity of fixed price purchase commitments open in such 
cash commodities and their products and byproducts.
    (3) The quantity of fixed price sale commitments open in such cash 
commodities and their products and byproducts; and in addition for 
cotton,
    (4) The quantity of equity in cotton held by the Commodity Credit 
Corporation under the provisions of the Upland Cotton Program of the 
Agricultural Stabilization and Conservation Service of the U.S. 
Department of Agriculture.
    (5) The quantity of certificated cotton owned.
    (b) Time and place of filing reports--Except for reports filed in 
response to special calls made under Sec. 19.00(a)(3), each report 
shall be made monthly, as of the close of business on the last Friday of 
the month, and filed at the appropriate Commission office specified in 
paragraph (b)(1) or (2) of this section not later than the second 
business day following the date of the report in the case of the 304 
report and not later than the third business day following the date of 
the report in the case of the 204 report. Reports may be transmitted by 
facsimile or, alternatively, information on the form may be reported to 
the appropriate Commission office by telephone and the report mailed to 
the same office, not later than midnight of its due date.
    (1) CFTC Form 204 reports with respect to transactions in wheat, 
corn, oats, soybeans, soybean meal and soybean oil should be sent to the 
Commission's office in Chicago, IL, unless otherwise specifically 
authorized by the Commission or its designee.

[[Page 368]]

    (2) CFTC Form 304 reports with respect to transactions in cotton 
should be sent to the Commission's office in New York, NY, unless 
otherwise specifically authorized by the Commission or its designee.

(Approved by the Office of Management and Budget under control number 
3038-0009)

[43 FR 45828, Oct. 4, 1978, as amended at 46 FR 63036, Dec. 30, 1981; 57 
FR 41390, Sept. 10, 1992; 71 FR 37821, July 3, 2006; 74 FR 12192, Mar. 
23, 2009]



Sec. 19.02  Reports pertaining to cotton call purchases and sales.

    (a) Information required. Persons required to file '04 reports under 
Sec. 19.00(a)(2) of this chapter shall file CFTC Form 304 reports 
showing the quantity of call cotton bought or sold on which the price 
has not been fixed, together with the respective futures on which the 
purchase or sale is based. As used herein, call cotton refers to spot 
cotton bought or sold, or contracted for purchase or sale at a price to 
be fixed later based upon a specified future.
    (b) Time and place of filing reports. Each report shall be made 
weekly as of the close of business on Friday and filed at the 
Commission's office in New York, NY, not later than the second business 
day following the date of the report. Reports may be transmitted by 
facsimile or, alternatively, information on the form may be reported to 
the appropriate Commission office by telephone and the report mailed to 
the same office, not later than midnight of its due date.

[57 FR 41391, Sept. 10, 1992]



Sec. Sec. 19.03-19.10  [Reserved]

                           PART 20 [RESERVED]



PART 21_SPECIAL CALLS--Table of Contents



Sec.
21.00 Preparation and transmission of information upon special call.
21.01 Special calls for information on controlled accounts from futures 
          commission merchants, clearing members and introducing 
          brokers.
21.02 Special calls for information on open contracts in accounts 
          carried or introduced by futures commission merchants, 
          clearing members, members of reporting markets, introducing 
          brokers, and foreign brokers.
21.03 Selected special calls-duties of foreign brokers, domestic and 
          foreign traders, futures commission merchants, clearing 
          members, introducing brokers, and reporting markets.
21.04 Delegation of authority to the Director of the Division of Market 
          Oversight.

    Authority: 7 U.S.C. 1a, 2, 2a, 4, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 7, 
7a, 12a, 19 and 21, as amended by Title XIII of the Food, Conservation 
and Energy Act of 2008, Public Law 110-246, 122 Stat. 1624 (June 18, 
2008); 5 U.S.C. 552 and 552(b), unless otherwise noted.

    Source: 41 FR 3210, Jan. 21, 1976, unless otherwise noted.



Sec. 21.00  Preparation and transmission of information upon special call.

    All information required upon special call shall be prepared in such 
form and manner and in accordance with such instructions, and shall be 
transmitted at such time and to such office of the Commission, as may be 
specified in the call.



Sec. 21.01  Special calls for information on controlled accounts 

from futures commission merchants, clearing members and introducing brokers.

    Upon call by the Commission, each futures commission merchant, 
clearing member and introducing broker shall file with the Commission 
the names and addresses of all persons who, by power of attorney or 
otherwise, exercise trading control over any customer's account in 
commodity futures or commodity options on any reporting market.

[74 FR 12192, Mar. 23, 2009]



Sec. 21.02  Special calls for information on open contracts in accounts carried 

or introduced by futures commission merchants, clearing members, members of 
          reporting markets, introducing brokers, and foreign brokers.

    Upon special call by the Commission for information relating to 
futures or option positions held or introduced on the dates specified in 
the call, each futures commission merchant, clearing member, member of a 
reporting market, introducing broker, or foreign broker, and, in 
addition, for option information, each reporting market,

[[Page 369]]

shall furnish to the Commission the following information concerning 
accounts of traders owning or controlling such futures or option 
positions, except for accounts carried on a fully disclosed basis by 
another futures commission merchant or clearing member, as may be 
specified in the call:
    (a) The name, address, and telephone number of the person for whom 
each account is carried;
    (b) The principal business or occupation of the person for whom each 
account is introduced or carried, as specified in the call;
    (c) The type of each such account;
    (d) The name, address and principal business or occupation of any 
person who controls the trading of each account;
    (e) The name and address of any person having a financial interest 
of ten percent or more in each account;
    (f) The number of open futures or option positions introduced or 
carried in each account, as specified in the call;
    (g) The total number of futures contracts exchanged for commodities 
or for derivatives positions;
    (h) The total number of futures contracts against which delivery 
notices have been issued or received; and
    (i) As applicable, the following identifying information:
    (1) Whether a trader who holds commodity futures or option positions 
is classified as a commercial or as a noncommercial trader for each 
commodity futures or option contract;
    (2) Whether the open commodity futures or option contracts are 
classified as speculative, spreading (straddling), or hedging; and
    (3) Whether any of the accounts in question are omnibus accounts 
and, if so, whether the originator of the omnibus account is another 
futures commission merchant, clearing member or foreign broker.

(Approved by the Office of Management and Budget under control number 
3038-0017)

[46 FR 63036, Dec. 30, 1981, and 47 FR 57016, Dec. 22, 1982, as amended 
at 48 FR 35301, Aug. 3, 1983; 49 FR 1339, Jan. 11, 1984; 51 FR 4720, 
Feb. 7, 1986; 71 FR 37821, July 3, 2006; 72 FR 50211, Aug. 31, 2007; 74 
FR 12192, Mar. 23, 2009]



Sec. 21.03  Selected special calls-duties of foreign brokers, domestic 

and foreign traders, futures commission merchants, clearing members, introducing 
          brokers, and reporting markets.

    (a) For purposes of this section, the term ``accounts of a futures 
commission merchant, clearing member or foreign broker'' means all open 
contracts and transactions in futures and options on the records of the 
futures commission merchant, clearing member or foreign broker; the term 
``beneficial interest'' means having or sharing in any rights, 
obligations or financial interest in any futures or options account; the 
term ``customer'' means any futures commission merchant, clearing 
member, introducing broker, foreign broker, or trader for whom a futures 
commission merchant, clearing member or reporting market that is a 
registered entity under section 1a(29) of the Act makes or causes to be 
made a futures or options contract. Paragraphs (e), (g) and (h) of this 
section shall not apply to any futures commission merchant, clearing 
member or customer whose books and records are open at all times to 
inspection in the United States by any representative of the Commission.
    (b) It shall be unlawful for a futures commission merchant to open a 
futures or options account or to effect transactions in futures or 
options contracts for an existing account, or for an introducing broker 
to introduce such an account, for any customer for whom the futures 
commission merchant or introducing broker is required to provide the 
explanation provided for in Sec. 15.05(c) of this chapter, or for a 
reporting market that is a registered entity under section 1a(29)(E) of 
the Act, to cause to open an account in a contract traded in reliance on 
the exemption in section 2(h)(3) of the Act or to cause to be effected 
transactions in a contract traded in reliance on the exemption in 
section 2(h)(3) of the Act for an existing account for any person that 
is a foreign clearing member or foreign trader, until the futures 
commission merchant, introducing broker, clearing member, or reporting 
market has explained fully to the customer, in any manner that such 
persons deem appropriate, the provisions of this section.

[[Page 370]]

    (c) Upon a determination by the Commission that information 
concerning accounts may be relevant information in enabling the 
Commission to determine whether the threat of a market manipulation, 
corner, squeeze, or other market disorder exists on any reporting 
market, the Commission may issue a call for information from a futures 
commission merchant, clearing member, introducing broker or customer 
pursuant to the provisions of this section.
    (d) In the event the call is issued to a foreign broker, foreign 
clearing member or foreign trader, its agent, designated pursuant to 
Sec. 15.05 of this chapter, shall, if directed, promptly transmit calls 
made by the Commission pursuant to this section by electronic mail or a 
similarly expeditious means of communication.
    (e) The futures commission merchant, clearing member, introducing 
broker, or customer to whom the special call is issued must provide to 
the Commission the information specified below for the commodity, 
reporting market and delivery months or option expiration dates named in 
the call. Such information shall be filed at the place and within the 
time specified by the Commission.
    (1) For each account of a futures commission merchant, clearing 
member, introducing broker, or foreign broker, including those accounts 
in the name of the futures commission merchant, clearing member or 
foreign broker, on the dates specified in the call issued pursuant to 
this section, such persons shall provide the Commission with the 
following information:
    (i) The name and address of the person in whose name the account is 
carried or introduced and, if the person is not an individual, the name 
of the individual to contact regarding the account;
    (ii) The total open futures and options contracts in the account;
    (iii) The number of futures contracts against which delivery notices 
have been issued or received and the number against which exchanges of 
futures for cash have been transacted during the period of time 
specified in the call;
    (iv) Whether the account is carried for and in the name of another 
futures commission merchant, clearing member, introducing broker, or 
foreign broker; and
    (v) For the accounts which are not carried for and in the name of 
another futures commission merchant, clearing member, introducing 
broker, or foreign broker, the name and address of any other person who 
controls the trading of the account, and the name and address of any 
person who has a ten percent or more beneficial interest in the account.
    (2) Each trader shall provide the Commission with the following 
information:
    (i) The total open futures and options contracts owned or controlled 
on the dates specified in the call;
    (ii) The name and address of any person having a ten percent or more 
beneficial interest in the open futures or options contracts reported 
pursuant to this paragraph;
    (iii) The name and address of any other person who controls the 
trading of the open futures or options contracts reported pursuant to 
this paragraph; and
    (iv) The cash commodity transaction and position information 
required to be maintained pursuant to Sec. 18.05 of this chapter as 
specified in the call which relates to futures or options positions of 
the trader in the United States.
    (f) If the Commission has reason to believe that any person has not 
responded as required to a call made pursuant to this section, the 
Commission in writing may inform the reporting market specified in the 
call and that reporting market shall prohibit the execution of, and no 
futures commission merchant, clearing member, introducing broker, or 
foreign broker shall effect a transaction in connection with trades on 
the reporting market and in the months or expiration dates specified in 
the call for or on behalf of the futures commission merchant or customer 
named in the call, unless such trades offset existing open contracts of 
such futures commission merchant or customer.
    (g) Any person named in a special call that believes he or she is or 
may be adversely affected or aggrieved by action taken by the Commission 
under paragraph (f) of this section shall have

[[Page 371]]

the opportunity for a prompt hearing after the Commission acts. That 
person may immediately present in writing to the Commission for its 
consideration any comments or arguments concerning the Commission's 
action and may present for Commission consideration any documentary or 
other evidence that person deems appropriate. Upon request, the 
Commission may, in its discretion, determine that an oral hearing be 
conducted to permit the further presentation of information and views 
concerning any matters by any or all such persons. The oral hearing may 
be held before the Commission or any person designated by the 
Commission, which person shall cause all evidence to be reduced to 
writing and forthwith transmit the same and a recommended decision to 
the Commission. The Commission's directive under paragraph (f) of this 
section shall remain in effect unless and until modified or withdrawn by 
the Commission.
    (h) If, during the course of or after the Commission acts pursuant 
to paragraph (f) of this section, the Commission determines that it is 
appropriate to undertake a proceeding pursuant to section 6(c) of the 
Act, the Commission shall issue a complaint in accordance with the 
requirements of section 6(c), and, upon further determination by the 
Commission that the conditions described in paragraph (c) of this 
section still exist, a hearing pursuant to section 6(c) of the Act shall 
commence no later than five business days after service of the 
complaint. In the event the person served with the complaint under 
section 6(c) of the Act has, prior to the commencement of the hearing 
under section 6(c) of the Act, sought a hearing pursuant to paragraph 
(g) of this section and the Commission has determined to accord him such 
a hearing, the two hearings shall be conducted simultaneously. Nothing 
in this section shall preclude the Commission from taking other 
appropriate action under the Act or the Commission's regulations 
thereunder, including action under section 6(c) of the Act, regardless 
of whether the conditions described in paragraph (c) of this section 
still exist, and no ruling issued in the course of a hearing pursuant to 
paragraph (g) or this paragraph shall constitute an estoppel against the 
Commission in any other action.

(Approved by the Office of Management and Budget under control number 
3038-0009)

[46 FR 63036, Dec. 30, 1981, and 47 FR 45001, Oct. 13, 1982, as amended 
at 48 FR 35301, Aug. 3, 1983; 59 FR 5702, Feb. 8, 1994; 71 FR 37821, 
July 3, 2006; 74 FR 12192, Mar. 23, 2009]



Sec. 21.04  Delegation of authority to the Director of the Division of Market Oversight.

    The Commission hereby delegates, until the Commission orders 
otherwise, the special call authority set forth in Sec. Sec. 21.01 and 
21.02 to the Director of the Division of Market Oversight to be 
exercised by such Director or by such other employee or employees of 
such Director as designated from time to time by the Director. The 
Director of the Division of Market Oversight may submit to the 
Commission for its consideration any matter which has been delegated in 
this paragraph. Nothing in this section shall be deemed to prohibit the 
Commission, at its election, from exercising the authority delegated in 
this section to the Director.

[74 FR 12193, Mar. 23, 2009]



PART 30_FOREIGN FUTURES AND FOREIGN OPTIONS TRANSACTIONS--Table of Contents



Sec.
30.1 Definitions.
30.2 Applicability of the Act and rules.
30.3 Prohibited transactions.
30.4 Registration required.
30.5 Alternative procedures for non-domestic persons.
30.6 Disclosure.
30.7 Treatment of foreign futures or foreign options secured amount.
30.8 [Reserved]
30.9 Fraudulent transactions prohibited.
30.10 Petitions for exemption.
30.11 Applicability of state law.
30.12 Direct foreign order transmittal.

Appendix A to Part 30--Interpretative Statement With Respect to the 
          Commission's Exemptive Authority Under Sec. 30.10 of Its 
          Rules
Appendix B to Part 30--Interpretative Statement With Respect to the 
          Secured Amount Requirement Set Forth in Sec. 30.7
Appendix C to Part 30--Foreign Petitioners Granted Relief From the 
          Application of Certain of the Part 30 Rules Pursuant to Sec. 
          30.10

[[Page 372]]

Appendix D to Part 30--Information That a Foreign Board of Trade Should 
          Submit When Seeking No-Action Relief To Offer and Sell, to 
          Persons Located in the United States, a Futures Contract on a 
          Foreign Non-Narrow-Based Security Index Traded on That Foreign 
          Board of Trade

    Authority: 7 U.S.C. 1a, 2, 6, 6c, and 12a, unless otherwise noted.

    Source: 52 FR 28998, Aug. 5, 1987, unless otherwise noted.



Sec. 30.1  Definitions.

    For the purposes of this part:
    (a) Foreign futures means any contract for the purchase or sale of 
any commodity for future delivery made, or to be made, on or subject to 
the rules of any foreign board of trade.
    (b) Foreign option means any transaction or agreement which is or is 
held out to be of the character of, or is commonly known to the trade 
as, an ``option'', ``privilege'', ``indemnity'', ``bid'', ``offer'', 
``put'', ``call'', ``advance guaranty'' or ``decline guaranty'', made or 
to be made on or subject to the rules of any foreign board of trade.
    (c) Foreign futures or foreign options customer means any person 
located in the United States, its territories or possessions who trades 
in foreign futures or foreign options: Provided, That an owner or holder 
of a proprietary account as defined in paragraph (y) of Sec. 1.3 of 
this chapter shall not be deemed to be a foreign futures or foreign 
options customer within the meaning of Sec. Sec. 30.6 and 30.7 of this 
part.
    (d) Foreign futures and options customer omnibus account is defined 
as an account in which the transactions of one or more foreign futures 
and foreign options customers are combined and carried in the name of 
the originating futures commission merchant rather than in the name of 
each individual foreign futures or foreign options customer.
    (e) Foreign futures and options broker (FFOB) is defined as a non-
U.S. person that is a member of a foreign board of trade, as defined in 
Sec. 1.3(ss) of this chapter, licensed, authorized or otherwise subject 
to regulation in the jurisdiction in which the foreign board of trade is 
located; or a foreign affiliate of a U.S. futures commission merchant, 
licensed, authorized or otherwise subject to regulation in the 
jurisdiction in which the affiliate is located.

[52 FR 28998, Aug. 5, 1987, as amended at 65 FR 47280, Aug. 2, 2000]



Sec. 30.2  Applicability of the Act and rules.

    (a) Except as specified in this part or unless the context otherwise 
requires, the provisions of sections 1a, 2, 4, 4c, 4f, 4g, 4k, 4l, 4m, 
4n, 4o, 4p, 6, 6c, 8, 8a, 9, 12, 13, and 14 of the Act and parts 1, 3, 
4, 10, 11, 12, 13, 14, 21, 155, 166 and 190 of this chapter shall apply 
to the persons and transactions that are subject to the requirements of 
this part as though they were set forth herein and included specific 
references to foreign board of trade, foreign futures, foreign options, 
foreign futures and foreign options customers, and foreign futures and 
foreign options secured amount, as appropriate.
    (b) The provisions of Sec. Sec. 1.20 through 1.30, 1.32, 1.35(a) 
(2)-(4) and (c)-(i), 1.36(b), 1.38, 1.39, 1.40 through 1.51, 1.53, 1.54, 
1.55, 1.58, 1.59, 33.2 through 33.6 and parts 15 through 20 of this 
chapter shall not be applicable to the persons and transactions that are 
subject to the requirements of this part.

[52 FR 28998, Aug. 5, 1987, as amended at 59 FR 5703, Feb. 8, 1994]



Sec. 30.3  Prohibited transactions.

    (a) It shall be unlawful for any person to engage in the offer and 
sale of any foreign futures contract or foreign options transaction for 
or on behalf of a foreign futures or foreign options customer, except in 
accordance with the provisions of this part: Provided, that, with the 
exception of the disclosure and antifraud provisions set forth in 
Sec. Sec. 30.6 and 30.9 of this part, the provisions of this part shall 
not apply to transactions executed on a foreign board of trade, and 
carried for or on behalf of a customer at a designated contract market, 
subject to an agreement with and rules of a contract market which permit 
positions in a commodity interest which have been established on one 
market to be liquidated on another market.
    (b) Except as otherwise provided in Sec. 30.4 of this part or 
pursuant to an exemption granted under Sec. 30.10 of this

[[Page 373]]

part, it shall be unlawful for any person to engage in the offer and 
sale of any foreign futures contract or foreign option transaction for 
or on behalf of any foreign futures or foreign options customer other 
than by or through a futures commission merchant on a fully-disclosed 
basis.

[52 FR 28998, Aug. 5, 1987, as amended at 61 FR 10895, Mar. 18, 1996]



Sec. 30.4  Registration required.

    Except as provided in Sec. 30.5 of this part, it shall be unlawful 
for any person, with respect to a foreign futures or foreign options 
customer:
    (a) To solicit or accept orders for or involving any foreign futures 
contract or foreign options transaction and, in connection therewith, to 
accept any money, securities or property (or extend credit in lieu 
thereof) to margin, guarantee or secure any trades or contracts that 
result or may result therefrom, unless such person shall have 
registered, under the Act, with the Commission as a futures commission 
merchant and such registration shall not have expired nor been suspended 
nor revoked; provided that, a foreign futures and options broker (as 
defined in Sec. 30.1(e)) is not required to register as a futures 
commission merchant: one, in order to accept orders from or to carry a 
U.S. futures commission merchant's foreign futures and options customer 
omnibus account, as that term is defined in Sec. 30.1(d); two, in order 
to accept orders from or to carry a U.S. futures commission merchant's 
proprietary account, as that term is defined in paragraph (y) of Sec. 
1.3 of this chapter; and/or three, in order to accept orders from or 
carry a U.S. affiliate account which is proprietary to the foreign 
futures and options broker, as ``proprietary account'' is defined in 
paragraph (y) of Sec. 1.3 of this chapter. Such foreign futures and 
options broker remains subject to all other applicable provisions of the 
Act and of the rules, regulations and orders thereunder. Foreign futures 
and options brokers that have U.S. bank branches, offices or divisions 
engaging in the activity listed in this paragraph are not required to 
register as futures commission merchants if they comply with the 
conditions listed in Sec. 30.10(b)(1) through (6).
    (b) Except an individual who elects to be and is registered as an 
associated person of a futures commission merchant, to solicit or accept 
orders for or involving any foreign futures contract or foreign options 
transaction, and who in connection therewith, does not accept any money, 
securities, or property (or extend credit in lieu thereof) to margin, 
guarantee, or secure any trade or contracts that result or may result 
therefrom, unless such person shall have registered, under the Act, with 
the Commission as an introducing broker and such registration shall not 
have expired nor been suspended nor revoked;
    (c) To engage in a business which is of the nature of an investment 
trust, syndicate, or similar form of enterprise, and, in connection 
therewith, to solicit, accept, or receive funds, securities, or 
property, either directly or through capital contributions, the sale of 
stock or other forms of securities, or otherwise, for the purpose of 
trading, directly or indirectly, in any foreign futures contract or 
foreign options transaction unless such person shall have registered, 
under the Act, with the Commission as a commodity pool operator and such 
registration shall not have expired nor been suspended nor revoked: 
Provided, however, That the registration requirement set forth in this 
paragraph shall not apply to any investment trust, syndicate, or similar 
form of enterprise located outside the United States, its territories or 
possessions which is registered as an investment company under the 
Investment Company Act of 1940 and whose securities are registered in 
accordance with the Securities Act of 1933, or which is otherwise exempt 
from such registration requirements: And, provided further, That no more 
than 10% of the participants in, and the value of the assets of, such 
investment trust, syndicate or similar form of enterprise located 
outside the United States, its territories or possessions, are held by 
or on behalf of foreign futures and foreign options customers.
    (d) To solicit or enter into an agreement to direct, or to guide 
such customer's account by means of a systematic program that recommends 
specific transactions in any foreign option or

[[Page 374]]

foreign futures contract unless such person shall have registered, under 
the Act, with the Commission as a commodity trading advisor and such 
registration shall not have expired nor been suspended nor revoked: 
Provided, That the term ``commodity trading advisor'' does not include
    (1) Any bank or trust company or any person acting as an employee 
thereof,
    (2) Any news reporter, news columnist, or news editor of the print 
or electronic media, or any lawyer, accountant, or teacher,
    (3) The publisher or producer of any print or electronic data of 
general and regular dissemination, including its employees,
    (4) The named fiduciary, or trustee, of any defined benefit plan 
which is subject to the provisions of the Employee Retirement Income 
Security Act of 1974, or any fiduciary whose sole business is to advise 
that plan,
    (5) Any foreign board of trade or clearing organization of such 
board of trade,
    (6) An insurance company subject to regulation by any State, or any 
wholly-owned subsidiary or employee thereof, and
    (7) Such other persons not within the intent of the term ``commodity 
trading advisor'' as the Commission may specify by rule, regulation, or 
order:

And, provided further, That the furnishing of such services by the 
foregoing persons is solely incidental to the conduct of their business 
or profession. Registration as a commodity trading advisor shall not be 
required if such person is registered with the Commission as a futures 
commission merchant, introducing broker, commodity pool operator or 
associated person, or is otherwise exempt from registration pursuant to 
Sec. 30.5.

[52 FR 28998, Aug. 5, 1987, as amended at 69 FR 49803, Aug. 12, 2004]



Sec. 30.5  Alternative procedures for non-domestic persons.

    Any person not located in the United States, its territories or 
possessions, who is required in accordance with the provisions of this 
part to be registered with the Commission, other than a person required 
to be registered as a futures commission merchant, may apply for an 
exemption from registration under this part by filing with the National 
Futures Association a Form 7-R completed and filed in accordance with 
the instructions thereto and designating an agent for service of 
process, as specified below. A person who receives confirmation of an 
exemption pursuant to this section must engage in all transactions 
subject to regulation under part 30 through a registered futures 
commission merchant or a foreign broker who has received confirmation of 
an exemption pursuant to Sec. 30.10 in accordance with the provisions 
of Sec. 30.3(b).
    (a) Agent for service of process. Any person who seeks exemption 
from registration under this part shall enter into a written agency 
agreement with the futures commission merchant located in the United 
States through which business is done, with any registered futures 
association, or any other person located in the United States in the 
business of providing services as an agent for service of process, 
pursuant to which agreement such futures commission merchant or other 
person is authorized to serve as the agent of such person for purposes 
of accepting delivery and service of communications issued by or on 
behalf of the Commission, U.S. Department of Justice, any self-
regulatory organization, or any foreign futures or foreign options 
customer. If the written agency agreement is entered into with any 
person other than the futures commission merchant through which business 
is done, the futures commission merchant or foreign broker who has 
received confirmation of an exemption pursuant to Sec. 30.10 with whom 
business is conducted must be expressly identified in such agency 
agreement. Service or delivery of any communication issued by or on 
behalf of the Commission, U.S. Department of Justice, any self-
regulatory organization or any foreign futures or foreign options 
customer, pursuant to such agreement, shall constitute valid and 
effective service or delivery upon such person. Unless otherwise 
specified by the Commission, the agreement required by this section 
shall be filed with the National Futures Association. For the purposes 
of this section, the term

[[Page 375]]

``communication'' includes any summons, complaint, order, subpoena, 
request for information, or notice, as well as any other written 
document or correspondence relating to any activities of such person 
subject to regulation under this part.
    (b) Termination of agreement. Whenever the agreement referred to in 
paragraph (a) of this section is terminated or is otherwise no longer in 
effect, the futures commission merchant or any other person that is 
party to the agreement shall immediately notify the National Futures 
Association and the futures commission merchant through which business 
is done, as appropriate. Upon notice, a futures commission merchant 
shall not accept from the person that has entered into such agreement 
any order, other than liquidating order(s), for, or on behalf of a 
foreign futures or foreign options customer. Notwithstanding the 
termination of the agreement referred to in paragraph (a) of this 
section, service or delivery of any communication issued by or on behalf 
of the Commission, U.S. Department of Justice, any self-regulatory 
organization, or any foreign futures or foreign options customer 
pursuant to the agreement shall nonetheless constitute valid and 
effective service or delivery upon such person with respect to any 
transaction entered into on or before the date of the termination of the 
agreement.
    (c) Applicability of other rules. Any person who is located outside 
of the United States, its territories or possessions, and who, in 
accordance with the provisions of paragraph (a) of this section, is 
exempt from registration as an introducing broker, commodity pool 
operator or commodity trading advisor under this part, shall nonetheless 
comply with the provisions of Sec. 30.6 of this part and Sec. Sec. 
1.37 and 1.57 of this chapter as if registered in such capacity.
    (d) Access to records. Any person exempt from registration with the 
Commission in accordance with the provisions of paragraph (a) of this 
section must, upon the request of any representative of the Commission 
or U.S. Department of Justice, provide such records as such person is 
required to maintain under this part as requested at the place in the 
United States designated by the representative within 72 hours after the 
person receives the request.

[52 FR 28998, Aug. 5, 1987, as amended at 64 FR 28914, May 28, 1999; 68 
FR 40499, July 8, 2003]



Sec. 30.6  Disclosure.

    (a) Future commission merchants and introducing brokers. Except as 
provided in Sec. 1.65 of this chapter, no futures commission merchant, 
or in the case of an introduced account no introducing broker, may open 
a foreign futures or option account for a foreign futures or option 
customer, other than for a customer specified in Sec. 1.55(f) of this 
chapter, unless the futures commission merchant or introducing broker 
first furnishes the customer with a separate written disclosure 
statement containing only the language set forth in Sec. 1.55(b) of 
this chapter or as otherwise approved under Sec. 155(c) of this chapter 
(except for nonsubstantive additions such as captions), which has been 
acknowledged in accordance with Sec. 1.55 of this chapter: Provided, 
however, that the risk disclosure statement may be attached to other 
documents as the cover page or the first page of such documents and as 
the only material on such page.
    (b) Commodity pool operators and commodity trading advisors. (1) 
With respect to persons who satisfy the requirements of qualified 
eligible persons, as defined in Sec. 4.7(a) of this chapter:
    (i) A commodity pool operator registered or required to be 
registered under this part, or exempt from registration pursuant to 
Sec. 30.5, may not, directly or indirectly, engage in any of the 
activities described in Sec. 30.4(c) unless the pool operator, at or 
before the time it engages in such activities, first provides each 
prospective qualified eligible person with the Risk Disclosure Statement 
set forth in Sec. 4.24(b)(2) of this chapter and the statement in Sec. 
4.7(b)(1)(i) of this chapter;
    (ii) A commodity trading advisor registered or required to be 
registered under this part, or exempt from registration pursuant to 
Sec. 30.5, may not, directly or indirectly, engage in any of the 
activities described in Sec. 30.4(d) unless the trading advisor, at or 
before the time it engages in such activities,

[[Page 376]]

first provides each qualified eligible person with the Risk Disclosure 
Statement set forth in Sec. 4.34(b)(2) of this chapter and the 
statement in Sec. 4.7(c)(1)(i) of this chapter.
    (2) With respect to persons who do not satisfy the requirements of 
qualified eligible persons, as defined in Sec. 4.7(a) of this chapter:
    (i) A commodity pool operator registered or required to be 
registered under this part, or exempt from registration pursuant to 
Sec. 30.5, may not, directly or indirectly, engage in any of the 
activities described in Sec. 30.4(c) unless the pool operator, at or 
before the time it engages in such activities, first provides each 
prospective participant with the Disclosure Document required to be 
furnished to customers or potential customers pursuant to Sec. 4.21 of 
this chapter and files the Disclosure Document in accordance with Sec. 
4.26 of this chapter;
    (ii) A commodity trading advisor registered or required to be 
registered under this part, or exempt from registration pursuant to 
Sec. 30.5, may not, directly or indirectly, engage in any of the 
activities described in Sec. 30.4(d) unless the trading advisor, at or 
before the time it engages in such activities, first provides each 
prospective client with the Disclosure Document required to be furnished 
customers or potential customers pursuant to Sec. 4.31 of this chapter 
and files the Disclosure Document in accordance with Sec. 4.36 of this 
chapter.
    (c) The acknowledgment required by paragraphs (a) and (b) of this 
section must be retained by the futures commission merchant, introducing 
broker, commodity pool operator or commodity trading advisor in 
accordance with Sec. 1.31 of this chapter.
    (d) This section does not relieve a futures commission merchant or 
introducing broker from its obligations under Sec. 33.7 of this 
chapter: Provided, however, That a new disclosure statement is not 
required to be furnished if the futures commission merchant or 
introducing broker has previously delivered such statement to the 
foreign options customer in connection with the opening of a commodity 
option account under part 33 of this chapter.
    (e) This section does not relieve a futures commission merchant, 
introducing broker, commodity pool operator or commodity trading advisor 
from any other disclosure obligation it may have under applicable law or 
regulation.

[52 FR 28998, Aug. 5, 1987, as amended at 58 FR 17505, Apr. 5, 1993; 60 
FR 38193, July 25, 1995; 63 FR 8571, Feb. 20, 1998; 64 FR 28914, May 28, 
1999; 65 FR 47859, Aug. 4, 2000]



Sec. 30.7  Treatment of foreign futures or foreign options secured amount.

    (a) Except as provided in this section, a futures commission 
merchant must maintain in a separate account or accounts money, 
securities and property in an amount at least sufficient to cover or 
satisfy all of its current obligations to foreign futures or foreign 
options customers denominated as the foreign futures or foreign options 
secured amount. Such money, securities and property may not be 
commingled with the money, securities or property of such futures 
commission merchant, with any proprietary account of such futures 
commission merchant, or used to secure or guarantee the obligations of, 
or extend credit to, such futures commission merchant or any proprietary 
account of such futures commission merchant.
    (b) A futures commission merchant may deposit together with the 
secured amount required to be on deposit in the separate account or 
accounts referred to in paragraph (a) of this section money, securities 
or property held for or on behalf of other customers of the futures 
commission merchant for the purpose of entering into foreign futures or 
foreign options transactions. In such a case, the amount that must be 
deposited in such separate account or accounts must be no less than the 
greater of (1) the foreign futures and foreign options secured amount 
plus the amount that would be required to be on deposit if all such 
customers were foreign futures or foreign options customers under this 
part 30, or (2) the foreign futures or foreign options secured amount 
plus the amount required to be held in a separate account or accounts 
for or on behalf of customers pursuant to any law, or rule, regulation 
or order thereunder, or any

[[Page 377]]

rule of any self-regulatory organization authorized thereunder, in the 
jurisdiction in which the depository or the customer, as appropriate, is 
located.
    (c) (1) The separate account or accounts referred to in paragraph 
(a) of this section must be maintained under an account name that 
clearly identifies them as such, with any of the following depositories:
    (i) A bank or trust company located in the United States;
    (ii) A bank or trust company located outside the United States:
    (A) That has in excess of $1 billion of regulatory capital; or
    (B) Whose commercial paper or long-term debt instrument or, if a 
part of a holding company system, its holding company's commercial paper 
or long-term debt instrument, is rated in one of the two highest rating 
categories by at least one nationally recognized statistical rating 
organization; or
    (C) As designated;
    (iii) A futures commission merchant registered as such with the 
Commission;
    (iv) A derivatives clearing organization;
    (v) A member of any foreign board of trade; or
    (vi) Such member or clearing organization's designated depositories.
    (2) Each futures commission merchant must obtain and retain in its 
files for the period provided in Sec. 1.31 of this chapter an 
acknowledgment from such depository that it was informed that such 
money, securities or property are held for or on behalf of foreign 
futures and foreign options customers and are being held in accordance 
with the provisions of these regulations.
    (d) In no event may money, securities or property representing the 
foreign futures or foreign options secured amount be held or commingled 
and deposited with customer funds in the same account or accounts 
required to be separately accounted for and segregated pursuant to 
section 4d of the Act and the regulations thereunder.
    (e) Each futures commission merchant which invests money, securities 
or property on behalf of foreign futures or foreign options customers 
shall keep a record showing the following:
    (1) The date on which such investments were made;
    (2) The name of the person through whom such investments were made;
    (3) The amount of money so invested;
    (4) A description of the obligations in which such investments were 
made;
    (5) The identity of the depositories or other places where such 
obligations are maintained;
    (6) The date on which such investments were liquidated or otherwise 
disposed of and the amount of money received of such disposition, if 
any; and
    (7) The name of the person to or through whom such investments were 
disposed of.
    (f) Each futures commission merchant must compute as of the close of 
each business day:
    (1) The total amount of money, securities and property on deposit in 
separate account(s) in accordance with this section;
    (2) The total amount of money, securities and property required to 
be on deposit in separate account(s) in accordance with this section; 
and
    (3) The amount of the futures commission merchant's residual 
interest in money, securities and property on deposit in separate 
account(s) in accordance with this section. Such computations must be 
completed prior to noon on the next business day and must be kept, 
together with all supporting data, in accordance with the requirements 
of Sec. 1.31.

[52 FR 28998, Aug. 5, 1987, as amended at 68 FR 5551, Feb. 4, 2003]



Sec. 30.8  [Reserved]



Sec. 30.9  Fraudulent transactions prohibited.

    It shall be unlawful for any person, by use of the mails or by any 
means or instrumentality of interstate commerce, directly or indirectly, 
in or in connection with any account, agreement or transaction involving 
any foreign futures contract or foreign options transaction:
    (a) To cheat or defraud or attempt to cheat or defraud any other 
person;
    (b) To make or cause to be made to any other person any false report 
or statement thereof or to enter or cause

[[Page 378]]

to be entered for any person any false record thereof;
    (c) To deceive or attempt to deceive any other person by any means 
whatsoever in regard to any such account, agreement or transaction or 
the disposition or execution of any such account, agreement or 
transaction or in regard to any act of agency performed with respect to 
such account, agreement or transaction; or
    (d) To bucket any order, or to fill any order by offset against the 
order or orders of any other person or without the prior consent of any 
person to become the buyer in respect to any selling order of such 
person, or become the seller in respect to any buying order of such 
person.



Sec. 30.10  Petitions for exemption.

    (a) Any person adversely affected by any requirement of this part 
may file a petition with the Secretary of the Commission, which petition 
must set forth with particularity the reasons why that person believes 
that he should be exempt from such requirement. The Commission may, in 
its discretion, grant such an exemption if that person demonstrates to 
the Commission's satisfaction that the exemption is not otherwise 
contrary to the public interest or to the purposes of the provision from 
which exemption is sought. The petition will be granted or denied on the 
basis of the papers filed. The petition may be granted subject to such 
terms and conditions as the Commission may find appropriate.
    (b) Any foreign person that files a petition for an exemption under 
this section shall be eligible for such an exemption notwithstanding its 
presence in the United States through U.S. bank branches or divisions 
if, in conjunction with a petition for confirmation of relief granted 
under an existing Commission order issued pursuant to this section, it 
complies with the following conditions:
    (1) No U.S. bank branch, office or division will engage in the 
trading of futures or options on futures within or from the United 
States, except for its own proprietary account;
    (2) No U.S. bank branch, office or division will refer any foreign 
futures or foreign options customer to the foreign person or otherwise 
be involved in the foreign person's business in foreign futures or 
foreign option transactions;
    (3) No U.S. bank branch, office or division will solicit any foreign 
futures or foreign option business or purchase or sell foreign futures 
or foreign option contracts on behalf of any foreign futures or foreign 
option customers or otherwise engage in any activity subject to 
regulation under this part or engage in any clerical duties related 
thereto. If any U.S. division, office or branch desires to engage in 
such activities, it will only do so through an appropriate Commission 
registrant;
    (4) The foreign person will maintain outside the United States all 
contract documents, books and records regarding foreign futures and 
foreign option transactions;
    (5) The foreign person and each of its U.S. bank branches, offices 
or divisions agree to provide upon request of the Commission, the 
National Futures Association or the U.S. Department of Justice, access 
to their books and records for the purpose of ensuring compliance with 
the foregoing undertakings and consent to make such records available 
for inspection at a location in the United States within 72 hours after 
service of the request; and
    (6) Although it will continue to engage in normal commercial 
activities, no U.S. bank branch, office or division of the foreign 
person will establish relationships in the United States with the 
applicant's foreign futures or foreign option customers for the purpose 
of facilitating or effecting transactions in foreign futures or foreign 
option contracts.

[52 FR 28998, Aug. 5, 1987, as amended at 69 FR 49803, Aug. 12, 2004]



Sec. 30.11  Applicability of state law.

    Pursuant to section 12(e)(2) of the Act, the provisions of any state 
law, including any rule or regulation thereunder, may be applicable to 
any person required to be registered under this part who solicits 
foreign futures and foreign options customers and who shall fail or 
refuse to obtain such registration, unless such person is exempt from 
such registration in accordance with the provisions of Sec. 30.4, Sec. 
30.5 or Sec. 30.10 of this part.

[[Page 379]]



Sec. 30.12  Direct foreign order transmittal.

    (a) Authorized customers defined. For the purposes of this section, 
an ``authorized customer'' of a futures commission merchant shall mean 
any foreign futures or foreign options customer, as defined in Sec. 
30.1(c), or its designated representative, that:
    (1) The futures commission merchant has authorized to place orders 
for the account of the futures commission merchant's foreign futures and 
options customer omnibus account; and
    (2)(i) Is an eligible swap participant, as defined in Sec. 
35.1(b)(2) of this chapter, or
    (ii) Whose investment decisions with respect to foreign futures and 
foreign option transactions are made by a commodity trading advisor 
subject to regulation under the Act, including any investment adviser 
registered as such with the Securities and Exchange Commission that is 
exempt from regulation as a commodity trading advisor under the Act or 
Commission regulations, or a foreign person performing a similar role or 
function subject as such to foreign regulation, provided that the 
commodity trading advisor has total assets under management exceeding 
$50,000,000 and that the commodity trading advisor places the foreign 
futures or foreign options order.
    (b) Procedures for futures commission merchants. It shall be 
unlawful for any futures commission merchant to permit an authorized 
customer to place orders for execution in the futures commission 
merchant's foreign futures and options customer omnibus account directly 
with a person exempt from registration under paragraphs (c) and (d) of 
this section, unless, such futures commission merchant:
    (1) Meets one of the following capital requirements, as determined 
by the futures commission merchant's most recent required filing of a 
Form 1-FR-FCM with the Commission:
    (i) Possesses $20,000,000 in adjusted net capital, as defined by 
Sec. 1.17(c)(5) of this chapter; or
    (ii) Possesses the greater of three times the amount of adjusted net 
capital required by Sec. 1.17(a)(1)(i)(A) of this chapter or three 
times the amount of adjusted net capital required by Sec. 
1.17(a)(1)(i)(B) of this chapter; and
    (2) Has established control procedures that will serve as guidelines 
for permitting direct contacts between any authorized customer of the 
futures commission merchant and any person exempt from registration 
under paragraphs (c) or (d) of this section, and has in place 
appropriate risk management procedures to monitor its own risk relative 
to its authorized customers' risk aggregated across all markets, 
including, but not limited to, procedures to ensure that each authorized 
customer satisfies the participation criteria set forth in paragraph (a) 
of this section and to specify the manner in which trades may be 
executed through its customer omnibus account pursuant to this section;
    (3) Furnishes a written disclosure statement to each such authorized 
customer advising the customer of the additional risks the customer may 
be assuming in placing orders directly with the foreign broker. The 
disclosure statement must read as follows:

          Direct Order Transmittal Client Disclosure Statement

    This statement applies to the ability of authorized customers \1\ of 
[FCM] to place orders for foreign futures and options transactions 
directly with non-US entities (each, an ``Executing Firm'') that execute 
transactions on behalf of [FCM's] foreign futures and options customer 
omnibus accounts.
---------------------------------------------------------------------------

    \1\ You should contact your account executive regarding your 
eligibility to participate in the direct order transmittal process.
---------------------------------------------------------------------------

    Please be aware of the following should you be permitted to place 
the type of orders specified above.
     The orders you place with an Executing Firm are 
for [FCM's] foreign futures and options customer omnibus account 
maintained with a foreign clearing firm. Consequently, [FCM] may limit 
or otherwise condition the orders you place with the Executing Firm.
     You should be aware of the relationship of the 
Executing Firm and [FCM]. [FCM] may not be responsible for the acts, 
omissions, or errors of the Executing Firm, or its representatives, with 
which you place your orders. In addition, the Executing Firm may not be 
affiliated with [FCM]. If you choose to place orders directly with an 
Executing Firm, you may be doing so at your own risk.

[[Page 380]]

     It is your responsibility to inquire about the 
applicable laws and regulations that govern the foreign exchanges on 
which transactions will be executed on your behalf. Any orders placed by 
you for execution on that exchange will be subject to such rules and 
regulations, its customs and usages, as well as any local laws that may 
govern transactions on that exchange. These laws, rules, regulations, 
customs and usages may offer different or diminished protection from 
those that govern transactions on US exchanges. In particular, funds 
received from customers to margin foreign futures transactions may not 
be provided the same protections as funds received to margin futures 
transactions on domestic exchanges. Before you trade, you should 
familiarize yourself with the foreign rules which will apply to your 
particular transaction. United States regulatory authorities may be 
unable to compel the enforcement of the rules of regulatory authorities 
or markets in non-US jurisdictions where transactions may be effected.
     It is your responsibility to determine whether 
the Executing Firm has consented to the jurisdiction of the courts in 
the United States. In general, neither the Executing Firm nor any 
individuals associated with the Executing Firm will be registered in any 
capacity with the Commodity Futures Trading Commission. Similarly, your 
contacts with the Executing Firm may not be sufficient to subject the 
Executing Firm to the jurisdiction of courts in the United States in the 
absence of the Executing Firm's consent. Accordingly, neither the courts 
of the United States nor the Commission's reparations program may be 
available as a forum for resolution of any disagreements you may have 
with the Executing Firm, and your recourse may be limited to actions 
outside the United States.
     Unless you object within five (5) days, by giving 
notice as provided in your customer agreement after receipt of this 
disclosure, [FCM] will assume your consent to the aforementioned 
conditions.

    (c) Exemption for foreign futures and options brokers. Any person 
not located in the United States, its territories or possessions, who is 
otherwise required in accordance with this part to be registered with 
the Commission as a futures commission merchant or as an introducing 
broker will be exempt from such registration, notwithstanding that such 
person accepts orders for foreign futures and foreign options 
transactions from authorized customers of a registered futures 
commission merchant that meets the requirements of paragraph (b)(1) of 
this section, provided, that:
    (1) The orders are executed for or on behalf of the foreign futures 
and options customer omnibus account of a registered futures commission 
merchant;
    (2) The person does not solicit or accept any money, securities or 
property (or extend credit in lieu thereof) directly from any U.S. 
foreign futures and options customer to margin, guarantee or secure any 
trades or contracts that result or may result therefrom; and
    (3) The person is a foreign futures and options broker, as defined 
by Sec. 30.1(e).
    (d) Exemption for foreign futures and options brokers carrying a 
foreign futures and options customer omnibus account. Any person not 
located in the United States, its territories or possessions, who is 
otherwise required in accordance with this part to be registered with 
the Commission as a futures commission merchant will be exempt from such 
registration, notwithstanding that such person:
    (1) Carries the foreign futures and options customer omnibus account 
of a futures commission merchant that meets the requirements of 
paragraph (b)(1) of this section;
    (2) Accepts orders for foreign futures and foreign options 
transactions from authorized customers for the execution of the trades 
for or on behalf of the foreign futures and options customer omnibus 
account of a registered futures commission merchant either directly or 
pursuant to a give-up arrangement; and
    (3) The person is a foreign futures and options broker, as defined 
by Sec. 30.1(e).

[65 FR 47280, Aug. 2, 2000]



Sec. Appendix A to Part 30--Interpretative Statement With Respect to the 
     
     Commission's Exemptive Authority Under Sec. 30.10 of Its Rules

    Part 30 of the Commission's regulations establishes the regulatory 
structure governing the offer and sale in the United States of futures 
and options contracts made or to be made on or subject to the rules of a 
foreign

[[Page 381]]

board of trade. Section 30.10 of these regulations provides that, upon 
petition, the Commission may exempt any person from any requirement of 
this part. Specifically, section 30.10 states:
    Any person adversely affected by any requirement of this part may 
file a petition with the Secretary of the Commission, which petition 
must set forth with particularity the reasons why that person believes 
that he should be exempt from such requirement. The Commission may, in 
its discretion, grant such an exemption if that person demonstrates to 
the Commission's satisfaction that the exemption is not otherwise 
contrary to the public interest or to the purposes of the provision from 
which exemption is sought. The petition will be granted or denied on the 
basis of the papers filed. The petition may be granted subject to such 
terms and conditions as the Commission may find appropriate.
    As the provisions of this section make clear, any person subject to 
regulation under part 30 may petition the Commission for an exemption. 
In adopting these regulations, however, the Commission noted in 
particular that persons located outside the United States that solicit 
or accept orders directly from United States customers for foreign 
futures or options transactions and that are subject to a comparable 
regulatory scheme in the country in which they are located may apply 
under section 30.10 for exemption from some or all of the requirements 
that would otherwise be applicable to such persons. This interpretative 
statement sets forth the elements that the Commission intends to 
evaluate in determining whether a particular regulatory program may be 
found to be comparable to the Commission's program.
    The Commission wishes to emphasize, however, that this 
interpretative statement is not all inclusive, and that information with 
respect to other aspects of a particular regulatory program may be 
submitted by a petitioner or requested by the Commission. In this 
connection, the Commission would have broad discretion to determine that 
the policies of any program element generally are met, notwithstanding 
the fact that the offshore program does not contain an element identical 
to that of the Commission's regulatory program and conversely may assess 
how particular elements are in fact applied by offshore authorities. 
Thus, for example, in order to find that a particular program is 
comparable, the regulations thereunder would have to be applicable to 
all United States customers, notwithstanding any exemptions that might 
otherwise be available to particular classes of customer located 
offshore. A petitioner, therefore, must set forth with particularity the 
factual basis for a finding of comparability and the reasons why such 
policies and purposes are met, notwithstanding differences of degree and 
kind in its regulatory program.
    No exemptions of a general nature will be granted unless the persons 
to which the exemption is to be applied consent to submit to 
jurisdiction in the United States by designating an agent for service of 
process pursuant to the provisions of rule 30.5 with respect to any 
activities of such persons otherwise subject to regulation under this 
part and to notify the National Futures Association of the commencement 
or termination of business in the United States. In this connection, to 
be exempted, such person must further agree to respond to a request to 
confirm that it continues to do business in the United States.
    Persons located outside the United States may seek an exemption on 
their own behalf or an exemption may be sought on a general basis 
through the governmental agency responsible for the implementation and 
enforcement of the regulatory program in question, or the self-
regulatory organizations of which such persons are members. The 
appropriate petitioner is a matter of judgment and may be determined by 
the parties seeking the exemption. The Commission, however, notes that 
it will be able to address petitions more efficiently if they are filed 
by the governmental agency or self-regulatory organization responsible 
for the regulatory program.
    In this connection, as will be discussed in more detail below, any 
exemption of a general nature based on comparability will be conditioned 
upon appropriate information sharing arrangements between the Commission 
and the relevant governmental agency and/or self-regulatory 
organization. Representations from the appropriate governmental agency 
with respect to the applicability of any blocking statutes that may 
prevent the sharing of information requested under private arrangements 
would also be considered. Finally, in considering an exemption request, 
the Commission will take into account the extent to which United States 
persons or contracts regulated by the Commission are permitted to engage 
in futures-related activities or be offered in the country from which an 
exemption is sought.
    In the Commission's review, the minimum elements of a comparable 
regulatory program would include: (1) Registration, authorization or 
other form of licensing, fitness review or qualification of persons 
through which customer orders are solicited and accepted; (2) minimum 
financial requirements for those persons that accept customer funds; (3) 
protection of customer funds from misapplication; (4) recordkeeping and 
reporting requirements; (5) minimum sales practice standards, including 
disclosure of the risks of futures and opotions transactions and, in 
particular, the risk of transactions

[[Page 382]]

undertaken outside the jurisdiction of domestic law; and (6) compliance.
    Qualification. Under domestic law, registration identifies to the 
Commission, the public and other governmental agencies the individuals 
and entities that are properly authorized to solicit and accept customer 
orders and are in good standing. Equally important, the procedure 
provides the Commission, through the National Futures Association, the 
opportunity to determine whether applicants are unfit to deal with the 
public. In this connection, the standards for determining whether a 
person through its principals is fit for registration with the 
Commission are set forth in section 8a(2)-8a(4) of the Act. Timely 
access to information as to a firm's good standing and the application 
by relevant authorities of membership and licensing criteria, as well as 
the criteria themselves, will be considered by the Commission in 
assessing comparability.
    Minimum Financial Requirements. Minimum financial requirements for 
persons that handle customer funds serve at least three critical 
functions. First, they provide a cushion together with margin such that 
in the event of a default of a customer, the losses of that customer 
need not adversely affect the funds held on behalf of other customers. 
Second, they help ensure that the person has sufficient funds to operate 
its business and, therefore, is less likely to be tempted to misapply 
customer funds for its own purposes. Third, they ensure that the person 
holding customer funds has some financial stake in its business and, 
therefore, is serious in its intent. In assessing comparability, capital 
rules or their equivalent will be considered together with any 
provisions made for insuring customer losses, the scope of clearing 
guarantees and segregation or customer trust calculation and accounting 
requirements which, to the extent they cover undermargined accounts, can 
provide significant protection of one customer from another customer's 
losses.
    Customer Funds. The Act requires the strict segregation of customer 
funds from those of the person holding such funds. One of the primary 
purposes of this requirement is to prevent the misapplication of those 
funds for purposes other than those intended by the customer, which may 
affect not only the customer but the market as a whole. The purpose of 
segregation is also to identify customer deposits as assets of the 
customer, rather than the firm, in order that in bankruptcy such funds 
are payable only to satisfy the carrying firm's obligations to such 
customers and not other obligations of the firm. In assessing 
comparability of protection of customer funds, the Commission will 
consider protections accorded customer funds in a bankruptcy under 
applicable law, as well as protection from fraud.
    Recordkeeping and Reporting. Recordkeeping requirements have long 
been recognized as the linchpin of the Commission's regulatory scheme. 
Reporting and recordkeeping requirements assist in determining that a 
registrant is acting in accordance with the provisions of the Act and 
the rules, regulations and orders of the Commission thereunder. 
Similarly, reporting requirements ensure that customers are timely 
advised of the transactions that have been executed on their behalf, 
thus ensuring that they are aware of their positions in the markets and 
may object to any transactions that they believe are in error. The 
Commission will consider the types of records maintained, the ability 
through those records to trace funds and transactions, and the period of 
retention and accessibility of records under the information sharing 
arrangements discussed below in considering comparability.
    Sales Practice Standards. In 1982, Congress reaffirmed the 
importance of minimum sales practice standards to protect customers from 
fraud or misrepresentation by requiring any futures association 
registered by the Commission to adopt and enforce rules governing the 
sales practices of its members. The Commission has consistently provided 
that written disclosure of the risks of futures and options trading is 
essential to ensure that potential customers are aware of these risks 
and are not otherwise misled and that other appropriate disclosure is 
made. The Commission will review the type and manner of disclosure given 
and the mechanisms for assuring the disclosure requirements are met and, 
in particular, the treatment of discretionary accounts for which, for 
example, Commission rule 166.2 requires particularized documentation of 
intent to confer discretion in the case of foreign futures and options 
transactions.
    Compliance. Finally, in assessing comparability of a program, the 
Commission will examine the procedures employed by the governmental 
authority or the appropriate self-regulatory organization to audit for 
compliance with, and to take action as appropriate against those persons 
that violate, the requirements of that program.
    Information Sharing. As noted above, any exemption of a general 
nature would also require an information sharing arrangement between the 
Commission and the appropriate governmental or self-regulatory 
organization to ensure Commission access to information on an as needed 
basis as may be necessary to fulfill its regulatory responsibilities. 
The information subject to these arrangements generally would be of a 
type necessary in the first instance to monitor domestic markets and to 
protect domestic customers trading on foreign markets.
    Firm-specific information that is potentially relevant to protection 
of domestic customers engaged in foreign transactions could

[[Page 383]]

include the following: (1) Registration qualification status; (2) names 
of principals; (3) current capital; (4) location of customer funds; (5) 
address of main office and branches; (6) exchange and self-regulatory 
organization memberships; (7) the existence of any derogatory 
information such as that required to be disclosed on the Commission's 
Form 7-R; (8) notice of limitations imposed on activities; (9) notice of 
undersegregation or undercapitalization; (10) notice of misuse of 
customer funds; and (11) notice of sanctions or of expulsion from 
exchange or self-regulatory organization membership. The Commission 
believes that much of the above information would be public in the 
ordinary course in most jurisdictions. From time to time, the Commission 
also may need immediate access to financial information concerning risks 
posed to domestic firms by the carrying of foreign positions.
    In addition to information that relates to the financial stability 
and creditworthiness of the firm, the Commission should have access to 
transaction-specific information that confirms the execution of orders 
and prices and facilitates tracing of customer funds. Such data could 
include records reflecting: (1) That an order has been received by a 
firm on behalf of one or more United States customers; (2) that an order 
has been executed on an exchange on behalf of one or more United States 
customers; (3) that funds to margin, guarantee or secure United States 
customer transactions have been received by a firm and deposited in an 
appropriate depository; and (4) the price at which a transaction was 
executed and general access to pricing information.
    Again, such information is likely to be maintained in the ordinary 
course of business. Tracing of customer funds would be most essential in 
cases of insolvency where repatriation of funds is at issue.
    The Commission may also seek relevant position data information, 
including the identity of the position holder and related positions, in 
connection with surveillance of a potential ``market disruption.'' This 
is particularly true in the case of integrated markets.
    The Commission wishes to emphasize that the information sharing 
arrangements discussed herein are not necessarily a substitute for, nor 
would they preclude, a more formal agreement or arrangement with respect 
to the sharing of information.

         Marketing Activities by Firms Granted Rule 30.10 Relief

    FR date and citation: November 3, 1992, 57 FR 49644; August 17, 
1994, 59 FR 42158.

[52 FR 28998, Aug. 5, 1987, as amended at 59 FR 42158, Aug. 17, 1994]



Sec. Appendix B to Part 30--Interpretative Statement With Respect to the 
           
           Secured Amount Requirement Set Forth in Sec. 30.7

    1. Rule 30.7 requires FCMs who accept money, securities or property 
from foreign futures and foreign options customers to maintain in a 
separate account or accounts such money, securities and property in an 
amount at least sufficient to cover or satisfy all of its current 
obligations to those customers. \1\ This amount is denominated as the 
``foreign futures or foreign options secured amount'' and that term is 
defined in Rule 1.3(rr). The separate accounts must be maintained under 
an account name that clearly identifies the funds as belonging to 
foreign futures and foreign options customers at a depository that meets 
the requirements of Rule 30.7(c). Further, each FCM must obtain and 
retain in its files for the period provided in Rule 1.31 an 
acknowledgment from the depository that the depository was informed that 
such money, securities or property are held for or on behalf of foreign 
futures and foreign options customers and are being held in accordance 
with the provisions of these regulations.
---------------------------------------------------------------------------

    \1\ ``Foreign futures or foreign options customer'' means ``any 
person located in the United States, its territories or possessions who 
trades in foreign futures or foreign options: Provided, That an owner or 
holder of a proprietary account as defined in paragraph (y) of [Rule 
1.3] shall not be deemed to be a foreign futures or foreign options 
customer within the meaning of [Rules 30.6 and 30.7].'' Rule 30.1(c). 
``Foreign futures'' means ``any contract for the purchase or sale of any 
commodity for future delivery made, or to be made, on or subject to the 
rules of any foreign board of trade.'' Rule 30.1(a). ``Foreign option'' 
means ``any transaction or agreement which is or is held out to be of 
the character of, or is commonly known to the trade as, an `option,' 
`privilege,' `indemnity,' `bid,' `offer,' `put,' `call,' `advance 
guaranty,' or `decline guaranty,' made or to be made on or subject to 
the rules of any foreign board of trade.'' Rule 30.1(b).
---------------------------------------------------------------------------

    2. In a series of orders issued pursuant to Rule 30.10, the 
Commission required that certain foreign firms exempt from registration 
as FCMs essentially comply with the standards of Rule 30.7. \2\ 
Specifically, the Commission stated that ``[the secured amount] 
requirement is intended to ensure that funds

[[Page 384]]

provided by U.S. customers for foreign futures and options transactions, 
whether held at a U.S. FCM under Rule 30.7(c) or a firm exempted from 
registration as an FCM under CFTC Rule 30.10, will receive equivalent 
protection at all intermediaries and exchange clearing organizations.'' 
\3\ The Commission further interpreted Rule 30.7 to require each FCM and 
Rule 30.10 firm to take appropriate action (i.e., set aside funds in a 
``mirror'' account) in the event that it becomes aware of facts leading 
it to conclude that foreign futures and foreign options customer funds 
are not being handled consistent with the requirements of Commission 
rules or relevant order for relief by any subsequent intermediary or 
exchange clearing organization.
---------------------------------------------------------------------------

    \2\ Under Rule 30.10, the Commission may exempt a foreign firm 
acting in the capacity of an FCM from registration under the Commodity 
Exchange Act (``Act'') and compliance with certain Commission rules 
based upon the firm's compliance with comparable regulatory requirements 
imposed by the firm's home-country regulator or self-regulatory 
organization (``SRO''). Once the Commission determines that the foreign 
jurisdiction's regulatory structure offers comparable regulatory 
oversight, the Commission may issue an Order granting general relief 
subject to certain conditions. Firms seeking confirmation of relief 
(referred to herein as ``Rule 30.10 firms'') must make certain 
representations set forth in the Rule 30.10 order issued to the 
regulator or SRO from the firm's home country. For a list of those 
foreign regulators and SROs that have been issued a Rule 30.10 order, 
see appendix C to part 30. In certain cases, where a foreign regulator 
or SRO has requested that firms subject to its jurisdiction be granted 
broader relief to engage in transactions on exchanges other than in its 
home jurisdiction (referred to herein as ``expanded relief''), the 
relief has been granted where the relevant authority has represented 
that it will monitor its firms for compliance with the terms of the 
order in connection with such offshore transactions. Although Rule 30.10 
orders generally exempt foreign intermediaries from compliance with the 
secured amount requirement under Rule 30.7, firms seeking confirmation 
of the expanded relief must represent that, with respect to transactions 
entered into on behalf of U.S. customers on any non-U.S. exchange 
located outside their home country, they will treat U.S. customer funds 
in a manner consistent with the provisions of Rule 30.7. For the most 
recent order granting expanded relief, see 64 FR 50248 (September 16, 
1999) (Singapore Exchange Derivatives Trading Limited).
    \3\ 64 FR 50248, 50251, n.19 (emphasis added).
---------------------------------------------------------------------------

    3. Upon further analysis and reconsideration of this matter, the 
Commission has determined to revise its prior interpretation of the Rule 
30.7 secured amount requirement. The Commission notes that the initial 
depository's ability to identify customer funds affords foreign futures 
and foreign options customers a measure of protection in the event that 
the intermediating FMC or foreign firm becomes insolvent. Moreover, Rule 
30.6(a) requires that foreign futures and foreign options customers 
receive a Rule 1.55 written disclosure explaining that the treatment of 
customer funds outside the U.S. may not afford the same level of 
protection offered in the U.S. These protections exist whetehr the 
intermediating firm is a U.S. FCM or a firm exempt from such 
registration under Rule 30.10. \4\
---------------------------------------------------------------------------

    \4\ Although orders for expanded relief exempt foreign firms from 
compliance with Rule 1.55, sales practice standards and the treatment of 
customer funds constitute two of the specific elements examined in 
evaluating whether the particular foreign regulatory program provides a 
basis for permitting substituted compliance for purposes of exemptive 
relief pursuant to Rule 30.10. appendix A to part 30.
---------------------------------------------------------------------------

    4. The Commission further notes, however, that, in February 1998, 
Rule 30.6 was amended to permit an FCM to open a commodity account for a 
foreign futures or foreign options customer without providing the Rule 
1.55 risk disclosure statement or obtaining an acknowledgment of receipt 
of such statement, provided that the customer is, at the time at which 
the account is opened, one of several types of sophisticated customers 
enumerated in Rule 1.55(f) (``Rule 1.55(f) customers''). \5\ While the 
amendment to Rule 30.6(a) extinguished the obligation to provide a 
standardized risk disclosure statement to Rule 1.55(f) customers at the 
time of the account opening, the Commission stated that FCMs have 
obligations to these customers independent of such a duty that would be 
material in the circumstances of a given transactions. \6\
---------------------------------------------------------------------------

    \5\ 63 FR 8566 (February 20, 1998). The list of sophisticated 
customers referenced in Rule 1.55(f) closely tracks, with one exception, 
the list of ``eligible swap participants'' in Rule 35.1.
    \6\ Id. at 8569.
---------------------------------------------------------------------------

    5. After careful consideration of the issue, the Commission has 
determined that intermediaries should advise all customers (regardless 
of their level of sophistication) to consider making appropriate 
inquiries relating to the treatment of customer funds by depositories 
located outside the jurisdiction of the intermediating firm. 
Accordingly, the Commission has determined that an FCM, at a minimum, 
must provide each foreign futures or foreign option customer with a 
written disclosure tracking the language in either: (1) Rule 1.55(b)(7), 
\7\ or (2) Paragraphs 6

[[Page 385]]

and 8 of appendix A to Rule 1.55(c). \8\ Rule 30.10 firms must provide 
each foreign futures or foreign options customer with a written 
disclosure tracking the language in either Rule 1.55(b)(7) or paragraphs 
6 and 8 of appendix A to Rule 1.55(c), or a comparable disclosure 
statement prescribed by the firm's home country regulator. The 
Commission further encourages all firms, whether domestic or foreign, to 
provide a Rule 1.55 written risk disclosure to all customers, regardless 
of each customer's respective level of experience. The Commission notes 
that, in any instance where a firm provides a Rule 1.55(f) customer with 
a written disclosure, it is not necessary for the firm to obtain an 
acknowledgment of receipt. In addition, those FCMs that already have 
provided customers with a disclosure tracking either Rule 1.55(b)(7) or 
paragraphs 6 and 8 of appendix A to Rule 1.55(c) (or in the case of Rule 
30.10 firm, a comparable disclosure statement prescribed by its home 
country regulatory) need not provide those same customers with an 
additional written disclosure.
---------------------------------------------------------------------------

    \7\ Rule 1.55(b)(7) reads as follows: Foreign futures transactions 
involve executing and clearing trades on a foreign exchange. This is the 
case even if the foreign exchange is formally ``linked'' to a domestic 
exchange whereby a trade executed on one exchange liquidates or 
establishes a position on the other exchange. No domestic organization 
regulates the activities of a foreign exchange, including the execution, 
delivery and clearing of transactions on such exchange, and no domestic 
regulator has the power to compel enforcement of the rules of the 
foreign exchange or the laws of the foreign country. Moreover, such laws 
or regulations will vary depending on the foreign country in which the 
transaction occurs. For these reasons, customers who trade on foreign 
exchanges may not be afforded certain of the protections which apply to 
domestic transactions, including the right to use alternative dispute 
resolution. In particular, funds received from customers to margin 
foreign futures transactions may not be provided the same protections as 
funds received to margin futures transactions on domestic exchanges. 
Before you trade, you should familiarize yourself with the foreign rules 
which will apply to your particular transaction.
    \8\ Appendix A to Rule 1.55(c) is the Generic Risk Disclosure 
Statement, which FCMs may use as an alternative to the Risk Disclosure 
Statement prescribed in Rule 1.55(b). The Commission understands that 
most FCMs, in particular those that are most active in international 
markets, use the Generic Risk Disclosure Statement.
    Paragraphs 6 and 8 of appendix A to Rule 1.55(c) read as follows:
    6. Deposited cash and property.
    You should familiarize yourself with the protections accorded money 
or property you deposit for domestic and foreign transactions, 
particularly in the event of a firm insolvency or bankruptcy. The extent 
to which you may recover your money or property may be governed by 
specified legislation or local rules. In some jurisdictions, property 
which has been specifically identifiable as your own will be pro-rated 
in the same manner as cash for purposes of distribution in the event of 
a shortfall.
    8. Transactions in other jurisdictions.
    Transactions on markets in other jurisdictions, including markets 
formally linked to a domestic market, may expose you to additional risk. 
Such markets may be subject to regulation which may offer different or 
diminished investor protection. Before you trade you should enquire 
about any rules relevant to your particular transactions. Your local 
regulatory authority will be unable to compel the enforcement of the 
rules of the regulatory authorities or markets in other jurisdictions 
where your transactions have been effected. You should ask the firm with 
which you deal for details about the types of redress available in both 
your home jurisdiction and other relevant jurisdictions before you start 
to trade.
---------------------------------------------------------------------------

    6. For the reasons set forth above, the Commission is revising its 
interpretation of the secured amount requirement set forth in Rule 30.7. 
The Commission believes that the Rule 30.7 acknowledgment required of 
FCMs, or other appropriate acknowledgment required by Rule 30.10 firms, 
only applies to the maintenance of the account or accounts containing 
foreign futures and foreign options customer funds by the initial 
depository, and not to the manner in which any subsequent depository 
holds or subsequently transmits those funds. If an FCM receives from the 
initial depository the acknowledgment described in Rule 30,7, furnishes 
to each foreign futures or foreign options customer a written disclosure 
statement tracking the language set forth in Rule 1.55(b)(7) or 
paragraphs 6 and 8 of appendix A of Rule 1.55(c) and otherwise complies 
with the provisions of Rule 30.7, then it may include all funds 
maintained in the separate account or accounts in calculating its 
secured amount requirement. A Rule 30.10 firm must satisfy the same 
requirements, except that it may provide each foreign futures or foreign 
options customer with a comparable disclosure statement prescribed by is 
home regulator.
    7. IF an FCM or Rule 30.10 firm fails to receive the required 
acknowledgment from the initial depository or provide the above written 
disclosure statement (and in certain circumstances, receive from 
customers and acknowledgment of receipt), then it must set aside funds 
with an acceptable depository and receive from such depository the 
required acknowledgment.
    8. The Commission's interpretation of the Rule 30.7 secured amount 
requirement will

[[Page 386]]

apply to all regulated activities with all new and existing foreign 
futures and foreign options customers as of October 11, 2000. The 
Commission's interpretation does not alter any other requirement set 
forth in Rule 30.7 or any other section of part 30.

[65 FR 60558, Oct. 11, 2000]



Sec. Appendix C to Part 30--Foreign Petitioners Granted Relief From the 
  
  Application of Certain of the Part 30 Rules Pursuant to Sec. 30.10

Firms designated by the Sydney Futures Exchange Limited.
    FR date and citation: November 7, 1988, 53 FR 44856.
    FR date and citation: April 13, 1993, 58 FR 19210.
    FR date and citation: March 7, 1997, 62 FR 10447.
    FR date and citation: 70 FR 40395, July 17, 2006.
Firms designated by the Singapore Derivatives Trading Limited.
    FR date and citation: January 10, 1989, 54 FR 809.
    FR date and citation: September 16, 1999, 64 FR 50251.
    FR date and citation: September 4, 2007, 72 FR 50645.
Firms designated by the Montreal Exchange.
    FR date and citation: March 17, 1989, 54 FR 11182.
    FR date and citation: February 27, 1997, 62 FR 8877.
Firms designated by the Toronto Futures Exchange.
    FR date and citation: March 22, 1990, 55 FR 10614.
Authorized Persons as designated in Annex E to the Mutual Recognition 
Memorandum of Understanding
    FR date and citation: June 13, 1990, 55 FR 2390; December 23, 1991, 
56 FR 66345.
Firms designated by the Tokyo Grain Exchange.
    FR date and citation: February 23, 1993, 58 FR 10957; May 2, 1994, 
59 FR 22506.
Firms designated by the MEFF Sociedad Rectora de Productos Financieros 
Derivados de Renta Fija (``MEFF Renta Fija'').
    FR date and citation: June 9, 1995, 60 FR 30466.
Firms designated by the New Zealand Futures and Options Exchange 
(``NZFOE'').
    FR date and citation: December 10, 1996, 61 FR 64989.
Firms designated by the MEFF Sociedad Rectora de Productos Financieros 
Derivados de Renta Variable (``MEFF Rental Variable.'')
    FR date and citation: April 8, 1997, 62 FR 16690.
Firms designated by the Financial Services Authority (``FSA'').
    FR date and citation: October 10, 2003, 68 FR 58587.
Firms designated by the Australian Stock Exchange Limited (``ASXL'').
    FR date and citation: 68 FR 39006, July 1, 2003.
    FR date and citation: 70 FR 75937, December 22, 2005.
Firms designated by the Taiwan Futures Exchange.
    FR date and citation: March 28, 2007, 72 FR 14413.
Firms designated by the Tokyo Commodity Exchange.
    FR date and citation: February 9, 2006, 71 FR 6759.
Firms designated by the Bolsa de Mercadorias & Futuros.
    FR date and citation: July 8, 2002, 67 FR 45056.
Firms designated by Eurex Deutschland.
    FR date and citation: May 8, 2002, 67 FR 30785.

[54 FR 809, Jan. 10, 1989]

    Editorial Note: For Federal Register citations affecting appendix C 
to part 30, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and at www.fdsys.gov.



 Sec. Appendix D to Part 30--Information That a Foreign Board of Trade 
   
   Should Submit When Seeking No-Action Relief To Offer and Sell, to 
 Persons Located in the United States, a Futures Contract on a Foreign 
  Non-Narrow-Based Security Index Traded on That Foreign Board of Trade

    A. Section 2(a)(1)(C)(iv) of the Commodity Exchange Act (``Act'') 
generally prohibits any person from offering or selling a futures 
contract based on a security index in the U.S., except as otherwise 
permitted under the Act, including Section 2(a)(1)(C)(ii) of the Act. By 
its terms, Section 2(a)(1)(C)(iv) of the Act applies to futures 
contracts on security indices traded on both domestic and foreign boards 
of trade. Section 2(a)(1)(C)(ii) of the Act sets forth three criteria to 
govern the trading of futures contracts on a group or index of 
securities on contract markets and derivatives transaction execution 
facilities:
    (1) The contract must provide for cash settlement;
    (2) The contract must not be readily susceptible to manipulation or 
to being used to manipulate any underlying security; and
    (3) The group or index of securities must not constitute a narrow-
based security index.

[[Page 387]]

    B. While Section 2(a)(1)(C)(ii) of the Act provides that no board of 
trade or derivatives transaction execution facility may trade a security 
index futures contract unless it meets the three criteria noted above, 
it does not explicitly address the standards to be applied to a foreign 
security index futures contract traded on a foreign board of trade. The 
Office of General Counsel has applied those same three criteria in 
evaluating requests by foreign boards of trade to allow the offer and 
sale within the United States of their foreign security index futures 
contracts when those foreign boards of trade do not seek designation as 
a contract market or registration as a derivatives transaction execution 
facility to trade those products. \1\
---------------------------------------------------------------------------

    \1\ With regard to the third criterion, and CFTC and SEC jointly 
promulgated Rule 41.13 under the Act and Rule 3a55-3 under the 
Securities Exchange Act of 1934 (``Exchange Act''), governing security 
index futures contracts traded on foreign boards of trade. These rules 
provide that ``[w]hen a contract of sale for future delivery on a 
security index is traded on or subject to the rules of a foreign board 
of trade, such index shall not be a narrow-based security index if it 
would not be a narrow-based security index if a futures contract on such 
index were traded on a designated contract market or registered 
derivatives transaction execution facility.'' CFTC Rule 41.13, 17 C.F.R. 
Sec. 41.13; Exchange Act Rule 3a55-3, 17 C.F.R. Sec. 240.3a55-3.
---------------------------------------------------------------------------

    C. In the analysis of a no-action request for a foreign security 
index futures contract traded on a foreign board of trade, the Office of 
the General Counsel asks the Division of Market Oversight (Division) to 
evaluate the foreign security index futures contract to ensure that it 
complies with the three criteria of Section 2(a)(1)(C)(ii) of the Act.
    D. Because security index futures contracts are cash settled, the 
Division also evaluates the contract to ensure that the contract terms 
and conditions relating to cash settlement are consistent with the 
Commission's Guideline No. 1 requirements for cash settled contracts. In 
that regard, Guideline No. 1 requires that the cash price series be 
reliable, acceptable, publicly available and timely; that the cash 
settlement price be reflective of the underlying cash market; and that 
the cash settlement price not be readily susceptible to manipulation. In 
making its determination, the Division considers the design and 
maintenance of the index, the method of index calculation, the nature of 
the component security prices used to calculate the index, the breadth 
and frequency of index dissemination, and any other relevant factors.
    E. In considering the susceptibility of an index to manipulation, 
the Division examines several factors, including the structure of the 
primary and secondary markets for the component equities, the liquidity 
of the component stocks, the method of index calculation, the total 
capitalization of stocks underlying he index, the number, weighting and 
capitalization of individual stocks in the index, and the existence of 
surveillance sharing agreements between the board of trade and the 
securities exchange(s) on which the underlying securities are traded.
    F. To verify that the index is not narrow based, the Division 
considers the number and weighting of the component securities and the 
value of average daily trading volume of the lowest weighted quartile of 
securities. Under the Act, a security index is narrow-based if it meets 
any one of the following criteria:
    (1) The index is composed of fewer than 10 securities;
    (2) Any single security comprises more than 30% of the total index 
weight
    (3) The five largest securities comprise more than 60% of the total 
index weight; or
    (4) The lowest-weighted securities that together account for 25% of 
the total weight of the index have an aggregate dollar value of average 
daily trading volume of less than US$30 million (or US$50 million if the 
index includes fewer than 15 securities).
    G. Accordingly, a foreign board of trade seeking no-action relief to 
offer and to sell, to persons located in the U.S., a futures contract on 
a non-narrow based foreign security index traded on that foreign board 
of trade should submit to the Office of General Counsel the following in 
English:
    (1) The terms and conditions of the contract and all other relevant 
rules of the exchange and, if applicable, of the exchange on which the 
underlying securities are traded, which have an effect on the over-all 
trading of the contract, including circuit breakers, price limits, 
position limits or other controls on trading;
    (2) Surveillance agreements between the foreign board of trade and 
the exchange(s) on which the underlying securities are traded;
    (3) Assurances from the foreign board of trade of its ability and 
willingness to share information with the Commission, either directly or 
indirectly;
    (4) When applicable, information regarding foreign blocking statutes 
and their impact on the ability of United States government agencies to 
obtain information concerning the trading of such contracts;
    (5) Information and data denoted in U.S. dollars (and the conversion 
date and rate used) relating to:
    (i) The method of computation, availability, and timeliness of the 
index;
    (ii) The total capitalization, number of stocks (including the 
number of unaffiliated issuers if different from the number of stocks), 
and weighting of the stocks by capitalization and, if applicable, by 
price in the

[[Page 388]]

index as well as the combined weighting of the five highest-weighted 
stocks in the index;
    (iii) Procedures and criteria for selection of individual securities 
for inclusion in, or removal from, the index, how often the index is 
regularly reviewed, and any procedures for changes in the index between 
regularly scheduled reviews;
    (iv) Method of calculation of the case-settlement price and the 
timing of its public release;
    (v) Average daily volume of trading, measured by share turnover and 
dollar value, in each of the underlying securities for a six-month 
period of time and, separately, the dollar value of the average daily 
trading volume of the securities comprising the lowest weighted 25% of 
the index for the past six calendar months, calculated pursuant to 
Commission Rule 41.11; and
    (vi) If applicable, average daily futures trading volume;
    (6) A statement that the index is not a narrow-based security index 
as defined in Section 1a(25) of the Act and the analysis supporting that 
statement; and
    (7) When applicable, a request to make the futures contract 
available for trading in accordance with the terms and conditions of, 
and through the electronic trading devices identified in, the Foreign 
Trading System No-Action letter that the foreign board of trade received 
from Commission staff and a certification from the foreign board of 
trade that it is in compliance with the terms and conditions of that no-
action letter.

[68 FR 33624, June 5, 2003]



PART 31_LEVERAGE TRANSACTIONS--Table of Contents



Sec.
31.1-31.2 [Reserved]
31.3 Fraud in connection with certain transactions in silver or gold 
          bullion or bulk coins, or other commodities.
31.4 Definitions.
31.5 Unlawful conduct.
31.6 Registration of leverage commodities.
31.7 Maintenance of minimum financial, cover and segregation 
          requirements by leverage transaction merchants.
31.8 Cover of leverage contracts.
31.9 Minimum financial requirements.
31.10 Repurchase and resale of leverage contracts by leverage 
          transaction merchants.
31.11 Disclosure.
31.12 Segregation.
31.13 Financial reports of leverage transaction merchants.
31.14 Recordkeeping.
31.15 Reporting to leverage customers.
31.16 Monthly reporting requirements.
31.17 Records of leverage transactions.
31.18 Margin calls.
31.19 Unlawful representations.
31.20 Prohibition of guarantees against loss.
31.21 Leverage contracts entered into prior to April 13, 1984; 
          subsequent transactions.
31.22 Prohibited trading in leverage contracts.
31.23 Limited right to rescind first leverage contract.
31.24 [Reserved]
31.25 Bid and ask prices; carrying charges.
31.26 Quarterly reporting requirement.
31.27 Registered futures association membership.
31.28 Self-regulatory organization adoption and surveillance of minimum 
          financial, cover, segregation and sales practice requirements.
31.29 Arbitration or other dispute settlement procedures.

Appendix A to Part 31--Schedule of Fees for Registration of Leverage 
          Commodities

    Authority: 7 U.S.C. 12a and 23, unless otherwise noted.



Sec. Sec. 31.1-31.2  [Reserved]



Sec. 31.3  Fraud in connection with certain transactions in silver or gold 

bullion or bulk coins, or other commodities.

    It shall be unlawful for any person, by use of the mails or any 
means or instrumentality of interstate commerce, directly or indirectly:
    (a) To employ any device, scheme, or artifice to defraud,
    (b) To make any untrue statement of a material fact or to omit to 
state a material fact necessary in order to make the statements made in 
the light of the circumstances under which they were made, not 
misleading, or
    (c) To engage in any act, practice, or course of business which 
operates or would operate as a fraud or deceit upon any person, in, or 
in connection with (1) an offer to make or the making of, any 
transaction for the purchase, sale or delivery of silver bullion, gold 
bullion, bulk silver coins, bulk gold coins, or any other commodity 
pursuant to a standardized contract commonly known to the trade as a 
margin account, margin contract, leverage account, or leverage contract, 
or pursuant to any contract, account, arrangement, scheme, or device 
that serves the same function or functions as such a standardized 
contract, or is marketed

[[Page 389]]

or managed in substantially the same manner as such a standardized 
contract, or (2) the maintenance or carrying of any such contract.

The provisions of this section shall not apply to any transaction 
expressly prohibited by section 19(a) of the Act.

(Secs. 2(a), 8a, and 19 of the Commodity Exchange Act and secs. 2 and 23 
of Pub. L. 95-405 (92 Stat. 865, 870-871); 7 U.S.C. 2 and 12a)

[43 FR 58554, Dec. 15, 1978. Redesignated at 49 FR 5526, Feb. 13, 1984]



Sec. 31.4  Definitions.

    For the purposes of this part:
    (a)-(b) [Reserved]
    (c) Promotional material includes:
    (1) Any text of a standard oral presentation, or any communication 
for publication in any newspaper, magazine or similar medium or for 
broadcast over television, radio, or other electronic medium which is 
disseminated or directed to a leverage customer or prospective leverage 
customer;
    (2) Any standardized form of report, letter, circular, memorandum, 
or publication which is disseminated or directed to a leverage customer 
or prospective leverage customer; or
    (3) Any other written literature or advice disseminated or directed 
to a leverage customer or prospective leverage customer for the purpose 
of soliciting the entry into a leverage contract;
    (d) Leverage customer means any person who, directly or indirectly, 
enters into, purchases, sells, or otherwise acquires for value any 
interest in a leverage contract with, from or to a leverage transaction 
merchant: Provided, however, That an owner or holder of a proprietary 
leverage account as defined in paragraph (e) of this section shall not 
be deemed to be a customer within the meaning of Sec. Sec. 31.11(a)-(j) 
and (l), 31.12 and 31.26, and such an owner or holder of such a 
proprietary leverage account shall otherwise be deemed to be a leverage 
customer within the meaning of all other sections of these rules.
    (e) Proprietary leverage account means a leverage account carried on 
the books and records of an individual, a partnership, corporation or 
other type association (1) for one of the following persons, or (2) of 
which ten percent or more is owned by one of the following persons, or 
an aggregate of ten percent or more of which is owned by more than one 
of the following persons:
    (i) Such individual himself, or such partnership, corporation or 
association itself;
    (ii) In the case of a partnership, a general partner in such 
partnership;
    (iii) In the case of a limited partnership, a limited or special 
partner in such partnership whose duties include:
    (A) The management of the partnership business or any part thereof,
    (B) The handling of the trades of leverage customers or of the 
leverage customer funds of such partnership,
    (C) The keeping of records pertaining to the trades of leverage 
customers or to the leverage customer funds of such partnership, or
    (D) The signing or co-signing of checks or drafts on behalf of such 
partnership;
    (iv) In the case of a corporation or association, an officer, 
director or owner of ten percent or more of the capital stock, of such 
organization;
    (v) An employee of such individual, partnership, corporation or 
association whose duties include:
    (A) The management of the business of such individual, partnership, 
corporation or association or any part thereof,
    (B) The handling of the trades of leverage customers or of the 
leverage customer funds of such individual, partnership, corporation or 
association,
    (C) The keeping of records pertaining to the trades of leverage 
customers or to the leverage customer funds of such individual, 
partnership, corporation or association, or
    (D) The signing or co-signing of checks or drafts on behalf of such 
individual, partnership, corporation or association;
    (vi) A spouse or minor dependent living in the same household of any 
of the foregoing persons;
    (vii) A business affiliate that, directly or indirectly, controls 
such individual, partnership, corporation or association;
    (viii) A business affiliate that, directly or indirectly, is 
controlled by or

[[Page 390]]

is under common control with, such individual, partnership, corporation 
or association.
    (f) Commercial leverage account means an account of a commercial 
enterprise, such as a producer, processor, dealer or end user of a 
leverage commodity which is the subject of a leverage contract, or the 
products or by-products thereof;
    (g) Leverage commodity means a commodity (gold bullion, silver 
bullion, bulk gold coins, bulk silver coins, or platinum) which is the 
subject of a leverage contract offered for purchase or sale, or 
purchased or sold, by a particular leverage transaction merchant, the 
value of which is reflected in a widely accepted and broadly 
disseminated commercial or retail cash price series for cash market 
transactions, which price series reasonably reflects the price for the 
leverage commodity which the customer can expect to pay or receive in 
normal commercial or retail market channels, including, if applicable, 
specified premiums or discounts; each leverage commodity is defined by 
reference to the following distinguishing characteristics:
    (1) The nominal size, composition and tolerable ranges of the 
delivery pack or the actual size, composition and tolerable range of the 
component of the delivery pack;
    (2) Minimum guaranteed quality, deliverable countries of origin, 
deliverable markings or imprints, and deliverable refiners or mints;
    (3) The method of pricing; and
    (4) The delivery specifications or alternatives including type and 
location of delivery facilities, packaging, transportation, registration 
and associated costs.
    (h) Ask price of a leverage contract means the price at which a 
leverage transaction merchant sells or is willing to sell a long 
leverage contract to a leverage customer or the price at which a 
leverage transaction merchant resells or is willing to resell a short 
leverage contract to a leverage customer;
    (i) Bid price of a leverage contract means the price at which a 
leverage transaction merchant purchases or is willing to purchase a 
short leverage contract from a leverage customer, or the price at which 
a leverage transaction merchant repurchases or is willing to repurchase 
a long leverage contract from a leverage customer;
    (j) Bid-ask spread of a leverage contract means the difference 
between a leverage transaction merchant's ask price and bid price;
    (k) Initial charges for a leverage contract includes all fees and 
commissions payable to a leverage transaction merchant which are 
incurred when a leverage contract is initially entered into by a 
leverage customer;
    (l) Carrying charges for a leverage contract includes all service 
and interest changes paid periodically by a leverage customer to a 
leverage transaction merchant, or accrued by a leverage transaction 
merchant, while a long leverage contract remains open, or all service 
and interest charges paid periodically by a leverage transaction 
merchant to a leverage customer, or accrued by a leverage customer, 
while a short leverage contract remains open;
    (m) Termination charges for a leverage contract includes all fees 
and commission payable to a leverage transaction merchant which are 
associated with the liquidation, repurchase, resale or settlement by 
delivery on a leverage contract;
    (n) Liquidation of a leverage contract means the unilateral 
termination of a leverage contract by a leverage transaction merchant 
due to a leverage customer's failure to meet one or more margin calls or 
to make other required deposits on a timely basis or as otherwise 
permitted under Sec. 31.18;
    (o) Repurchase or resale of a leverage contract means the voluntary 
termination of a leverage contract by mutual agreement between the 
leverage customer and the leverage transaction merchant, which agreement 
is effected by entering into a transaction which is the opposite of the 
initial transaction. A repurchase by a leverage transaction merchant 
takes place if the initial transaction by the leverage customer was a 
purchase of a long leverage contract from the leverage transaction 
merchant, and a resale by a leverage transaction merchant takes place if 
the initial transaction by the leverage customer was a sale of a short 
leverage

[[Page 391]]

contract to the leverage transaction merchant;
    (p) Delivery on a leverage contract means the making (in the case of 
an initial sale by a leverage customer) or taking (in the case of an 
initial purchase by a leverage customer) of delivery by a leverage 
customer of the commodity subject to a leverage contract;
    (q) Initial leverage margin means the amount of funds, excluding 
initial charges, which a leverage customer is required to deposit with a 
leverage transaction merchant when entering into a leverage contract;
    (r) Minimum leverage margin means the amount of funds which a 
leverage transaction merchant requires a leverage customer to maintain 
on deposit for each open leverage contract in the leverage customer's 
account.
    (s) Maintenance leverage margin means the level to which the funds 
in a leverage customer's account must be restored after a margin call to 
the leverage customer has been effected by the leverage transaction 
merchant.
    (t) Leverage account equity means:
    (1) For all long leverage contracts in a leverage customer's 
account, the amount equal to the aggregate value of such leverage 
contracts in the leverage customer's account, based on the leverage 
transaction merchant's current bid prices for such contracts, less the 
amount owed to the leverage transaction merchant by the leverage 
customer pursuant to such contracts; and
    (2) For all short leverage contracts in a leverage customer's 
account, the aggregate amount owed to the leverage customer by the 
leverage transaction merchant pursuant to all such contracts less the 
amount equal to the value of all such leverage contracts in the leverage 
customer's account, based on the leverage transaction merchant's current 
ask prices for such contracts;
    (u)-(v) [Reserved]
    (w) Leverage contract means a contract, standardized as to terms and 
conditions, for the long-term (ten years or longer) purchase (``long 
leverage contract'') or sale (``short leverage contract'') by a leverage 
customer of a leverage commodity which provides for:
    (1) Participation by the leverage transaction merchant as a 
principal in each leverage transaction;
    (2) Initial and maintenance margin payments by the leverage 
customer;
    (3) Periodic payment by the leverage customer or accrual by the 
leverage transaction merchant of a variable carrying charge or fee on 
the unpaid balance of a long leverage contract, and periodic payment or 
crediting by the leverage transaction merchant to the leverage customer 
of a variable carrying charge or fee on the initial value of the 
contract plus any margin deposits made by the leverage customer in 
connection with a short leverage contract;
    (4) Delivery of a commodity in an amount and form which can be 
readily purchased and sold in normal commercial or retail channels;
    (5) Delivery of the leverage commodity after satisfaction of the 
balance due on the contract; and
    (6) Determination of the contract purchase and repurchase, or sale 
and resale prices by the leverage transaction merchant; and
    (x) Leverage transaction means the purchase or sale of any leverage 
contract, the repurchase or resale of any leverage contract, the 
delivery of the leverage commodity, or the liquidation or rescission of 
any such leverage contract by or to the leverage transaction merchant.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5527, Feb. 13, 1984, as amended at 49 FR 25428, June 21, 1984; 50 
FR 26, Jan. 2, 1985; 50 FR 36414, Sept. 6, 1985; 54 FR 41078, Oct. 5, 
1989]



Sec. 31.5  Unlawful conduct.

    (a) On and after April 13, 1984, it shall be unlawful for any 
person:
    (1) To offer to enter into, enter into or confirm the execution of a 
leverage contract to or with a leverage customer, or to solicit or 
accept a leverage customer's order for a leverage contract, or to accept 
any leverage customer funds from a leverage customer to enter into or 
maintain a leverage contract, unless the leverage commodity which is the 
subject of the leverage contract has been registered with the Commission 
in accordance with Sec. 31.6;

[[Page 392]]

    (2) Except as provided in paragraph (a)(3) of this section, to offer 
to enter into, enter into or confirm the execution of a leverage 
contract to or with a leverage customer, or to solicit or accept a 
leverage customer's order for a leverage contract, or to accept any 
leverage customer funds from a leverage customer to enter into or 
maintain a leverage contract, unless that person is registered with the 
Commission in accordance with Sec. 3.17 of this chapter and that 
registration has not expired, been suspended (and the period of 
suspension has not expired) or been revoked; or
    (3) Except as provided in paragraph (a)(2) of this section, if such 
person is a natural person, to offer to enter into, enter into or 
confirm the execution of a leverage contract to or with a leverage 
customer, or to solicit or accept a leverage customer's order (other 
than in a clerical capacity) for a leverage contract, or to supervise 
any person or persons so engaged, unless that person is registered with 
the Commission in accordance with Sec. 3.18 of this chapter and that 
registration has not expired, been suspended (and the period of 
suspension has not expired) or been revoked.
    (b) On and after April 13, 1984, it shall be unlawful for any 
leverage transaction merchant to permit any natural person to become or 
remain associated with it as a partner, officer or employee (or in any 
similar status or position involving similar functions) in any capacity 
which involves the offering to enter into, the entry into, or the 
confirmation of the execution of a leverage contract with a leverage 
customer, or the solicitation or acceptance of a leverage customer's 
order (other than in a clerical capacity) for a leverage contract, or 
the supervision of any person or persons so engaged, if the leverage 
transaction merchant knew or should have known that the person was not 
registered with the Commission in accordance with Sec. 3.18 of this 
chapter or that the person's registration had expired, been suspended 
(and the period of suspension had not expired) or been revoked.
    (c) On and after November 10, 1986, it shall be unlawful for any 
person to offer to enter into, enter into or confirm the execution of a 
leverage contract to or with a leverage customer, or to solicit or 
accept a leverage customer's order for a leverage contract, or to accept 
any leverage customer funds from a leverage customer to enter into or 
maintain a leverage contract, unless the leverage commodity which is the 
subject of the leverage contract has been registered with the Commission 
in accordance with Sec. 31.6 of this part and involves silver bullion, 
gold bullion, bulk silver coins, bulk gold coins, or platinum. This 
paragraph shall not affect any rights or obligations arising out of any 
leverage contract involving any other leverage commodity that was 
entered into, or the execution of which was confirmed, before November 
10, 1986.
    (d) Denial, suspension, or revocation of registration of a leverage 
commodity. The failure or refusal of any leverage transaction merchant 
to comply with any of the provisions of the Act or any of the 
Commission's rules, regulations, or orders thereunder shall be cause for 
refusing to register a leverage commodity, for suspending registration 
of a leverage commodity for a period not to exceed six months, and for 
revoking registration of such leverage commodity with respect to that 
leverage transaction merchant. Any such denial, suspension, or 
revocation proceedings shall be conducted in accordance with the 
procedures set forth in sections 6 and 6(b) of the Act.

[49 FR 5528, Feb. 13, 1984, as amended at 54 FR 41078, Oct. 5, 1989; 59 
FR 5703, Feb. 8, 1994]



Sec. 31.6  Registration of leverage commodities.

    (a) Registration of leverage commodities. Each leverage commodity 
upon which a leverage contract is offered for sale or purchase or is 
sold or purchased by a particular leverage transaction merchant must be 
separately registered with the Commission. Registration will be granted 
only when the following conditions are, and continue to be, met:
    (1) The person requesting registration of a leverage commodity is a 
registered leverage transaction merchant;
    (2) The commodity to be registered is a leverage commodity as 
defined in Sec. 31.4(g);

[[Page 393]]

    (3) There exists a widely accepted and broadly disseminated 
commercial or retail cash price series for the commodity;
    (4) The commodity can be readily purchased or sold in normal 
commercial or retail channels by leverage customers making or taking 
delivery on a leverage contract;
    (5) The terms and conditions of the leverage contracts based on the 
leverage commodity are consistent with the Act and the regulations 
thereunder, and are not contrary to the public interest; and
    (6) The terms and conditions of the leverage contracts based on the 
leverage commodity do not include substantial characteristics of other 
interests, such as options, certificates of deposit, or other regulated 
instruments.
    (b) Application for registration. Applications to register leverage 
commodities should be filed with the Commission at its Washington, DC 
headquarters. Attn: Secretariat. Three copies of each such submission 
should be filed. The Commission may return any application which does 
not comply with the form and content requirements of this section. Each 
applicant must:
    (1) Provide evidence that the person applying for registration of 
the leverage commodity is registered or has applied to the National 
Futures Association for registration as a leverage transaction merchant;
    (2) Provide an explanation of the distinguishing characteristics of 
the leverage commodity for which registration is sought, including a 
complete description of the cash market for the leverage commodity, and 
for the spot, forward, and futures markets for the generic commodity;
    (3) Specify a commercial or retail cash price series including 
prevailing premiums or discounts governing cash market transactions in 
the quantities specified by the leverage contract and justify the use of 
such price series with respect to the particular leverage commodity for 
which registration is sought;
    (4) Provide evidence and a complete evaluation of how the 
distinguishing characteristics of the leverage commodity would be 
expected to affect the ability of leverage customers electing to make or 
take delivery of the commodity at an economic price in normal cash 
market channels;
    (5) Include a description of the commodity inspection and/or 
certification procedures typically required for commercial or retail 
sales of the specified commodity. Such description must be accompanied 
by information regarding the availability of any normally required 
certification or inspection service at the delivery points including 
those of the leverage transaction merchant; and
    (6) Include copies of all leverage contracts which are to be offered 
by the leverage transaction merchant on the leverage commodity.
    (c) Continuing registration of leverage commodities. A registered 
leverage transaction merchant must submit to the Commission for its 
review, at least forty-five (45) days before their effective date, any 
proposed changes in the specifications of the leverage commodity and the 
terms and conditions of the leverage contract from those submitted as 
part of the registration application unless such contract specifically 
provides that such terms and conditions are subject to change. Three 
copies of each such submission must be furnished to the Commission at 
its Washington, DC headquarters. Attn: Secretariat. The Commission may 
return any submission which does not comply with the form and content 
requirements of this section. Each such submission must, in the 
following order:
    (1) Explain how any such changes might affect the ability of 
leverage customers to realize the leverage commodity's economic value 
and how such amendments might affect the ability of leverage customers 
making or taking delivery to buy or sell the leverage commodity;
    (2) Explain the effect of such changes upon the continued 
appropriateness of the commercial or retail cash price series submitted 
pursuant to paragraph (b)(3) of this section, or, as an alternative, 
submit a new price series and a justification of its use; and
    (3) Indicate whether, if such changes are applied to existing 
leverage commodities, there will be a change in the

[[Page 394]]

economic value of such commodities and, if so, quantify the extent of 
such changes.
    (d) Authority to disapprove amendments. The Commission may 
disapprove, alter, or amend changes to the distinguishing 
characteristics of the registered leverage commodity, or to the terms 
and conditions of the leverage contracts offered thereon, after 
appropriate notice and opportunity for hearing, when the Commission 
determines that such a change is in violation of any of the provisions 
of the Act or any of the regulations thereunder, or that it is necessary 
or appropriate to ensure the financial solvency of leverage transactions 
or prevent manipulation or fraud. Upon notification by the Commission of 
its determination to disapprove, alter or amend such changes, the 
proposed changes will not become effective pending a final determination 
by the Commission to disapprove, alter, or amend such changes.
    (e) Authority to alter or amend specifications of the registered 
leverage commodity or the terms and conditions of leverage contract. The 
Commission may alter or amend specific distinguishing characteristics of 
the registered leverage commodity or the terms and conditions of 
leverage contracts after appropriate notice and opportunity for hearing 
when the Commission determines that, in light of intervening events, 
such alterations or amendments would be necessary or appropriate to 
ensure the financial solvency of leverage transactions or prevent 
manipulation or fraud.
    (f)(1) The Commission hereby delegates to the Director of the 
Division of Market Oversight until such time as the Commission orders 
otherwise, all functions reserved to the Commission in paragraphs (b) 
and (c) of this section.
    (2) The Director of the Division of Market Oversight may submit any 
matter which has been delegated to the Director under paragraph (f)(1) 
of this section to the Commission for its consideration.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5529, Feb. 13, 1984, as amended at 50 FR 27, Jan. 2, 1985; 50 FR 
2283, Jan. 16, 1985; 54 FR 41079, Oct. 5, 1989; 67 FR 62352, Oct. 7, 
2002]



Sec. 31.7  Maintenance of minimum financial, cover and segregation requirements 

by leverage transaction merchants.

    (a) Each person registered as a leverage transaction merchant or who 
files an application for registration as a leverage transaction 
merchant, who knows or should have known that its adjusted net capital 
at any time is less than the minimum required by Sec. 31.9, or that its 
cover at any time is less than the minimum required by Sec. 31.8, or 
that the amount of leverage customer funds in segregation is less than 
is required by Sec. 31.12 or by the capital, cover or segregation rules 
of any designated self-regulatory organization to which such person is 
subject, if any, must:
    (1) Give telegraphic notice as set forth in Sec. 1.12(g) of this 
chapter that such applicant's or registrant's adjusted net capital is 
less than is required by Sec. 31.9, or its cover is less than is 
required by Sec. 31.8, or the amount of leverage customer funds in 
segregation is less than is required by Sec. 31.12 or by such other 
capital, cover or segregation rule, identifying the applicable capital, 
cover or segregation rule. This notice must be given within 24 hours 
after such applicant or registrant knows or should have known that its 
adjusted net capital or its cover or the amount of leverage customer 
funds in segregation is less than is required by any of the aforesaid 
rules to which such applicant or registrant is subject; and
    (2) Within 24 hours after giving such notice file a statement of 
financial condition, a statement of the computation of the minimum 
capital requirements pursuant to Sec. 31.9 (computed in accordance with 
the applicable capital rule), a schedule of coverage requirements and 
coverage provided, and a schedule of segregation requirements and funds 
on deposit in segregation, all

[[Page 395]]

as of the date such applicant's or registrant's adjusted net capital or 
its cover or the amount of leverage customer funds in segregation became 
less than the minimum required.
    (b) Each person registered as a leverage transaction merchant, or 
who files an application for registration as a leverage transaction 
merchant, who knows or should have known that its adjusted net capital 
at any time is less than 120 percent of the amount required by Sec. 
31.9 must file written notice to that effect as set forth in Sec. 
1.12(g) of this chapter within five business days of such event. Such 
applicant or registrant must also file a Form 2-FR or such other 
financial statement designated by the Commission and/or the designated 
self-regulatory organization, if any, as of the close of business for 
the month during which such event takes place and as of the close of 
business for each month thereafter until three successive months have 
elapsed during which the applicant's or registrant's adjusted net 
capital is at all times equal to or in excess of the minimums set forth 
in this paragraph (b). Each financial report required by this paragraph 
(b) must be filed within 30 calendar days after the end of the month for 
which such report is being made.
    (c) The requirements of Sec. Sec. 1.12(c), 1.12(d), 1.12(e) and 
1.12(g) of this chapter shall apply to registered leverage transaction 
merchants and to persons who have applied for registration as leverage 
transaction merchants, as if in those paragraphs the term ``leverage 
transaction merchant or applicant therefor'' were substituted for the 
phrase ``applicant or registrant.''

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5530, Feb. 13, 1984, as amended at 50 FR 28, Jan. 2, 1985; 54 FR 
41079, Oct. 5, 1989]



Sec. 31.8  Cover of leverage contracts.

    (a)(1) Each leverage transaction merchant must at all times maintain 
cover of at least 90 percent of the amount of physical commodities 
subject to open long leverage contracts entered into with leverage 
customers, and must at all times also maintain cover of at least 90 
percent of the amount of physical commodities subject to open short 
leverage contracts entered into with leverage customers. At least 25 
percent of the amount of physical commodities subject to open long 
leverage contracts must be covered by the types of permissible cover set 
forth in paragraphs (a)(2) (i) and (ii) of this section.
    (2) Permissible cover for a long leverage contract is limited to:
    (i) Warehouse receipts for the leverage commodity subject to the 
leverage contract held in commercial banks located in the United States 
or in approved contract market depositories: Provided, That the balance 
of the principal and accrued interest on any loan against such warehouse 
receipts does not exceed 70 percent of the current market value of the 
commodity represented by each receipt.
    (ii) Warehouse receipts for gold bullion in the case of leverage 
contracts on bulk gold coins, bulk gold coins in the case of leverage 
contracts on gold bullion, silver bullion in the case of leverage 
contracts on bulk silver coins, bulk silver coins in the case of 
leverage contracts on silver bullion, one type of bulk gold coins for 
leverage contracts involving another type of bulk gold coins on an 
ounce-for-ounce basis if each type of bulk gold coins used as cover is 
the subject of a leverage contract offered by the leverage transaction 
merchant pursuant to registration under Sec. 31.6 of this part, and one 
type of bulk silver coins for leverage contracts involving another type 
of bulk silver coins on an ounce-for-ounce basis if each type of bulk 
silver coins used as cover is the subject of a leverage contract offered 
by the leverage transaction merchant pursuant to registration under 
Sec. 31.6 of this part, which are held in commercial banks located in 
the United States or in approved contract market depositories: Provided, 
That the balance of the principal and accrued interest on any loans 
against such warehouse receipts does not exceed 70 percent of the 
current market value of the commodity for which it represents cover.
    (iii) Purchase, in physical form, of the leverage commodity subject 
to the leverage contract, or of the same alternative commodities 
provided for in paragraph (a)(2)(ii) of this section, with

[[Page 396]]

settlement within two business days shall be considered permissible 
cover from the time the purchase order is confirmed, even though the 
leverage transaction merchant does not have possession or control of a 
warehouse receipt until settlement: Provided, however, That such 
purchases are not made from an affiliated firm, and such purchases at no 
time constitute more than 10 percent of the amount of physical 
commodities subject to open long leverage contracts entered into with 
leverage customers: And, provided further, That the leverage transaction 
merchant maintains, in accordance with Sec. 31.14 of this part, 
detailed records of these transactions which will be subject to 
inspection, copying and audit by the Commission and a designated self-
regulatory organization.
    (iv) A long spot futures contract on the leverage commodity subject 
to the leverage contract, or of the same alternative commodities 
provided for in paragraph (a)(2)(ii) of this section, if the leverage 
transaction merchant has stopped a delivery notice which is non-
transferable with respect to that futures contract and has otherwise 
complied with any procedures, including payment, necessary for taking 
delivery, even though the leverage transaction merchant does not have 
possession or control of a warehouse receipt for two business days: 
Provided, however, That the amount of physical commodities subject to 
such long spot futures contracts at no time constitutes more than 10 
percent of the amount of physical commodities subject to open long 
leverage contracts entered into with leverage customers: And, provided 
further, That the leverage transaction merchant maintains, in accordance 
with Sec. 31.14 of this part, detailed records of its deliveries on 
futures contracts, which will be subject to inspection, copying and 
audit by the Commission and a designated self-regulatory organization.
    (v)(A) Purchases for future delivery on or subject to the rules of 
the contract market of the same generic commodity subject to the 
leverage contract, or of the same alternative commodities provided for 
in paragraph (a)(2)(ii) of this section; or
    (B) Purchases of call commodity options for the same generic 
commodity subject to the leverage contract, or of the same alternative 
commodities provided for in paragraph (a)(2)(ii) of this section, on or 
subject to the rules of a contract market in accordance with the 
provisions of part 33 of this chapter: Provided, That the market value 
of the actual commodity or futures contract which is the subject of such 
option is more than the value of the underlying commodity based on the 
strike price of the option.
    (3) Permissible cover for a short leverage contract is limited to:
    (i) Sales for future delivery on or subject to the rules of a 
contract market of the same generic commodity subject to the leverage 
contract, or of the same alternative commodities provided for in 
paragraph (a)(2)(ii) of this section; or
    (ii) Purchases of put commodity options for the same generic 
commodity subject to the leverage contract, or of the same alternative 
commodities provided for in paragraph (a)(2)(ii) of this section, on or 
subject to the rules of a contract market in accordance with the 
provisions of part 33 of this chapter: Provided, That the market value 
of the actual commodity or futures contract which is the subject of such 
option is less than the value of the underlying commodity based on the 
strike price of the option.
    (b) Such leverage transaction merchant must be in compliance with 
paragraph (a) of this section at all times and must be able to 
demonstrate such compliance to the satisfaction of the Commission and/or 
the designated self-regulatory organization. A leverage transaction 
merchant who is not in compliance with paragraph (a) of this section or 
in unable to demonstrate such compliance must immediately cease engaging 
in the business of offering to enter into, entering into, or confirming 
the execution of, any leverage contract until such time as the leverage 
transaction merchant is able to demonstrate such compliance. Nothing in 
this paragraph (b) shall be construed as preventing the Commission or 
the designated self-regulatory organization from taking action against a 
leverage

[[Page 397]]

transaction merchant for non-compliance with any of the provisions of 
this section.
    (c) The amount of cover which is actually maintained by a leverage 
transaction merchant, and the amount of cover which must be maintained 
by a leverage transaction merchant in order to comply with the 
requirements of this section, shall be computed as of the close of each 
business day by the leverage transaction merchant. A written record of 
this computation shall be made and kept, together with all supporting 
data, in accordance with the provisions of Sec. 1.31 of this chapter. 
This daily computation shall be made by noon on the next business day 
and shall be computed in a format identical to the Schedule of Coverage 
Requirements and Coverage Provided contained in Form 2-FR. In computing 
the amount of cover actually maintained, the leverage transaction 
merchant shall include only those warehouse receipts which are 
unencumbered or against which the balance of the principal and accrued 
interest on cash loans for which such receipts serve as collateral does 
not exceed 70 percent of the current market value of the commodities 
underlying such receipts.
    (d) A leverage transaction merchant who uses as collateral for cash 
loans warehouse receipts held as cover for leverage contracts shall 
maintain a separate record for such loans which contains the following 
information:
    (1) The date on which the loan was made;
    (2) The name of the commercial bank or futures commission merchant 
making such loan;
    (3) The purpose for which the loan was made;
    (4) The amount of the loan;
    (5) The interest rate on the loan;
    (6) The loan's maturity date;
    (7) The date of any partial or complete liquidation of the loan; and
    (8) A description of the warehouse receipt collateralizing such loan 
including the receipt number, the issuer's name, and the total quantity 
of the commodity covered by the warehouse receipt. Such loans shall be 
evidenced in a written agreement executed by the leverage transaction 
merchant and the lender. The leverage transaction merchant shall retain 
such agreement and any related notes in accordance with the requirements 
of Sec. 31.14 of this part.
    (e) The requirements of paragraphs (a) through (d) of this section 
shall not be applicable if the leverage transaction merchant is a member 
of a designated self-regulatory organization and conforms to minimum 
cover standards and related reporting requirements set by such 
designated self-regulatory organization in its bylaws, rules, 
regulations or resolutions approved by the Commission pursuant to 
section 19 of the Act and Sec. 31.28 of this part.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5531, Feb. 13, 1984, as amended at 50 FR 28, Jan. 2, 1985; 54 FR 
41079, Oct. 5, 1989]



Sec. 31.9  Minimum financial requirements.

    (a) Each leverage transaction merchant must at all times maintain 
adjusted net capital equal to or in excess of $2,500,000, plus 20 
percent of the market value of the amount of physical commodities 
subject to leverage contracts entered into by the leverage transaction 
merchant which are uncovered, plus 2\1/2\ percent of the market value of 
the amount of physical commodities subject to short leverage contracts 
entered into by the leverage transaction merchant which are covered.
    (1) For purposes of determining compliance with the provisions of 
paragraph (a) of this section, each leverage transaction merchant must 
compute the market value of the physical commodities subject to leverage 
contracts which it has entered into by using the widely accepted and 
broadly disseminated commercial or retail cash price series submitted 
with the leverage transaction merchant's application for registration of 
the leverage commodity in accordance with Sec. 31.6, and cannot include 
any mark-ups or discounts of the leverage transaction merchant.
    (2) The requirements of paragraph (a) of this section shall not be 
applicable if the applicant or registrant is a member of a designated 
self-regulatory organization and conforms to minimum financial standards 
and related reporting

[[Page 398]]

requirements set by such designated self-regulatory organization in its 
bylaws, rules, regulations or resolutions approved by the Commission 
pursuant to section 19 of the Act and Sec. 31.28 of this part.
    (3) No person applying for registration as a leverage transaction 
merchant shall be so registered unless such person affirmatively 
demonstrates to the satisfaction of the Commission that it complies with 
the financial requirements of this section. Each leverage transaction 
merchant must be in compliance with this section at all times and must 
be able to demonstrate such compliance to the satisfaction of the 
Commission and/or the designated self-regulatory organization.
    (4) A leverage transaction merchant who is not in compliance with 
this section, or is unable to demonstrate such compliance as required by 
paragraph (a)(3) of this section, must immediately cease engaging in the 
business of offering to enter into, entering into, or confirming the 
execution of, any leverage contract until such time as the leverage 
transaction merchant is able to demonstrate such compliance. Nothing in 
this paragraph shall be construed as preventing the Commission or the 
designated self-regulatory organization from taking action against a 
leverage transaction merchant for non-compliance with any of the 
provisions of this section. Any leverage transaction merchant required 
immediately to cease doing business under this paragraph shall remain 
liable on all leverage contracts previously entered into until all 
rights of and obligations owing to the customers thereunder have been 
fulfilled.
    (b) For the purposes of this section:
    (1) Where the applicant or registrant has an asset or liability 
which is defined in Securities Exchange Act rule 15c3-1 (Sec. 240.15c3-
1 of this title), the inclusion or exclusion of all or part of such 
asset or liability for the computation of adjusted net capital shall be 
in accordance with Sec. 240.15c3-1 of this title, unless specifically 
stated otherwise in this section;
    (2)(i) The term ``customer'' means customer as defined in Sec. 
31.4(d);
    (ii) The term ``proprietary account'' means a commodity futures, 
option or leverage account carried on the books of the applicant or 
registrant itself, or for general partners of the applicant or 
registrant; and
    (iii) The term ``noncustomer account'' means a leverage account 
carried on the books of the applicant or registrant for a person which 
is not included in the definition of customer (as defined in paragraph 
(b)(2)(i) of this section) or proprietary account (as defined in 
paragraph (b)(2)(ii) of this section);
    (3) The term ``Business day'' means any day other than a Saturday, 
Sunday or legal holiday;
    (4) The term ``net capital'' has the same meaning as in Sec. 1.17 
of this chapter: Provided, however, That the term ``leverage transaction 
merchant'' shall be substituted for the term ``futures commission 
merchant'' in Sec. 1.17 of this chapter. In determining net capital, 
the provisions set forth in Sec. 1.17(c)(1) of this chapter shall 
apply;
    (5) The term ``current assets'' has the same meaning as in Sec. 
1.17(c)(2) of this chapter: Provided, That the provisions of Sec. 
1.17(c)(2)(i) of this chapter shall apply to leverage contract accounts 
as well as commodity futures and option accounts;
    (6) The provisions set forth in Sec. 1.17(c)(3) of this chapter 
shall apply;
    (7) The term ``liabilities'' has the same meaning as in Sec. 
1.17(c)(4) of this chapter;
    (8) In computing adjusted net capital, the safety factors set forth 
in Sec. 1.17(c)(5) of this chapter shall apply: Provided, however, That 
the safety factors set forth in Sec. 1.17(c)(5)(ii) (B) and (C) of this 
chapter shall not apply to inventory, to the extent such inventory 
represents cover for leverage contracts entered into by a leverage 
transaction merchant; And, provided further, That the safety factors set 
forth in Sec. 1.17(c)(5) (x) and (xii) of this chapter shall not apply 
to any futures contracts or commodity options traded on contract markets 
held in proprietary accounts which represent cover for leverage 
contracts entered into by a leverage transaction merchant;
    (9) The safety factors set forth in Sec. 1.17(c)(5) (viii) and (ix) 
of this chapter for undermargined commodity futures and commodity option 
customer and noncustomer accounts shall apply in a

[[Page 399]]

like manner to undermargined leverage customer and noncustomer accounts, 
respectively, and the term ``leverage transaction merchant'' shall be 
substituted for the terms ``applicable boards of trade'' or ``clearing 
organization''; and
    (10) The provisions set forth in Sec. 1.17 (d), (e), (f), (h) and 
(j) of this chapter shall apply.
    (c) No person shall be registered as a leverage transaction merchant 
unless, commencing on the date the person applies for such registration, 
the person prepares, and keeps current, ledgers or other similar records 
which show or summarize, with appropriate references to supporting 
documents, each transaction affecting his asset, liability, income, 
expense and capital accounts, and in which (except as otherwise 
permitted in writing by the Commission) all his asset, liability and 
capital accounts are classified into either the account classification 
subdivisions specified on Form 2-FR or categories that are in accord 
with generally accepted accounting principles. Each person so registered 
shall prepare and keep current such records.
    (d) Each registered leverage transaction merchant, and each person 
who has applied for registration as a leverage transaction merchant, 
must make and keep as a record in accordance with Sec. 31.14 of this 
part formal computations of its adjusted net capital and of its minimum 
financial requirements pursuant to this section as of the close of 
business each month. Such computations must be completed and made 
available for inspection by any representative of the National Futures 
Association, in the case of an applicant, or of the Commission, the 
designated self-regulatory organization, if any, or the United States 
Department of Justice in the case of a registrant, within 30 days after 
the date for which the computations are made, commencing the first 
month-end after the date the application for registration is filed.

[49 FR 5531, Feb. 13, 1984; 49 FR 25427, June 21, 1984, as amended at 50 
FR 36414, Sept. 6, 1985; 54 FR 41079, Oct. 5, 1989]



Sec. 31.10  Repurchase and resale of leverage contracts by leverage transaction merchants.

    (a) No leverage transaction merchant shall offer to sell or sell a 
long leverage contract involving a leverage commodity to any leverage 
customer at any time when such leverage transaction merchant is not 
offering to repurchase from any of its leverage customers any long 
leverage contract, and is not offering to resell to any of its leverage 
customers any short leverage contract, involving the same leverage 
commodity previously sold or purchased by the leverage transaction 
merchant to or from a leverage customer.
    (b) No leverage transaction merchant shall offer to purchase or 
purchase a short leverage contract involving a leverage commodity from 
any leverage customer at any time when such leverage transaction 
merchant is not offering to resell to any of its leverage customers any 
short leverage contract, and is not offering to repurchase from any of 
its leverage customers any long leverage contract, involving the same 
leverage commodity previously purchased or sold by the leverage 
transaction merchant from or to a leverage customer.

[50 FR 36414, Sept. 6, 1985]



Sec. 31.11  Disclosure.

    (a) Except as provided in paragraph (i) of this section, prior to 
the opening of a leverage customer account, a leverage transaction 
merchant soliciting an order for any leverage contract shall furnish to 
the prospective leverage customer a dated Disclosure Document and 
receive from such prospective leverage customer a signed and dated copy 
of the risk disclosure statement contained in such document which 
acknowledges that the customer received and understood the Disclosure 
Document. The Disclosure Document shall contain then current information 
with respect to the leverage contract being offered by the person 
soliciting the order therefor, and shall contain:
    (1) The following bold-faced risk disclosure statement in at least 
ten-point type on the first page of the Disclosure Document:


[[Page 400]]


    BECAUSE OF THE UNPREDICTABLE NATURE OF THE PRICES OF PRECIOUS AND 
OTHER METALS, LEVERAGE CONTRACTS INVOLVE A HIGH DEGREE OF RISK AND ARE 
NOT SUITABLE FOR MANY MEMBERS OF THE PUBLIC. THE LEVERAGE CUSTOMER 
SHOULD BE AWARE THAT THE VALUE OF A LEVERAGE CONTRACT ORIGINALLY 
PURCHASED BY A CUSTOMER (``LONG LEVERAGE CONTRACT'') MUST EXCEED THE 
BREAK-EVEN PRICE BEFORE IT IS POSSIBLE TO REALIZE A PROFIT ON THE 
CONTRACT. SIMILARLY, THE VALUE OF A LEVERAGE CONTRACT ORIGINALLY SOLD BY 
A LEVERAGE CUSTOMER (``SHORT LEVERAGE CONTRACT'') MUST BE LESS THAN THE 
BREAK-EVEN PRICE BEFORE IT IS POSSIBLE TO REALIZE A PROFIT ON THE 
CONTRACT. A FILLED IN VERSION OF THE CUSTOMER CONFIRMATION STATEMENT 
REFLECTING A SINGLE TRANSACTION IN A REPRESENTATIVE LEVERAGE COMMODITY 
FOR A LONG LEVERAGE TRANSACTION AND A SHORT LEVERAGE TRANSACTION WHICH 
INCLUDES A FORMULA FOR CALCULATING AN ESTIMATE OF THE LEVERAGE 
CONTRACT'S BREAK-EVEN VALUE IS ATTACHED TO THIS DOCUMENT. THIS IS IN THE 
SAME FORMAT AS THE CONFIRMATION STATEMENT YOU WILL RECEIVE TO CONFIRM 
YOUR ACTUAL TRANSACTION. BE CERTAIN THAT YOU UNDERSTAND THE INFORMATION 
PROVIDED BY THIS STATEMENT BEFORE YOU ENTER INTO A LEVERAGE TRANSACTION.
    YOU SHOULD ALSO UNDERSTAND THAT THE CHARGES FOR SIMILAR LEVERAGE 
CONTRACTS WHICH ARE REFLECTED ON THE FILLED-IN CONFIRMATION STATEMENT AS 
ESTIMATED MAY VARY AMONG LEVERAGE FIRMS, AND THAT SUCH FIRMS HAVE 
COMPLETE DISCRETION IN SETTING THEIR CHARGES AND THE PRICE OF THE 
LEVERAGE CONTRACTS THEY OFFER. PRIOR TO ENTERING INTO ANY LEVERAGE 
CONTRACT A PROSPECTIVE LEVERAGE CUSTOMER SHOULD COMPARE THE CHARGES AND 
PRICES OF SUCH FIRMS WITH EACH OTHER AND WITH THE COMMISSIONS FOR AND 
PRICES OF FUTURES CONTRACTS TRADED ON DESIGNATED EXCHANGES.
    YOU SHOULD ALSO BE AWARE THAT YOU ARE SUBJECT TO MARGIN CALLS. THE 
LEVERAGE FIRM RESERVES THE RIGHT TO LIQUIDATE YOUR POSITION IF YOU DO 
NOT RESPOND TO A MARGIN CALL WITHIN THE TIME SPECIFIED IN YOUR LEVERAGE 
AGREEMENT. IN ANY EVENT, IF THE EQUITY IN YOUR CONTRACT AT ANY TIME 
FALLS BELOW 50% OF THE MINIMUM MARGIN, YOUR CONTRACT MAY BE LIQUIDATED 
WITHOUT PRIOR NOTICE. YOU MUST, HOWEVER, BE NOTIFIED OF LIQUIDATION 
WITHIN NO MORE THAN 24 HOURS THEREAFTER AND PERMITTED TO REESTABLISH 
YOUR CONTRACT FOR A PERIOD OF 5 BUSINESS DAYS. LEVERAGE CONTRACTS 
PURCHASED FROM A LEVERAGE TRANSACTION MERCHANT ARE RE-ESTABLISHED AT THE 
THEN PREVAILING BID PRICE AND LEVERAGE CONTRACTS SOLD TO A LEVERAGE 
TRANSACTION MERCHANT ARE RE-ESTABLISHED AT THE THEN PREVAILING ASK PRICE 
WITHOUT COMMISSIONS, FEES OR OTHER MARK-UPS OR CHARGES UNDER RULES SET 
BY THE COMMODITY FUTURES TRADING COMMISSION, AS MORE COMPLETELY 
DESCRIBED IN THIS DISCLOSURE DOCUMENT. IN CASE OF LIQUIDATION, ALL OF 
YOUR FUNDS MAY BE USED TO SETTLE THE DEFICIT IN THE ACCOUNT, AND YOU MAY 
BE LIABLE FOR ADDITIONAL FUNDS TO SETTLE IN FULL.
    IF YOU ARE A FIRST-TIME LEVERAGE CUSTOMER, YOU MAY RESCIND YOUR 
FIRST LEVERAGE TRANSACTION SUBJECT ONLY TO ACTUAL PRICE LOSSES BUT 
OTHERWISE WITHOUT PENALTY FOR THREE BUSINESS DAYS FOLLOWING AND 
INCLUDING THE DAY OF RECEIPT OF THE CONFIRMATION.
    YOU SHOULD BE AWARE THAT IN ORDER TO REALIZE ANY VALUE FROM A LONG 
LEVERAGE CONTRACT, THE LEVERAGE TRANSACTION MERCHANT WHICH SOLD YOU THE 
LEVERAGE CONTRACT MUST REPURCHASE IT, OR YOU MUST PAY THE LEVERAGE 
TRANSACTION MERCHANT THE FULL PURCHASE PRICE FOR THE LEVERAGE CONTRACT, 
TAKE DELIVERY OF THE LEVERAGE COMMODITY, AND THEN SELL THE LEVERAGE 
COMMODITY, POSSIBLY AT A LOWER PRICE THAN THE PRICE PAID TO PURCHASE THE 
LEVERAGE COMMODITY FROM THE LEVERAGE TRANSACTION MERCHANT. YOU SHOULD 
ALSO BE AWARE THAT IN ORDER TO REALIZE ANY VALUE FROM A SHORT LEVERAGE 
CONTRACT, THE LEVERAGE TRANSACTION MERCHANT TO WHICH YOU SOLD THE 
LEVERAGE CONTRACT MUST RESELL IT TO YOU, OR YOU MUST ACQUIRE THE 
LEVERAGE COMMODITY IN ORDER TO MAKE DELIVERY TO THE LEVERAGE TRANSACTION 
MERCHANT, POSSIBLY AT A HIGHER PRICE THAN THE PRICE YOU WILL RECEIVE 
FROM THE LEVERAGE TRANSACTION MERCHANT.
    THERE IS NO MARKET FOR THE LEVERAGE CONTRACT ITSELF OTHER THAN TO 
HAVE IT REPURCHASED BY OR RESOLD TO THE LEVERAGE TRANSACTION MERCHANT. A 
LEVERAGE TRANSACTION MERCHANT IS UNDER NO OBLIGATION TO OFFER TO 
REPURCHASE OR RESELL A LEVERAGE CONTRACT AT ALL TIMES, ALTHOUGH THE 
LEVERAGE

[[Page 401]]

TRANSACTION MERCHANT MUST OFFER TO REPURCHASE ANY LONG LEVERAGE CONTRACT 
PREVIOUSLY PURCHASED BY A LEVERAGE CUSTOMER AND MUST ALSO OFFER TO 
RESELL ANY SHORT LEVERAGE CONTRACT PREVIOUSLY SOLD BY A LEVERAGE 
CUSTOMER AT ANY TIME DURING WHICH THE LEVERAGE TRANSACTION MERCHANT IS 
OFFERING TO ENTER INTO NEW LONG OR SHORT LEVERAGE CONTRACTS WITH 
CUSTOMERS INVOLVING THE SAME LEVERAGE COMMODITY. AS NOTED ABOVE, 
HOWEVER, A LEVERAGE TRANSACTION MERCHANT HAS COMPLETE DISCRETION IN 
SETTING THE PRICE AND ANY CHARGES RELATED THERETO.
    THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE 
MERITS OF THESE LEVERAGE CONTRACTS AS AN INVESTMENT VEHICLE NOR UPON THE 
ACCURACY OR ADEQUACY OF THIS DISCLOSURE DOCUMENT. ANY REPRESENTATION TO 
THE CONTRARY IS A VIOLATION OF THE COMMODITY EXCHANGE ACT AND THE 
REGULATIONS THEREUNDER.

    (2) Immediately following the statement required by paragraph (a)(1) 
of this section, a section, captioned ``Provisions of Leverage 
Contract'' in at least ten point type, containing the terms and 
conditions of the leverage contract being offered. This information must 
be provided in the order specified in paragraphs (a)(2) (i) through (xi) 
of this section, with a clear demarcation or separation between each 
item according to the paragraph of the section to which it corresponds, 
and include:
    (i) The duration or expiration date of the leverage contract;
    (ii) The distinguishing characteristics of the contract and of the 
leverage commodity, including, in particular, those characteristics of 
the leverage commodity enumerated in Sec. 31.4(g)(1)-(4) of this part;
    (iii) A description of the following charges for each leverage 
contract:
    (A) Initial charges;
    (B) Carrying charges;
    (C) Termination charges;
    (iv) A description of the bid and ask prices of each leverage 
contract;
    (v) An explanation of the margins applicable to each leverage 
contract, including, as required, initial margins, minimum margins and 
maintenance margins;
    (vi) A description of the leverage customer's responsibilities with 
respect to margin calls, including the timing of such calls and, if 
applicable, the circumstances under which, time after which, and the 
order in which the leverage transaction merchant may, consistent with 
Sec. 31.18 liquidate a customer's position in the leverage contract;
    (vii) A description of the manner in which a leverage customer may 
seek to have a leverage contract repurchased or resold by the leverage 
transaction merchant, including an explanation of the procedure to be 
followed by the leverage transaction merchant to effect such repurchase 
or resale and the manner in which the repurchase or resale price is 
determined;
    (viii) A statement to the effect that other persons may be unwilling 
to buy from the leverage customer the leverage commodity that is 
deliverable on the leverage contract without first requiring an 
inspection or assay at the expense of the leverage customer; a statement 
to the effect that the leverage transaction merchant may be unwilling to 
accept delivery and pay for such leverage commodity without first 
requiring an inspection or assay at the expense of the leverage 
customer; and a description of any other requirements for the delivery 
of a leverage commodity by a leverage customer to a leverage transaction 
merchant in connection with a short leverage contract;
    (ix) A clear explanation of any force majeure clauses pertaining to 
each leverage contract;
    (x) A description of any material risks not included in the 
statements required by paragraph (a)(1) of this section; and
    (xi) An identification of the commercial or retail cash price series 
filed in accordance with Sec. 31.6, along with clearly specified 
premiums and discounts, if applicable, which the leverage customer or 
prospective leverage customer can use to evaluate a leverage contract 
and a widely available source from which such price quotes may be 
obtained on a timely basis.
    (3) A filled-in version of the customer Confirmation Statement in 
the format

[[Page 402]]

specified by the Commission for a representative single long leverage 
contract and a representative single short leverage contract which 
includes a formula which can be used to estimate the break-even price.
    (4)(i) The name, address of the main business office, main business 
telephone number and form of organization of the leverage transaction 
merchant. If the address of the main business office is a post office 
box number, the leverage transaction merchant must state where its books 
and records will be kept;
    (ii) The name of each principal of the leverage transaction 
merchant;
    (iii) The business background, for the five years preceding the date 
of the statement, of:
    (A) The leverage transaction merchant; and
    (B) Each principal of the leverage transaction merchant.

The leverage transaction merchant must include in the description of the 
business background of each such person the name and main business of 
that person's employers, business associations or business ventures and 
the nature of the person's duties performed for the employers or in 
connection with the associations or ventures.
    (5)(i) A statement whether any principal of the leverage transaction 
merchant has entered into or intends to enter into long or short 
leverage contracts for his own account and, if so, whether leverage 
customers will be permitted to inspect the records of that person's 
trades; and
    (ii) If principals of the leverage transaction merchant will not 
enter into or do not intend to enter into long or short leverage 
contracts for their own account, the leverage transaction merchant must 
so state with respect to each principal.
    (6)(i) Any material administrative or civil action involving any 
activity or conduct, or related to any statute, set forth in sections 
8a(2) or 8a(3) of the Act, or any material criminal action brought 
within the five years preceding the date of the document against the 
leverage transaction merchant or any principal of the leverage 
transaction merchant; and
    (ii) If there has been no such action against any of the foregoing 
persons, the leverage transaction merchant must make a statement to that 
effect with respect to each such person.
    (b)(1) If the leverage transaction merchant knows or should know 
that the Disclosure Document is materially inaccurate or incomplete in 
any respect, it must correct that defect and must distribute the 
correction to:
    (i) All existing leverage customers within 30 calendar days after 
the date upon which the leverage transaction merchant first knows or has 
reason to know of the defect; and
    (ii) Each prospective leverage customer prior to opening an account 
for such person.

The leverage transaction merchant may furnish the correction by means of 
an amended document, a sticker on the document, a notice in a monthly 
statement or by other similar means.
    (2) The leverage transaction merchant may not use the document until 
such correction is made.
    (c) The leverage transaction merchant must date each document and 
amendment thereto as of the date it is first used.
    (d) Subject to the provisions of paragraph (b) of this section, all 
information contained in the document must be current as of the date of 
the document.
    (e)(1) The leverage transaction merchant must file with the National 
Futures Association three copies and with the Commission at its 
Washington, DC headquarters, Attn: Secretariat, one copy of the document 
for each leverage contract that it offers or that it intends to offer 
not less than 21 calendar days prior to the date the leverage 
transaction merchant first intends to furnish the document to a 
prospective leverage customer. The leverage transaction merchant must 
specify with the filing the date it first intends to deliver the 
document to a prospective leverage customer;
    (2) Subject to paragraphs (h) and (m) of this section, the leverage 
transaction merchant must file with the National Futures Association 
three copies and with the Commission at its Washington, DC headquarters, 
Attn: Secretariat, one copy of all subsequent

[[Page 403]]

amendments to the document for each leverage contract that it offers or 
that it intends to offer within 30 calendar days after the date upon 
which the leverage transaction merchant first knows or has reason to 
know of the defect requiring the amendment.
    (f) This section does not relieve a leverage transaction merchant 
from any obligation under the Act or the regulations thereunder, 
including the obligation to disclose all material information to 
existing or prospective leverage customers even if the information is 
not specifically required by this section.
    (g) If any contract term set forth in accordance with paragraph 
(a)(2) of this section provides that such term is subject to change, the 
leverage transaction merchant must ensure that this fact, the conditions 
under which the change may take place, and the foreseeable consequences 
of the change are clearly stated in the Disclosure Document, in 
describing that contract term.
    (h) A leverage transaction merchant must transmit a notification to 
each leverage customer within 24 hours of making any change not 
otherwise permitted under the contract terms set forth in accordance 
with paragraph (a)(2) of this section. A notification of any change in 
the interest rate charged by the leverage transaction merchant must also 
be transmitted to each leverage customer within twenty-four hours of 
each change: Provided, however, That no notification is required if the 
change in interest rate is one percent or less as compared to the rate 
charged at the prior month-end and the new interest rate is made 
available to customers by means of a toll-free telephone call, and such 
availability is set forth in the Disclosure Document. The notification 
required by this paragraph must be transmitted by first class mail or 
other, at least equivalent, means of communication.
    (i) A person soliciting or accepting an order for a leverage 
contract is not required to deliver a Disclosure Document leverage to a 
leverage customer, as required by paragraph (a) of this section, if a 
disclosure document meeting all of the requirements of this section 
previously has been delivered by the person to the leverage customer: 
Provided, however, That such a Disclosure Document must be delivered:
    (1) Upon the request of a leverage customer, or
    (2) If the previously delivered Disclosure Document has become 
outdated or has become inaccurate in any material respect.
    (j) Prior to the entry into a leverage contract, the person 
soliciting the order therefor shall inform the leverage customer or the 
prospective leverage customer, to the extent these amounts are known or 
can reasonably be approximated, of all charges for the initiation, 
carrying and termination of a leverage contract and the leverage 
transaction merchant's bid-ask spread on the leverage contract as set 
forth in paragraph (a)(2)(iii) and (a)(2)(iv), respectively, of this 
section and the margins applicable to such contracts as set forth in 
paragraph (a)(2)(v) and (a)(2)(vi) of this section.
    (k)(1) Not later than the next business day after the entry into a 
long leverage contract with a customer, each leverage transaction 
merchant shall furnish to such customer, by first-class mail or other, 
at least equivalent, means of communication, a written Confirmation 
Statement in a format specified by the Commission containing:
    (i) For a leverage customer's first leverage transaction, the 
following bold-faced statement in at least ten-point type:

    IF YOU ARE A FIRST-TIME LEVERAGE CUSTOMER, YOU MAY RESCIND YOUR 
FIRST LEVERAGE TRANSACTION SUBJECT ONLY TO ACTUAL PRICE LOSSES BUT 
OTHERWISE WITHOUT PENALTY FOR THREE BUSINESS DAYS FOLLOWING AND 
INCLUDING RECEIPT OF THIS CONFIRMATION. ACTUAL LOSSES ON A LEVERAGE 
CONTRACT PURCHASED FROM A LEVERAGE TRANSACTION MERCHANT ARE CALCULATED 
BY SUBTRACTING THE ASK PRICE OF THE LEVERAGE CONTRACT AT THE TIME OF THE 
CUSTOMER'S RESCISSION FROM THE ASK PRICE AT WHICH THE LEVERAGE CONTRACT 
WAS PURCHASED AND WHICH APPEARS ON THIS CONFIRMATION. TO RESCIND THIS 
CONTRACT SEND A TELEGRAM TO (name and address of LTM) OR YOU MAY 
TELEPHONE (name of LTM) AT (telephone number). IF YOU RESCIND BY 
TELEPHONE, YOU MUST ALSO SEND IMMEDIATE WRITTEN AFFIRMATION BY

[[Page 404]]

TELEGRAM, CERTIFIED LETTER OR BY AT LEAST EQUIVALENT MEANS TO THE 
ADDRESS PROVIDED ABOVE; and

    (ii) For every leverage transaction, the following information:
    (A) The date the leverage contract was entered into;
    (B) The transaction identification number;
    (C) The name of the leverage commodity;
    (D) The expiration date of the leverage contract;
    (E) The total cost of the leverage contracts covered in the 
Confirmation Statement, which equals the leverage transaction merchant's 
ask price in dollars per unit multiplied by the number of units 
multiplied by the number of contracts;
    (F) The total unpaid balance for this transaction;
    (G) The total initial charges for the transaction;
    (H) The total initial margin for the transaction, in dollars and as 
a percentage of the contract price;
    (I) The total amount due (or paid) to initiate the transaction, 
which equals the total initial charges plus the total initial margin in 
dollars;
    (J) The current equity in the individual customer's account as of 
the date of this transaction, but excluding this transaction;
    (K) The total variable carrying charges to be billed each period, in 
dollars and as an annual percentage rate, based on the carrying charge 
rate prevailing at the time the contract is entered into;
    (L) The total bid/ask spread, based on prices prevailing at the time 
the contract is entered into;
    (M) The total termination charges incurred if the contract is 
repurchased, liquidated by the leverage transaction merchant or settled 
by delivery, based on charges prevailing at the time the contract is 
entered into;
    (N) Any other charges associated with terminating the transaction, 
based on charges prevailing at the time the contract is entered into;
    (O) Any special charges associated with liquidating the transaction, 
based on charges prevailing at the time the contract is entered into;
    (P) The total delivery charges incurred if the customer takes 
delivery on the contract, based on charges prevailing at the time the 
contract is entered into;
    (Q) The following formula enabling a customer to calculate the 
estimated total contract value to break-even: Initial contract value 
plus the bid-ask spread plus the intitial charges plus any other charges 
plus the termination charges plus the carrying charges for the period 
the contract is intended to be held open;
    (R) The total minimum margin, in dollars and as a percentage of 
contract price, based on the rate prevailing at the time the contract is 
entered into;
    (S) The total maintenance margin, in dollars and as a percentage of 
contract price, based on the rate prevailing at the time the contract is 
entered into;
    (T) The commercial or retail cash price series filed in accordance 
with Sec. 31.6 available to the leverage customer to evaluate the 
leverage contract (including any applicable premiums or discounts), and 
where quotes of this series can be obtained on a timely basis; and
    (2) Not later than the next business day after entry into a short 
leverage contract with a customer, each leverage transaction merchant 
shall furnish to such customer by first-class mail or other, at least 
equivalent, means of communication, a written Confirmation Statement in 
a format specified by the Commission containing:
    (i) For a leverage customer's first leverage transaction, the 
following bold-faced statement in at least ten-point type:

IF YOU ARE A FIRST-TIME LEVERAGE CUSTOMER, YOU MAY RESCIND YOUR FIRST 
LEVERAGE TRANSACTION SUBJECT ONLY TO ACTUAL PRICE LOSSES BUT OTHERWISE 
WITHOUT PENALTY FOR THREE BUSINESS DAYS FOLLOWING AND INCLUDING RECEIPT 
OF THIS CONFIRMATION. ACTUAL LOSSES ON A LEVERAGE CONTRACT SOLD TO A 
LEVERAGE TRANSACTION MERCHANT ARE CALCULATED BY SUBTRACTING THE BID 
PRICE AT WHICH THE CONTRACT WAS SOLD TO THE LEVERAGE TRANSACTION 
MERCHANT AND WHICH APPEARS ON THIS CONFIRMATION FROM THE BID PRICE OF 
THE LEVERAGE CONTRACT AT THE TIME OF THE CUSTOMER'S RESCISSION. TO 
RESCIND THIS CONTRACT SEND

[[Page 405]]

A TELEGRAM TO (name and address of LTM) OR YOU MAY TELEPHONE (name of 
LTM) AT (telephone number). IF YOU RESCIND BY TELEPHONE, YOU MUST ALSO 
SEND IMMEDIATE WRITTEN AFFIRMATION BY TELEGRAM, CERTIFIED LETTER OR BY 
AT LEAST EQUIVALENT MEANS TO THE ADDRESS PROVIDED ABOVE: and

    (ii) For every leverage transaction, the following information:
    (A) The date the leverage contract was entered into;
    (B) The transaction identification number;
    (C) The name of the leverage commodity;
    (D) The expiration date of the leverage contract;
    (E) The total cost of the leverage contracts covered in the 
Confirmation Statement, which equals the leverage transaction merchant's 
bid price in dollars per unit multiplied by the number of units 
multiplied by the number of contracts;
    (F) The total initial charges for the transaction;
    (G) The total initial margin for the transaction, in dollars and as 
a percentage of the contract price;
    (H) The total amount due (or paid) to initiate the transaction, 
which equals the total initial charges plus the total initial margin in 
dollars;
    (I) The current equity in the individual customer's account as of 
the date of this transaction, but excluding this transaction;
    (J) The total variable carrying charges to be credited each period, 
in dollars and as an annual percentage rate, based on the carrying 
charge rate prevailing at the time the contract is entered into;
    (K) The total bid/ask spread, based on prices prevailing at the time 
the contract is entered into;
    (L) The total termination charges incurred if the contract is 
resold, liquidated by the leverage transaction merchant or settled by 
delivery, based on charges prevailing at the time the contract is 
entered into;
    (M) Any other charges associated with terminating the transaction, 
based on charges prevailing at the time the contract is entered into;
    (N) Any special charges associated with liquidating the transaction, 
based on charges prevailing at the time the contract is entered into;
    (O) The total delivery (including assay) charges incurred if the 
customer makes delivery on the contract, based on charges prevailing at 
the time the contract is entered into;
    (P) The following formula enabling a customer to calculate the 
estimated total contract value to break-even: Initial contract value 
plus carrying charges for the period the contract is intended to be held 
open, minus the bid-ask spread, minus the initial charges, minus any 
other charges, minus the termination charges;
    (Q) The total minimum margin, in dollars and as a percentage of 
contract price, based on the rate prevailing at the time the contract is 
entered into;
    (R) The total maintenance margin, in dollars and as a percentage of 
contract price, based on the rate prevailing at the time the contract is 
entered into;
    (S) The commercial or retail cash price series filed in accordance 
with Sec. 31.6 available to the leverage customer to evaluate the 
leverage contract (including any applicable premiums or discounts), and 
where quotes of this series can be obtained on a timely basis.
    (l) Each leverage transaction merchant shall furnish, upon request, 
by first-class mail or other generally accepted means of communication, 
to all leverage customers with open leverage contracts and to 
prospective leverage customers who are being solicited to enter leverage 
contracts with it, a true copy of portions of the quarterly unaudited or 
annual audited financial statement most recently filed with the 
Commission pursuant to Sec. 31.13, except that the portions of those 
statements which will generally be accorded non-public treatment by the 
Commission need not be so furnished.
    (m)(1) Notwithstanding any other provision in this section, if a 
leverage transaction merchant is not offering to enter into, entering 
into or confirming the execution of, soliciting or accepting a leverage 
customer's order for, or accepting any leverage customer funds from a 
leverage customer to enter into

[[Page 406]]

or maintain any short leverage contract, the leverage transaction 
merchant may delete or disregard references to short leverage contracts 
in its Disclosure Document as follows:
    (i) The third sentence of the first paragraph of the required bold-
faced risk disclosure statement in paragraph (a)(1) of this section;
    (ii) The words ``and a short leverage transaction'' in the fourth 
sentence of the first paragraph of the required bold-faced risk 
disclosure statement in paragraph (a)(1) of this section;
    (iii) The words ``and leverage contracts sold to a leverage 
transaction merchant are re-established at the then prevailing ask 
price'' in the fifth sentence of the third paragraph of the required 
bold-faced risk disclosure statement in paragraph (a)(1) of this 
section;
    (iv) The second sentence of the fifth paragraph of the required 
bold-faced risk disclosure statement in paragraph (a)(1) of this 
section;
    (v) The words ``or resold to'' in the first sentence of the sixth 
paragraph of the required bold-faced risk disclosure statement in 
paragraph (a)(1) of this section;
    (vi) The words ``or resell,'' ``and must also offer to resell any 
short leverage contract previously sold by a leverage customer,'' and 
``or short'' in the second sentence of the sixth paragraph of the 
required bold-faced risk disclosure statement in paragraph (a)(1) of 
this section;
    (vii) The words ``or resold'' and ``or resale'' (twice) in paragraph 
(a)(2)(vii) of this section;
    (viii) All of the words following the first semicolon in paragraph 
(a)(2)(viii) of this section;
    (ix) The words ``and a representative single short leverage 
contract'' in paragraph (a)(3) of this section; and
    (x) The words ``or short'' in paragraphs (a)(5)(i) and (a)(5)(ii) of 
this section.
    (2) Any leverage transaction merchant using a Disclosure Document 
that deletes or disregards references to short leverage contracts as 
permitted by paragraph (m)(1) of this section must file, in accordance 
with the provisions of paragraph (e)(2) of this section, a new 
Disclosure Document meeting all of the requirements of paragraphs (a) 
through (i) of this section at least 30 calendar days before it begins 
to offer any short leverage contract.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5532, Feb. 13, 1984; 49 FR 25427, June 21, 1984, as amended at 50 
FR 29, Jan. 2, 1985; 50 FR 36415, Sept. 6, 1985; 54 FR 41080, Oct. 5, 
1989; 54 FR 46503, Nov. 3, 1989]



Sec. 31.12  Segregation.

    (a) Any person that accepts leverage customer funds from a leverage 
customer to enter into or maintain a leverage contract shall treat and 
deal with such leverage customer funds as belonging to that leverage 
customer. Such leverage customer funds: (1) Shall be separately 
accounted for and segregated as belonging to the leverage customer, (2) 
shall be kept in the United States, (3) shall not be commingled with the 
funds of any other person, and (4) shall not be used to secure or extend 
the credit of any leverage customer or person other than the one for 
whom the leverage customer funds are held: Provided, however, That the 
leverage customer funds treated as belonging to a leverage customer may 
for convenience be commingled with other leverage customer funds and 
deposited in the same account or accounts with a futures commission 
merchant or with a bank or trust company located in the United States 
under conditions set forth in paragraph (b) of this section. Any 
leverage customer funds when so deposited with a futures commission 
merchant, bank or trust company, shall be deposited under an account 
name which clearly indicates that the account contains leverage customer 
funds that are segregated as required by this section. Each person so 
depositing any leverage customer funds shall obtain and retain in its 
files for the period provided in Sec. 1.31 of this chapter an 
acknowledgment from the futures commission merchant, bank or trust 
company wherein the leverage customer funds have been deposited that the 
futures commission merchant, bank or trust company has been informed 
that the leverage customer funds deposited with it are being treated by 
the depositing person as belonging to leverage

[[Page 407]]

customers and are being held in accordance with the provisions of this 
section. The futures commission merchant, bank or trust company shall 
allow inspection of such segregated accounts, including all documents 
pertaining thereto, at any reasonable time by any representative of the 
Commission or designated self-regulatory organization, if any. 
Notwithstanding the foregoing, a leverage transaction merchant may 
exclude from its segregation requirements commissions and other charges 
lawfully accruing in connection with leverage contracts provided such 
charges have actually been made to leverage customers' accounts and are 
shown on the customers' statements.
    (b) No leverage customer funds deposited in accordance with 
paragraph (a) of this section shall be held, disposed of, used or 
treated as belonging to the depositing person or any person other than 
the leverage customers from whom the leverage customer funds were 
received: Provided, however, That leverage customer funds may be used to 
purchase obligations of the United States, general obligations of any 
state or of any political subdivision thereof, obligations fully 
guaranteed as to principal and interest by the United States, or 
unencumbered warehouse receipts for inventory held in approved contract 
market depositories or in commercial banks located in the United States 
which represent cover for leverage contracts purchased by such leverage 
customers, or may be deposited in a commodity account with a futures 
commission merchant to margin futures contracts or to purchase commodity 
options traded on or subject to the rules of a contract market which are 
permissible cover as described in Sec. 31.8(a) (2) and (3) for leverage 
contracts entered into by such leverage customers. Any use of leverage 
customer funds as described in this paragraph (b) shall be made through 
an account or accounts used for the deposit of leverage customer funds, 
and proceeds from any sale, liquidation or other disposition of 
obligations or warehouse receipts obtained by such use shall be 
redeposited in these accounts. Each person that uses leverage customer 
funds to purchase obligations or warehouse receipts of the type 
described in this paragraph (b) shall separately account for and 
segregate the obligations or warehouse receipts as belonging to leverage 
customers. The obligations or warehouse receipts shall be deposited with 
a futures commission merchant, bank or trust company in the United 
States and shall be deposited under an account name which clearly 
indicates that it contains obligations or warehouse receipts treated as 
belonging to leverage customers, segregated as required by this section. 
Each person so depositing any obligations or warehouse receipts shall 
obtain and retain in its files for the period provided in Sec. 1.31 of 
this chapter an acknowledgment from the futures commission merchant, 
bank or trust company wherein the obligations or warehouse receipts have 
been deposited that the futures commission merchant, bank or trust 
company has been informed that the obligations or warehouse receipts are 
being treated by the depositing person as belonging to leverage 
customers and are being held in accordance with the provisions of this 
section. The futures commission merchant, bank or trust company shall 
allow inspection of such obligations or warehouse receipts at any 
reasonable time by any representative of the Commission or designated 
self-regulatory organization, if any. Each person that uses leverage 
customer funds to margin futures contracts or to purchase commodity 
options traded on or subject to the rules of a contract market which 
represent permissible cover for leverage contracts entered into by such 
leverage customers shall use a commodity account separate from any other 
commodity account containing futures contracts which do not represent 
cover. The leverage customer funds deposited in a commodity account with 
a futures commission merchant to margin futures contracts or to purchase 
commodity options traded on or subject to the rules of a contract market 
which represent permissible cover for leverage contracts entered into by 
such leverage customers shall be deposited under an account name which 
clearly indicates that it contains obligations treated as belonging to 
leverage customers, segregated as required by this

[[Page 408]]

section. Each person so depositing any leverage customer funds shall 
obtain and retain in its files for the period provided in Sec. 1.31 of 
this chapter an acknowledgment from the futures commission merchant 
wherein the leverage customer funds have been deposited that:
    (1) The futures commission merchant has been informed that the 
commodity account is being treated by the depositing person as belonging 
to leverage customers and is being held in accordance with the 
provisions of this section,
    (2) The customers on whose behalf the account is maintained by the 
leverage transaction merchant shall not be liable for any margin calls 
or other required deposits related to such account, and
    (3) Upon liquidation of the open contracts in the account the 
futures commission merchant's claim in the account balance will be 
subordinate to that of leverage customers.
    (c) Each person that uses leverage customer funds to purchase 
obligations or unencumbered warehouse receipts as permitted by paragraph 
(b) of this section shall keep a written record which includes the 
following:
    (1) The date on which the purchase was made;
    (2) The name of the person through which the purchase was made;
    (3) The amount of funds so used;
    (4) A description of such obligations or warehouse receipts, 
including the receipt number and the issuer's name;
    (5) The identity of the futures commission merchant, bank or trust 
company wherein the obligations or warehouse receipts are segregated;
    (6) The date on which the obligation, warehouse receipt, or portion 
thereof, is liquidated or otherwise disposed of;
    (7) The amount of money, if any, received upon such liquidation or 
disposition; and
    (8) The name of the person to or through which the obligation or 
warehouse receipt was disposed.
    (d) Persons that use leverage customer funds to purchase obligations 
or unencumbered warehouse receipts described in paragraph (b) of this 
section shall include such obligations or unencumbered warehouse 
receipts in segregated accounts at values which do not exceed the lesser 
of current market value or a value calculated on the basis of a 
commercial or retail cash price series used to compute the market value 
of the physical commodities subject to leverage contracts in accordance 
with Sec. 31.9(a)(1).
    (e) The provisions of paragraphs (a) and (b) of this section shall 
not operate to prevent any person that uses leverage customer funds to 
purchase government obligations as described therein from receiving and 
retaining as its own any increment or interest resulting from such 
government obligations: Provided, however, That the leverage transaction 
merchant fulfills its obligation to pay carrying charges on a short 
leverage contract, including any margin deposit made in connection with 
such a contract, in accordance with Sec. 31.25(b).
    (f) The amount of leverage customer funds which are and which must 
be in a segregated account in order to comply with the requirements of 
this section shall be computed as of the close of each business day by 
each person required to segregate such leverage customer funds. A 
written record of this computation shall be made and kept, together with 
all supporting data, in accordance with the provsions of Sec. 1.31 of 
this chapter. This daily computation shall be made by noon on the next 
business day and shall be identical in format to the Schedule of 
Segregation Requirements and Funds in Segregation contained in Form 2-
FR.
    (g) Each leverage transaction merchant shall maintain, as provided 
in Sec. 1.31, a record of all securities and property received from 
leverage customers in lieu of money to purchase, guarantee or secure the 
entry into a leverage contract. Such record shall show separately for 
each leverage customer a description of the securities or property 
received; the name and address of such leverage customer; the dates when 
the securities or property were received; the identity of the 
depositories or other places where such securities or property are 
segregated; the dates of deposits and withdrawals from such 
depositories; and the date of return of such securities or property to 
such leverage customer, or other disposition thereof, together with the

[[Page 409]]

facts and circumstances of such other disposition.
    (h) The requirements of paragraphs (a) through (g) of this section 
shall not be applicable if the leverage transaction merchant is a member 
of a designated self-regulatory organization and conforms to minimum 
segregation standards and related reporting requirements set by such 
designated self-regulatory organization in its bylaws, rules, 
regulations or resolutions approved by the Commission pursuant to 
section 19 of the Act and Sec. 31.28 of this part.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5535, Feb. 13, 1984, as amended at 50 FR 31, Jan. 2, 1985, 50 FR 
34616, Sept. 6, 1985; 50 FR 40964, Oct. 8, 1985; 54 FR 41081, Oct. 5, 
1989; 54 FR 46503, Nov. 3, 1989]



Sec. 31.13  Financial reports of leverage transaction merchants.

    (a) Each leverage transaction merchant who files an application for 
registration with the National Futures Association under Sec. 3.17 of 
this chapter shall submit concurrently with the filing of such 
application either:
    (1) A Form 2-FR certified by an independent public accountant as of 
a date not more than 45 days prior to the date on which such report is 
filed; or
    (2) A Form 2-FR as of a date not more than 45 days prior to the date 
on which such report is filed and an Form 2-FR certified by an 
independent public accountant as of a date not more than 1 year prior to 
the date on which such report is filed. Each such person must include 
with such financial report a statement describing the source of his 
current assets and representing that his capital has been contributed 
for the purpose of operating his business and will continue to be used 
for such purpose.
    (b)(1) Each leverage transaction merchant must file, in accordance 
with the requirements of paragraph (e) of this section, a Form 2-FR for 
each fiscal quarter of each fiscal year. The Form 2-FR filed as of the 
close of the leverage transaction merchant's fiscal year must be 
certified by an independent public accountant. Each Form 2-FR must be 
filed no later than 45 days after the date for which the report is made: 
Provided, however, That any Form 2-FR which must be certified by an 
independent public accountant must be filed no later than 90 days after 
the close of the leverage transaction merchant's fiscal year.
    (2) The provisions of paragraph (b)(1) of this section may be met by 
any person registered as a leverage transaction merchant who is a member 
of a designated self-regulatory organization and conforms to minimum 
financial standards and related reporting requirements set by such 
designated self-regulatory organization in its bylaws, rules, 
regulations, or resolutions and approved after April 13, 1984, by the 
Commission pursuant to section 19 of the Act and Sec. 31.28 of this 
part: Provided, however, That each such registrant shall promptly file 
with the Commission a true and exact copy of each financial report which 
it files with such designated self-regulatory organization.
    (c) Each Form 2-FR which must be certified by an independent public 
accountant in accordance with the provisions of paragraphs (a)(1), 
(a)(2) and (b)(1) of this section, must be certified in accordance with 
Sec. 1.16 of this chapter, and must be accompanied by the accountant's 
report on material inadequacies in accordance with the provisions of 
Sec. 1.16(c)(5) of this chapter. In all other respects, the independent 
public accountant shall act in accordance with the provisions of Sec. 
1.16 (except paragraph (f)) of this chapter: Provided, however, That the 
term ``Form 2-FR'' shall be substituted for ``Form 1-FR'' in Sec. 
1.16(c)(5) of this chapter, the term ``Sec. 31.9'' shall be substituted 
for the term ``Sec. 1.17,'' the term ``leverage transaction merchant'' 
shall be substituted for the term ``futures commission merchant,'' and 
``the segregation requirements of Sec. 31.12'' shall be substituted for 
``the segregation requirements of section 4d(a)(2) of the Act and these 
regulations and the secured amount requirement of the Act and these 
regulations.''
    (d) Upon receiving written notice from any representative of the 
Commission or any self-regulatory organization of which it is a member, 
a leverage transaction merchant shall, on a monthly basis or at such 
other times

[[Page 410]]

as specified, furnish the Commission and the self-regulatory 
organization, if any, with a Form 2-FR or such other financial 
information as requested by the representative of the Commission or the 
self-regulatory organization. Each such Form 2-FR or such other 
information must be furnished within the time specified in the written 
notice.
    (e) The reports provided for in this section will be considered 
filed when received by the regional office of the Commission with 
jurisdiction over the state wherein the principal place of business of 
the leverage transaction merchant is located, in accordance with Sec. 
140.2 of this chapter, and by the designated self-regulatory 
organization, if any.
    (f) Each Form 2-FR filed pursuant to this section which is not 
required to be certified by an independent public accountant must be 
completed in accordance with the instructions to the form and contain:
    (1) A statement of financial condition as of the date for which the 
report is made;
    (2) A statement of changes in ownership equity for the period 
between the date of the most recent statement of financial condition 
filed with the Commission and the date for which the report is made;
    (3) A statement of changes in liabilities subordinated to claims of 
general creditors for the period between the date of the most recent 
statement of financial condition filed with the Commission and the date 
for which the report is made;
    (4) A statement of the computation of the minimum capital 
requirements pursuant to Sec. 31.9, a schedule of coverage requirements 
and coverage provided, and a schedule of segregation requirements and 
funds on deposit in segregation, as of the date for which the report is 
made; and
    (5) In addition to the information expressly required, such further 
information as may be necessary to make the required statements and 
schedules not misleading.
    (g) Each Form 2-FR filed pursuant to this Sec. 31.13 which is 
required to be certified by an independent public accountant must be 
completed in accordance with the instructions to the form and contain:
    (1) A statement of financial condition as of the date for which the 
report is made;
    (2) Statements of: income (loss); cash flows; changes in ownership 
equity; and changes in liabilities subordinated to claims of general 
creditors, for the period between the date of the most recent statement 
of financial condition filed with the Commission and the date for which 
the report is made: Provided, however, That for an applicant filing 
pursuant to paragraph (a) of this section, the period must be the year 
ending as of the date of the statement of financial condition;
    (3) A statement of the computation of the minimum capital 
requirements pursuant to Sec. 31.9, a schedule of coverage requirements 
and coverage provided, and a schedule of segregation requirements and 
funds on deposit in segregation, as of the date for which the report is 
made;
    (4) Appropriate footnote disclosures; and
    (5) In addition to the information expressly required, such further 
information as may be necessary to make the required statements and 
schedules not misleading.
    (h) The statements required by paragraphs (g) (1) and (2) of this 
section may be presented in accordance with generally accepted 
accounting principles in the certified reports filed as of the close of 
the registrant's fiscal year pursuant to paragraph (b) of this section, 
or accompanying the application for registration pursuant to paragraph 
(a) of this section, rather than in the format specifically prescribed 
by these regulations: Provided, however, That the statement of financial 
condition is presented in a format as consistent as possible with the 
Form 2-FR and a reconciliation is provided reconciling such statement of 
financial condition to the statement of the computation of the minimum 
capital requirements pursuant to Sec. 31.9. Such reconciliation must be 
certified by an independent public accountant in accordance with Sec. 
1.16 of this chapter.
    (i) Attached to each Form 2-FR filed pursuant to this section must 
be an oath or affirmation that to the best

[[Page 411]]

knowledge and belief of the individual making such oath or affirmation 
the information contained in the Form 2-FR is true and correct. If the 
leverage transaction merchant is a sole proprietorship, then the oath or 
affirmation must be made by the proprietor; if a partnership, by a 
general partner; or, if a corporation, by the chief executive officer or 
chief financial officer.
    (j) Any leverage transaction merchant wishing to establish a fiscal 
year other than the calendar year may do so by notifying the National 
Futures Association of its election of such fiscal year in writing, 
concurrently with the filing of Form 2-FR pursuant to paragraph (a) of 
this section, but in no event may such fiscal year end more than one 
year from the date of the Form 2-FR filed pursuant to paragraph (a) of 
this section. A leverage transaction merchant which does not so notify 
the National Futures Association will be deemed to have elected the 
calendar year as its fiscal year. A leverage transaction merchant must 
continue to use its elected fiscal year, calendar or otherwise, unless a 
change in such fiscal year is approved upon written application to the 
designated self-regulatory organization.
    (k) In the event any leverage transaction merchant finds that it 
cannot file its report for any period within the time specified in 
paragraphs (b) or (d) of this section without substantial undue 
hardship, it may file with the designated self-regulatory organization 
an application for an extension of time to a specified date which may 
not be more than 90 days after the date as of which the financial report 
was to have been filed. The application must state the reasons for the 
requested extension and must contain an agreement to file the report on 
or before the specified date. The application must be received by the 
designated self-regulatory organization before the time specified in 
paragraphs (b) or (d) of this section for filing the report. Within 10 
calendar days after receipt of the application for an extension of time, 
the designated self-regulatory organization shall: (1) Notify the 
leverage transaction merchant of the grant or denial of the requested 
extension; or (2) indicate that additional time is required to analyze 
the request, in which case the amount of time needed will be specified.
    (l)(1) In the event a leverage transaction merchant finds that it 
cannot file its certified financial report and schedules for any year 
within the time specified in paragraph (b) of this section without 
substantial undue hardship, it may file with the designated self-
regulatory organization an application for an extension of time to a 
specified date not more than 90 days after the date as of which the 
certified financial report and schedules were to have been filed. The 
application must be submitted by the leverage transaction merchant and 
must:
    (i) State the reasons for the requested extension;
    (ii) Indicate that the inability to make a timely filing is due to 
circumstances beyond the control of the leverage transaction merchant, 
if such is the case, and describe briefly the nature of such 
circumstances;
    (iii) Be accompanied by the latest available formal computation of 
its adjusted net capital and minimum financial requirements computed in 
accordance with Sec. 31.9;
    (iv) Be accompanied by the latest available computation of required 
segregation and by a computation of the amount of leverage customer 
funds segregated pursuant to Sec. 31.12 as of the date of the latest 
available computation;
    (v) Be accompanied by the latest available computation of required 
cover and by a computation of cover provided pursuant to Sec. 31.8 as 
of the date of the latest available computation;
    (vi) Contain an agreement to file the report on or before the date 
specified by the leverage transaction merchant in the application;
    (vii) Be received by the designated self-regulatory organization 
prior to the date on which the report is due; and
    (viii) Be accompanied by a letter from the independent public 
accountant answering the following questions:
    (A) What specifically are the reasons for the extension request?
    (B) On the basis of that part of your audit to date, do you have any 
indication that may cause you to consider

[[Page 412]]

commenting on any material inadequacies in the accounting system, 
internal accounting controls or procedures for safeguarding customer or 
firm assets?
    (C) Do you have any indication from the part of your audit completed 
to date that would lead you to believe that the firm was or is not 
meeting the minimum capital requirements specified in Sec. 31.9 or the 
cover or segregation requirements of these regulations, or has any 
significant financial or recordkeeping problems?
    (2) Within 10 calendar days after receipt of an application for 
extension of time, the designated self-regulatory organization shall:
    (i) Notify the leverage transaction merchant of the grant or denial 
of the requested extension; or
    (ii) Indicate that additional time is required to analyze the 
request, in which case the amount of time needed will be specified.
    (3) On the written request of a leverage transaction merchant, or on 
its own motion, the designated self-regulatory organization may grant an 
extension of time or an exemption from any of the certified financial 
reporting requirements of this section either unconditionally or on 
specified terms and conditions.
    (m) The following portions of Form 2-FR filed pursuant to this 
section will be public: The statement of financial condition, the 
computation of the minimum capital requirements pursuant to Sec. 31.9, 
the schedule of coverage requirements and cover provided, and the 
schedule of segregation requirements and funds on deposit in 
segregation. The other financial statements (including the statement of 
income (loss)), footnote disclosures and schedules of Form 2-FR, trade 
secrets and certain other commercial or financial information on such 
other statements and schedules, will be treated as nonpublic for 
purposes of the Freedom of Information Act and the Government in the 
Sunshine Act and parts 145 and 147 of this chapter. All information on 
such other statements, footnote disclosures and schedules will, however, 
be available for official use by any official or employee of the United 
States or any State, by any self-regulatory organization of which the 
person filing such report is a member, by the National Futures 
Association in the case of an applicant, and by any other person to whom 
the Commission believes disclosure of such information is in the public 
interest. The independent public accountant's opinion filed pursuant to 
this section will be deemed to be public information.
    (n)(1) Until such time as the Commission orders, otherwise, the 
Commission hereby delegates to the Director of the Division of Clearing 
and Intermediary Oversight or his designee the authority to perform all 
functions reserved to the Commission in this section.

The Director of the Division of Clearing and Intermediary Oversight may 
submit to the Commission for its consideration any matter which has been 
delegated to him pursuant to paragraph (n)(1) of this section.

[49 FR 5536, Feb. 13, 1984, as amended at 54 FR 41081, Oct. 5, 1989; 62 
FR 10445, Mar. 7, 1997; 67 FR 62352, Oct. 7, 2002; 69 FR 41426, July 9, 
2004]



Sec. 31.14  Recordkeeping.

    (a) All books, records and other documents required to be kept by 
this part shall be kept in accordance with the provisions of Sec. 1.31 
of this chapter. In addition, information concerning leverage 
transactions shall be made available upon request of the Executive 
Director, the Director of the Division of Clearing and Intermediary 
Oversight, the Director of the Division of Market Oversight or the 
Director of the Division of Enforcement, or other designees, at a time 
and place and in such form and manner as may be specified in the 
request.
    (b) Each leverage transaction merchant shall:
    (1) Keep full, complete, and systematic records, together with all 
pertinent data and memoranda, of all transactions relating to leverage 
contracts, commodity futures, commodity options and cash commodities and 
furnish true and correct information and reports as to the contents or 
the meaning thereof when and as requested by any authorized 
representative of the Commission, designated self-regulatory 
organization, if any, or the U.S. Department of Justice. Included among

[[Page 413]]

such records shall be: All leverage contract orders; signature cards; 
journals; ledgers; canceled checks; bank statements; loan agreements; 
invoices; copies of confirmations; copies of statements of purchase, 
sale, repurchase, resale, liquidation, rescission and delivery; copies 
of month-end statements; monthly trial balances, and a monthly listing 
as described in paragraph (d) of this section; reports, letters and 
copies of disclosure statements signed by leverage customers as 
described in Sec. 31.11; promotional material, circulars, memoranda, 
publications, writings, and all other literature or written advice 
distributed to leverage customers or prospective leverage customers; and 
all other records, data and memoranda which have been prepared in the 
course of the business of the leverage transaction merchant concerning 
leverage contracts, commodity futures, commodity options, and cash 
commodities;
    (2) Keep a record in permanent form which shall show for each 
leverage customer's account carried by such leverage transaction 
merchant:
    (i) The true name and address of the person for whom such account is 
carried;
    (ii) The principal occupation and/or type of business of the person 
for whom such account is carried;
    (iii) The name and address of any other person who assumes or 
purports to assume any financial responsibility for or operational 
control of such account; and
    (iv) The names of the persons who have solicited and are responsible 
for each leverage customer's account.
    (c) Each leverage transaction merchant shall, as a minimum 
requirement, prepare regularly and promptly, and keep systematically and 
in permanent form, the following:
    (1) A financial ledger which will show separately for each leverage 
customer's account all charges against and credits to such leverage 
customer's account, including but not limited to all charges and credits 
for purchases, repurchases, sales, resales, liquidations, rescissions 
and settlements by delivery of leverage contracts (including the 
corresponding transaction identification numbers) and all funds 
transferred, desposited into, or withdrawn from the leverage customer's 
account.
    (2) A record of transactions which will show separately for each 
leverage customer's account in chronological sequence all leverage 
contracts entered into with such customer. This record will show for 
each transaction: The date of the transaction; the commodity involved; a 
transaction identification number; the maturity date; the number of 
contracts; whether the transaction represents an initial purchase, 
initial sale, closing repurchase, closing resale, a liquidating 
transaction, a rescission or a delivery; and, if a closing or 
liquidating transaction or a rescission, the total amount realized.
    (3) A daily record or journal which will show separately by leverage 
commodity complete details of all leverage transactions executed on that 
day, including the person for whom such transaction was made, the 
leverage commodity and contract involved, the number of leverage 
contracts, the transaction identification number for each leverage 
contract, whether the transaction was an initial purchase, repurchase, 
initial sale, resale, liquidating transaction, rescission or delivery, 
and the total value of the transaction.
    (4) The acknowledgement specified in Sec. 31.11(a).
    (5) A record of all notifications under Sec. 31.11(h).
    (6) Where reproductions on microfilm of the records required by this 
paragraph (c) are substituted for hard copy in accordance with the 
provisions of paragraph (a) of this section, the requirement of 
paragraphs (c)(1) and (c)(2) of this section will be considered met if 
the person required to keep such records is ready at all times to 
provide, and immediately provides at such time and place as required by 
the Commission and at the expense of such person, reproduced copies 
which show the records as specified in paragraphs (c)(1) and (c)(2) of 
this section, on request by any representative of the Commission, 
designated self-regulatory organization or the U.S. Department of 
Justice.
    (d) Each leverage transaction merchant shall prepare, as of the 
close of the last business day of each calendar month, a listing of all 
open leverage

[[Page 414]]

contracts carried for leverage customs. Such listing shall be by 
leverage commodity and contract and separately by long leverage 
contracts and short leverage contracts, and shall include the following 
details with respect to each leverage contract:
    (1) The customer account identification number;
    (2) The name of the leverage commodity and contract;
    (3) The date of execution and the maturity date;
    (4) The transaction identification number;
    (5) The value of the leverage contract when initiated; and
    (6) The unrealized profit or loss on each open leverage contract 
marked to the market on the basis of the leverage transaction merchant's 
bid price for a long leverage contract and ask price for a short 
leverage contract.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[50 FR 32, Jan. 2, 1985; 50 FR 2283, Jan. 16, 1985, as amended at 67 FR 
62352, Oct. 7, 2002]



Sec. 31.15  Reporting to leverage customers.

    Each leverage transaction merchant shall furnish in writing directly 
to each leverage customer:
    (a) Promptly upon the repurchase, resale, liquidation, rescission or 
delivery of a leverage contract, a statement showing the financial 
result of the transactions involved, including the gain or loss on the 
leverage contract as well as the commission and other charges;
    (b) As of the close of the last business day of each calendar month 
or as of any regular monthly date selected a statement which clearly 
shows:
    (1) All leverage contracts which were terminated for or by the 
leverage customer during the monthly reporting period by leverage 
commodity and contract, the number of contracts involved, the 
transaction identification number for each leverage contract, whether 
the terminating transaction involved repurchase, resale, liquidation, 
rescission, or delivery, the date the contract was initially entered 
into, the value of the contract when initiated, the date the contract 
was terminated, the value of the contract when terminated, and the 
realized profit or loss on the contract;
    (2) The open leverage contract positions carried for the leverage 
customer by leverage commodity and contract, whether the position is a 
long or short leverage contract, the dates on which such contracts were 
executed and their maturity dates, the number of contracts, the total 
value of the contracts when initiated, and the unrealized profit or loss 
on each such contract marked to the market on the basis of the leverage 
transaction merchant's bid price for a long leverage contract and ask 
price for a short leverage contract.
    (3) The net ledger balance carried in the leverage customer's 
account as of the monthly closing date and a complete accounting of any 
leverage customer funds held for the leverage customer;
    (4) A detailed accounting of all financial charges and credits to 
the previous ledger balance during the monthly reporting period, 
including all leverage customer funds received from or disbursed to the 
leverage customer, and all commissions and fees incidental to the 
contract which have been charged and received, as well as all realized 
profits and losses; and
    (5) Any securities or other property which the leverage customer has 
deposited with the leverage transaction merchant that represent leverage 
customer funds.

The monthly statement must also contain the following bold-faced legend 
in at least ten-point type: IF YOU BELIEVE YOUR MONTHLY STATEMENT IS 
INACCURATE YOU SHOULD PROMPTLY CONTACT (name of LTM) AT (telephone 
number).
    (c) With respect to any leverage account controlled by any person 
other than the leverage customer for whom the account is carried, except 
such leverage customer's spouse, parent or child, a copy of the 
statements required by paragraphs (a) and (b) of this section shall be 
sent to the controller

[[Page 415]]

of the account as well as to the leverage customer for whom such account 
is carried.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5539, Feb. 13, 1984, as amended at 50 FR 33, Jan. 2, 1985; 50 FR 
2283, Jan. 16, 1985]



Sec. 31.16  Monthly reporting requirements.

    (a) Monthly activity. Each leverage transaction merchant shall file 
written monthly reports with the National Futures Association in the 
format specified by the National Futures Association, by the tenth 
business day of the month following the month covered by the report and 
shall include the following information separately for each leverage 
commodity and each long and short leverage contract:
    (1) The total number of leverage contracts that are open as of the 
close of business on the last business day of the month for:
    (i) All customer accounts, and
    (ii) Separately for commercial leverage accounts.
    (2) The total number of leverage contracts entered into by leverage 
customers during the month for:
    (i) All customer accounts, and
    (ii) Separately for commercial leverage accounts.
    (3) The total number of leverage contracts which were repurchased or 
resold by the leverage transaction merchant during the month.
    (4) The total number of leverage contracts which were liquidated by 
the leverage transaction merchant during the month (i.e., as a result of 
overdue or unanswered margin calls).
    (5) The total number of deliveries on leverage contracts during the 
month.
    (6) The total number of leverage contracts which were rescinded 
during the month.
    (b) Prices. The monthly report shall also show the following 
information separately for each leverage commodity and each long and 
short leverage contract: the leverage transaction merchant's last bid 
price offered and last ask price offered as of the close of business on 
each business day.

[54 FR 41082, Oct. 5, 1989]



Sec. 31.17  Records of leverage transactions.

    (a) Each leverage transaction merchant receiving a leverage 
customer's order shall immediately upon receipt thereof prepare a 
written record of such order, including the account identification and 
order number, and shall record thereon, by time-stamp or other timing 
device, the date and time, to the nearest minute, such order is 
received.
    (b) Each leverage transaction merchant executing the order of a 
leverage customer shall record on a written record of such order, 
including the account identification and order number, by time-stamp or 
other timing device, the date and time, to the nearest minute, such 
order is executed.
    (c) For the purposes of this section, the term ``order'' shall 
include, but not be limited to, any order for the purchase, sale, 
repurchase, resale, rescission, settlement by delivery, or liquidation 
of a leverage contract.
    (d) Each leverage transaction merchant shall establish and maintain 
a record of the bid and ask prices of each leverage contract on each 
leverage commodity that the leverage transaction merchant offers to sell 
or sells, or offers to purchase or purchases. The record shall include 
the times these prices were in effect to the nearest ten seconds.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5540, Feb. 13, 1984, as amended at 50 FR 34, Jan. 2, 1985]



Sec. 31.18  Margin calls.

    (a) No leverage transaction merchant shall liquidate a leverage 
contract because of a margin deficiency without effecting personal 
contact with the leverage customer. If a leverage transaction merchant 
is unable to effect personal contact with a leverage customer, a 
telegram sent to the leverage customer at the address furnished by the 
customer to the leverage transaction merchant shall be sufficient 
contact.
    (b) A leverage transaction merchant shall allow a leverage customer 
a reasonable time after contact is effected

[[Page 416]]

in which to respond to a margin call. Twenty-four hours, excluding 
Saturdays, Sundays, and holidays, will be a reasonable time: Provided, 
however, That in the event the leverage customer's leverage account 
equity falls below 50 percent of aggregate minimum margin with respect 
to the leverage contracts therein, the leverage transaction merchant may 
liquidate sufficient contracts to restore minimum margin without prior 
notice: Provided, further, That the leverage customer must be notified 
of such liquidation within no more than 24 hours thereafter and must be 
permitted to re-establish his contract for a period of 5 business days 
at the then prevailing bid price in the case of a long leverage contract 
and at the then prevailing ask price in the case of a short leverage 
contract, without commissions, fees or other mark-ups or charges. If a 
termination charge was assessed by the leverage transaction merchant 
upon liquidation of a contract in accordance with the first proviso of 
this paragraph, such a charge must be rescinded upon re-establishment of 
the contract in accordance with the second proviso of this paragraph.
    (c) A record of all margin calls, including all contacts with 
leverage customers and attempts to contact leverage customers with 
respect to such calls, shall be kept by the leverage transaction 
merchant in accordance with the provisions of Sec. 31.14.
    (d) Leverage contracts liquidated by a leverage transaction merchant 
because of a margin deficiency must be liquidated in declining order of 
loss, commencing with the leverage contract with the greatest loss.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5540, Feb. 13, 1984, as amended at 50 FR 34, Jan. 2, 1985; 50 FR 
36416, Sept. 6, 1985]



Sec. 31.19  Unlawful representations.

    It shall be unlawful for any person:
    (a) Required to be registered with the Commission in accordance with 
Sec. Sec. 3.17 and 3.18 of this chapter expressly or impliedly to 
represent that the commission, by registering that person or by 
registering the leverage commodity which underlies contracts offered for 
sale or purchase, or sold or purchased by that person, or otherwise, has 
directly or indirectly approved that person, the person's method of 
operation, or any leverage commodity or leverage contract solicited or 
accepted by that person;
    (b) To represent in writing that it is registered with the 
Commission or that it is offering any leverage commodity registered with 
the Commission without also stating in writing in connection with that 
representation that the Commission, by registering that person or the 
leverage commodity which underlies contracts offered for sale or 
purchase or sold or purchased by that person, has not directly or 
indirectly approved the person, the person's method of operation, or any 
leverage commodity or contract solicited or accepted by that person; or
    (c) In or in connection with an offer to enter into, the entry into, 
the confirmation of the execution of, or the maintenance of any leverage 
contract, expressly or impliedly to represent that compliance with the 
provisions of the Act and these regulations constitutes a guarantee of 
the fulfillment of the leverage contract.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5540, Feb. 13, 1984, as amended at 50 FR 34, Jan. 2, 1985]



Sec. 31.20  Prohibition of guarantees against loss.

    (a) No leverage transaction merchant shall in any way represent that 
it will, with respect to any leverage contract in any account carried by 
the leverage transaction merchant for or on behalf of any person:
    (1) Guarantee such person against loss;
    (2) Limit the loss of such person; or
    (3) Not call for or attempt to collect initial, minimum or 
maintenance leverage margin established for customers.
    (b) No person shall in any way represent that a leverage transaction 
merchant will engage in any of the acts or practices described in 
paragraphs (a)(1), (a)(2) or (a)(3) of this section.

[[Page 417]]

    (c) This section shall not be construed to prevent a leverage 
transaction merchant from assuming or sharing in the losses resulting 
from an error or mishandling of an order.
    (d) This section shall not affect any guarantee entered into prior 
to the effective date of this section, but this section shall apply to 
any extension, modification or renewal thereof entered into after such 
date.

[49 FR 5540, Feb. 13, 1984]



Sec. 31.21  Leverage contracts entered into prior to April 13, 1984; subsequent transactions.

    Nothing contained in these regulations shall be construed to affect 
any lawful activities that occurred prior to April 13, 1984. All 
leverage contracts offered or entered into on or after April 13, 1984 
shall be subject to the terms and conditions of these regulations.

[54 FR 41082, Oct. 5, 1989]



Sec. 31.22  Prohibited trading in leverage contracts.

    No futures commission merchant or introducing broker shall offer to 
enter into, enter into, confirm the execution of, or solicit or accept 
orders for any leverage contract.

[54 FR 41082, Oct. 5, 1989]



Sec. 31.23  Limited right to rescind first leverage contract.

    (a) A leverage customer who is entering a leverage contract or 
contracts for the first time with a particular leverage transaction 
merchant may rescind such contract or contracts during a period of not 
less than three business days from and including the day on which the 
leverage customer receives the Confirmation Statement pursuant to the 
following provisions:
    (1) Such customer may be assessed actual price losses accruing to 
the customer's position from the time at which the customer entered into 
a leverage contract to the time that the leverage contract was 
rescinded. Such losses do not extend to any other charges or fees, such 
as account initiation, carrying, margin or account termination;
    (2) In the case of a leverage customer whose initial leverage 
transaction was a purchase of a leverage contract from a leverage 
transaction merchant (long leverage contract), actual losses accruing to 
the position may be calculated only by subtracting the ask price of the 
leverage contract offered by the leverage transaction merchant at the 
time when the leverage contract was rescinded from the ask price at 
which the leverage contract was purchased by the leverage customer and 
which appears on the Confirmation Statement. In the case of a leverage 
customer whose initial leverage transaction was a sale of a leverage 
contract to a leverage transaction merchant (short leverage contract), 
actual losses are calculated by subtracting the bid price at which the 
leverage contract was sold by the leverage customer and which appears on 
the Confirmation Statement from the bid price of the leverage contract 
offered by the leverage transaction merchant at the time when the 
leverage contract was rescinded.
    (3) Such customer may rescind the contract by telegram sent to the 
leverage transaction merchant at the address provided on the 
confirmation statement, or by telephone to a telephone number provided 
by the leverage transaction merchant on the Confirmation Statement with 
immediate written affirmation of rescission by telegram, certified 
letter or at least equivalent means.
    (b) A leverage transaction merchant must make complete refund of all 
monies received except for actual price losses as calculated in 
paragraph (a)(2) of this section, to the leverage customer who has 
rescinded a contract pursuant to paragraph (a) of this section within 24 
hours of notification of rescission.

(Secs. 8a(5) and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 
12a(5) and 23 (1982))

[49 FR 5540, Feb. 13, 1984, as amended at 50 FR 34, Jan. 2, 1985]

[[Page 418]]



Sec. 31.24  [Reserved]



Sec. 31.25  Bid and ask prices; carrying charges.

    (a) A leverage transaction merchant must use the same bid price at 
any particular point in time to purchase a leverage contract from a 
leverage customer (initiation of a short transaction) and to repurchase 
a leverage contract from a leverage customer (close-out of a long 
transaction), and a leverage transaction merchant must use the same ask 
price at any particular point in time to sell a leverage contract to a 
leverage customer (initiation of a long transaction) and to resell a 
leverage contract to a leverage customer (close-out of a short 
transaction), with respect to contracts involving the same leverage 
commodity.
    (b) A leverage transaction merchant must apply a carrying charge 
rate on a short leverage contract that is within one percent per annum 
of the carrying charge rate that it applies to a long leverage contract. 
In the case of a short leverage contract, the leverage customer must be 
credited with carrying charges computed on the total initial value of 
the contract, using the bid price when the contract was executed, plus 
any margin deposits made by the leverage customer in connection with the 
contract, and the same carrying charge rate must be applied to the total 
initial value of the contract and to the margin deposits. In the case of 
a long leverage contract, the leverage customer must be assessed 
carrying charges only on the unpaid balance of the contract, which is 
the total initial value of the contract, using the ask price when the 
contract was executed, minus any margin deposits made in connection with 
the contract: Provided, however, That in the case of a long leverage 
contract, interest on unpaid carrying charges may be assessed at the 
same rate as the interest rate component of the carrying charges and, if 
such an assessment were made and if the leverage transaction merchant 
offers short leverage contracts, payment of interest on carrying charges 
that have been credited to the leverage customer's account and not 
withdrawn must be made at the same rate as the interest rate component 
of the carrying charges.

[50 FR 36416, Sept. 6, 1985, as amended at 54 FR 41082, Oct. 5, 1989]



Sec. 31.26  Quarterly reporting requirement.

    Each leverage transaction merchant must file, in accordance with the 
instructions of, and in the format specified by, the National Furtures 
Association a quarterly report with the National Futures Association by 
the fifteenth business day of the month following the quarter covered by 
the report. The report must list all leverage contracts which were 
either repurchased, resold, liquidated or settled by delivery by or to 
the leverage transaction merchant during the quarter and, with respect 
to each leverage contract, must include the following information:
    (a) The leverage commodity and contract involved;
    (b) Whether a long or short leverage contract was involved;
    (c) The date the leverage contract was entered into;
    (d) The maturity date of the leverage contract at initiation;
    (e) The price at which the leverage contract was entered into;
    (f) Whether the leverage contract was repurchased, resold, 
liquidated or settled by delivery;
    (g) The date the leverage contract was repurchased, resold, 
liquidated or settled by delivery;
    (h) The price at which the leverage contract was repurchased, resold 
or liquidated;
    (i) The leverage customer account identification number;
    (j) Whether the leverage customer had a commercial or noncommercial 
leverage account;
    (k) Whether the leverage customer was the owner or holder of a 
proprietary leverage account as defined in Sec. 31.4(e); and
    (l) The profit or loss incurred by the leverage customer on the 
contract. In the case of a long leverage contract, profit or loss shall 
be determined by subtracting, from the total value of the contract based 
on the leverage transaction merchant's bid price at the time of 
repurchase or liquidation, the total

[[Page 419]]

value of the contract based on the ask price at which the contract was 
entered into, minus any amounts paid or owed by the leverage customer to 
the leverage transaction merchant, including initial, carrying and 
termination charges, plus any amounts paid or credited by the leverage 
transaction merchant to the leverage customer, in connection with the 
leverage contract. In the case of a short leverage contract, profit or 
loss shall be determined by subtracting, from the total value of the 
contract based on the bid price at which the contract was entered into, 
the total value of the contract based on the leverage transaction 
merchant's ask price at the time of resale or liquidation, minus any 
amounts paid or owed by the leverage customer to the leverage 
transaction merchant, including initial and termination charges, plus 
any amounts paid or credited by the leverage transaction merchant to the 
leverage customer, including carrying charges, in connection with the 
leverage contract.

[50 FR 36416, Sept. 6, 1985; 50 FR 37519, Sept. 16, 1985, as amended at 
54 FR 41083, Oct. 5, 1989]



Sec. 31.27  Registered futures association membership.

    Each person registered or required to register as a leverage 
transaction merchant must become and remain a member of at least one 
futures association which is registered under section 17 of the Act and 
which provides for the membership therein of such leverage transaction 
merchant, unless no such futures association is so registered.

[54 FR 41083, Oct. 5, 1989]



Sec. 31.28  Self-regulatory organization adoption and surveillance 

of minimum financial, cover, segregation and sales practice requirements.

    (a) Each self-regulatory organization must adopt, and submit for 
Commission approval, rules prescribing minimum financial, cover, 
segregation and sales practice, and related reporting requirements for 
all its members who are registered leverage transaction merchants. Each 
self-regulatory organization shall submit for Commission approval any 
modification or other amendments to such rules. Such requirements must 
be the same as, or more stringent than, those contained in this part 31 
and the definition of adjusted net capital must be the same as that 
prescribed in Sec. 31.9(b)(4) of this part.
    (b) Each self-regulatory organization which has members who are 
registered leverage transaction merchants shall have in effect and 
enforce rules submitted to the Commission pursuant to paragraph (a) of 
this section and approved by the Commission.
    (c) Any two or more self-regulatory organizations may file with the 
Commission a plan for delegating to a designated self-regulatory 
organization, for any registered leverage transaction merchant which is 
a member of more than one such self-regulatory organization, the 
responsibility of:
    (1) Monitoring and auditing for compliance with the minimum 
financial, cover, segregation and sales practice, and related reporting 
requirements adopted by such self-regulatory organizations in accordance 
with paragraph (a) of this section; and
    (2) Receiving the reports necessitated by such minimum financial, 
cover, segregation and sales practice, and related reporting 
requirements.
    (d) Any plan filed under this section may contain provisions for the 
allocation of expenses reasonably incurred by the designated self-
regulatory organization among the self-regulatory organizations 
participating in such a plan.
    (e) A plan's designated self-regulatory organization must report to 
that plan's other self-regulatory organizations any violation of such 
other self-regulatory organizations' rules and regulations for which the 
responsibility to monitor, audit or examine has been delegated to such 
designated self-regulatory organization under this section.
    (f) The self-regulatory organizations may, among themselves, 
establish programs to provide access to any necessary information.
    (g) After appropriate notice and opportunity for comment, the 
Commission may, by written notice, approve such a plan, or any part of 
the plan, if it finds that the plan, or any part of it:
    (1) Is necessary or appropriate to serve the public interest;

[[Page 420]]

    (2) Is for the protection and in the interest of leverage customers;
    (3) Reduces multiple monitoring and auditing for compliance with the 
minimum financial, cover, segregation and sales practice, and related 
reporting requirements of the self-regulatory organizations submitting 
the plan for any leverage transaction merchant which is a member of more 
than one self-regulatory organization;
    (4) Reduces multiple reporting of the information necessitated by 
such minimum financial, cover, segregation and sales practice, and 
related reporting requirements by any leverage transaction merchant 
which is a member of more than one self-regulatory organization;
    (5) Fosters cooperation and coordination among the self-regulatory 
organizations; and
    (6) Does not hinder the development of a registered futures 
association under section 17 of the Act.
    (h) After the Commission has approved a plan or part of one under 
paragraph (g) of this section, a self-regulatory organization relieved 
of responsibility must notify each of its members which is subject to 
such a plan:
    (1) Of the limited nature of its responsibility for such a member's 
compliance with its minimum financial, cover, segregation and sales 
practice, and related reporting requirements; and
    (2) Of the identity of the designated self-regulatory organization 
which has been delegated responsibility for such a member.
    (i) The Commission may at any time, after appropriate notice and 
opportunity for hearing, withdraw its approval of any plan or part of 
one established under this section, if such plan or part of one ceases 
to effectuate adequately the purposes of section 19 of the Act or of 
this section.
    (j) Whenever a registered leverage transaction merchant holding 
membership in a self-regulatory organization ceases to be a member in 
good standing of that self-regulatory organization, such self-regulatory 
organization must, on the same day that event takes place, give 
telegraphic notice of that event to the principal office of the 
Commission in Washington, DC and send a copy of that notification to 
such leverage transaction merchant.
    (k) Nothing in this section shall preclude the Commission from 
examining any leverage transaction merchant for compliance with the 
minimum financial, cover, segregation and sales practice, and related 
reporting requirements to which such leverage transaction merchant is 
subject.
    (l) In the event a plan is not filed and/or approved for each 
registered leverage transaction merchant which is a member of more than 
one self-regulatory organization, the Commission may design and, after 
notice and opportunity for comment, approve a plan for those leverage 
transaction merchants which are not the subject of an approved plan 
(under paragraph (g) of this section), delegating to a designated self-
regulatory organization the responsibilities described in paragraph (c) 
of this section.

[54 FR 41083, Oct. 5, 1989]



Sec. 31.29  Arbitration or other dispute settlement procedures.

    Each self-regulatory organization which has members who are 
registered as leverage transaction merchants must be able to demonstrate 
its capability to promulgate rules and to conduct proceedings which 
provide a fair, equitable and expeditious procedure, through arbitration 
or otherwise, for the voluntary settlement of a leverage customer's 
claim or grievance brought against any member leverage transaction 
merchant or any employee of a member leverage transaction merchant. Such 
rules shall be consistent with the rules set forth in part 180 of this 
chapter governing contract market arbitration and dispute settlement 
procedures.

[54 FR 41084, Oct. 5, 1989; 54 FR 46503, Nov. 3, 1989]



    Sec. Appendix A to Part 31--Schedule of Fees for Registration of 
                          Leverage Commodities

    (a) Each application for registration of a leverage commodity must 
be accompanied by a check or money order made payable to the Commodity 
Futures Trading Commission in an amount to be determined annually by

[[Page 421]]

the Commission and published in the Federal Register.
    (b) Checks or money orders should be sent to the attention of the 
Office of the Secretariat, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. No checks 
or money orders may be accepted by personnel other than those in the 
Office of the Secretariat.
    (c) Failure to submit the fee with an application for registration 
of a leverage commodity will result in the return of the application. 
Fees will not be returned after receipt.
    (d) Any firm with an application for registration of a leverage 
commodity pending on the date that this fee schedule becomes effective 
must submit its application fee within 10 days of that date. Otherwise, 
the application shall be deemed withdrawn without prejudice and shall be 
returned to the applicant.

(Secs. 5, 5a, 8a(5) and 19 of the Commodity Exchange Act (7 U.S.C. 7, 
7a, 12, 12a(5), and 23), sec. 26 of the Futures Trading Act of 1982 (7 
U.S.C. 16a), Independent Offices Appropriation Act of 1952, as amended 
by Pub. L. 97-258, 96 Stat. 1051 (Sept. 13, 1982))

[49 FR 25835, June 25, 1984, as amended at 52 FR 22635, June 15, 1987; 
60 FR 49335, Sept. 25, 1995]



PART 32_REGULATION OF COMMODITY OPTION TRANSACTIONS--Table of Contents



Sec.
32.1 Scope of part 32; definitions.
32.2 Prohibited transactions.
32.3 Unlawful commodity option transactions.
32.4 Exemptions.
32.5 Disclosure.
32.6 Segregation.
32.7 Books and recordkeeping.
32.8 Unlawful representations; execution of orders.
32.9 Fraud in connection with commodity option transactions.
32.10 Option transactions entered into prior to the effective date of 
          this part.
32.11 Suspension of commodity option transactions.
32.12 Exemption from suspension of commodity option transactions.
32.13 Exemption from prohibition of commodity option transactions for 
          trade options on certain agricultural commodities.

    Authority: 7 U.S.C. 1a, 2, 4, 6c and 12a, unless otherwise noted.

    Source: 41 FR 51814, Nov. 24, 1976, unless otherwise noted.



Sec. 32.1  Scope of part 32; definitions.

    (a) Scope. The provisions of this part, except for the provisions of 
Sec. Sec. 32.8 and 32.9 which shall in any event apply to all commodity 
option transactions, shall apply to all commodity option transactions 
except for commodity option transactions conducted or executed on or 
subject to the rules of a contract market, or a foreign board of trade, 
pursuant to section 4c of the Act and the regulations promulgated 
thereunder.
    (b) Definitions. As used in this part:
    (1) Commodity option transaction and commodity option each means any 
transaction or agreement in interstate commerce which is or is held out 
to be of the character of, or is commonly known to the trade as, an 
``option'', ``privilege'', ``indemnity'', ``bid'', ``offer'', ``put'', 
``call'', ``advance guaranty'', or ``decline guaranty' involving any 
commodity regulated under the Act other than wheat, cotton, rice, corn, 
oats, barley, rye, flaxseed, grain sorghums, mill feeds, butter, eggs, 
onions, Solanum tuberosum (Irish potatoes), wool, wool tops, fats and 
oils (including lard, tallow, cottonseed oil, peanut oil, soybean oil 
and all other fats and oils), cottonseed meal, cottonseed, peanuts, 
soybeans, soybean meal, livestock, livestock products and frozen 
concentrated orange juice;
    (2) Interstate commerce shall be construed and have the same meaning 
as set forth in sections 1a(13) and 2(b) of the Act;
    (3) Option customer means any person who, directly or indirectly, 
purchases or otherwise acquires for value any interest in a commodity 
option, but shall not include a person required to register as a futures 
commission merchant in accordance with this part;
    (4) Purchase price means the total actual cost paid or to be paid, 
directly or indirectly, by an option customer for entering into and 
maintaining an interest in a commodity option transaction by whatever 
name called; and
    (5) Striking price means the price at which an option customer may 
purchase or sell the commodity or the contract of sale of a commodity 
for future

[[Page 422]]

delivery which is the subject of a commodity option transaction.

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, 
Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 
12a, 19 and 21; 5 U.S.C. 552 and 552b))

[47 FR 57016, Dec. 22, 1982, as amended at 52 FR 29003, Aug. 5, 1987; 59 
FR 5703, Feb. 8, 1994]



Sec. 32.2  Prohibited transactions.

    Notwithstanding the provisions of Sec. 32.11, no person may offer 
to enter into, confirm the execution of, or maintain a position in, any 
transaction in interstate commerce involving wheat, cotton, rice, corn, 
oats, barley, rye, flaxseed, grain sorghums, mill feeds, butter, eggs, 
solanum tuberosum (Irish potatoes), wool, wool tops, fats and oils 
(including lard, tallow, cottonseed oil, peanut oil, soybean oil and all 
other fats and oils), cottonseed meal, cottonseed, peanuts, soybeans, 
soybean meal, livestock, livestock products, and frozen concentrated 
orange juice if the transaction is or is held out to be of the character 
of, or is commonly known to the trade as an ``option,'' ``privilege,'' 
``indemnity,'' ``bid,'' ``offer,'' ``put,'' ``call,'' ``advance 
guarantee,'' or ``decline guarantee,'' except as provided under Sec. 
32.13 of this part.

[63 FR 18832, Apr. 16, 1998]



Sec. 32.3  Unlawful commodity option transactions.

    (a) On and after January 17, 1977, it shall be unlawful for any 
person to accept any money, securities, or property (or to extend credit 
in lieu thereof) from an option customer as payment of the purchase 
price in connection with a commodity option transaction unless such 
person is registered as a futures commission merchant under the Act and 
such registration shall not have expired, been suspended (and the period 
of suspension has not expired) or revoked.
    (b) On and after January 17, 1977, it shall be unlawful for:
    (1) Any person to solicit or accept orders (other than in a clerical 
capacity) for the purchase or sale of any commodity option, or to 
supervise any person or persons so engaged, unless such person is:
    (i) Registered as a futures commission merchant under the Act, or
    (ii) If such person is an individual, registered under the act as an 
associated person of a specified person registered as a futures 
commission merchant under the Act;
    (2) Any futures commission merchant to permit an individual to 
become or remain associated with such futures commission merchant as a 
partner, officer or employee (or in any similar status or position 
involving similar functions) in any capacity involving such 
solicitation, acceptance or supervision if such futures commission 
merchant knew or should have known that such individual was not 
registered as an associated person or that such registration has 
expired, been suspended (and the period of suspension has not expired) 
or revoked;
    (c) A person required to register as a futures commission merchant 
or as an associated person in accordance with this section which 
furnishes the services specified in that portion of section 1a of the 
Act defining the term ``commodity trading advisor'' shall not be 
included in the term commodity trading advisor if:
    (1) At the time such services are furnished, such person is 
registered as a futures commission merchant, as a floor broker or as an 
associated person under the Act, and such registration shall not have 
expired, been suspended (and the period of suspension has not expired) 
or revoked; and
    (2) The furnishing of such services is solely incidental to the 
conduct of such person's activities relating to commodity option 
transactions.
    (d) A person registered as a futures commission merchant under the 
Act, who is required to register as such by virtue of this section, need 
not register as such in order to comply with this section, but shall 
immediately notify the Commission in writing, specifying the date such 
person commenced or intends to commence engaging in activities otherwise 
requiring registration under this section.
    (e) A person registered as an associated person or as a floor broker 
under the Act, who is required to register as an associated person by 
virtue of this section, need not register as such in

[[Page 423]]

order to comply with this section, but the futures commission merchant 
employing such person shall immediately notify the Commission in 
writing, specifying the date such person commenced or intends to 
commence engaging in activities otherwise requiring registration under 
this section.

(7 U.S.C. 2, 6c(a), 6c(b) and 12a (Supp. V, 1975))

[41 FR 51814, Nov. 24, 1976, as amended at 42 FR 61831, Dec. 6 1977; 59 
FR 5703, Feb. 8, 1994]



Sec. 32.4  Exemptions.

    (a) Except for the provisions of Sec. Sec. 32.2, 32.8 and 32.9, 
which shall in any event apply to all commodity option transactions, the 
provisions of this part shall not apply to a commodity option offered by 
a person which has a reasonable basis to believe that the option is 
offered to a producer, processor, or commercial user of, or a merchant 
handling, the commodity which is the subject of the commodity option 
transaction, or the products or by-products thereof, and that such 
producer, processor, commercial user or merchant is offered or enters 
into the commodity option transaction solely for purposes related to its 
business as such.
    (b) The Commission may, by order, upon written request or upon its 
own motion, exempt any other person, either unconditionally or on a 
temporary or other conditional basis, from any provisions of this part, 
other than Sec. Sec. 32.2, 32.8 and 32.9, if it finds, in its 
discretion, that it would not be contrary to the public interest to 
grant such exemption.



Sec. 32.5  Disclosure.

    (a) Except as provided in paragraph (b) of this section, prior to 
the entry into a commodity option transaction, each option customer or 
prospective option customer shall be furnished a summary disclosure 
statement by the person soliciting or accepting the order therefor. The 
disclosure statement shall contain the following:
    (1) A brief description of the commodity option transactions being 
offered including:
    (i) The duration of the commodity options being offered and the 
total quantity and quality of the commodities which may be purchased or 
sold upon exercise of the options being offered or which underlie the 
contracts of sale for future delivery which may be purchased or sold 
upon exercise of such commodity options;
    (ii) A listing of the elements comprising the purchase price to be 
charged, including the premium, mark-ups on the premium, costs, fees and 
other charges, as well as the method by which the premium is 
established;
    (iii) The services to be provided for the separate elements 
comprising the purchase price; and
    (iv) The method by which the striking price is established;
    (2) A description of any and all costs in addition to the purchase 
price which may be incurred by an option customer if the commodity 
option is exercised, including, but not limited to, the amount of 
storage, interest, commissions (whether denominated as sales commissions 
or otherwise), and all similar fees and charges which may be incurred;
    (3) A statement to the effect that the price of the commodity or 
contract of sale for future delivery underlying each option transaction 
being offered must either rise above the striking price, or fall below 
the striking price, as the case may be, by an amount in excess of the 
sum of the premium and all other costs incurred in entering into and 
exercising the commodity option in order for the option customer to 
realize a profit on the commodity option transaction;
    (4) A clear explanation of the effect of any foreign currency 
fluctuations with respect to commodity option transactions which are to 
be executed on or through the facilities of a foreign board of trade;
    (5) The following boldfaced statements on the first page of the 
summary disclosure statement:

    BECAUSE OF THE VOLATILE NATURE OF THE COMMODITIES MARKETS, THE 
PURCHASE OF COMMODITY OPTIONS IS NOT SUITABLE FOR MANY MEMBERS OF THE 
PUBLIC. A PERSON SHOULD NOT PURCHASE A COMMODITY OPTION UNLESS HE IS 
PREPARED TO SUSTAIN A TOTAL LOSS OF THE PURCHASE PRICE OF THE COMMODITY 
OPTION. SUCH TRANSACTIONS SHOULD BE ENTERED INTO ONLY BY PERSONS WHO ARE

[[Page 424]]

AWARE OF THE POTENTIAL FOR LOSS AND WHO UNDERSTAND THE NATURE AND EXTENT 
OF THEIR RIGHTS AND OBLIGATIONS.
    THESE COMMODITY OPTIONS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE 
COMMODITY FUTURES TRADING COMMISSION NOR HAS THE COMMISSION PASSED UPON 
THE ACCURACY OR ADEQUACY OF THIS STATEMENT. ANY REPRESENTATION TO THE 
CONTRARY IS A VIOLATION OF THE COMMODITY EXCHANGE ACT AND THE 
REGULATIONS THEREUNDER;

    (6) Statements to the effect that:
    (i) Specific market movements of the commodities or contracts of 
sale for future delivery underlying the options being offered cannot be 
accurately predicted, and
    (ii) Generally, an option customer will be unable to sell any option 
purchased in any market to recover any of the purchase price, but rather 
may only liquidate by exercising an option before the expiration date of 
the option.
    (b) A person shall not be required to deliver the summary disclosure 
statement to an option customer as required by paragraph (a) of this 
section if a summary disclosure statement has previously been furnished 
by such person to the option customer: Provided, however, That 
notwithstanding the foregoing, a disclosure statement shall be delivered 
in any event (1) upon the request of the option customer, or (2) if the 
previously delivered disclosure statement has become outdated or has 
become inaccurate in any material respect.
    (c) Prior to the entry into a commodity option transaction, each 
option customer or prospective option customer shall, to the extent the 
following amounts are known, be informed by the person soliciting or 
accepting the order therefor of the actual amount of the premium, 
markups on the premium, costs, fees and other charges comprising the 
purchase price, as well as the striking price and all costs to be 
incurred by the option customer if the commodity option is exercised.
    (d) Not more than 24 hours after the execution of a commodity option 
transaction, each person which accepts any money, securities or property 
(or extends credit in lieu thereof) from an option customer as payment 
of the purchase price in connection with a commodity option transaction 
shall furnish, by mail or other generally accepted means of 
communication, such option customer with a written confirmation 
statement containing at least the following information:
    (1) The actual amount of the purchase price including a separate 
listing of the premium, mark-ups on the premium, costs, fees, and other 
charges;
    (2) The striking price;
    (3) The total quantity and quality of the commodity which may be 
purchased or sold, or which underlies the contract of sale for future 
delivery which may be purchased or sold, upon exercise of the commodity 
option;
    (4) The exercise date of the commodity option purchased, and in the 
case of an option on a contract of sale for future delivery, the final 
trading date on such contract; and
    (5) The date the commodity option was executed.

(Approved by the Office of Management and Budget under control number 
3038-0003)

[41 FR 51814, Nov. 24, 1976, as amended at 46 FR 63036, Dec. 30, 1981]



Sec. 32.6  Segregation.

    (a) Any person which accepts money, securities, or property from an 
option customer as payment of the purchase price in connection with a 
commodity option transaction shall treat and deal with such money, 
securities, and property as belonging to such option customer until 
expiration of the term of the option or, if the option customer 
exercises the option, until all rights of the option customer under the 
commodity option have been fulfilled. Such money, securities, and 
property (1) shall be separately accounted for and segregated as 
belonging to such option customer, (2) shall be kept in the United 
States, and (3) shall not be commingled with the money, securities, or 
property of any other person, including the money, securities, or 
property received by a futures commission merchant to margin, guarantee 
or secure the trades or contracts of commodity customers (as defined in 
Sec. 1.3(k) of this chapter) or with the money accruing to

[[Page 425]]

such commodity customers as the result of such trades or contracts: 
Provided, however, That the money, securities, or property treated as 
belonging to an option customer may for convenience be commingled with 
the money, securities, or property treated as belonging to any other 
option customer and deposited in the same account or accounts with any 
bank or trust company in the United States. Such money, securities, and 
property, when so deposited with any bank or trust company, shall be 
deposited under an account name which will clearly show that it contains 
money, securities, or property, segregated as required by this part. 
Each person depositing such money, securities, or property shall obtain 
and retain in its files for the period provided in Sec. 1.31 of this 
chapter an acknowledgment from such bank or trust company that it was 
informed that the money, securities, and property therein are being 
treated as belonging to option customers and are being held in 
accordance with the provisions of this part. Such bank or trust company 
shall allow inspection of such accounts at any reasonable time by 
representatives of the Commission: Provided, further, That, up to a 
maximum of 10 percent of the money, securities or property accepted from 
an option customer as payment of the purchase price in connection with a 
commodity option transaction need not be treated and dealt with as 
belonging to the option customer and segregated as aforesaid.
    (b) No money, securities or property deposited in accordance with 
paragraph (a) of this section shall be held, disposed of, used or 
treated as belonging to the depositing person or any person other than 
the option customers of such person: Provided, however, That such money 
may be invested in obligations of the United States, and in obligations 
fully guaranteed as to principal and interest by the United States. Such 
investments shall be made through an account or accounts used for the 
deposit of money, securities or property received from option customers 
and proceeds from any sale of such obligations shall be redeposited in 
such account or accounts. Each person which invests money belonging to 
option customers in obligations as described in paragraph (b) of this 
section, shall separately account for such obligations and segregate 
such obligations as belonging to such option customers. Such obligations 
may only be deposited with a bank or trust company in the United States 
and shall be deposited under an account name which will clearly show 
that it contains obligations treated as belonging to option customers, 
segregated as required by this part. Each person depositing such 
obligations shall obtain and retain in its files an acknowledgment from 
such bank or trust company that it was informed that the obligations are 
treated as belonging to option customers and are being held in 
accordance with the provisions of this part. Such acknowledgment shall 
be retained for the period provided in Sec. 1.31 of this chapter. Such 
bank or trust company shall allow inspection of the obligations at any 
reasonable time by representatives of the Commission.
    (c) Each person which invests money treated as belonging to option 
customers as permitted hereunder shall keep a record showing the 
following: (1) The date on which such investments were made, (2) the 
name of the person through which such investments were made, (3) the 
amount of money so invested, (4) a description of the obligations in 
which such investments were made, (5) the identity of the depositories 
or other places where such obligations are segregated, (6) the date on 
which such investments were liquidated or otherwise disposed of and the 
amount of money received on such disposition, if any, and (7) the name 
of the person to or through which such investments were disposed of.
    (d) Persons which invest money in obligations described in paragraph 
(b) of this section shall include such obligations in segregated 
accounts at values which at no time shall be greater than current market 
value, determined as of the close of the market on the last preceding 
market day.
    (e) The deposit and/or investment of money as provided in paragraphs 
(a) or (b) of this section shall not operate to prevent the person so 
depositing and/or investing such money from receiving

[[Page 426]]

and retaining as its own any increment or interest resulting therefrom.
    (f) The amount of money, securities and property which is and which 
must be in a segregated account in order to comply with the requirements 
of this part shall be computed by each person required to segregate such 
money, securities and property as of the close of each business day. A 
record of such computation shall be made and kept, together with all 
supporting data in accordance with the provisions of Sec. 1.31 of this 
chapter. Such computation shall be made prior to the opening of business 
on the next business day.

(Approved by the Office of Management and Budget under control number 
3038-0003)

[41 FR 51814, Nov. 24, 1976, as amended at 46 FR 63036, Dec. 30, 1981]



Sec. 32.7  Books and recordkeeping.

    (a) Each person which accepts any money, securities or property (or 
extends credit in lieu thereof) from an option customer as payment of 
the purchase price in connection with a commodity option transaction 
shall keep full, complete and systematic records together with all 
pertinent data and memoranda of or relating to such transactions. Such 
records shall at least include all orders (filled, unfilled or 
cancelled), signature cards, books of records, journals, ledgers, 
cancelled checks, copies of all statements of purchase, exercise or 
lapse, and reports, letters, disclosure statements and confirmation 
statements required by Sec. 32.5 of this part, solicitation or 
advertising material (including the texts of standardized oral 
presentations and of radio, television, seminar or similar mass media 
presentations), circulars, memoranda, publications, writings, and all 
other literature or written advice distributed to option customers or 
prospective option customers. Upon the request of an authorized 
representative of the Commission, such person shall furnish the true 
name and address of each commodity option customer or prospective 
commodity option customer solicited.
    (b) Each person referred to in paragraph (a) of this section shall 
also keep a record in permanent form which shall show the true name and 
address of each maker, underwriter, issuer or other person who assumes 
or purports to assume any financial responsibility for the fulfillment 
of any commodity option transaction solicited or accepted by such 
person, to the extent that such information is known or may be 
reasonably obtained by such person.
    (c) Each person which accepts an order for a commodity option 
transaction from a person other than an option customer, shall keep 
full, complete and systematic records together with all pertinent data 
and memoranda of or relating to the transaction. Such records shall at 
least include the items set forth in paragraph (b) of this section and, 
to the extent necessary to reflect such person's participation in the 
transaction, shall include all items set forth in paragraph (a) of this 
section.
    (d) Each person which accepts an order for a commodity option shall 
immediately upon receipt thereof prepare a written record of such order, 
including an account identification and order number, and shall record 
thereon by timestamp or other device, the date and time, to the nearest 
minute, that (1) the order is accepted, (2) the order is transmitted for 
execution, and (3) the order is executed.
    (e) All records, memoranda and other documents required to be 
maintained by paragraphs (a) through (c) of this section, and to be 
prepared by paragraph (d) of this section shall be retained for the 
period specified in Sec. 1.31 of this chapter, and each person required 
to maintain such records shall be required to produce the same for 
inspection and furnish true and correct copies thereof and information 
and reports as to the contents or meaning thereof when and as requested 
by any authorized representative of the Commission or the United States 
Department of Justice.

(Approved by the Office of Management and Budget under control number 
3038-0001)

[41 FR 51814, Nov. 24, 1976, as amended at 46 FR 63036, Dec. 30, 1981]



Sec. 32.8  Unlawful representations; execution of orders.

    It shall be unlawful for:
    (a) Any person required to be registered with the Commission in 
accordance with this part expressly or

[[Page 427]]

impliedly to represent that the Commission, by declaring effective the 
registration of such person or otherwise, has directly or indirectly 
approved such person, or any commodity option transaction solicited or 
accepted by such person;
    (b) Any person in or in connection with an offer to enter into, the 
entry into, or the confirmation of the execution of, any commodity 
option transaction expressly or impliedly to represent that compliance 
with the provisions of this part constitutes a guarantee of the 
fulfillment of the commodity option transaction;
    (c) Any person, upon receipt of an order for a commodity option 
transaction, unreasonably to fail to secure prompt execution of such 
order.



Sec. 32.9  Fraud in connection with commodity option transactions.

    It shall be unlawful for any person directly or indirectly:
    (a) To cheat or defraud or attempt to cheat or defraud any other 
person;
    (b) To make or cause to be made to any other person any false report 
or statement thereof or cause to be entered for any person any false 
record thereof;
    (c) To deceive or attempt to deceive any other person by any means 
whatsoever; in or in connection with an offer to enter into, the entry 
into, or the confirmation of the execution of, any commodity option 
transaction.



Sec. 32.10  Option transactions entered into prior to the effective date of this part.

    Nothing contained in this part shall be construed to affect any 
lawful activities that occurred prior to the effective date of this 
part.



Sec. 32.11  Suspension of commodity option transactions.

    (a) Notwithstanding any other provision of this part 32, it shall be 
unlawful on and after June 1, 1978, until further rule, regulation or 
order of the Commission, for any person to solicit or accept orders for, 
or to accept money, securities or property in connection with, the 
purchase or sale of any commodity option, or to supervise any person or 
persons so engaged.
    (b) The provisions of paragraph (a) of this section shall not apply 
to any commodity option transaction conducted in accordance with the 
provisions of Sec. 32.4(a) of this part, or any commodity option 
transaction conducted on or subject to the rules of a contract market or 
a foreign board of trade in accordance with the provisions of section 4c 
of the Act and any rule, regulation or order promulgated thereunder.
    (c) Nothing in this section shall apply to, or affect the rights, 
privileges or obligations of any person arising out of any commodity 
option transaction entered into prior to June 1, 1978.

(7 U.S.C. 2, 6c(a), 6c(b) and 12a (1976); secs. 2(a)(1), 4c(a)-(d), 4d, 
4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, Commodity Exchange Act (7 U.S.C. 2, 
4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 12a, 19 and 21; 5 U.S.C. 552 and 
552b))

[43 FR 16161, Apr. 17, 1978, as amended at 52 FR 29003, Aug. 5, 1987]



Sec. 32.12  Exemption from suspension of commodity option transactions.

    (a) The provisions of Sec. 32.11 shall not apply to the 
solicitation or acceptance of orders for, or the acceptance of money, 
securities, or property in connection with, the purchase or sale of any 
commodity option on a physical commodity granted by a person domiciled 
in the United States who, on May 1, 1978, was both in the business of 
granting options on a physical commodity and in the business of buying, 
selling, producing, or otherwise utilizing that commodity, if all of the 
following conditions are met at the time of the solicitation or 
acceptance:
    (1) The grantor has a net worth of at least $1,000,000;
    (2) Under the express contractual terms of each option offered by 
the grantor (or under such terms and conditions as are found 
satisfactory to the Commission which would provide option customers 
substantially equivalent financial protection), the grantor is liable 
jointly and severally with any person that sells its options to an 
option customer for all damages sustained by any option customer in 
connection with the offer and sale of an option as the result of any 
unlawful act or omission or any breach of contract

[[Page 428]]

by any person or firm who sold the option to the option customer or by 
any agent or employee of that person;
    (3) The grantor segregates daily, exclusively for the benefit of 
option customers, money, ``exempted securities'' (within the meaning of 
section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(12)), commercial paper, bankers' acceptances, commercial bills, 
or unencumbered warehouse receipts, equal to an amount by which the 
value of each transaction exceeds the amount received or to be received 
by the grantor for such transaction;
    (4) The grantor provides an identification number for each 
transaction;
    (5) The grantor provides to the futures commission merchant selling 
the option a confirmation of all orders for such transactions executed, 
including striking price and premium and a transaction identification 
number;
    (6) Each person who is offering and selling the option to an option 
customer (i) is fully in compliance with each and every requirement of 
this part 32, (ii) includes in the confirmation statement required by 
Sec. 32.5(d) to be furnished to option customers the transaction 
identification number provided by the grantor, (iii) makes such reports 
to the Commission as are provided for in paragraphs (f) and (h) of this 
section and as the Commission may otherwise require by rule or 
regulation or order, and (iv) keeps a record in permanent form which 
shows, for each commodity option account carried by such person
    (A) The principal occupation or business of the option customer 
owning the account,
    (B) The name and address of any other person having a financial 
interest in such account,
    (C) The name, address and principal business or occupation of any 
other person exercising any trading control with respect to such 
account, and
    (D) An indicator of whether the account is traded for speculative 
purposes or for other than speculative purposes;
    (7) Neither the grantor nor the person who is offering and selling 
the option to any option customer nor any officer or director or 
principal shareholder or partner or controlling person of either:
    (i) Has within ten years been convicted of any felony or misdemeanor 
involving the purchase or sale of any commodity or security, or any 
option on any commodity or security, or
    (ii) Is permanently or temporarily enjoined by order, judgment or 
decree of any court of competent jurisdiction from acting as a commodity 
pool operator, futures commission merchant, or floor broker, or as an 
affiliated person or employee of any of the foregoing, or from engaging 
in or continuing any conduct or practice in connection with any such 
activity or in connection with the purchase or sale of commodities or 
securities or options on commodities or securities; or
    (iii) Is subject to an outstanding order of the Commission denying 
trading privileges on any contract market to such person, or suspending 
or revoking the registration of such person as a commodity trading 
advisor, commodity pool operator, futures commission merchant, 
associated person of a futures commission merchant or floor broker, or 
suspending or expelling such person from membership on any contract 
market;
    (8) Before any grantor of any option shall commence to offer and 
sell options under authority of this paragraph the grantor shall (i) 
notify the Commission in writing of the name of each person selling its 
options and that it meets each and every requirement set forth in this 
paragraph, (ii) provide evidence of compliance with each provision of 
this section by affidavit executed upon actual knowledge by the 
proprietor of a sole proprietorship grantor, a general partner of a 
partnership grantor, or the chief executive officer or chief financial 
officer of a corporate grantor, and (iii) submit to the Commission its 
most recent annual financial statements for a fiscal year subsequent to 
May 31, 1977, certified by an independent certified public accountant in 
accordance with generally accepted accounting principles;
    (b)(1) The grantor of any option publicly offered pursuant to 
paragraph (a) of this section shall keep full, complete and systematic 
records together with all pertinent data and memoranda of or relating to 
such transactions and make

[[Page 429]]

such reports to the Commission as provided for in paragraphs (g) and (h) 
of this section and as the Commission may otherwise require by rule or 
regulation or order.
    (2) It shall be unlawful for any grantor to sell an option through 
any person that acquires the option with a view to resale to an option 
customer (i) if the identity of that person has not previously been 
reported in writing to the Commission; (ii) if the grantor knows or has 
reason to know that the person is disqualified pursuant to paragraph 
(a)(7) of this section; or (iii) if the grantor knows or has reason to 
know that the person or firm is not complying with the requirements of 
this part 32 in any respect.
    (3) It shall be unlawful for any futures commission merchant to 
offer or sell an option acquired from a grantor to any other futures 
commission merchant.
    (4) The grantor of any option offered and sold to an option customer 
pursuant to paragraph (a) shall be liable jointly and severally with any 
person that sells its options to option customers for all damages 
sustained by the option customer in connection with the offer and sale 
of an option as the result of any unlawful act or omission or any breach 
of contract by any person who sold the option to the option customer or 
by any agent or employee of that person except to the extent that the 
Commission may find other terms and conditions satisfactory to provide 
option customers substantially equivalent financial protection pursuant 
to paragraph (a)(2). Upon timely application the grantor may intervene 
in any reparation proceeding brought by an option customer pursuant to 
section 14 of the Commodity Exchange Act based upon any act or omission 
for which the grantor may be liable.
    (c) Upon written application the Commission may for good cause shown 
in any particular case waive the requirements of any provision of 
paragraph (a) or (b) of this section subject to such other terms and 
conditions as the Commission may find appropriate in the public interest 
and for the protection of option customers.
    (d) [Reserved]
    (e) In the event that any provision of this section or the 
application thereof to any person or circumstance should be held 
invalid, the validity of Sec. 32.11 to those or other persons or 
circumstances shall not be affected thereby.
    (f) Each person registered as a futures commission merchant which 
offers or sells options to option customers pursuant to paragraph (a) of 
this section shall file a report with the Commission on form CFTC-145 
for any month during which such person entered into an option 
transaction with an option customer or acquired an option for its own 
account from a Sec. 32.12 grantor. Such reports shall be filed with the 
Commission office in New York, N.Y., by the tenth business day of the 
month following the month covered by the report and shall contain the 
following information by option grantor and option contract:
    (1) For option-customer accounts:
    (i) The number of open option contracts, end of month.
    (ii) The number of open option contracts, end of month, held in 
accounts classified by the FCM as being traded for other than 
speculative purposes.
    (iii) The number of option contracts entered into during the month.
    (iv) The number of option contracts entered into during the month 
for accounts classified by the FCM as being traded for other than 
speculative purposes.
    (v) The aggregate purchase price, as defined in Sec. 32.1(d), 
received and due from option customers for option contracts entered into 
during the month.
    (vi) The total of premiums and fees paid to and due to the option 
grantor for option contracts entered into by option customers during the 
month.
    (2) For proprietary accounts of such person, as defined in Sec. 
1.3(y): (i) The number of open option contracts, end of month.
    (ii) The number of option contracts entered into with the option 
grantor during the month.
    (iii) The total of premiums and fees paid to and due to the option 
grantor for option contracts entered into during the month.

[[Page 430]]

    (g) The grantor of any option publicly offered or sold during any 
calendar month pursuant to paragraph (a) of this section shall file 
reports with the Commission at its office in New York, N.Y. with respect 
to all commodity-option transactions entered into by the grantor during 
such month. Such reports are due by the tenth business day of the month 
following the month covered by the reports and shall be filed on forms 
CFTC 146, 147, 148, 149, 150, 151, 152, 153 and 154.
    (1) Such reports shall contain the following information with 
respect to all commodity options that were not publicly offered pursuant 
to paragraph (a) of this section:
    (i) By commodity, call or put, and expiration month:
    (A) The total quantity of the underlying commodity on which options 
were bought directly from or granted directly to accounts classified by 
the grantor as being traded for other than speculative purposes.
    (B) The total quantity of the underlying commodity on which options, 
bought directly from or granted directly to accounts classified by the 
grantor as being traded for other than speculative purposes, were open 
as of the last business day of the month.
    (ii) By commodity and call or put;
    (A) The total quantity of the underlying commodity on which options 
bought directly from or granted directly to accounts classified as being 
traded for other than speculative purposes were exercised during the 
month.
    (B) The total quantity of the underlying commodity on which options 
bought directly from or granted directly to accounts classified as being 
traded for other than speculative purposes expired during the month.
    (2) Such reports shall contain the following information with 
respect to all commodity options that were publicly offered pursuant to 
paragraph (a) of this section:
    (i) By option contract and expiration date:
    (A) The value of option contracts repurchased from option customers 
through FCM's during the month.
    (B) The value of new sales to option customers through FCM's during 
the month.
    (ii) By option contract, expiration date and strike price:
    (A) The number of option contracts repurchased from and granted to 
option customers through FCM's during the month.
    (B) The number of option contracts granted to option customers 
through FCM's which were open as of the last business day of the month.
    (C) The bid and ask option premiums available to option customers 
through FCM's as of the last business day of the month.
    (iii) By option contract:
    (A) The number of option contracts previously bought by option 
customers through FCM's which were exercised during the month.
    (B) The number of option contracts previously bought by option 
customers through FCM's which expired during the month.
    (iv) By option contract and offering FCM:
    (A) The value of premiums and fees received by and due to the 
grantor for option contracts sold through FCM's during the month.
    (B) The number of option contracts open as of the last business day 
of the month.
    (C) The number of option contracts sold during the month.
    (h) All information required upon special call as set forth in this 
paragraph (h) shall be prepared in such form and manner, and summarized 
in accordance with such instructions, and shall be transmitted at such 
time and to such office of the Commission, as may be specified in the 
call.
    (1) Upon call by the Commission, each futures commission merchant 
shall furnish to the Commission for the grantor(s), the option 
contract(s), the expiration date(s), the strike price(s) and the 
transaction date(s) any of the following information that is specified 
in such call for any accounts, including proprietary accounts of such 
futures commission merchant, in which open dealer-option contracts are 
carried on the records of such futures commission merchant:
    (i) The name(s) and address(es) of the account owner(s).

[[Page 431]]

    (ii) The principal business or occupation and industry of the 
account owner(s).
    (iii) The kind of account.
    (iv) The name(s), address(es) and principal business or occupation 
and industry of any other person(s) who controls the trading of the 
account.
    (v) The name(s) and address(es) of any other person(s) having a 
financial interest in the account.
    (vi) Identification of those accounts that trade dealer options for 
other than speculative purposes.
    (vii) The number of open dealer-option contracts held or controlled 
by such traders.
    (viii) The aggregate purchase price (as defined in Sec. 32.1(d)) 
received from option customers for the purchase of dealer-option 
contracts.
    (ix) The premiums and fees paid to and due to the grantor for the 
purchase of dealer-option contracts.
    (2) Upon call by the Commission, each grantor shall furnish to the 
Commission for the option contract(s), the expiration date(s), the 
strike price(s) and the transaction date(s) any of the following 
information which is specified in such call:
    (i) Premium levels.
    (ii) For any accounts, including accounts owned or controlled by the 
grantor, in which open option contracts are carried on the records of 
such option grantor:
    (A) The name(s) and address(es) of the account owner(s);
    (B) The principal business or occupation and industry of the account 
owner(s), other than the account of an FCM selling such grantor's 
options to the public;
    (C) The kind of account, other than the account of an FCM selling 
such grantor's options to the public;
    (D) Identification of those accounts, other than the account of an 
FCM selling such grantor's options to the public, that trade such 
options for other than speculative purposes;
    (E) The number of open option contracts in the account;
    (F) The number of option contracts exercised.
    (i)(1) For purposes of paragraphs (a), (f), (g) and (h) of this 
section, accounts classified as being ``traded for other than 
speculative purposes'' shall be limited to accounts of producers, 
processors, commercial users or merchants which handle the commodity 
which is the subject of the commodity-option transaction, or the 
products or by-products thereof, as part of their business.
    (2) The term ``option contract'' as used in paragraphs (f), (g) and 
(h) of this section shall refer to either a call or a put on a specified 
weight of the underlying commodity.

(The information collection requirements contained in Sec. 32.12 were 
approved by the Office of Management and Budget under control number 
3038-0001; in paragraph (a) under control number 3038-0003)

[43 FR 23707, June 1, 1978, as amended at 43 FR 52469, Nov. 13, 1978; 43 
FR 54226, Nov. 21, 1978; 46 FR 63036, Dec. 30, 1981]



Sec. 32.13  Exemption from prohibition of commodity option 

transactions for trade options on certain agricultural commodities.

    (a) The provisions of Sec. 32.11 shall not apply to the 
solicitation or acceptance of orders for, or the acceptance of money, 
securities or property in connection with, the purchase or sale of any 
commodity option on a physical commodity listed in Sec. 32.2 by a 
person who is a producer, processor, or commercial user of, or a 
merchant handing or selling inputs used in the production of, the 
commodity which is the subject of the commodity option transaction, or 
the products or byproducts thereof, or a bank routinely engaged in the 
financing of such businesses, if all of the following conditions are met 
at the time of the solicitation or acceptance:
    (1) That person is registered with the Commission as an agricultural 
trade option merchant and that person's associated persons and their 
supervisors are registered as associated persons of an agricultural 
trade option merchant under Sec. 3.13 of this chapter.
    (2) The option offered by the agricultural trade option merchant is 
offered to a producer, processor, or commercial user of, or a merchant 
handling, the commodity which is the subject of the commodity option 
transaction, or the products or byproducts thereof, and such producer, 
processor, commercial user, or merchant is offered or enters

[[Page 432]]

into the commodity option transaction solely for purposes related to its 
business as such.
    (3) [Reserved]
    (4) To the extent that the customer makes payment of the purchase 
price to the agricultural trade option merchant prior to option 
expiration or exercise, that amount:
    (i) May only be used by the agricultural trade option merchant to 
purchase a covering position on a contract market designated under 
section 6 of the Act or part 33 of this chapter; and
    (ii) Any amount not so used shall be treated as belonging to the 
customer until option expiration or exercise as provided under and in 
accordance with Sec. 32.6.
    (5) Producers may not:
    (i) Grant or sell a put option; or
    (ii) Grant or sell a call option, except to the extent that such a 
call option is purchased or combined with a purchased or long put option 
position, and only to the extent that the customer's call option 
position does not exceed the customer's put option position in the 
amount to be delivered. Provided, however, that the options must be 
entered into simultaneously and expire simultaneously or at any time 
that one or the other option is exercised.
    (6) All option contracts, including all terms and conditions, 
offered or sold pursuant to this section shall be in writing, a signed 
copy of which shall be provided to the customer, or if the contract is 
verbal, it shall be confirmed in a writing which includes all terms and 
conditions, signed by the agricultural trade option merchant, and 
provided to the customer within 48 hours.
    (7) Prior to the entry by a customer into the first option 
transaction with an agricultural trade option merchant, the agricultural 
trade option merchant shall furnish, through written or electronic 
media, a summary disclosure statement to the option customer. The 
summary disclosure statement shall include:
    (i) The following statements in boldface type on the first page(s) 
of the summary disclosure statement:

    This brief statement does not disclose all of the risks and other 
significant aspects of trading in community trade options. You are 
encouraged to seek out as much information as possible from sources 
other than the person selling you this option about the use and risks of 
option contracts before entering into this contract. The issuer of your 
option should be willing and able to answer clearly any of your 
questions.

                   Appropriateness of Option Contracts

    Option contracts may result in the total loss of any funds you pay 
to the issuer of your option. You should carefully consider whether 
trading in such instruments is appropriate for you in light of your 
experience, objectives, financial resources and other relevant 
circumstances. The issuer of your option contract should be willing and 
able to explain the financial outcome of your option contract under 
different market conditions. You should also be aware that this option 
is not issued by, guaranteed by, or traded on or subject to the rules of 
a futures exchange. You may be able to obtain a similar contract or 
execute a similar risk management strategy using an instrument traded on 
a futures exchange which offers greater regulatory and financial 
protections.

            Costs and Fees Associated With an Option Contract

    Before entering into an option contract, you should understand all 
of the costs associated with it. These include the option premium, 
commissions, fees, costs associated with delivery if the option requires 
settlement by delivery upon its exercise and any other charges which may 
be incurred. All of these costs and fees must be specified in the terms 
of your option contract.

          Know and Understand the Terms of the Option Contract

    Before entering into an option contract, you should know and 
understand all of the option contract's terms. All of the option 
contract's terms should be included in the written contract, or for a 
verbal agreement, in a written confirmation. You should receive a signed 
copy of either the written contract or of the written confirmation. Your 
option contract should include contract terms setting:
    (A) The total quantity of commodity underlying the option contract;
    (B) The strike price(s) of the option contract;
    (C) The procedure for exercise of the option contract, including 
when you can exercise and the latest time and date for exercise;
    (D) Whether the option can be offset or canceled prior to 
expiration;
    (E) Whether settlement of the option is for cash or by delivery of 
the commodity;
    (F) If settlement is by delivery, the delivery location or 
locations, the quality or grade of commodity to be delivered and how

[[Page 433]]

adjustments to price for deviations from stated quality or grade are 
determined;
    (G) If settlement is by cash, the method for determining the cash-
settlement price; and
    (H) The cost and method of payment.

                      Business Use of Trade Options

    In order to comply with the law, you must be buying this option for 
business-related purposes. The terms and structure of the contracts must 
therefore relate to your activity or commitments in the underlying cash 
market. Any amendments allowed to the option contract or its 
cancellation or offset prior to its expiration date must reflect changes 
in your activity, in your commitments in the underlying cash market or 
in the carrying of inventory. Producers are not permitted to enter into 
short call options unless the producer also enters into a long put 
option contract for the same amount or more of the commodity, at the 
same time and with the same expiration date. Producers are not permitted 
to sell put options, whether alone or in combination with a call option.

                           Dispute Resolution

    If a dispute should arise under the terms of this trade option 
contract, you have the right to choose to use the reparations program 
run by the Commodity Futures Trading Commission or any other dispute 
resolution forum provided to you under the terms of your customer 
agreement or by law. For more information on the Commission's 
Reparations Program contact: Office of Proceedings, Commodity Futures 
Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., 
Washington, DC 20581, (202) 418-5250.

                        Acknowledgment of Receipt

    The Commodity Futures Trading Commission requires that all customers 
receive and acknowledge receipt of this disclosure statement. The 
Commodity Futures Trading Commission does not intend this statement as a 
recommendation or endorsement of agricultural trade options. These 
commodity options have not been approved or disapproved by the Commodity 
Futures Trading Commission, nor has the Commission passed upon the 
accuracy or adequacy of this disclosure statement. Any representation to 
the contrary is a violation of the Commodity Exchange Act and Federal 
regulations.

    (ii) The following acknowledgment section:

    I hereby acknowledge that I have received and understood this 
summary risk disclosure statement.

________________________________________________________________________
(Date)
________________________________________________________________________
Signature of Customer

    (8) An agricultural trade option merchant may not require a customer 
to waive the right to seek reparations under section 14 of the Act and 
part 12 of this chapter by an agreement or understanding to submit a 
claim or grievance to a specified settlement procedure prior to the time 
a claim or grievance arises. An agricultural trade option merchant, when 
notifying a customer of its intent to submit a claim or grievance to 
arbitration under a pre-existing agreement, must advise the customer in 
writing that the customer within forty-five days may elect to seek 
reparations under Section 14 of the Act and part 12 of this chapter.
    (b) Report of account information. Agricultural trade option 
merchants must provide to customers with open positions the following 
information:
    (1) Within two business days of the offset, cancellation or 
settlement of the option for cash, or of the amendment of the expiration 
of the option, a statement of profit or loss on the transaction and on 
the account;
    (2) In response to a customer's request, current commodity price 
quotes, all other information relevant to the customer's position or 
account, and the amount of any funds owed by, or to, the customer within 
one business day if responding orally and within two business days if 
responding in writing;
    (3) Written, verbal or electronic notice of the expiration date of 
each option which will expire within the subsequent calendar month.
    (c) Recordkeeping. Agricultural trade option merchants shall keep 
full, complete and systematic books and records together with all 
pertinent data and memoranda of or relating to agricultural trade option 
transactions, covering transactions, and all written or electronic 
customer solicitation materials. Agricultural trade option merchants 
shall maintain such books and records as specified in Sec. 1.31 of this 
chapter, and report to the Commission as provided for in this paragraph 
(c) and paragraph (d) of this section and as the Commission may 
otherwise require by rule, regulation, or order. Such books and records 
shall be open at all

[[Page 434]]

times to inspection by any representative of the Commission and the 
United States Department of Justice.
    (d) Reports. Agricultural trade option merchants must file annual 
reports with the Commission at its Washington, DC, headquarters within 
ninety days after the close of the agricultural trade option merchant's 
fiscal year, in the form and manner specified by the Commission, which 
shall contain the following information:
    (1) By commodity and put, call or combined option
    (i) Total number of new contracts entered into during the reporting 
period;
    (ii) Total quantity of commodity underlying new contracts entered 
into during the reporting period;
    (iii) Total number of contracts outstanding at the end of the 
reporting period;
    (iv) Total quantity of underlying commodity outstanding under option 
contracts at the end of the reporting period;
    (v) Total number of options exercised during the reporting period; 
and
    (vi) Total quantity of commodity underlying the options exercised 
during the reporting period.
    (2) Total number of customers by commodity with open option 
contracts at the end of the reporting period.
    (e) Special calls. Upon special call by the Commission for 
information relating to agricultural trade options offered or sold on 
the dates specified in the call, each agricultural trade option merchant 
shall furnish to the Commission within the time specified the following 
information as specified in the call:
    (1) All positions and transactions in agricultural trade options, 
including information on the identity of agricultural trade option 
customers and on the value of premiums, fees, commissions, or charges 
other than option premiums, collected on such transactions.
    (2) All related positions and transactions for future delivery or 
options on contracts for future delivery or on physicals on all contract 
markets.
    (3) All related positions and transactions in cash commodities, 
their products, and by-products.
    (f) Internal controls. (1) Each agricultural trade option merchant 
registered with the Commission shall prepare, maintain and preserve 
information relating to its written policies, procedures, or systems 
concerning the agricultural trade option merchant's internal controls 
with respect to market risk, credit risk, and other risks created by the 
agricultural trade option merchant's activities, including systems and 
policies for supervising, monitoring, reporting and reviewing trading 
activities in agricultural trade options; policies for hedging or 
managing risk created by trading activities in agricultural trade 
options, including a description of the types of reviews conducted to 
monitor positions; and policies relating to restrictions or limitations 
on trading activities.
    (2) The financial statements of the agricultural trade option 
merchant must on an annual basis be audited by a certified public 
accountant in accordance with generally accepted auditing standards.
    (3) The agricultural trade option merchant must file with the 
Commission a copy of its certified financial statements within 90 days 
after the close of the agricultural trade option merchant's fiscal year.
    (4) The agricultural trade option merchant must perform a 
reconciliation of its books at least monthly.
    (5) The agricultural trade option merchant:
    (i) Must report immediately if its net worth falls below the level 
prescribed in Sec. 3.13(d)(1)(i) of this chapter, and must report 
within three days discovery of a material inadequacy in its financial 
statements by an independent public accountant or any state or federal 
agency performing an audit of its financial statements, such report to 
be made to the Commission by facsimile, telegraphic or other similar 
electronic notice; and
    (ii) Within five business days after giving such notice, the 
agricultural trade option merchant must file a written report with the 
Commission stating what steps have been taken or are being taken to 
correct the material inadequacy.
    (6) If the agricultural trade option merchant's net worth falls 
below the level prescribed in Sec. 3.13(d)(1)(i) of this

[[Page 435]]

chapter, it must immediately cease offering or entering into new option 
transactions and must notify customers having premiums which the 
agricultural trade option merchant is holding under paragraph (a)(4) of 
this section that such customers can obtain an immediate refund of that 
premium amount, thereby closing the option position.
    (g) Exemption. (1) The provisions of Sec. Sec. 3.13, 32.2, 32.11 of 
this chapter and this section shall not apply to a commodity option 
offered by a person which has a reasonable basis to believe that:
    (i) The option is offered to a producer, processor, or commercial 
user of, or a merchant handling, the commodity which is the subject of 
the commodity option transaction, or the products or byproducts thereof;
    (ii) Such producer, processor, commercial user or merchant is 
offered or enters into the commodity option transaction solely for 
purposes related to its business as such; and
    (iii) Each party to the option contract has a net worth of not less 
than $10 million or the party's obligations on the option are guaranteed 
by a person which has a net worth of $10 million and has a majority 
ownership interest in, is owned by, or is under common ownership with, 
the party to the option.
    (2) Provided, however, that Sec. 32.9 continues to apply to such 
option transactions.

[64 FR 68017, Dec. 6, 1999]



PART 33_REGULATION OF DOMESTIC EXCHANGE-TRADED COMMODITY OPTION TRANSACTIONS--Table of Contents



Sec.
33.1 Definitions.
33.2 Applicability of Act and rules; scope of part 33.
33.3 Unlawful commodity option transactions.
33.4 Designation as a contract market for the trading of commodity 
          options.
33.5 Application for designation as a contract market for the trading of 
          commodity options.
33.6 Suspension or revocation of designation as a contract market for 
          the trading of commodity options.
33.7 Disclosure.
33.8 Promotional material.
33.9 Unlawful activities.
33.10 Fraud in connection with commodity option transactions.
33.11 Exemptions.

    Authority: 7 U.S.C. 1a, 2, 4, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 
6j, 6k, 6l, 6m, 6n, 6o, 7, 7a, 7b, 8, 9, 11, 12a, 12c, 13a, 13a-1, 13b, 
19, and 21, otherwise noted.

    Source: 46 FR 54529, Nov. 3, 1981, unless otherwise noted.



Sec. 33.1  Definitions.

    As used in this part:
    (a) Purchase price means the total amount paid or to be paid, 
directly or indirectly, by a person to acquire a commodity option.
    (b) Promotional material includes: (1) Any text of a standardized 
oral presentation, or any communication for publication in any 
newspaper, magazine or similar medium, or for broadcast over television, 
radio, or other electronic medium, which is disseminated or directed to 
an option customer or prospective option customer concerning a commodity 
option transaction; (2) any standardized form of report, letter, 
circular, memorandum, or publication which is disseminated or directed 
to an option customer or prospective option customer; and (3) any other 
written material disseminated or directed to an option customer or 
prospective option customer for the purpose of soliciting an option 
transaction, including any disclosure statement required by Sec. 33.7.



Sec. 33.2  Applicability of Act and rules; scope of part 33.

    (a) Except as otherwise specified in this part and unless the 
context otherwise requires:
    (1) Each board of trade designated, or applying for designation, by 
the Commission as a contract market for the purpose of trading commodity 
options pursuant to this part shall be deemed for such purpose to be a 
``board of trade,'' ``exchange,'' and a ``contract market'' and, with 
respect to commodity option transactions conducted pursuant to such 
designation, shall comply with and be subject to all of the provisions 
of the Act relating to boards of trade, exchanges, or contract

[[Page 436]]

markets as though such provisions were set forth herein; and
    (2) The provisions of sections 1a, 2(a)(1), 2(a)(8)(B), 4, 4a, 
4c(a), 4d, 4e, 4f, 4g, 4h, 4i, 4j, 4k, 4m, 4n, 5, 5a(a), 5b, 6, 6a, 6b, 
6c, 7, 8(a)-(e), 8a, 8b, 8c, and 16 of the Act shall apply to commodity 
option transactions that are subject to the requirements of this part as 
though such provisions were set forth herein and included specific 
references to commodity option transactions. Nothing contained in this 
section shall be construed to confer designation as a contract market 
absent issuance of an order of the Commission so designating an 
applicant board of trade.
    (b) The provisions of this part apply to commodity option 
transactions except for transactions which are governed by part 32 of 
this chapter.

(Approved by the Office of Management and Budget under control number 
3038-0007)

[46 FR 54529, Nov. 3, 1981, as amended at 46 FR 63036, Dec. 30, 1981; 47 
FR 57016, Dec. 22, 1982; 59 FR 5526, Feb. 7, 1994]



Sec. 33.3  Unlawful commodity option transactions.

    (a) It shall be unlawful for any person to offer to enter into, 
enter into, confirm the execution of, or maintain a position in, any 
commodity option transaction subject to the provisions of this part 
unless the commodity option involved is traded (1) on or subject to the 
rules of a contract market which has been designated to trade commodity 
options pursuant to this part and (2) by or through a member thereof in 
accordance with the provisions of this part.
    (b) It shall be unlawful for:
    (1) Any person to solicit or accept orders from an option customer 
(other than in a clerical capacity) for any commodity option 
transaction, or to supervise any person or persons so engaged, unless 
such person is:
    (i) Registered as a futures commission merchant under the Act, and 
either:
    (A) Is a member of the contract market on which the option is 
traded, or
    (B) Is a member of a futures association registered under section 17 
of the Act which has adopted rules which the Commission has approved 
under section 17(j) of the Act and, in addition to the requirements of 
that section, has determined to provide for the regulation of the 
commodity option related activity of its member futures commission 
merchants in a manner equivalent to that required of contract markets 
under these regulations; or
    (ii) Registered as an introducing broker under the Act, and either:
    (A) Is a member of a futures association registered under section 17 
of the Act which has adopted rules which the Commission has approved 
under section 17(j) of the Act, or is a member of a contract market 
which has adopted rules which the Commission has approved under section 
5a(a)(12) of the Act, and which, in addition to the requirements of 
those sections, has determined to provide for the regulation of the 
commodity option related activity of its member introducing brokers in a 
manner equivalent to that required of contract markets with respect to 
their member futures commission merchants under these regulations; or
    (B) Is operating pursuant to a guarantee agreement, and the futures 
commission merchant which has signed such agreement is a member of a 
self-regulatory organization that has adopted rules which the Commission 
has approved that provide for the regulation of the commodity option 
related activity of the introducing broker in a manner equivalent to 
that required of contract markets with respect to their member futures 
commission merchants under these regulations; or
    (iii) An individual registered as an associated person of a 
specified person registered as a futures commission merchant or as an 
introducing broker under the Act who meets the requirements of 
paragraphs (b)(1)(i) or (b)(1)(ii), respectively, of this section, and 
such registration shall not have expired, been suspended (and the period 
of suspension has not expired) or been revoked.
    (2) Any person registered or required to be registered as a futures 
commission merchant or as an introducing broker under the Act to permit 
another person to become or remain associated with such person as a 
partner, officer, employee, agent or representative (or in any status or 
position involving

[[Page 437]]

similar functions) in any capacity involving the solicitation or 
acceptance of an order from an option customer (other than in a clerical 
capacity) for any commodity option transaction, or the supervision of 
any person or persons so engaged, if such person knows or should have 
known that such other person is or was not registered as required by 
this part or that such registration has expired, been suspended (and the 
period of suspension has not expired) or been revoked.

(Approved by the Office of Management and Budget under control number 
3038-0007)

[46 FR 54529, Nov. 3, 1981, as amended at 46 FR 63036, Dec. 30, 1981; 47 
FR 57016, Dec. 22, 1982; 48 FR 35301, Aug. 3, 1983; 59 FR 5526, Feb. 7, 
1994]



Sec. 33.4  Designation as a contract market for the trading of commodity options.

    The Commission may designate any board of trade located in the 
United States as a contract market for the trading of options on 
contracts of sale for future delivery or for options on physicals in any 
commodity regulated under the Act, when the applicant complies with and 
carries out the requirements of the Act (as provided in Sec. 33.2), the 
regulations in this part, and the following conditions and requirements 
with respect to the commodity option for which the designation is 
sought:
    (a) Such board of trade--
    (1) Applies for designation as a contract market for the purpose of 
trading ``put'' and/or ``call'' options which:
    (i) Are not capable of being transferred, assigned or otherwise 
disposed of other than on or subject to the rules of the board of trade; 
and
    (ii) With respect to options on futures contracts, may be exercised 
only by the establishment, by book entry, in the clearing organization 
of positions in the underlying futures contract.
    (2) [Reserved]
    (3) If designation for the trading of options on futures contracts 
is sought, is designated as a contract market for the underlying 
contract of sale for future delivery which is the subject of the option 
for which designation is sought, and submits, if so requested by the 
Commission, the information called for by Sec. 1.50 of this chapter 
(relating to continued compliance with the conditions and requirements 
for designation as a contract market) for the specified futures contract 
underlying the option for which the designation is sought, and the 
applicant complies with the conditions and requirements for designation 
as a contract market for such contract for future delivery as set forth 
in sections 5 and 5a(a) of the Act and as set forth in these 
regulations.
    (4) In the case of a contract market which is requesting designation 
for the trading of options on physicals for which it is designated as a 
contract market for contracts of sale for future delivery or for options 
on futures contracts, submits, if so requested by the Commission, the 
information called for by Sec. 1.50 of this chapter (relating to 
continued compliance with the conditions and requirements for 
designition as a contract market) for that specified futures contract 
and/or options on that futures contract, and the applicant complies with 
the conditions and requirements for designation as a contract market for 
such contract for future delivery as set forth in sections 5 and 5a(a) 
of the Act and as set forth in these regulations.
    (5) Demonstrates that:
    (i) The commodity option for which it is requesting designation is 
likely to serve a legitimate economic purpose;
    (ii)-(iii) [Reserved]
    (iv) If designation for the trading of options on physicals is 
sought and thereafter for the purpose of demonstrating continued 
compliance with the Act and these regulations:
    (A) The cash market for the underlying physical exhibits sufficient 
liquidity such that the grantor and purchaser of the option have the 
opportunity to purchase or sell the underlying physical at its economic 
value in normal cash marketing channels;
    (B) There exists an accurate and widely-disseminated price series 
for the underlying physical which is deliverable on the option contract;
    (C) Trading of such options will not be disruptive of trading in the 
cash market for the underlying physical or of any futures contract; and
    (D) The individual terms and conditions of the option contract 
conform to

[[Page 438]]

practices in the underlying cash market or are otherwise justified, 
including a demonstration that the terms and conditions of the option 
contract provide for a deliverable supply which is not conducive to 
price manipulation or distortion, consistent with a description of the 
cash market furnished by the board of trade.
    (b) Such board of trade adopts rules which:
    (1) Prescribe in regard to strike prices:
    (i) The dollar amount of the intervals between strike prices;
    (ii) The strike prices at which trading in a new option expiration 
will be introduced;
    (iii) The point, in terms of the price of the underlying futures 
contract or underlying physical, at which a new strike price will be 
introduced in any option which is already trading;
    (iv) [Reserved]
    (2) Prescribe an expiration date of the option that is not less than 
one business day before the earlier of the last trading day or the first 
notice day of any futures contract on the same or a related commodity; 
Provided, however, That where the underlying futures contract is cash-
settled, the option may expire simultaneously with the expiration of the 
futures contract.
    (3) Require that upon exercise of each option, notification thereof 
be given to the option grantor.
    (4) Require, with respect to all written option customer complaints, 
that each member futures commission merchant which engages in the offer 
or sale of commodity options regulated under this part:
    (i) Retain all such complaints;
    (ii) Make and retain a record of the date the complaint was 
received, the associated person who serviced, or the introducing broker 
who introduced, the account, a general description of the matter 
complained of, and what, if any, action was taken by the futures 
commission merchant in regard to the complaint; and
    (5) Require each member futures commission merchant which engages in 
the offer or sale of option contracts regulated under this part to adopt 
and enforce written procedures pursuant to which it will be able to 
supervise adequately each option customer's account, including but not 
limited to, the solicitation of any such account: Provided, That as used 
in this paragraph (b)(5), the term ``option customer'' does not include 
another futures commission merchant.
    (6) [Reserved]
    (7) Require each member futures commission merchant which engages in 
the offer or sale of option contracts regulated under this part to 
enforce the disclosure requirements set forth in Sec. 33.7.
    (8)-(9) [Reserved]
    (10) Prohibit fraudulent or high-pressure sales communications by 
member futures commission merchants relating to the offer or sale of 
option contracts regulated under this part.
    (11) Establish appropriate criteria which are reasonably designed to 
secure performance, upon exercise, of the option contracts.
    (c) Such board of trade establishes procedures and conducts sales 
practice audits of member futures commission merchants which engage in 
the offer or sale of option contracts regulated under this part. These 
sales practice audits must be of sufficient scope to enforce the 
contract market's rules, including imvestigation for the improper 
handling of discretionary accounts, inadequate internal supervision, 
fraudulent or high-pressure sales communications, compliance with 
disclosure requirements, improper handling and disposition of option 
customer complaints, and, where applicable, the futures commission 
merchant's offer or sale of deep-out-of-the-money options.
    (d) A board of trade must submit an analysis and justification of 
the individual terms and conditions of the option contract. In 
determining whether to approve option contract terms and conditions, the 
Commission may consider the analysis and justification submitted for 
such terms and conditions, including, without limitation:
    (1) [Reserved]
    (2) The conditions precedent to the exercise of the commodity option 
and the method by which the option may be exercised;
    (3) The nature of the clearing mechanism to be utilized for the 
commodity option, and the differences, if any,

[[Page 439]]

among the clearing mechanisms for options on futures contracts, options 
on physicals, and futures contracts;
    (4) Specific notice periods, including the periods from the date 
notice of intent to exercise an option is given until exercise is 
accomplished;
    (5) The default provisions and procedures of the commodity option, 
if any; and
    (6) Permitted deviations from or substitutes for compliance with the 
terms and conditions set forth in paragraphs (d) (1) through (5) of this 
section.
    (e) Such board of trade provides for the general quotation and 
dissemination of volume and last sale price information on a timely 
basis with respect to the commodity option for which designation is 
sought and with respect to the underlying futures contract.
    (f) Such board of trade demonstrates that clearance and processing 
of option transactions on or subject to the rules of the board of trade 
will not adversely affect the clearance and processing of any 
transactions for future delivery on or subject to the rules of the board 
of trade.

(Approved by the Office of Management and Budget under control number 
3038-0007)

(Secs. 2(a)(1)(A), 4c(b), 4c(c), and 8a of the Commodity Exchange Act, 7 
U.S.C. 2, 6c(b), 6c(c) and 12a; secs. 2(a)(1)(A), 4c, 4d, 4f, and 8a(5) 
(7 U.S.C. 2(a)(1)(A), 6c, 6d, 6f and 12a(5) (1982)))

[46 FR 54529, Nov. 3, 1981]

    Editorial Note: For Federal Register citations affecting Sec. 33.4, 
see the List of CFR Sections Affected, which appears in the Finding Aids 
section of the printed volume and at www.fdsys.gov.



Sec. 33.5  Application for designation as a contract market for the trading of commodity options.

    (a) Any board of trade desiring to be designated as a contract 
market for a particular commodity option contract shall make application 
to the Commission and accompany the same with a written showing that it 
meets the conditions set forth in, and provides all the information and 
materials required by, these regulations.
    (b) Subject to the provisions of the Act and these regulations, in 
the event of a refusal to designate any board of trade as a contract 
market for a particular commodity option, such board of trade shall be 
afforded notice and an opportunity for a hearing on the record: 
Provided, That pending the conclusion of any such hearing, such 
designation shall not be granted.

(Approved by the Office of Management and Budget under control number 
3038-0007)

[46 FR 54529, Nov. 3, 1981, as amended at 46 FR 63036, Dec. 30, 1981; 52 
FR 779, Jan. 9, 1987]



Sec. 33.6  Suspension or revocation of designation as a contract market for 

the trading of commodity options.

    The Commission may, after notice and opportunity for a hearing on 
the record, suspend or revoke the designation of any board of trade as a 
contract market in a commodity option for which it is designated if the 
Commission determines that:
    (a) The board of trade, or any director, officer, agent, or employee 
thereof, is violating or has violated any of the provisions of this 
part.
    (b) Cause exists which, under Sec. 33.2 or Sec. 33.4, would 
warrant the denial of a designation;
    (c) The option market is not used on more than an occasional basis 
for other than speculative purposes by producers, processors, merchants 
or commercial users engaged in handling or utilizing the commodity 
(including the products, by-products or source commodity thereof) 
underlying an option, in interstate commerce; or
    (d) Option trading on the contract market in that contract is 
contrary to the protection of option customers or the underlying futures 
or cash markets, or is otherwise contrary to the public interest: 
Provided, That pending completion of any proceeding under this section, 
the Commission may suspend such designation for the duration of the 
proceedings, if in the Commission's judgment, the continuation of such 
trading presents a substantial risk to the public interest.

(Approved by the Office of Management and Budget under control number 
3038-0007)

[46 FR 54529, Nov. 3, 1981, as amended at 46 FR 63036, Dec. 30, 1981; 47 
FR 57018, Dec. 22, 1982]

[[Page 440]]



Sec. 33.7  Disclosure.

    (a)(1) Except as provided in Sec. 1.65 of this chapter, no futures 
commission merchant, or in the case of an introduced account no 
introducing broker, may open or cause the opening of a commodity option 
account for an option customer, other than for a customer specified in 
Sec. 1.55(f) of this chapter, unless the futures commission merchant or 
introducing broker first:
    (i) Furnishes the option customer with a separate written disclosure 
statement as set forth in this section or another statement approved 
under Sec. 1.55(c) of this chapter and set forth in appendix A to Sec. 
1.55 which the Commission finds satisfies this requirement, or includes 
either such statement in a booklet containing the customer account 
agreement and other disclosure statements required by Commission rules; 
provided, however, that if the statement contained in Sec. 33.7 is used 
it must follow the statement required by Sec. 1.55; and
    (ii) Subject to the provisions of Sec. 1.55(d) of this chapter, 
receives from the option customer an acknowledgment signed and dated by 
the option customer that he received and understood the disclosure 
statement.
    (2) The disclosure statement and the acknowledgment shall be 
retained by the futures commission merchant or the introducing broker in 
accordance with Sec. 1.31 of this chapter. The disclosure statement 
must be as set forth in paragraph (b) of this section, typed or printed 
in type of not less than 10-point size, and, where indicated, in all 
capital letters.
    (b) The disclosure statement must read as follows:

                      Options Disclosure Statement

    BECAUSE OF THE VOLATILE NATURE OF THE COMMODITIES MARKETS, THE 
PURCHASE AND GRANTING OF COMMODITY OPTIONS INVOLVE A HIGH DEGREE OF 
RISK. COMMODITY OPTION TRANSACTIONS ARE NOT SUITABLE FOR MANY MEMBERS OF 
THE PUBLIC. SUCH TRANSACTIONS SHOULD BE ENTERED INTO ONLY BY PERSONS WHO 
HAVE READ AND UNDERSTOOD THIS DISCLOSURE STATEMENT AND WHO UNDERSTAND 
THE NATURE AND EXTENT OF THEIR RIGHTS AND OBLIGATIONS AND OF THE RISKS 
INVOLVED IN THE OPTION TRANSACTIONS COVERED BY THIS DISCLOSURE 
STATEMENT.
    BOTH THE PURCHASER AND THE GRANTOR SHOULD KNOW WHETHER THE 
PARTICULAR OPTION IN WHICH THEY CONTEMPLATE TRADING IS AN OPTION WHICH, 
IF EXERCISED, RESULTS IN THE ESTABLISHMENT OF A FUTURES CONTRACT (AN 
``OPTION ON A FUTURES CONTRACT'') OR RESULTS IN THE MAKING OR TAKING OF 
DELIVERY OF THE ACTUAL COMMODITY UNDERLYING THE OPTION (AN ``OPTION ON A 
PHYSICAL COMMODITY''). BOTH THE PURCHASER AND THE GRANTOR OF AN OPTION 
ON A PHYSICAL COMMODITY SHOULD BE AWARE THAT, IN CERTAIN CASES, THE 
DELIVERY OF THE ACTUAL COMMODITY UNDERLYING THE OPTION MAY NOT BE 
REQUIRED AND THAT, IF THE OPTION IS EXERCISED, THE OBLIGATIONS OF THE 
PURCHASER AND GRANTOR WILL BE SETTLED IN CASH.
    BOTH THE PURCHASER AND THE GRANTOR SHOULD KNOW WHETHER THE 
PARTICULAR OPTION IN WHICH THEY CONTEMPLATE TRADING IS SUBJECT TO A 
``STOCK-STYLE'' OR ``FUTURES-STYLE'' SYSTEM OF MARGINING. UNDER A STOCK-
STYLE MARGINING SYSTEM, A PURCHASER IS REQUIRED TO PAY THE FULL PURCHASE 
PRICE OF THE OPTION AT THE INITIATION OF THE TRANSACTION. THE PURCHASER 
HAS NO FURTHER OBLIGATION ON THE OPTION POSITION. UNDER A FUTURES-STYLE 
MARGINING SYSTEM, THE PURCHASER DEPOSITS INITIAL MARGIN AND MAY BE 
REQUIRED TO DEPOSIT ADDITIONAL MARGIN IF THE MARKET MOVES AGAINST THE 
OPTION POSITION. THE PURCHASER'S TOTAL SETTLEMENT VARIATION MARGIN 
OBLIGATION OVER THE LIFE OF THE OPTION, HOWEVER, WILL NOT EXCEED THE 
ORIGINAL OPTION PREMIUM, ALTHOUGH SOME INDIVIDUAL PAYMENT OBLIGATIONS 
AND/OR RISK MARGIN REQUIREMENTS MAY AT TIMES EXCEED THE ORIGINAL OPTION 
PREMIUM. IF THE PURCHASER OR GRANTOR DOES NOT UNDERSTAND HOW OPTIONS ARE 
MARGINED UNDER A STOCK-STYLE OR FUTURES-STYLE MARGINING SYSTEM, HE OR 
SHE SHOULD REQUEST AN EXPLANATION FROM THE FUTURES COMMISSION MERCHANT 
(``FCM'') OR INTRODUCING BROKER (``IB'').
    A PERSON SHOULD NOT PURCHASE ANY COMMODITY OPTION UNLESS HE OR SHE 
IS ABLE TO SUSTAIN A TOTAL LOSS OF THE PREMIUM AND TRANSACTION COSTS OF 
PURCHASING THE OPTION. A PERSON SHOULD NOT GRANT ANY COMMODITY OPTION 
UNLESS HE OR SHE IS ABLE TO MEET ADDITIONAL CALLS FOR MARGIN WHEN THE 
MARKET MOVES AGAINST HIS OR HER POSITION AND, IN

[[Page 441]]

SUCH CIRCUMSTANCES, TO SUSTAIN A VERY LARGE FINANCIAL LOSS.
    A PERSON WHO PURCHASES AN OPTION SUBJECT TO STOCK-STYLE MARGINING 
SHOULD BE AWARE THAT, IN ORDER TO REALIZE ANY VALUE FROM THE OPTION, IT 
WILL BE NECESSARY EITHER TO OFFSET THE OPTION POSITION OR TO EXERCISE 
THE OPTION. OPTIONS SUBJECT TO FUTURES-STYLE MARGINING ARE MARKED TO 
MARKET, AND GAINS AND LOSSES ARE PAID AND COLLECTED DAILY. IF AN OPTION 
PURCHASER DOES NOT UNDERSTAND HOW TO OFFSET OR EXERCISE AN OPTION, THE 
PURCHASER SHOULD REQUEST AN EXPLANATION FROM THE FCM OR IB. CUSTOMERS 
SHOULD BE AWARE THAT IN A NUMBER OF CIRCUMSTANCES, SOME OF WHICH WILL BE 
DESCRIBED IN THIS DISCLOSURE STATEMENT, IT MAY BE DIFFICULT OR 
IMPOSSIBLE TO OFFSET AN EXISTING OPTION POSITION ON AN EXCHANGE.
    THE GRANTOR OF AN OPTION SHOULD BE AWARE THAT, IN MOST CASES, A 
COMMODITY OPTION MAY BE EXERCISED AT ANY TIME FROM THE TIME IT IS 
GRANTED UNTIL IT EXPIRES. THE PURCHASER OF AN OPTION SHOULD BE AWARE 
THAT SOME OPTION CONTRACTS MAY PROVIDE ONLY A LIMITED PERIOD OF TIME FOR 
EXERCISE OF THE OPTION.
    THE PURCHASER OF A PUT OR CALL SUBJECT TO STOCK-STYLE OR FUTURES-
STYLE MARGINING IS SUBJECT TO THE RISK OF LOSING THE ENTIRE PURCHASE 
PRICE OF THE OPTION--THAT IS, THE PREMIUM CHARGED FOR THE OPTION PLUS 
ALL TRANSACTION COSTS.
    THE COMMODITY FUTURES TRADING COMMISSION REQUIRES THAT ALL CUSTOMERS 
RECEIVE AND ACKNOWLEDGE RECEIPT OF A COPY OF THIS DISCLOSURE STATEMENT 
BUT DOES NOT INTEND THIS STATEMENT AS A RECOMMENDATION OR ENDORSEMENT OF 
EXCHANGE-TRADED COMMODITY OPTIONS.

    (1) Some of the risks of option trading.
    Specific market movements of the underlying future or underlying 
physical commodity cannot be predicted accurately.
    The grantor of a call option who does not have a long position in 
the underlying futures contract or underlying physical commodity is 
subject to risk of loss should the price of the underlying futures 
contract or underlying physical commodity be higher than the strike 
price upon exercise or expiration of the option by an amount greater 
than the premium received for granting the call option.
    The grantor of a call option who has a long position in the 
underlying futures contract or underlying physical commodity is subject 
to the full risk of a decline in price of the underlying position 
reduced by the premium received for granting the call. In exchange for 
the premium received for granting a call option, the option grantor 
gives up all of the potential gain resulting from an increase in the 
price of the underlying futures contract or underlying physical 
commodity above the option strike price upon exercise or expiration of 
the option.
    The grantor of a put option who does not have a short position in 
the underlying futures contract or underlying physical commodity (e.g., 
commitment to sell the physical) is subject to risk of loss should the 
price of the underlying futures contract or underlying physical 
commodity decrease below the strike price upon exercise or expiration of 
the option by an amount in excess of the premium received for granting 
the put option.
    The grantor of a put option on a futures contract who has a short 
position in the underlying futures contract is subject to the full risk 
of a rise in the price in the underlying position reduced by the premium 
received for granting the put. In exchange for the premium received for 
granting a put option on a futures contract, the option grantor gives up 
all of the potential gain resulting from a decrease in the price of the 
underlying futures contract below the option strike price upon exercise 
or expiration of the option. The grantor of a put option on a physical 
commodity who has a short position (e.g., commitment to sell the 
physical) is subject to the full risk of a rise in the price of the 
physical commodity which must be obtained to fulfill the commitment 
reduced by the premium received for granting the put. In exchange for 
the premium, the grantor of a put option on a physical commodity gives 
up all the potential gain which would have resulted from a decrease in 
the price of the commodity below the option strike price upon exercise 
or expiration of the option.
    (2) Description of commodity options. Prior to entering into any 
transaction involving a commodity option, an individual should 
thoroughly understand the nature and type of option involved and the 
underlying futures contract or physical commodity. The futures 
commission merchant or introducing broker is required to provide, and 
the individual contemplating an option transaction should obtain:
    (i) An identification of the futures contract or physical commodity 
underlying the option and which may be purchased or sold upon exercise 
of the option or, if applicable, whether exercise of the option will be 
settled in cash;
    (ii) The procedure for exercise of the option contract, including 
the expiration date and latest time on that date for exercise. (The 
latest time on an expiration date when

[[Page 442]]

an option may be exercised may vary; therefore, option market 
participants should ascertain from their futures commission merchant or 
their introducing broker the latest time the firm accepts exercise 
instructions with respect to a particular option.);
    (iii) A description of the purchase price of the option including 
the premium, commissions, costs, fees and other charges. (Since 
commissions and other charges may vary widely among futures commission 
merchants and among introducing brokers, option customers may find it 
advisable to consult more than one firm when opening an option 
account.);
    (iv) A description of all costs in addition to the purchase price 
which may be incurred if the commodity option is exercised, including 
the amount of commissions (whether termed sales commissions or 
otherwise), storage, interest, and all similar fees and charges which 
may be incurred;
    (v) An explanation and understanding of the option margining system;
    (vi) A clear explanation and understanding of any clauses in the 
option contract and of any items included in the option contract 
explicitly or by reference which might affect the customer's obligations 
under the contract. This would include any policy of the futures 
commission merchant or the introducing broker or rule of the exchange on 
which the option is traded that might affect the customer's ability to 
fulfill the option contract or to offset the option position in a 
closing purchase or closing sale transaction (for example, due to 
unforeseen circumstances that require suspension or termination of 
trading); and
    (vii) If applicable, a description of the effect upon the value of 
the option position that could result from limit moves in the underlying 
futures contract.
    (3) The mechanics of option trading. Before entering into any 
exchange-traded option transaction, an individual should obtain a 
description of how commodity options are traded.
    Option customers should clearly understand that there is no 
guarantee that option positions may be offset by either a closing 
purchase or closing sale transaction on an exchange. In this 
circumstance, option grantors could be subject to the full risk of their 
positions until the option position expires, and the purchaser of a 
profitable option might have to exercise the option to realize a profit.
    For an option on a futures contract, an individual should clearly 
understand the relationship between exchange rules governing option 
transactions and exchange rules governing the underlying futures 
contract. For example, an individual should understand what action, if 
any, the exchange will take in the option market if trading in the 
underlying futures market is restricted or the futures prices have made 
a ``limit move.''
    The individual should understand that the option may not be subject 
to daily price fluctuation limits while the underlying futures may have 
such limits, and, as a result, normal pricing relationships between 
options and the underlying future may not exist when the future is 
trading at its price limit. Also, underlying futures positions resulting 
from exercise of options may not be capable of being offset if the 
underlying future is at a price limit.
    (4) Margin requirements. An individual should know and understand 
whether the option he or she is contemplating trading is subject to a 
stock-style or futures-style system of margining. Stock-style margining 
requires the purchaser to pay the full option premium at the time of 
purchase. The purchaser has no further financial obligations, and the 
risk of loss is limited to the purchase price and transaction costs. 
Futures-style margining requires the purchaser to pay initial margin 
only at the time of purchase. The option position is marked to market, 
and gains and losses are collected and paid daily. The purchaser's risk 
of loss is limited to the initial option premium and transaction costs.
    An individual granting options under either a stock-style or 
futures-style system of margining should understand that he or she may 
be required to pay additional margin in the case of adverse market 
movements.
    (5) Profit potential of an option position. An option customer 
should carefully calculate the price which the underlying futures 
contract or underlying physical commodity would have to reach for the 
option position to become profitable. Under a stock-style margining 
system, this price would include the amount by which the underlying 
futures contract or underlying physical commodity would have to rise 
above or fall below the strike price to cover the sum of the premium and 
all other costs incurred in entering into and exercising or closing 
(offsetting) the commodity option position. Under a future-style 
margining system, option positions would be marked to market, and gains 
and losses would be paid and collected daily, and an option position 
would become profitable once the variation margin collected exceeded the 
cost of entering the contract position.
    Also, an option customer should be aware of the risk that the 
futures price prevailing at the opening of the next trading day may be 
substantially different from the futures price which prevailed when the 
option was exercised. Similarly, for options on physicals that are cash 
settled, the physicals price prevailing at the time the option is 
exercised may differ substantially from the cash settlement price that 
is determined at a later time. Thus, if a customer does not cover the

[[Page 443]]

position against the possibility of underlying commodity price change, 
the realized price upon option exercise may differ substantially from 
that which existed at the time of exercise.
    (6) Deep-out-of-the-money options. A person contemplating purchasing 
a deep-out-of-the-money option (that is, an option with a strike price 
significantly above, in the case of a call, or significantly below, in 
the case of a put, the current price of the underlying futures contract 
or underlying physical commodity) should be aware that the chance of 
such an option becoming profitable is ordinarily remote.
    On the other hand, a potential grantor of a deep-out-of-the-money 
option should be aware that such options normally provide small premiums 
while exposing the grantor to all of the potential losses described in 
section (1) of this disclosure statement.
    (7) Glossary of terms. (i) Contract market. Any board of trade 
(exchange) located in the United States which has been designated by the 
Commodity Futures Trading Commission to list a futures contract or 
commodity option for trading.
    (ii) Exchange-traded option; put option; call option. The options 
discussed in this disclosure statement are limited to those which may be 
traded on a contract market. These options (subject to certain 
exceptions) give an option purchaser the right to buy in the case of a 
call option, or to sell in the case of a put option, a futures contract 
or the physical commodity underlying the option at the stated strike 
price prior to the expiration date of the option. Each exchange-traded 
option is distinguished by the underlying futures contract or underlying 
physical commodity, strike price, expiration date, and whether the 
option is a put or a call.
    (iii) Underlying futures contract. The futures contract which may be 
purchased or sold upon the exercise of an option on a futures contract.
    (iv) Underlying physical commodity. The commodity of a specific 
grade (quality) and quantity which may be purchased or sold upon the 
exercise of an option on a physical commodity.
    (v) Class of options. A put or a call covering the same underlying 
futures contract or underlying physical commodity.
    (vi) Series of options. Options of the same class having the same 
strike price and expiration date.
    (vii) Exercise price. See strike price.
    (viii) Expiration date. The last day when an option may be 
exercised.
    (ix) Premium. The amount agreed upon between the purchaser and 
seller for the purchase or sale of a commodity option.
    (x) Strike price. The price at which a person may purchase or sell 
the underlying futures contract or underlying physical commodity upon 
exercise of a commodity option. This term has the same meaning as the 
term ``exercise price.''
    (xi) Short option position. See opening sale transaction.
    (xii) Long option position. See opening purchase transaction.
    (xiii) Types of options transactions--(A) Opening purchase 
transaction. A transaction in which an individual purchases an option 
and thereby obtains a long option position.
    (B) Opening sale transaction. A transaction in which an individual 
grants an option and thereby obtains a short option position.
    (C) Closing purchase transaction. A transaction in which an 
individual with a short option position liquidates the position. This is 
accomplished by a closing purchase transaction for an option of the same 
series as the option previously granted. Such a transaction may be 
referred to as an offset transaction.
    (D) Closing sale transaction. A transaction in which an individual 
with a long option position liquidates the position. This is 
accomplished by a closing sale transaction for an option of the same 
series as the option previously purchased. Such a transaction may be 
referred to as an offset transaction.
    (xiv) Purchase price. The total actual cost paid or to be paid, 
directly or indirectly, by a person to acquire a commodity option. This 
price includes all commissions and other fees, in addition to the option 
premium.
    (xv) Grantor, writer, seller. An individual who sells an option. 
Such a person is said to have a short position.
    (xvi) Purchaser. An individual who buys an option. Such a person is 
said to have a long position.

    (c) Prior to the entry of the first commodity option transaction for 
the account of an option customer, a futures commission merchant or an 
introducing broker, or the person soliciting or accepting the order 
therefor, must provide an option customer with all of the information 
required under the disclosure statement, including the commissions, 
costs, fees and other charges to be incurred in connection with the 
commodity option transaction and all costs to be incurred by the option 
customer if the commodity option is exercised: Provided, That the 
futures commission merchant or the introducing broker, or the person 
soliciting or accepting the order therefor, must provide current 
information to an option customer if information provided previously has 
become inaccurate.

[[Page 444]]

    (d) Prior to the entry into a commodity option transaction on or 
subject to the rules of a contract market, each option customer or 
prospective option customer shall, to the extent the following amounts 
are known or can reasonably be approximated, be informed by the person 
soliciting or accepting the order therefor of the amount of the strike 
price and the premium (and any mark-ups thereon, if applicable).
    (e) A futures commission merchant and an introducing broker must 
establish the necessary procedures and supervision to ensure compliance 
with the requirements of this section.
    (f) This section does not relieve a futures commission merchant or 
an introducing broker from any obligation under the Act or the 
regulations thereunder, including the obligation to disclose all 
material information to existing or prospective option customers even if 
the information is not specifically required by this section.
    (g) For purposes of this section, neither a futures commission 
merchant nor an introducing broker shall be deemed to be an option 
customer.

(Approved by the Office of Management and Budget under control number 
3038-0007)

[46 FR 54529, Nov. 3, 1981, as amended at 46 FR 63036, Dec. 30, 1981; 48 
FR 35302, Aug. 3, 1983; 49 FR 44893, Nov. 13, 1984; 51 FR 17475, May 13, 
1986; 58 FR 17505, Apr. 5, 1993; 59 FR 34381, July 5, 1994; 63 FR 8571, 
Feb. 20, 1998; 63 FR 32732, June 16, 1998]



Sec. 33.8  Promotional material.

    Each futures commission merchant and each introducing broker shall 
retain, in accordance with Sec. 1.31 of this chapter, all promotional 
material it provides, directly or indirectly, to option customers as 
well as the true source of authority for the information contained 
therein.

[48 FR 35303, Aug. 3, 1983]



Sec. 33.9  Unlawful activities.

    It shall be unlawful for any person:
    (a) Required to be registered with the Commission in accordance with 
the Act or these regulations expressly or impliedly to represent that 
the Commission, by declaring effective the registration of such person 
or otherwise, has directly or indirectly approved such person, or any 
commodity option transaction solicited or accepted by such person;
    (b) In or in connection with an offer to enter into, the entry into, 
the confirmation of the execution of, or the maintenance of any 
commodity option transaction, expressly or impliedly to represent that 
compliance with the provisions of the Act or these regulations 
constitutes a guarantee of the fulfillment of the commodity option 
transaction;
    (c) Upon acceptance of an order for a commodity option transaction, 
to fail unreasonably to secure prompt execution of such order or upon 
rejection of an order to fail to notify the person whose order has been 
rejected of such rejection;
    (d) To manipulate or attempt to manipulate the market price of any 
commodity option on or subject to the rules of any contract market: 
Provided, however, That for purposes of this paragraph (d), any action 
taken by a contract market pursuant to a rule approved by the Commission 
or any emergency action which a contract market is permitted to take 
pursuant to the Act or these regulations shall not be deemed to be a 
manipulation; and
    (e) Upon acceptance of an order for a commodity option transaction 
to bucket such order.

[46 FR 54529, Nov. 3, 1981; 46 FR 55925, Nov. 13, 1981]



Sec. 33.10  Fraud in connection with commodity option transactions.

    It shall be unlawful for any person directly or indirectly:
    (a) To cheat or defraud or attempt to cheat or defraud any other 
person;
    (b) To make or cause to be made to any other person any false report 
or statement thereof or cause to be entered for any person any false 
record thereof;
    (c) To deceive or attempt to deceive any other person by any means 
whatsoever

in or in connection with an offer to enter into, the entry into, the 
confirmation of the execution of, or the maintenance of, any commodity 
option transaction.

[[Page 445]]



Sec. 33.11  Exemptions.

    The Commission may, by order, upon written request or upon its own 
motion, exempt any person, either unconditionally or on a temporary or 
other conditional basis, from any provisions of this part, other than 
Sec. Sec. 33.9 and 33.10, if it finds, in its discretion, that it would 
not be contrary to the public interest to grant such exemption.

[52 FR 29508, Aug. 10, 1987]



PART 34_REGULATION OF HYBRID INSTRUMENTS--Table of Contents



Sec.
34.1 Scope.
34.2 Definitions.
34.3 Hybrid instrument exemption.

    Authority: 7 U.S.C. 2, 6, 6c and 12a.

    Source: 58 FR 5586, Jan. 22, 1993, unless otherwise noted.



Sec. 34.1  Scope.

    The provisions of this part shall apply to any hybrid instrument 
which may be subject to the Act, and which has been entered into on or 
after October 23, 1974.



Sec. 34.2  Definitions.

    (a) Hybrid instruments. Hybrid instrument means an equity or debt 
security or depository instrument as defined in Sec. 34.3(a)(1) with 
one or more commodity-dependent components that have payment features 
similar to commodity futures or commodity option contracts or 
combinations thereof.
    (b) Commodity-independent component. Commodity-independent component 
means the component of a hybrid instrument, the payments of which do not 
result from indexing to, or calculation by reference to, the price of a 
commodity.
    (c) Commodity-independent value. Commodity-independent value means 
the present value of the payments attributable to the commodity-
independent component calculated as of the time of issuance of the 
hybrid instrument.
    (d) Commodity-dependent component. A commodity-dependent component 
means a component of a hybrid instrument, the payment of which results 
from indexing to, or calculation by reference to, the price of a 
commodity.
    (e) Commodity-dependent value. For purposes of application of Rule 
34.3(a)(2), a commodity-dependent value means the value of a commodity 
dependent-component, which when decomposed into an option payout or 
payouts, is measured by the absolute net value of the put option premia 
with strike prices less than or equal to the reference price plus the 
absolute net value of the call option premia with strike prices greater 
than or equal to the reference price, calculated as of the time of 
issuance of the hybrid instrument.
    (f) Option premium. Option premium means the value of an option on 
the referenced commodity of the hybrid instrument, and calculated using 
the same method as that used to determine the issue price of the 
instrument, or where such premia are not explicitly calculated in 
determining the issue price of the instrument, the value of such options 
calculated using a commercially reasonable method appropriate to the 
instrument being priced.
    (g) Reference price. A reference price means a price nearest the 
current spot or forward price, whichever is used to price instrument, at 
which a commodity-dependent payment becomes non-zero, or, in the case 
where two potential reference prices exist, the price that results in 
the greatest commodity-dependent value.



Sec. 34.3  Hybrid instrument exemption.

    (a) A hybrid instrument is exempt from all provisions of the Act and 
any person or class of persons offering, entering into, rendering advice 
or rendering other services with respect to such exempt hybrid 
instrument is exempt for such activity from all provisions of the Act 
(except in each case section 2(a)(1)(B)), provided the following terms 
and conditions are met:
    (1) The instrument is:
    (i) An equity or debt security within the meaning of section 2(1) of 
the Securities Act of 1933; or
    (ii) A demand deposit, time deposit or transaction account within 
the meaning of 12 CFR 204.2 (b)(1), (c)(1) and (e),

[[Page 446]]

respectively, offered by an insured depository institution as defined in 
section 3 of the Federal Deposit Insurance Act; an insured credit union 
as defined in section 101 of the Federal Credit Union Act; or a Federal 
or State branch or agency of a foreign bank as defined in section 1 of 
the International Banking Act;
    (2) The sum of the commodity-dependent values of the commodity-
dependent components is less than the commodity-independent value of the 
commodity-independent component;
    (3) Provided that:
    (i) An issuer must receive full payment of the hybrid instrument's 
purchase price, and a purchaser or holder of a hybrid instrument may not 
be required to make additional out-of-pocket payments to the issuer 
during the life of the instrument or at maturity; and
    (ii) The instrument is not marketed as a futures contract or a 
commodity option, or, except to the extent necessary to describe the 
functioning of the instrument or to comply with applicable disclosure 
requirements, as having the characteristics of a futures contract or a 
commodity option; and
    (iii) The instrument does not provide for settlement in the form of 
a delivery instrument that is specified as such in the rules of a 
designed contract market;
    (4) The instrument is initially issued or sold subject to applicable 
federal or state securities or banking laws to persons permitted 
thereunder to purchase or enter into the hybrid instrument.



PART 35_EXEMPTION OF SWAP AGREEMENTS--Table of Contents



Sec.
35.1 Definitions.
35.2 Exemption.

    Authority: 7 U.S.C. 2, 6, 6c, and 12a.

    Source: 58 FR 5594, Jan. 22, 1993, unless otherwise noted.



Sec. 35.1  Definitions.

    (a) Scope. The provisions of this part shall apply to any swap 
agreement which may be subject to the Act, and which has been entered 
into on or after October 23, 1974.
    (b) Definitions. As used in this part:
    (1) Swap agreement means:
    (i) An agreement (including terms and conditions incorporated by 
reference therein) which is a rate swap agreement, basis swap, forward 
rate agreement, commodity swap, interest rate option, forward foreign 
exchange agreement, rate cap agreement, rate floor agreement, rate 
collar agreement, currency swap agreement, cross-currency rate swap 
agreement, currency option, any other similar agreement (including any 
option to enter into any of the foregoing);
    (ii) Any combination of the foregoing; or
    (iii) A master agreement for any of the foregoing together with all 
supplements thereto.
    (2) Eligible swap participant means, and shall be limited to the 
following persons or classes of persons:
    (i) A bank or trust company (acting on its own behalf or on behalf 
of another eligible swap participant);
    (ii) A savings association or credit union;
    (iii) An insurance company;
    (iv) An investment company subject to regulation under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) or a foreign 
person performing a similar role or function subject as such to foreign 
regulation, Provided That such investment company or foreign person is 
not formed solely for the specific purpose of constituting an eligible 
swap participant;
    (v) A commodity pool formed and operated by a person subject to 
regulation under the Act or a foreign person performing a similar role 
or function subject as such to foreign regulation, provided that such 
commodity pool or foreign person is not formed solely for the specific 
purpose of constituting an eligible swap participant and has total 
assets exceeding $5,000,000;
    (vi) A corporation, partnership, proprietorship, organization, 
trust, or other entity not formed solely for the specific purpose of 
constituting an eligible swap participant (A) which has total assets 
exceeding $10,000,000, or (B) the obligations of which under the swap 
agreement are guaranteed or otherwise supported by a letter of credit or 
keepwell, support, or other agreement by any such entity referenced in

[[Page 447]]

this paragraph (b)(2)(vi)(A) of this section or by an entity referred to 
in paragraph (b)(2) (i), (ii), (iii), (iv), (v), (vi) or (viii) of this 
section; or (C) which has a net worth of $1,000,000 and enters into the 
swap agreement in connection with the conduct of its business; or which 
has a net worth of $1,000,000 and enters into the swap agreement to 
manage the risk of an asset or liability owned or incurred in the 
conduct of its business or reasonably likely to be owned or incurred in 
the conduct of its business;
    (vii) An employee benefit plan subject to the Employee Retirement 
Income Security Act of 1974 or a foreign person performing a similar 
role or function subject as such to foreign regulation with total assets 
exceeding $5,000,000, or whose investment decisions are made by a bank, 
trust company, insurance company, investment adviser subject to 
regulation under the Investment Advisers Act of 1940 (15 U.S.C. 80a-1 et 
seq.), or a commodity trading adviser subject to regulation under the 
Act;
    (viii) Any governmental entity (including the United States, any 
state, or any foreign government) or political subdivision thereof, or 
any multinational or supranational entity or any instrumentality, 
agency, or department of any of the foregoing;
    (ix) A broker-dealer subject to regulation under the Securities 
Exchange Act of 1934 (15 U.S.C. 78a et seq.) or a foreign person 
performing a similar role or function subject as such to foreign 
regulation, acting on its own behalf or on behalf of another eligible 
swap participant: Provided, however, That if such broker-dealer is a 
natural person or proprietorship, the broker-dealer must also meet the 
requirements of either paragraph (b)(2) (vi) or (xi) of this section;
    (x) A futures commission merchant, floor broker, or floor trader 
subject to regulation under the Act or a foreign person performing a 
similar role or function subject as such to foreign regulation, acting 
on its own behalf or on behalf of another eligible swap participant: 
Provided, however, that if such futures commission merchant, floor 
broker, or floor trader is a natural person or proprietorship, the 
futures commission merchant, floor broker, or floor trader must also 
meet the requirements of paragraph (b)(2) (vi) or (xi) of this section; 
or
    (xi) Any natural person with total assets exceeding at least 
$10,000,000.



Sec. 35.2  Exemption.

    A swap agreement is exempt from all provisions of the Act and any 
person or class of persons offering, entering into, rendering advice, or 
rendering other services with respect to such agreement, is exempt for 
such activity from all provisions of the Act (except in each case the 
provisions of sections 2(a)(1)(B), 4b, and 4o of the Act and Sec. 32.9 
of this chapter as adopted under section 4c(b) of the Act, and the 
provisions of sections 6(c) and 9(a)(2) of the Act to the extent these 
provisions prohibit manipulation of the market price of any commodity in 
interstate commerce or for future delivery on or subject to the rules of 
any contract market), provided the following terms and conditions are 
met:
    (a) The swap agreement is entered into solely between eligible swap 
participants at the time such persons enter into the swap agreement;
    (b) The swap agreement is not part of a fungible class of agreements 
that are standardized as to their material economic terms;
    (c) The creditworthiness of any party having an actual or potential 
obligation under the swap agreement would be a material consideration in 
entering into or determining the terms of the swap agreement, including 
pricing, cost, or credit enhancement terms of the swap agreement; and
    (d) The swap agreement is not entered into and traded on or through 
a multilateral transaction execution facility;

Provided, however, That paragraphs (b) and (d) of Rule 35.2 shall not be 
deemed to preclude arrangements or facilities between parties to swap 
agreements, that provide for netting of payment obligations resulting 
from such swap agreements nor shall these subsections be deemed to 
preclude arrangements or facilities among parties to swap agreements, 
that provide for netting of payments resulting from such swap 
agreements; Provided further, That any person may apply to the 
Commission for

[[Page 448]]

exemption from any of the provisions of the Act (except 2(a)(1)(B)) for 
other arrangements or facilities, on such terms and conditions as the 
Commission deems appropriate, including but not limited thereto, the 
applicability of other regulatory regimes.



PART 36_EXEMPT MARKETS--Table of Contents



Sec.
36.1 Scope.
36.2 Exempt boards of trade.
36.3 Exempt commercial markets.

Appendix A to Part 36--Guidance on Significant Price Discovery Contracts
Appendix B to Part 36--Guidance on, and Acceptable Practices in, 
          Compliance With Core Principles

    Authority: 7 U.S.C. 2, 2(h)(7), 6, 6c and 12a, as amended by Title 
XIII of the Food, Conservation and Energy Act of 2008, Public Law 110-
246, 122 Stat. 1624 (June 18, 2008).

    Source: 66 FR 42270, Aug. 10, 2001, unless otherwise noted.



Sec. 36.1  Scope.

    The provisions of this part apply to any board of trade or 
electronic trading facility eligible for exemption under sections 5d and 
2(h)(3) through (5) of the Act, respectively.



Sec. 36.2  Exempt boards of trade.

    (a) Eligible commodities. Commodities eligible under section 
5d(b)(1) of the Act to be traded by an exempt board of trade are:
    (1) Commodities having--
    (i) A nearly inexhaustible deliverable supply;
    (ii) A deliverable supply that is sufficiently large, and a cash 
market sufficiently liquid, to render any contract traded on the 
commodity highly unlikely to be susceptible to the threat of 
manipulation; or
    (iii)No cash market.
    (2) The commodities that meet the criteria of paragraph (a)(1) of 
this section are:
    (i) The commodities defined in section 1a(13) of the Act as 
``excluded commodities'' (other than a security, including any group or 
index thereof or any interest in, or based on the value of, any security 
or group or index of securities); and
    (ii) Such other commodity or commodities as the Commission may 
determine by rule, regulation or order.
    (b) Notification. Boards of trade operating under Section 5d of the 
Act as exempt boards of trade shall so notify the Commission. This 
notification shall be filed with the Secretary of the Commission at its 
Washington, DC headquarters, in electronic form, shall be labeled as 
``Notification of Operation as an Exempt Board of Trade,'' and shall 
include:
    (1) The name and address of the exempt board of trade; and
    (2) The name and telephone number of a contact person.
    (c) Additional requirements--(1) Prohibited representation. A board 
of trade notifying the Commission that it meets the criteria of Section 
5d of the Act and elects to operate as an exempt board of trade shall 
not represent to any person that it is registered with, designated, 
recognized, licensed or approved by the Commission.
    (2) Market data dissemination. (i) Criteria for price discovery 
determination. An exempt board of trade operating a market in reliance 
on the exemption in Section 5d of the Act performs a significant price 
discovery function for transactions in the cash market for a commodity 
underlying any agreement, contract, or transaction executed or traded on 
the facility when:
    (A) Cash market bids, offers or transactions are directly based on, 
or quoted at a differential to, the prices generated on the market on a 
more than occasional basis; or
    (B) The market's prices are routinely disseminated in a widely 
distributed industry publication and are routinely consulted by industry 
participants in pricing cash market transactions.
    (ii) Notification. An exempt board of trade operating a market in 
reliance on the exemption in Section 5d of the Act shall notify the 
Commission when:
    (A) It has reason to believe that cash market bids, offers or 
transactions are directly based on, or quoted at a differential to, the 
prices generated on the market on a more than occasional basis;
    (B) It has reason to believe that the market's prices are routinely 
disseminated in a widely distributed industry

[[Page 449]]

publication and are routinely consulted by industry participants in 
pricing cash market transactions; or
    (C) The exempt board of trade holds out the market to the public as 
performing a price discovery function for the cash market for the 
commodity.
    (iii) Price discovery determination. Following receipt of a notice 
under paragraph (c)(2)(ii) of this section, or on its own initiative, 
the Commission may notify an exempt board of trade operating a market in 
reliance on the exemption in Section 5d of the Act that the facility 
appears to meet the criteria for performing a significant price 
discovery function under paragraph (c)(2)(i)(A) or (B) of this section. 
Before making a final price discovery determination under this 
paragraph, the Commission shall provide the exempt board of trade with 
an opportunity for a hearing through the submission of written data, 
views and arguments. Any such written data, views and arguments shall be 
filed with the Secretary of the Commission in the form and manner and 
within the time specified by the Commission. After consideration of all 
relevant matters, the Commission shall issue an order containing its 
determination whether the facility performs a significant price 
discovery function under the criteria of paragraph (c)(2)(i)(A) or (B) 
of this section.
    (iv) Price dissemination. (A) An exempt board of trade that the 
Commission has determined performs a significant price discovery 
function under paragraph (c)(2)(iii) of this section shall disseminate 
publicly, and on a daily basis, all of the following information with 
respect to transactions executed in reliance on the exemption in Section 
5d of the Act:
    (1) Contract terms and conditions, or a product description, and 
trading conventions, mechanisms and practices;
    (2) Trading volume by commodity and, if available, open interest; 
and
    (3) The opening and closing prices or price ranges, the daily high 
and low prices, a volume-weighted average price that is representative 
of trading on the board of trade, or such other daily price information 
as proposed by the board of trade and approved by the Commission.
    (B) The exempt board of trade shall make such information readily 
available to the news media and the general public without charge no 
later than the business day following the day to which the information 
pertains.
    (v) Modification of price discovery determination. An exempt board 
of trade that the Commission has determined performs a significant price 
discovery function under paragraph (c)(2)(iii) of this section may 
petition the Commission at any time to modify or vacate that 
determination. The petition shall contain an appropriate justification 
for the request. The Commission, after notice and opportunity for a 
hearing through the submission of written data, views and arguments, 
shall by order grant, grant subject to conditions, or deny such request.
    (3) Annual Certification. A board of trade operating under Section 
5d of the Act as an exempt board of trade shall file with the Commission 
annually, no later than the end of each calendar year, a notice that 
includes: (i) A statement that it continues to operate under the 
exemption; and (ii) a certification that the information contained in 
the previous Notification of Operation as an Exempt Board of Trade is 
still correct.

[66 FR 42270, Aug. 10, 2001, as amended at 71 FR 1961, Jan. 12, 2006]



Sec. 36.3  Exempt commercial markets.

    (a) Notification. An electronic trading facility relying upon the 
exemption in Section 2(h)(3) of the Act shall notify the Commission of 
its intention to do so. This notification, and subsequent notification 
of any material changes in the information initially provided, shall be 
filed with the Secretary of the Commission at its Washington, DC 
headquarters, in electronic form, shall be labeled as ``Notification of 
Operation as an Exempt Commercial Market,'' and shall include the 
information and certifications specified in Section 2(h)(5)(A) of the 
Act.
    (b) Required information--(1) All electronic trading facilities. A 
facility operating in reliance on the exemption in section 2(h)(3) of 
the Act, initially and on an on-going basis, must:
    (i) Provide the Commission with the terms and conditions, as defined 
in

[[Page 450]]

Sec. 40.1(i) of this chapter and product descriptions for each 
agreement, contract or transaction listed by the facility in reliance on 
the exemption set forth in section 2(h)(3) of the Act, as well as 
trading conventions, mechanisms and practices;
    (ii) Provide the Commission with information explaining how the 
facility meets the definition of ``trading facility'' contained in 
section 1a(33) of the Act and provide the Commission with access to the 
electronic trading facility's trading protocols, in a format specified 
by the Commission;
    (iii) Demonstrate to the Commission that the facility requires, and 
will require, with respect to all current and future agreements, 
contracts and transactions, that each participant agrees to comply with 
all applicable laws; that the authorized participants are ``eligible 
commercial entities'' as defined in section 1a(11) of the Act; that all 
agreements, contracts and transactions are and will be entered into 
solely on a principal-to-principal basis; and that the facility has in 
place a program to routinely monitor participants' compliance with these 
requirements;
    (iv) At the request of the Commission, provide any other information 
that the Commission, in its discretion, deems relevant to its 
determination whether an agreement, contract, or transaction performs a 
significant price discovery function; and
    (v) File with the Commission annually, no later than the end of each 
calendar year, a completed copy of CFTC Form 205--Exempt Commercial 
Market Annual Certification. The information submitted in Form 205 shall 
include:
    (A) A statement indicating whether the electronic trading facility 
continues to operate under the exemption; and
    (B) A certification that affirms the accuracy of and/or updates the 
information contained in the previous Notification of Operation as an 
Exempt Commercial Market.
    (2) Electronic trading facilities trading or executing agreements, 
contracts or transactions other than significant price discovery 
contracts. In addition to the requirements of paragraph (b)(1) of this 
section, a facility operating in reliance on the exemption in section 
2(h)(3) of the Act, with respect to agreements, contracts or 
transactions that have not been determined to perform significant price 
discovery function, initially and on an on-going basis, must:
    (i) Identify to the Commission those agreements, contracts and 
transactions conducted on the electronic trading facility with respect 
to which it intends, in good faith, to rely on the exemption in section 
2(h)(3) of the Act, and which averaged five trades per day or more over 
the most recent calendar quarter; and, with respect to such agreements, 
contracts and transactions, either:
    (A) Submit to the Commission, in a form and manner acceptable to the 
Commission, a report for each business day. Each such report shall be 
electronically transmitted weekly, within such time period as is 
acceptable to the Commission after the end of the week to which the data 
applies, and shall show for each such agreement, contract or transaction 
executed the following information:
    (1) The underlying commodity, the delivery or price-basing location 
specified in the agreement, contract or transaction maturity date, 
whether it is a financially settled or physically delivered instrument, 
and the date of execution, time of execution, price, and quantity;
    (2) Total daily volume and, if cleared, open interest;
    (3) For an option instrument, in addition to the foregoing 
information, the type of option (i.e., call or put) and strike prices; 
and
    (4) Such other information as the Commission may determine; or
    (B) Provide to the Commission, in a form and manner acceptable to 
the Commission, electronic access to those transactions conducted on the 
electronic trading facility in reliance on the exemption in section 
2(h)(3) of the Act, and meeting the average five trades per day or more 
threshold test of this section, which would allow the Commission to 
compile the information described in paragraph (b)(2)(i)(A) of this 
section and create a permanent record thereof.

[[Page 451]]

    (ii) Maintain a record of allegations or complaints received by the 
electronic trading facility concerning instances of suspected fraud or 
manipulation in trading activity conducted in reliance on the exemption 
set forth in section 2(h)(3) of the Act. The record shall contain the 
name of the complainant, if provided, date of the complaint, market 
instrument, substance of the allegations, and name of the person at the 
electronic trading facility who received the complaint;
    (iii) Provide to the Commission, in the form and manner prescribed 
by the Commission, a copy of the record of each complaint received 
pursuant to paragraph (b)(2)(ii) of this section that alleges, or 
relates to, facts that would constitute a violation of the Act or 
Commission regulations. Such copy shall be provided to the Commission no 
later than 30 calendar days after the complaint is received. Provided, 
however, that in the case of a complaint alleging, or relating to, facts 
that would constitute an ongoing fraud or market manipulation under the 
Act or Commission rules, such copy shall be provided to the Commission 
within three business days after the complaint is received; and
    (iv) Provide to the Commission on a quarterly basis, within 15 
calendar days of the close of each quarter, a list of each agreement, 
contract or transaction executed on the electronic trading facility in 
reliance on the exemption set forth in section 2(h)(3) of the Act and 
indicate for each such agreement, contract or transaction the contract 
terms and conditions, the contract's average daily trading volume, and 
the most recent open interest figures.
    (3) Electronic trading facilities trading or executing significant 
price discovery contracts. In addition to the requirements of paragraph 
(b)(1) of this section, if the Commission determines that a facility 
operating in reliance on the exemption in section 2(h)(3) of the Act 
trades or executes an agreement, contract or transaction that performs a 
significant price discovery function, the facility must, with respect to 
any significant price discovery contract, publish and provide to the 
Commission the information required by Sec. 16.01 of this chapter.
    (4) Delegation of authority. The Commission hereby delegates, until 
the Commission orders otherwise, the authority to determine the form and 
manner of submitting the required information under paragraphs (b)(1) 
through (3) of this section, to the Director of the Division of Market 
Oversight and such members of the Commission's staff as the Director may 
designate. The Director may submit to the Commission for its 
consideration any matter that has been delegated by this paragraph. 
Nothing in this paragraph prohibits the Commission, at its election, 
from exercising the authority delegated in this paragraph.
    (5) Special calls. (i) All information required upon special call of 
the Commission under section 2(h)(5)(B)(iii) of the Act shall be 
transmitted at the time and to the office of the Commission as may be 
specified in the call.
    (ii) The Commission hereby delegates, until the Commission orders 
otherwise, the authority to make special calls as set forth in section 
2(h)(5)(B)(iii) of the Act to the Directors of the Divisions of Market 
Oversight, the Division of Clearing and Intermediary Oversight, and the 
Division of Enforcement to be exercised by each such Director or by such 
other employee or employees as the Director may designate. The Directors 
may submit to the Commission for its consideration any matter that has 
been delegated in this paragraph. Nothing in this paragraph prohibits 
the Commission, at its election, from exercising the authority delegated 
in this paragraph.
    (6) Subpoenas to foreign persons. A foreign person whose access to 
an electronic trading facility is limited or denied at the direction of 
the Commission based on the Commission's belief that the foreign person 
has failed timely to comply with a subpoena as provided under section 
2(h)(5)(C)(ii) of the Act shall have an opportunity for a prompt hearing 
under the procedures provided in Sec. 21.03(b) and (h) of this chapter.
    (7) Prohibited representation. An electronic trading facility 
relying upon the exemption in section 2(h)(3) of the Act,

[[Page 452]]

with respect to agreements, contracts or transactions that are not 
significant price discovery contracts, shall not represent to any person 
that it is registered with, designated, recognized, licensed or approved 
by the Commission.
    (c) Significant price discovery contracts--(1) Criteria for 
significant price discovery determination. The Commission may determine, 
in its discretion, that an electronic trading facility operating a 
market in reliance on the exemption in section 2(h)(3) of the Act 
performs a significant price discovery function for transactions in the 
cash market for a commodity underlying any agreement, contract or 
transaction executed or traded on the facility. In making such a 
determination, the Commission shall consider, as appropriate:
    (i) Price linkage. The extent to which the agreement, contract or 
transaction uses or otherwise relies on a daily or final settlement 
price, or other major price parameter, of a contract or contracts listed 
for trading on or subject to the rules of a designated contract market 
or a derivatives transaction execution facility, or a significant price 
discovery contract traded on an electronic trading facility, to value a 
position, transfer or convert a position, cash or financially settle a 
position, or close out a position;
    (ii) Arbitrage. The extent to which the price for the agreement, 
contract or transaction is sufficiently related to the price of a 
contract or contracts listed for trading on or subject to the rules of a 
designated contract market or derivatives transaction execution 
facility, or a significant price discovery contract or contracts trading 
on or subject to the rules of an electronic trading facility, so as to 
permit market participants to effectively arbitrage between the markets 
by simultaneously maintaining positions or executing trades in the 
contracts on a frequent and recurring basis;
    (iii) Material price reference. The extent to which, on a frequent 
and recurring basis, bids, offers, or transactions in a commodity are 
directly based on, or are determined by referencing, the prices 
generated by agreements, contracts or transactions being traded or 
executed on the electronic trading facility;
    (iv) Material liquidity. The extent to which the volume of 
agreements, contracts or transactions in the commodity being traded on 
the electronic trading facility is sufficient to have a material effect 
on other agreements, contracts or transactions listed for trading on or 
subject to the rules of a designated contract market, a derivatives 
transaction execution facility, or an electronic trading facility 
operating in reliance on the exemption in section 2(h)(3) of the Act;
    (v) Other material factors [Reserved]
    (2) Notification of possible significant price discovery contract 
conditions. An electronic trading facility operating in reliance on 
section 2(h)(3) of the Act shall promptly notify the Commission, and 
such notification shall be accompanied by supporting information or data 
concerning any contract that:
    (i) Averaged five trades per day or more over the most recent 
calendar quarter; and
    (ii) (A) For which the exchange sells its price information 
regarding the contract to market participants or industry publications; 
or
    (B) Whose daily closing or settlement prices on 95 percent or more 
of the days in the most recent quarter were within 2.5 percent of the 
contemporaneously determined closing, settlement or other daily price of 
another agreement, contract or transaction.
    (3) Procedure for significant price discovery determination. Before 
making a final price discovery determination under this paragraph, the 
Commission shall publish notice in the Federal Register that it intends 
to undertake a determination with respect to whether a particular 
agreement, contract or transaction performs a significant price 
discovery function and to receive written data, views and arguments 
relevant to its determination from the electronic trading facility and 
other interested persons. Any such written data, views and arguments 
shall be filed with the Secretary of the Commission, in the form and 
manner specified by the Commission, within 30 calendar days of 
publication of notice in the Federal Register or within such

[[Page 453]]

other time specified by the Commission. After prompt consideration of 
all relevant information, the Commission shall, within a reasonable 
period of time after the close of the comment period, issue an order 
explaining its determination whether the agreement, contract or 
transaction executed or traded by the electronic trading facility 
performs a significant price discovery function under the criteria 
specified in paragraph (c)(1)(i) through (v) of this section.
    (4) Compliance with core principles. Following the issuance of an 
order by the Commission that the electronic trading facility executes or 
trades an agreement, contract or transaction that performs a significant 
price discovery function, the electronic trading facility must 
demonstrate, with respect to that agreement, contract or transaction, 
compliance with the Core Principles under section 2(h)(7)(C) of the Act 
and the applicable provisions of this part. If the Commission's order 
represents the first time it has determined that one of the electronic 
trading facility's agreements, contracts or transactions performs a 
significant price discovery function, the facility must submit a written 
demonstration of compliance with the Core Principles within 90 calendar 
days of the date of the Commission's order. For each subsequent 
determination by the Commission that the electronic trading facility has 
an additional agreement, contract or transaction that performs a 
significant price discovery function, the facility must submit a written 
demonstration of compliance with the Core Principles within 30 calendar 
days of the date of the Commission's order. Attention is directed to 
appendix B of this part for guidance on and acceptable practices for 
complying with the Core Principles. Submissions demonstrating how the 
electronic trading facility complies with the Core Principles with 
respect to its significant price discovery contract must be filed with 
the Secretary of the Commission at its Washington, DC headquarters. 
Submissions must include the following:
    (i) A written certification that the significant price discovery 
contract(s) complies with the Act and regulations thereunder;
    (ii) A copy of the electronic trading facility's rules (as defined 
in Sec. 40.1 of this chapter) and any technical manuals, other guides 
or instructions for users of, or participants in, the market, including 
minimum financial standards for members or market participants. 
Subsequent rule changes must be certified by the electronic trading 
facility pursuant to section 5c(c) of the Act and Sec. 40.6 of this 
chapter. The electronic trading facility also may request Commission 
approval of any rule changes pursuant to section 5c(c) of the Act and 
Sec. 40.5 of this chapter;
    (iii) A description of the trading system, algorithm, security and 
access limitation procedures with a timeline for an order from input 
through settlement, and a copy of any system test procedures, tests 
conducted, test results and contingency or disaster recovery plans;
    (iv) A copy of any documents pertaining to or describing the 
electronic trading system's legal status and governance structure, 
including governance fitness information;
    (v) An executed or executable copy of any agreements or contracts 
entered into or to be entered into by the electronic trading facility, 
including partnership or limited liability company, third-party 
regulatory service, or member or user agreements, that enable or empower 
the electronic trading facility to comply with a Core Principle;
    (vi) A copy of any manual or other document describing, with 
specificity, the manner in which the trading facility will conduct trade 
practice, market and financial surveillance;
    (vii) To the extent that any of the items in paragraphs (c)(4)(ii) 
through (vi) of this section raise issues that are novel, or for which 
compliance with a Core Principle is not self-evident, an explanation of 
how that item satisfies the applicable Core Principle or Principles.
    The electronic trading facility must identify with particularity 
information in the submission that will be subject to a request for 
confidential treatment pursuant to Sec. 145.09 of this chapter. The 
electronic trading facility must follow the procedures specified in 
Sec. 40.8 of this

[[Page 454]]

chapter with respect to any information in its submission for which 
confidential treatment is requested.
    (5) Determination of compliance with core principles. The Commission 
shall take into consideration differences between cleared and uncleared 
significant price discovery contracts when reviewing the implementation 
of the Core Principles by an electronic trading facility. The electronic 
facility also has reasonable discretion in accounting for differences 
between cleared and uncleared significant price discovery contracts when 
establishing the manner in which it complies with the Core Principles.
    (6) Information relating to compliance with core principles. Upon 
request by the Commission, an electronic trading facility trading a 
significant price discovery contract shall file with the Commission a 
written demonstration, containing such supporting data, information and 
documents, in the form and manner and within such time as the Commission 
may specify, that the electronic trading facility is in compliance with 
one or more Core Principles as specified in the request, or that is 
otherwise requested by the Commission to enable the Commission to 
satisfy its obligations under the Act.
    (7) Enforceability. An agreement, contract or transaction entered 
into on or pursuant to the rules of an electronic trading facility 
trading or executing a significant price discovery contract shall not be 
void, voidable, subject to rescission or otherwise invalidated or 
rendered unenforceable as a result of:
    (i) A violation by the electronic trading facility of the provisions 
of section 2(h) of the Act or this part; or
    (ii) Any Commission proceeding to alter or supplement a rule, term 
or condition under section 8a(7) of the Act, to declare an emergency 
under section 8a(9) of the Act, or any other proceeding the effect of 
which is to alter, supplement or require an electronic trading facility 
to adopt a specific term or condition, trading rule or procedure, or to 
take or refrain from taking a specific action.
    (8) Procedures for vacating a determination of a significant price 
discovery function--(i) By the electronic trading facility. An 
electronic trading facility that executes or trades an agreement, 
contract or transaction that the Commission has determined performs a 
significant price discovery function under paragraph (c)(3) of this 
section may petition the Commission to vacate that determination. The 
petition shall demonstrate that the agreement, contract or transaction 
no longer performs a significant price discovery function under the 
criteria specified in paragraph (c)(1), and has not done so for at least 
the prior 12 months. An electronic trading facility shall not petition 
for a vacation of a significant price discovery determination more 
frequently than once every 12 months for any individual contract.
    (ii) By the Commission. The Commission may, on its own initiative, 
begin vacation proceedings if it believes that an agreement, contract or 
transaction has not performed a significant price discovery function for 
at least the prior 12 months.
    (iii) Procedure. Before making a final determination whether an 
agreement, contract or transaction has ceased to perform a significant 
price discovery function, the Commission shall publish notice in the 
Federal Register that it intends to undertake such a determination and 
to receive written data, views and arguments relevant to its 
determination from the electronic trading facility and other interested 
persons. Written submissions shall be filed with the Secretary of the 
Commission in the form and manner specified by the Commission, within 30 
calendar days of publication of notice in the Federal Register or within 
such other time specified by the Commission. After consideration of all 
relevant information, the Commission shall issue an order explaining its 
determination whether the agreement, contract or transaction has ceased 
to perform a significant price discovery function and, if so, vacating 
its prior order. If such an order issues, and the Commission 
subsequently determines, on its own initiative or after notification by 
the electronic trading facility, that the agreement, contract or 
transaction that was subject to the vacation order again performs a 
significant price discovery function, the electronic trading facility 
must comply with the Core

[[Page 455]]

Principles within 30 calendar days of the date of the Commission's 
order.
    (iv) Automatic vacation of significant price discovery 
determination. Regardless of whether a proceeding to vacate has been 
initiated, any significant price discovery contract that has no open 
interest and in which no trading has occurred for a period of 12 
complete and consecutive calendar months shall, without further 
proceedings, no longer be considered to be a significant price discovery 
contract.
    (d) Commission Review. The Commission shall, at least annually, 
evaluate as appropriate agreements, contracts or transactions conducted 
on an electronic trading facility in reliance on the exemption provided 
in section 2(h)(3) of the Act to determine whether they serve a 
significant price discovery function as described in Sec. (d)(1) above.

[66 FR 42270, Aug. 10, 2001, as amended at 67 FR 62352, Oct. 7, 2002; 69 
FR 43294, July 20, 2004; 71 FR 1962, Jan. 12, 2006; 73 FR 8604, Feb. 14, 
2008; 74 FR 12194, 12195, 12197, Mar. 23, 2009]



  Sec. Appendix A to Part 36--Guidance on Significant Price Discovery 
                                Contracts

    1. Section 2(h)(7) of the CEA specifies four factors that the 
Commission must consider, as appropriate, in making a determination that 
a contract is performing a significant price discovery function. The 
four factors prescribed by the statute are: Price Linkage; Arbitrage; 
Material Price Reference; and Material Liquidity.
    2. Not all listed factors must be present to support a determination 
that a contract performs a significant price discovery function. 
Moreover, the statutory language neither prioritizes the factors nor 
specifies the degree to which a significant price discovery contract 
must conform to the various factors. Congress has indicated that it 
intends that the Commission should not make a determination that an 
agreement, contract or transaction performs a significant price 
discovery function on the basis of the Price Linkage factor unless the 
agreement, contract or transaction also has sufficient volume to impact 
other regulated contracts or to become an independent price reference or 
benchmark that is regularly utilized by the public. The Commission 
believes that the Arbitrage and Material Price Reference factors can be 
considered separately from each other. That is, the Commission could 
make a determination that a contract serves a significant price 
discovery function based on the presence of one of these factors and the 
absence of the other. The presence of any of these factors, however, 
would not necessarily be sufficient to establish the contract as a 
significant price discovery contract. The fourth factor, Liquidity, 
would be considered in conjunction with the arbitrage and linkage 
factors as a significant amount of liquidity presumably would be 
necessary for a contract to perform a significant price discovery 
function in conjunction with these factors.
    3. These factors do not lend themselves to a mechanical checklist or 
formulaic analysis. Accordingly, this guidance is intended to illustrate 
which factors, or combinations of factors, the Commission will look to 
when determining that a contract is performing a significant price 
discovery function, and under what circumstances the presence of a 
particular factor or factors would be sufficient to support such a 
determination.
    (A) MATERIAL LIQUIDITY--The extent to which the volume of 
agreements, contracts or transactions in the commodity being traded on 
the electronic trading facility is sufficient to have a material effect 
on other agreements, contracts or transactions listed for trading on or 
subject to the rules of a designated contract market, a derivatives 
transaction execution facility, or an electronic trading facility 
operating in reliance on the exemption in section 2(h)(3) of the Act.
    1. Liquidity is a broad concept that captures the ability to 
transact immediately with little or no price concession. Traditionally, 
objective measures of trading such as volume or open interest have been 
used as measures of liquidity. So, for example, a market in which trades 
occur multiple times per minute at prices that differ by only fractions 
of a cent normally would be considered highly liquid, since presumably a 
trader could quickly execute a trade at a price that was approximately 
the same as the price for other recently executed trades. Other factors 
also will affect the characterization of liquidity, such as whether a 
large trade--e.g., 100 contracts versus 1 contract--could be executed 
without a significant price concession. For example, having to wait a 
day to sell 1000 bushels of corn may be considered an illiquid market 
while waiting a day to sell a home may be considered quite liquid. Thus, 
quantifying the levels of immediacy and price concession that would 
define material liquidity may differ from one market or commodity to 
another.
    2. The Commission believes that material liquidity alternatively can 
be identified by the impact liquidity exhibits through observed prices. 
In markets where material liquidity exists, a more or less continuous 
stream of prices can be observed and the prices should be similar. For 
example, if the trading of a contract occurs on average five times a 
day, there will be on average five observed prices for the contract per 
day. If the market is liquid in terms of traders having

[[Page 456]]

to make little in the way of price concessions to execute these trades, 
the prices of this contract should be similar to those observed for 
similar or related contracts traded in liquid markets elsewhere. Thus, 
in making determinations that contracts have material liquidity, the 
Commission will look to transaction prices, both in terms of how often 
prices are observed and the extent to which observed prices tend to 
correlate with other contemporaneous prices.
    3. The Commission anticipates that material liquidity will 
frequently be a consideration in evaluating whether a contract is a 
significant price discovery contract; however, there may be 
circumstances in which other factors so dominate the conclusion that a 
contract is serving a significant price discovery function that a 
finding of material liquidity in the contract would not be necessary. 
Circumstances in which this might arise are discussed with respect to 
the assessment of other factors below.
    4. Finally, material liquidity itself would not be sufficient to 
make a determination that a contract is a significant price discovery 
contract, but combined with other factors it can serve as a guidepost 
indicating which contracts are functioning as significant price 
discovery contracts. As further discussed below, material liquidity, as 
reflected through the prices of linked or arbitraged contracts, will be 
a primary consideration in determining whether such contracts are 
significant price discovery contracts.
    (B) PRICE LINKAGE--The extent to which the agreement, contract or 
transaction uses or otherwise relies on a daily or final settlement 
price, or other major price parameter, of a contract or contracts listed 
for trading on or subject to the rules of a designated contract market 
or a derivatives transaction execution facility, or a significant price 
discovery contract traded on an electronic trading facility, to value a 
position, transfer or convert a position, cash or financially settle a 
position, or close out a position.
    1. A price-linked contract is a contract that relies on a contract 
traded on another trading facility to settle, value or otherwise offset 
the price-linked contract. The link may involve a one-to-one linkage, in 
that the value of the linked contract is based on a single contract's 
price, or it may involve multiple contracts. An example of a multiple 
contract linkage might be where the settlement price is calculated as an 
index of prices obtained from a basket of contracts traded on other 
exchanges.
    2. For a linked contract, the mere fact that a contract is linked to 
another contract will not be sufficient to support a determination that 
a contract performs a significant price discovery function. To assess 
whether such a determination is warranted, the Commission will examine 
the relationship between transaction prices of the linked contract and 
the prices of the referenced contract(s). The Commission believes that 
where material liquidity exists, prices for the linked contract would be 
observed to be substantially the same as or move substantially in 
conjunction with the prices of the referenced contract(s). Where such 
price characteristics are observed on an ongoing basis, the Commission 
would expect to determine that the linked contract is a significant 
price discovery contract.
    3. As an example, where the Commission has observed price linkage, 
it will next consider whether transactions were occurring on a daily 
basis for the linked contract in material volumes. (Conversely, where 
volume has increased noticeably in a particular contract, the Commission 
would look for linkage) The ultimate level of volume that would be 
considered material for purposes of deeming a contract a significant 
price discovery contract will likely differ from one contract to another 
depending on the characteristics of the underlying commodity and the 
overall size of the physical market in which it is traded. At a minimum, 
however, the Commission will consider a linked contract which has volume 
equal to 5% of the volume of trading in the contract to which it is 
linked to have sufficient volume potentially to be deemed a significant 
price discovery contract.
    4. In combination with this volume level, the Commission will also 
examine the relationship between prices of the linked contract and the 
contract to which it is linked to determine whether a contract is 
serving a significant price discovery function. As a threshold, the 
Commission will consider a 2.5 percent price range for 95 percent of 
contemporaneously determined closing, settlement, or other daily prices 
over the most recent quarter to be sufficiently close for a linked 
contract potentially to be deemed a significant price discovery 
contract. For example, if, over the most recent quarter, it was found 
that 95 percent of the closing, settlement, or other daily prices of the 
contract, which have been calculated using transaction prices, were 
within 2.5 percent of the contemporaneously determined closing, 
settlement, or other daily prices of a contract to which it was linked, 
the Commission potentially would consider the contract to perform a 
significant price discovery function.
    (C) ARBITRAGE CONTRACTS--The extent to which the price for the 
agreement, contract or transaction is sufficiently related to the price 
of a contract or contracts listed for trading on or subject to the rules 
of a designated contract market or derivatives transaction execution 
facility, or a significant price discovery contract or contracts trading 
on or subject to the rules of an electronic trading facility, so as to 
permit

[[Page 457]]

market participants to effectively arbitrage between the markets by 
simultaneously maintaining positions or executing trades in the 
contracts on a frequent and recurring basis.
    1. Arbitrage contracts are those contracts that can be combined with 
other contracts to exploit expected economic relationships in 
anticipation of a profit. In assessing whether a contract can be 
incorporated into an arbitrage strategy, the Commission will weigh the 
terms and conditions of a contract in comparison to contracts that 
potentially could be used in an arbitrage strategy; will consult with 
industry or other sources regarding a contract's viability in an 
arbitrage strategy; and will rely on direct observation confirming the 
use of a contract in arbitrage strategies.
    2. As with linked contracts, the mere fact that a contract could be 
employed in an arbitrage strategy will not be sufficient to make a 
determination that a contract is a significant price discovery contract. 
In addition, the level of liquidity will be considered. To assess 
whether designation as a significant price discovery contract is 
warranted, the Commission will examine the relationship between 
transaction prices of an arbitrage contract and the prices of the 
contract(s) to which it is related. The Commission believes that where 
material liquidity exists, prices for the arbitrage contract would be 
observed to move substantially in conjunction with the prices of the 
related contract(s) to which it is economically linked. Where such price 
characteristics are observed on an ongoing basis, it is likely that the 
linked contract performs a significant price discovery function.
    3. The Commission will apply the same threshold liquidity and price 
relationship standards for arbitrage contracts as it does for linked 
contracts. That is, the Commission will view the average of five trades 
per day or more threshold as the level of activity that would 
potentially meet the material volume criterion. With respect to prices, 
the Commission will consider an arbitrage contract potentially to be a 
significant price discovery contract if, over the most recent quarter, 
greater than 95 percent of the closing or settlement prices of the 
contract, which have been calculated using transaction prices, fall 
within 2.5 percent of the closing or settlement price of the contract or 
contracts to which it could be arbitraged.
    (D) MATERIAL PRICE REFERENCE--The extent to which, on a frequent and 
recurring basis, bids, offers or transactions in a commodity are 
directly based on, or are determined by referencing, the prices 
generated by agreements, contracts or transactions being traded or 
executed on the electronic trading facility.
    1. The Commission will rely on one of two sources of evidence--
direct or indirect--to determine that the price of a contract was being 
used as a material price reference and, therefore, serving a significant 
price discovery function. The primary source of direct evidence is that 
cash market bids, offers or transactions are directly based on, or 
quoted at a differential to, the prices generated on the market on a 
frequent and recurring basis. The Commission expects that normally only 
contracts with material liquidity will be referenced by the cash market; 
however, the Commission notes that it may be possible for a contract to 
have very low liquidity and yet still be used as a price reference. In 
such cases, the simple fact that participants in the underlying cash 
market broadly have elected to use the contract price as a price 
reference would be a strong indicator that the contract is a significant 
price discovery contract.
    2. In evaluating a contract's price discovery role as a directly 
referenced price source, the Commission will perform an analysis to 
determine whether cash market participants are quoting bid or offer 
prices or entering into transactions at prices that are set either 
explicitly or implicitly at a differential to prices established for the 
contract. Cash market prices are set explicitly at a differential to the 
section 2(h)(3) contract when, for instance, they are quoted in dollars 
and cents above or below the reference contract's price. Cash market 
prices are set implicitly at a differential to a section 2(h)(3) 
contract when, for instance, they are arrived at after adding to, or 
subtracting from the section 2(h)(3) contract, but then quoted or 
reported at a flat price. The Commission will also consider whether cash 
market entities are quoting cash prices based on a section 2(h)(3) 
contract on a frequent and recurring basis.
    3. The second source of evidence is that the price of the contract 
is being routinely disseminated in widely distributed industry 
publications--or offered by the ECM itself for some form of 
remuneration--and consulted on a frequent and recurring basis by 
industry participants in pricing cash market transactions. As with 
contract prices that are directly incorporated into cash market prices, 
the Commission assumes that industry publications choose to publish 
prices because of the value they transfer to industry participants for 
the purpose of formulating prices in the cash market.
    4. In applying this criterion, consideration will be given to 
whether prices established by a section 2(h)(3) contract are reported in 
a widely distributed industry publication. In making this determination, 
the Commission will consider the reputation of the publication within 
the industry, how frequently it is published, and whether the 
information contained in the publication is routinely consulted by 
industry participants in pricing cash market transactions.
    5. Under a Material Price Reference analysis, the Commission expects 
that material

[[Page 458]]

liquidity in the contract likely will be the primary motivation for a 
publisher to publish particular prices. In other words, the fact that 
the price of a contract is being used as a reference by industry 
participants suggests, prima facie, that the contract performs a 
significant price discovery function. But the Commission recognizes that 
trading levels could nonetheless be low for the contract while still 
serving a significant price discovery function and that evidence of 
routine publication and consultation by industry participants may be 
sufficient to establish the contract as a significant price discovery 
contract. On the other hand, while cash market participants may 
regularly refer to published prices of a particular contract when 
establishing cash market prices, it may be the case that the contract 
itself is a niche market for a specialized grade of the commodity or for 
delivery at a minor geographic location. In such cases, the Commission 
will look to such measures as trading volume, open interest, and the 
significance of the underlying cash market to make a determination that 
a contract is functioning as a significant price discovery contract. If 
an examination of trading in the contract were to reveal that true price 
discovery was occurring in other more broadly defined contracts and that 
this contract was itself simply reflective of those broader contracts, 
it is less likely the Commission will deem the contract a significant 
price discovery contract.
    6. Because price referencing normally occurs out of the view of the 
electronic trading facility, the Commission may have difficulty 
ascertaining the extent to which cash market participants actually 
reference or consult a contract's price when transacting. The Commission 
expects, however, that as a contract begins to be relied upon to set a 
reference price, market participants will be increasingly willing to 
purchase price information. To the extent, then, that an electronic 
trading facility begins to sell its price information regarding a 
contract to market participants or industry publications, the contract 
will meet a threshold standard to indicate that the contract potentially 
is a significant price discovery contract.

[74 FR 12197, Mar. 23, 2009]



 Sec. Appendix B to Part 36--Guidance on, and Acceptable Practices in, 
                     Compliance With Core Principles

    1. This appendix provides guidance on complying with the core 
principles under section 2(h)(7)(C) of the Act and this part, both 
initially and on an ongoing basis. The guidance is provided in paragraph 
(a) following each core principle and can be used to demonstrate to the 
Commission core principle compliance under Sec. 36.3(c)(4). The 
guidance for each core principle is illustrative only of the types of 
matters an electronic trading facility may address, as applicable, and 
is not intended to be used as a mandatory checklist. Addressing the 
issues and questions set forth in this guidance will help the Commission 
in its consideration of whether the electronic trading facility is in 
compliance with the core principles. A submission pursuant to Sec. 
36.3(c)(4) should include an explanation or other form of documentation 
demonstrating that the electronic trading facility complies with the 
core principles.
    2. Acceptable practices meeting selected requirements of the core 
principles are set forth in paragraph (b) following each core principle. 
Electronic trading facilities on which significant price discovery 
contracts are traded or executed that follow the specific practices 
outlined under paragraph (b) for any core principle in this appendix 
will meet the selected requirements of the applicable core principle. 
Paragraph (b) is for illustrative purposes only, and does not state the 
exclusive means for satisfying a core principle.
    CORE PRINCIPLE I OF SECTION 2(h)(7)(C)--CONTRACTS NOT READILY 
SUSCEPTIBLE TO MANIPULATION. The electronic trading facility shall list 
only significant price discovery contracts that are not readily 
susceptible to manipulation.
    (a) Guidance. Upon determination by the Commission that a contract 
listed for trading on an electronic trading facility is a significant 
price discovery contract, the electronic trading facility must self-
certify the terms and conditions of the significant price discovery 
contract under Sec. 36.3(c)(4) within 90 calendar days of the date of 
the Commission's order, if the contract is the electronic trading 
facility's first significant price discovery contract; or 30 days from 
the date of the Commission's order if the contract is not the electronic 
trading facility's first significant price discovery contract. Once the 
Commission determines that a contract performs a significant price 
discovery function, subsequent rule changes must be self-certified to 
the Commission by the electronic trading facility pursuant to Sec. 40.6 
or submitted to the Commission for review and approval pursuant to Sec. 
40.5.
    (b) Acceptable practices. Guideline No. 1, 17 CFR part 40, appendix 
A may be used as guidance in meeting this core principle for significant 
price discovery contracts.
    CORE PRINCIPLE II OF SECTION 2(h)(7)(C)--MONITORING OF TRADING. The 
electronic trading facility shall monitor trading in significant price 
discovery contracts to prevent market manipulation, price distortion, 
and disruptions of the delivery of cash-settlement process through 
market surveillance, compliance and disciplinary practices and 
procedures, including methods for conducting real-time monitoring of 
trading and comprehensive and accurate trade reconstructions.

[[Page 459]]

    (a) Guidance. An electronic trading facility on which significant 
price discovery contracts are traded or executed should, with respect to 
those contracts, demonstrate a capacity to prevent market manipulation 
and have trading and participation rules to detect and deter abuses. The 
facility should seek to prevent market manipulation and other trading 
abuses through a dedicated regulatory department or by delegation of 
that function to an appropriate third party. An electronic trading 
facility also should have the authority to intervene as necessary to 
maintain an orderly market.
    (b) Acceptable practices--(1) An acceptable trade monitoring 
program. An acceptable trade monitoring program should facilitate, on 
both a routine and non-routine basis, arrangements and resources to 
detect and deter abuses through direct surveillance of each significant 
price discovery contract. Direct surveillance of each significant price 
discovery contract will generally involve the collection of various 
market data, including information on participants' market activity. 
Those data should be evaluated on an ongoing basis in order to make an 
appropriate regulatory response to potential market disruptions or 
abusive practices. For contracts with a substantial number of 
participants, an effective surveillance program should employ a much 
more comprehensive large trader reporting system.
    (2) Authority to collect information and documents. The electronic 
trading facility should have the authority to collect information and 
documents in order to reconstruct trading for appropriate market 
analysis. Appropriate market analysis should enable the electronic 
trading facility to assess whether each significant price discovery 
contract is responding to the forces of supply and demand. Appropriate 
data usually include various fundamental data about the underlying 
commodity, its supply, its demand, and its movement through market 
channels. Especially important are data related to the size and 
ownership of deliverable supplies--the existing supply and the future or 
potential supply--and to the pricing of the deliverable commodity 
relative to the futures price and relative to similar, but non-
deliverable, kinds of the commodity. For cash-settled contracts, it is 
more appropriate to pay attention to the availability and pricing of the 
commodity making up the index to which the contract will be settled, as 
well as monitoring the continued suitability of the methodology for 
deriving the index.
    (3) Ability to assess participants' market activity and power. To 
assess participants' activity and potential power in a market, 
electronic trading facilities, with respect to significant price 
discovery contracts, at a minimum should have routine access to the 
positions and trading of its participants and, if applicable, should 
provide for such access through its agreements with its third-party 
provider of clearing services.
    CORE PRINCIPLE III OF SECTION 2(h)(7)(C)--ABILITY TO OBTAIN 
INFORMATION. The electronic trading facility shall establish and enforce 
rules that allow the electronic trading facility to obtain any necessary 
information to perform any of the functions described in this 
subparagraph, provide the information to the Commission upon request, 
and have the capacity to carry out such international information-
sharing agreements as the Commission may require.
    (a) Guidance. An electronic trading facility on which significant 
price discovery contracts are traded or executed should, with respect to 
those contracts, have the ability and authority to collect information 
and documents on both a routine and non-routine basis, including the 
examination of books and records kept by participants. This includes 
having arrangements and resources for recording full data entry and 
trade details and safely storing audit trail data. An electronic trading 
facility should have systems sufficient to enable it to use the 
information for purposes of assisting in the prevention of participant 
and market abuses through reconstruction of trading and providing 
evidence of any violations of the electronic trading facility's rules.
    (b) Acceptable practices--(1) The goal of an audit trail is to 
detect and deter market abuse. An effective contract audit trail should 
capture and retain sufficient trade-related information to permit 
electronic trading facility staff to detect trading abuses and to 
reconstruct all transactions within a reasonable period of time. An 
audit trail should include specialized electronic surveillance programs 
that identify potentially abusive trades and trade patterns. An 
acceptable audit trail must be able to track an order from time of entry 
into the trading system through its fill. The electronic trading 
facility must create and maintain an electronic transaction history 
database that contains information with respect to transactions executed 
on each significant price discovery contract.
    (2) An acceptable audit trail should include the following: original 
source documents, transaction history, electronic analysis capability, 
and safe storage capability. An acceptable audit trail system would 
satisfy the following practices.
    (i) Original source documents. Original source documents include 
unalterable, sequentially identified records on which trade execution 
information is originally recorded. For each order (whether filled, 
unfilled or cancelled, each of which should be retained or 
electronically captured), such records reflect the terms of the order, 
an account identifier that relates back to the account(s) owner(s), and 
the time of order entry.

[[Page 460]]

    (ii) Transaction history. A transaction history consists of an 
electronic history of each transaction, including (a) all the data that 
are input into the trade entry or matching system for the transaction to 
match and clear; (b) timing and sequencing data adequate to reconstruct 
trading; and (c) the identification of each account to which fills are 
allocated.
    (iii) Electronic analysis capability. An electronic analysis 
capability that permits sorting and presenting data included in the 
transaction history so as to reconstruct trading and to identify 
possible trading violations with respect to market abuse.
    (iv) Safe storage capability. Safe storage capability provides for a 
method of storing the data included in the transaction history in a 
manner that protects the data from unauthorized alteration, as well as 
from accidental erasure or other loss. Data should be retained in the 
form and manner specified by the Commission or, where no acceptable 
manner of retention is specified, in accordance with the recordkeeping 
standards of Commission rule 1.31.
    (3) Arrangements and resources for the disclosure of the obtained 
information and documents to the Commission upon request. To satisfy 
section 2(h)(7)(C)(III)(bb), the electronic trading facility should 
maintain records of all information and documents related to each 
significant price discovery contract in a form and manner acceptable to 
the Commission. Where no acceptable manner of maintenance is specified, 
records should be maintained in accordance with the recordkeeping 
standards of Commission rule 1.31.
    (4) The capacity to carry out appropriate information-sharing 
agreements as the Commission may require. Appropriate information-
sharing agreements could be established with other markets or the 
Commission can act in conjunction with the electronic trading facility 
to carry out such information sharing.
    CORE PRINCIPLE IV OF SECTION 2(h)(7)(C)--POSITION LIMITATIONS OR 
ACCOUNTABILITY. The electronic trading facility shall adopt, where 
necessary and appropriate, position limitations or position 
accountability for speculators in significant price discovery contracts, 
taking into account positions in other agreements, contracts and 
transactions that are treated by a derivatives clearing organization, 
whether registered or not registered, as fungible with such significant 
price discovery contracts to reduce the potential threat of market 
manipulation or congestion, especially during trading in the delivery 
month.
    (a) Guidance. [Reserved]
    (b) Acceptable practices for uncleared trades [Reserved]
    (c) Acceptable practices for cleared trades--(1) Introduction. In 
order to diminish potential problems arising from excessively large 
speculative positions, and to facilitate orderly liquidation of expiring 
contracts, an electronic trading facility relying on the exemption in 
section 2(h)(3) should adopt rules that set position limits or 
accountability levels on traders' cleared positions in significant price 
discovery contracts. These position limit rules specifically may exempt 
bona fide hedging; permit other exemptions; or set limits differently by 
market, delivery month or time period. For the purpose of evaluating a 
significant price discovery contract's speculative-limit program for 
cleared positions, the Commission will consider the specified position 
limits or accountability levels, aggregation policies, types of 
exemptions allowed, methods for monitoring compliance with the specified 
limits or levels, and procedures for dealing with violations.
    (2) Accounting for cleared trades--(i) Speculative-limit levels 
typically should be set in terms of a trader's combined position 
involving cleared trades in a significant price discovery contract, plus 
positions in agreements, contracts and transactions that are treated by 
a derivatives clearing organization, whether registered or not 
registered, as fungible with such significant price discovery contract. 
(This circumstance typically exists where an exempt commercial market 
lists a particular contract for trading but also allows for positions in 
that contract to be cleared together with positions established through 
bilateral or off-exchange transactions, such as block trades, in the 
same contract. Essentially, both the on-facility and off-facility 
transactions are considered fungible with each other.) In this 
connection, the electronic trading facility should make arrangements to 
ensure that it is able to ascertain accurate position data for the 
market.
    (ii) For significant price discovery contracts that are traded on a 
cleared basis, the electronic trading facility should apply position 
limits to cleared transactions in the contract.
    (3) Limitations on spot-month positions. Spot-month limits should be 
adopted for significant price discovery contracts to minimize the 
susceptibility of the market to manipulation or price distortions, 
including squeezes and corners or other abusive trading practices.
    (i) Contracts economically equivalent to an existing contract. An 
electronic trading facility that lists a significant price discovery 
contract that is economically-equivalent to another significant price 
discovery contract or to a contract traded on a designated contract 
market or derivatives transaction execution facility should set the 
spot-month limit for its significant price discovery contract at the 
same level as that specified for the economically-equivalent contract.
    (ii) Contracts that are not economically equivalent to an existing 
contract. There may not be an economically-equivalent significant price

[[Page 461]]

discovery contract or economically-equivalent contract traded on a 
designated contract market or derivatives transaction execution 
facility. In this case, the spot-month speculative position limit should 
be established in the following manner. The spot-month limit for a 
physical delivery market should be based upon an analysis of deliverable 
supplies and the history of spot-month liquidations. The spot-month 
limit for a physical-delivery market is appropriately set at no more 
than 25 percent of the estimated deliverable supply. In the case where a 
significant price discovery contract has a cash settlement provision, 
the spot-month limit should be set at a level that minimizes the 
potential for price manipulation or distortion in the significant price 
discovery contract itself; in related futures and options contracts 
traded on a designated contract market or derivatives transaction 
execution facility; in other significant price discovery contracts; in 
other fungible agreements, contracts and transactions; and in the 
underlying commodity.
    (4) Position accountability for non-spot-month positions. The 
electronic trading facility should establish for its significant price 
discovery contracts non-spot individual month position accountability 
levels and all-months-combined position accountability levels. An 
electronic trading facility may establish non-spot individual month 
position limits and all-months-combined position limits for its 
significant price discovery contracts in lieu of position accountability 
levels.
    (i) Definition. Position accountability provisions provide a means 
for an exchange to monitor traders' positions that may threaten orderly 
trading. An acceptable accountability provision sets target 
accountability threshold levels that may be exceeded, but once a trader 
breaches such accountability levels, the electronic trading facility 
should initiate an inquiry to determine whether the individual's trading 
activity is justified and is not intended to manipulate the market. As 
part of its investigation, the electronic trading facility may inquire 
about the trader's rationale for holding a position in excess of the 
accountability levels. An acceptable accountability provision should 
provide the electronic trading facility with the authority to order the 
trader not to further increase positions. If a trader fails to comply 
with a request for information about positions held, provides 
information that does not sufficiently justify the position, or 
continues to increase contract positions after a request not to do so is 
issued by the facility, then the accountability provision should enable 
the electronic trading facility to require the trader to reduce 
positions.
    (ii) Contracts economically equivalent to an existing contract. When 
an electronic trading facility lists a significant price discovery 
contract that is economically equivalent to another significant price 
discovery contract or to a contract traded on a designated contract 
market or derivatives transaction execution facility, the electronic 
trading facility should set the non-spot individual month position 
accountability level and all-months-combined position accountability 
level for its significant price discovery contract at the same levels, 
or lower, as those specified for the economically-equivalent contract.
    (iii) Contracts that are not economically equivalent to an existing 
contract. For significant price discovery contracts that are not 
economically equivalent to an existing contract, the trading facility 
shall adopt non-spot individual month and all-months-combined position 
accountability levels that are no greater than 10 percent of the average 
combined futures and delta-adjusted option month-end open interest for 
the most recent calendar year. For electronic trading facilities that 
choose to adopt non-spot individual month and all-months-combined 
position limits in lieu of position accountability levels for their 
significant price discovery contracts, the limits should be set in the 
same manner as the accountability levels.
    (iv) Contracts economically equivalent to an existing contract with 
position limits. If a significant price discovery contract is 
economically equivalent to another significant price discovery contract 
or to a contract traded on a designated contract market or derivatives 
transaction execution facility that has adopted non-spot or all-months-
combined position limits, the electronic trading facility should set 
non-spot month position limits and all-months-combined position limits 
for its significant price discovery contract at the same (or lower) 
levels as those specified for the economically-equivalent contract.
    (5) Account aggregation. An electronic trading facility should have 
aggregation rules for significant price discovery contracts that apply 
to accounts under common control, those with common ownership, i.e., 
where there is a ten percent or greater financial interest, and those 
traded according to an express or implied agreement. Such aggregation 
rules should apply to cleared transactions with respect to applicable 
speculative position limits. An electronic trading facility will be 
permitted to set more stringent aggregation policies. An electronic 
trading facility may grant exemptions to its price discovery contracts' 
position limits for bona fide hedging (as defined in Sec. 1.3(z) of 
this chapter) and may grant exemptions for reduced risk positions, such 
as spreads, straddles and arbitrage positions.
    (6) Implementation deadlines. An electronic trading facility with a 
significant price discovery contract is required to comply with Core 
Principle IV as set forth in section 2(h)(7)C) of the Act within 90 
calendar days

[[Page 462]]

of the date of the Commission's order determining that the contract 
performs a significant price discovery function if such contract is the 
electronic trading facility's first significant price discovery 
contract, or within 30 days of the date of the Commission's order if 
such contract is not the electronic trading facility's first significant 
price discovery contract. For the purpose of applying limits on 
speculative positions in newly-determined significant price discovery 
contracts, the Commission will permit a grace period following issuance 
of its order for traders with cleared positions in such contracts to 
become compliant with applicable position limit rules. Traders who hold 
cleared positions on a net basis in the electronic trading facility's 
significant price discovery contract must be at or below the specified 
position limit level no later than 90 calendar days from the date of the 
electronic trading facility's implementation of position limit rules, 
unless a hedge exemption is granted by the electronic trading facility. 
This grace period applies to both initial and subsequent price discovery 
contracts. Electronic trading facilities should notify traders of this 
requirement promptly upon implementation of such rules.
    (7) Enforcement provisions. The electronic trading facility should 
have appropriate procedures in place to monitor its position limit and 
accountability provisions and to address violations.
    (i) An electronic trading facility with significant price discovery 
contracts should use an automated means of detecting traders' violations 
of speculative limits or exemptions, particularly if the significant 
price discovery contracts have large numbers of traders. An electronic 
trading facility should monitor the continuing appropriateness of 
approved exemptions by periodically reviewing each trader's basis for 
exemption or requiring a reapplication. An automated system also should 
be used to determine whether a trader has exceeded applicable non-spot 
individual month position accountability levels and all-months-combined 
position accountability levels.
    (ii) An electronic trading facility should establish a program for 
effective enforcement of position limits for significant price discovery 
contracts. Electronic trading facilities should use a large trader 
reporting system to monitor and enforce daily compliance with position 
limit rules. The Commission notes that an electronic trading facility 
may allow traders to periodically apply to the electronic trading 
facility for an exemption and, if appropriate, be granted a position 
level higher than the applicable speculative limit. The electronic 
trading facility should establish a program to monitor approved 
exemptions from the limits. The position levels granted under such hedge 
exemptions generally should be based upon the trader's commercial 
activity in related markets including, but not limited to, positions 
held in related futures and options contracts listed for trading on 
designated contract markets, fungible agreements, contracts and 
transactions, as determined by either a registered or unregistered 
derivatives clearing organization. Electronic trading facilities may 
allow a brief grace period where a qualifying trader may exceed 
speculative limits or an existing exemption level pending the submission 
and approval of appropriate justification. An electronic trading 
facility should consider whether it wants to restrict exemptions during 
the last several days of trading in a delivery month. Acceptable 
procedures for obtaining and granting exemptions include a requirement 
that the electronic trading facility approve a specific maximum higher 
level.
    (iii) An acceptable speculative limit program should have specific 
policies for taking regulatory action once a violation of a position 
limit or exemption is detected. The electronic trading facility policies 
should consider appropriate actions.
    (8) Violation of Commission rules. A violation of position limits 
for significant price discovery contracts that have been self-certified 
by an electronic trading facility is also a violation of section 4a(e) 
of the Act.
    CORE PRINCIPLE V OF SECTION 2(h)(7)(C)--EMERGENCY AUTHORITY--The 
electronic trading facility shall adopt rules to provide for the 
exercise of emergency authority, in consultation or cooperation with the 
Commission, where necessary and appropriate, including the authority to 
liquidate open positions in significant price discovery contracts and to 
suspend or curtail trading in a significant price discovery contract.
    (a) Guidance. An electronic trading facility on which significant 
price discovery contracts are traded should have clear procedures and 
guidelines for decision-making regarding emergency intervention in the 
market, including procedures and guidelines to avoid conflicts of 
interest while carrying out such decision-making. An electronic trading 
facility on which significant price discovery contracts are executed or 
traded should also have the authority to intervene as necessary to 
maintain markets with fair and orderly trading as well as procedures for 
carrying out the intervention. Procedures and guidelines should include 
notifying the Commission of the exercise of the electronic trading 
facility's regulatory emergency authority, explaining how conflicts of 
interest are minimized, and documenting the electronic trading 
facility's decision-making process and the reasons for using its 
emergency action authority. Information on steps taken under such 
procedures should be included in a submission of a certified rule and 
any related submissions for rule approval pursuant to

[[Page 463]]

part 40 of this chapter, when carried out pursuant to an electronic 
trading facility's emergency authority. To address perceived market 
threats, the electronic trading facility on which significant price 
discovery contracts are executed or traded should, among other things, 
be able to impose position limits in the delivery month, impose or 
modify price limits, modify circuit breakers, call for additional margin 
either from market participants or clearing members (for contracts that 
are cleared through a clearinghouse), order the liquidation or transfer 
of open positions, order the fixing of a settlement price, order a 
reduction in positions, extend or shorten the expiration date or the 
trading hours, suspend or curtail trading on the electronic trading 
facility, order the transfer of contracts and the margin for such 
contracts from one market participant to another, or alter the delivery 
terms or conditions or, if applicable, should provide for such actions 
through its agreements with its third-party provider of clearing 
services.
    (b) Acceptable practices. [Reserved]
    CORE PRINCIPLE VI OF SECTION 2(h)(7)(C)--DAILY PUBLICATION OF 
TRADING INFORMATION. The electronic trading facility shall make public 
daily information on price, trading volume, and other trading data to 
the extent appropriate for significant price discovery contracts.
    (a) Guidance. An electronic trading facility, with respect to 
significant price discovery contracts, should provide to the public 
information regarding settlement prices, price range, volume, open 
interest, and other related market information for all applicable 
contracts as determined by the Commission on a fair, equitable and 
timely basis. Provision of information for any applicable contract can 
be through such means as provision of the information to a financial 
information service or by timely placement of the information on the 
electronic trading facility's public Web site.
    (b) Acceptable practices. Compliance with Sec. 16.01 of this 
chapter, which is mandatory, is an acceptable practice that satisfies 
the requirements of Core Principle VI.
    CORE PRINCIPLE VII OF SECTION 2(h)(7)(C)--COMPLIANCE WITH RULES. The 
electronic trading facility shall monitor and enforce compliance with 
the rules of the electronic trading facility, including the terms and 
conditions of any contracts to be traded and any limitations on access 
to the electronic trading facility.
    (a) Guidance--(1) An electronic trading facility on which 
significant price discovery contracts are executed or traded should have 
appropriate arrangements and resources for effective trade practice 
surveillance programs, with the authority to collect information and 
documents on both a routine and non-routine basis, including the 
examination of books and records kept by its market participants. The 
arrangements and resources should facilitate the direct supervision of 
the market and the analysis of data collected. Trade practice 
surveillance programs may be carried out by the electronic trading 
facility itself or through delegation or contracting-out to a third 
party. If the electronic trading facility on which significant price 
discovery contracts are executed or traded delegates or contracts-out 
the trade practice surveillance responsibility to a third party, such 
third party should have the capacity and authority to carry out such 
programs, and the electronic trading facility should retain appropriate 
supervisory authority over the third party.
    (2) An electronic trading facility on which significant price 
discovery contracts are executed or traded should have arrangements, 
resources and authority for effective rule enforcement. The Commission 
believes that this should include the authority and ability to 
discipline and limit or suspend the activities of a market participant 
as well as the authority and ability to terminate the activities of a 
market participant pursuant to clear and fair standards. The electronic 
trading facility can satisfy this criterion for market participants by 
expelling or denying such person's future access upon a determination 
that such a person has violated the electronic trading facility's rules.
    (b) Acceptable practices. An acceptable trade practice surveillance 
program generally would include:
    (1) Maintenance of data reflecting the details of each transaction 
executed on the electronic trading facility;
    (2) Electronic analysis of this data routinely to detect potential 
trading violations;
    (3) Appropriate and thorough investigative analysis of these and 
other potential trading violations brought to the electronic trading 
facility's attention; and
    (4) Prompt and effective disciplinary action for any violation that 
is found to have been committed. The Commission believes that the latter 
element should include the authority and ability to discipline and limit 
or suspend the activities of a market participant pursuant to clear and 
fair standards that are available to market participants. See, e.g., 17 
CFR part 8.
    CORE PRINCIPLE VIII OF SECTION 2(h)(7)(C)--CONFLICTS OF INTEREST. 
The electronic trading facility on which significant price discovery 
contracts are executed or traded shall establish and enforce rules to 
minimize conflicts of interest in the decision-making process of the 
electronic trading facility and establish a process for resolving such 
conflicts of interest.
    (a) Guidance. (1) The means to address conflicts of interest in the 
decision-making of an electronic trading facility on which significant 
price discovery contracts are executed or traded should include methods 
to

[[Page 464]]

ascertain the presence of conflicts of interest and to make decisions in 
the event of such a conflict. In addition, the Commission believes that 
the electronic trading facility on which significant price discovery 
contracts are executed or traded should provide for appropriate 
limitations on the use or disclosure of material non-public information 
gained through the performance of official duties by board members, 
committee members and electronic trading facility employees or gained 
through an ownership interest in the electronic trading facility or its 
parent organization(s).
    (2) All electronic trading facilities on which significant price 
discovery contracts are traded bear special responsibility to regulate 
effectively, impartially, and with due consideration of the public 
interest, as provided in section 3 of the Act. Under Core Principle 
VIII, they are also required to minimize conflicts of interest in their 
decision-making processes. To comply with this core principle, 
electronic trading facilities on which significant price discovery 
contracts are traded should be particularly vigilant for such conflicts 
between and among any of their self-regulatory responsibilities, their 
commercial interests, and the several interests of their management, 
members, owners, market participants, other industry participants and 
other constituencies.
    (b) Acceptable practices. [Reserved]
    CORE PRINCIPLE IX OF SECTION 2(h)(7)(C)--ANTITRUST CONSIDERATIONS. 
Unless necessary or appropriate to achieve the purposes of this Act, the 
electronic trading facility, with respect to any significant price 
discovery contracts, shall endeavor to avoid adopting any rules or 
taking any actions that result in any unreasonable restraints of trade 
or imposing any material anticompetitive burden on trading on the 
electronic trading facility.
    (a) Guidance. An electronic trading facility, with respect to a 
significant price discovery contract, may at any time request that the 
Commission consider under the provisions of section 15(b) of the Act any 
of the electronic trading facility's rules, which may be trading 
protocols or policies, operational rules, or terms or conditions of any 
significant price discovery contract. The Commission intends to apply 
section 15(b) of the Act to its consideration of issues under this core 
principle in a manner consistent with that previously applied to 
contract markets.
    (b) Acceptable practices. [Reserved]

[74 FR 12198, Mar. 23, 2009]



PART 37_DERIVATIVES TRANSACTION EXECUTION FACILITIES--Table of Contents



Sec.
37.1 Scope and definition.
37.2 Exemption.
37.3 Requirements for underlying commodities.
37.4 Election to trade excluded and exempt commodities.
37.5 Procedures for registration.
37.6 Compliance with core principles.
37.7 Additional requirements.
37.8 Information relating to transactions on derivative transaction 
          execution facilities.
37.9 Enforceability.

Appendix A to Part 37--Guidance on Compliance with Registration Criteria
Appendix B to Part 37--Guidance on Compliance with Core Principles

    Authority: 7 U.S.C. 2, 5, 6, 6c, 6(c), 7a and 12a, as amended by 
appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.

    Source: 66 FR 42271, Aug. 10, 2001, unless otherwise noted.



Sec. 37.1  Scope and definition.

    (a) Scope. The provisions of this part apply to any board of trade 
operating as or applying to become registered as a derivatives 
transaction execution facility under Sections 5a and 6 of the Act.
    (b) Definition. As used in this part, the term ``eligible commercial 
entity'' means, and shall include, in addition to a party or entity so 
defined in section 1a(11) of the Act, a registered floor trader or floor 
broker trading for its own account, whose trading obligations are 
guaranteed by a registered futures commission merchant.

[66 FR 42271, Aug. 10, 2001, as amended at 71 FR 1962, Jan. 12, 2006]



Sec. 37.2  Exemption.

    Contracts, agreements or transactions traded on a derivatives 
transaction execution facility registered as such with the Commission 
under section 5a of the Act, the facility and the facility's operator 
are exempt from all Commission regulations for such activity, except for 
the requirements of this part 37 and:
    (a) Parts 15 through 21, part 40 and part 41 of this chapter, 
including any related definitions and cross-referenced sections; and
    (b) Sections 1.3, 1.31, 1.59(d), 1.60, 1.63(c), 33.10, and part 190 
of this chapter, including any related definitions and cross-referenced 
sections, which are applicable as though they were set

[[Page 465]]

forth in this part 37 and included specific reference to derivatives 
transaction execution facilities.

[71 FR 37822, July 3, 2006]



Sec. 37.3  Requirements for underlying commodities.

    (a) Trading facilities limited to eligible traders. Trading 
facilities limited to eligible traders as defined by section 5a(b)(3) of 
the Act, may trade any contract of sale of a commodity for future 
delivery (or option on such a contract) on any of the following 
underlying commodities:
    (1) Commodities having--
    (i) A nearly inexhaustible deliverable supply;
    (ii) A deliverable supply that is sufficiently large that the 
contract is highly unlikely to be susceptible to the threat of 
manipulation; or
    (iii) No cash market;
    (2) Commodities that are a security futures product, and the 
registered derivatives transaction execution facility is a national 
securities exchange registered under the Securities Exchange Act of 
1934;
    (3) Commodities for which the Commission has determined, based on 
the market characteristics and surveillance history, and the self-
regulatory record and capacity of the facility, that trading in the 
contract (or option) based on that commodity is highly unlikely to be 
susceptible to the threat of manipulation; or
    (4) Commodities that are agricultural commodities enumerated in 
section 1a(4) of the Act that have been so approved by the Commission 
under the procedures of paragraph (c) of this section.
    (b) The commodities that meet the criteria of paragraph (a)(1) of 
this section are the commodities defined in section 1a(13) of the Act as 
``excluded commodities.''
    (c) The Commission may make the determination described in paragraph 
(a)(3) of this section by rule, regulation or order, after notice and an 
opportunity for a hearing through submission of written data, views and 
arguments. A registered derivatives transaction execution facility may 
request that the Commission make such an individualized determination by 
filing with the Secretary of the Commission at its Washington, DC 
headquarters a petition that includes:
    (1) The terms and conditions of the product to be listed; and
    (2) A demonstration, supported by data, that the underlying 
commodity has a sufficiently liquid and deep cash market and a 
surveillance history based on actual trading experience and in light of 
any self-regulatory undertakings of the facility, to provide assurance 
that the contract or product is highly unlikely to be manipulated. The 
demonstration should address the following specific factors to the 
extent that the factor is not self-evident:
    (i) A high level of cash-market liquidity;
    (ii) Cash-market bid-ask spreads that are narrow relative to traded 
values;
    (iii) Relatively frequent cash market transactions involving 
participants that represent major segments of the industry;
    (iv) The absence of material impediments to participation in the 
cash market by commercial entities;
    (v) Transfer of ownership of the cash commodity that is easily and 
readily accomplished at minimal cost;
    (vi) A pattern of cash market pricing that exhibits continuity and 
the absence of frequent, sharp price changes such that a person cannot 
readily move materially the price of the product in normal cash market 
channels;
    (vii) A history of actual trading experience that the contract or 
product's terms and conditions provide for a deliverable supply, or a 
reliable and acceptable cash-settlement procedure, that is adequate to 
minimize the threat of market abuses such as price manipulation and 
distortions, congestion, and defaults; and
    (viii) Procedures to effectively oversee the market, including a 
large trader reporting system, as well as a history of active 
surveillance to prevent or mitigate market problems.
    (d) Trading facilities limited to eligible commercial entities. Any 
commodity, other than the agricultural commodities enumerated in section 
1a(4) of the Act, is eligible under section 5a(b)(2)(F) of the Act to be 
traded on a derivatives transaction execution facility that limits 
participants on the facility to

[[Page 466]]

eligible commercial entities as defined by Sec. 37.1(b) trading for 
their own account. Provided, however, an agricultural commodity 
enumerated in section 1a(4) of the Act may be so approved by the 
Commission under the procedures of paragraph (c) of this section.
    (e) Enumerated agricultural commodities. [Reserved]

[66 FR 42271, Aug. 10, 2001, as amended at 71 FR 1963, Jan. 12, 2006]



Sec. 37.4  Election to trade excluded and exempt commodities.

    A board of trade that is or elects to become a registered 
derivatives transaction execution facility may, pursuant to section 
5a(g) of the Act, trade agreements, contracts, or transactions that are 
excluded or exempt from the Act pursuant to sections 2(c), 2(d), 2(g), 
or 2(h).



Sec. 37.5  Procedures for registration.

    (a) Notification by contract markets. (1) To operate as a registered 
derivatives transaction execution facility pursuant to section 5a of the 
Act, a board of trade that is designated as a contract market, which is 
not a dormant contract market as defined in Sec. 40.1 of this chapter, 
must:
    (i) Notify the Commission of its intent to so operate by filing with 
the Secretary of the Commission at its Washington, DC, headquarters a 
copy of the facility's rules (as defined in Sec. 40.1 of this chapter) 
or a list of the designated contract market's rules that apply to the 
operation of the derivatives transaction execution facility, and a 
certification by the contract market that it meets:
    (A) The requirements for trading of section 5a(b) of the Act; and
    (B) The criteria for registration under section 5a(c) of the Act.
    (ii) Comply with the core principles for operation under section 
5a(d) of the Act and the provisions of this part 37.
    (2) Before using the notification procedure of paragraph (a)(1)(i) 
of this section for registration as a derivatives transaction execution 
facility, a dormant contract market, as defined in Sec. 40.1 of this 
chapter, must reinstate its designation under Sec. 38.3(a)(3) of this 
chapter.
    (b) Application Procedures. (1) Statutory (180-day) review 
procedures. A board of trade desiring to be registered as a derivatives 
transaction execution facility shall file an application for 
registration with the Secretary of the Commission at its Washington, DC, 
headquarters. Except as provided under the 90-day review procedures 
described in paragraph (b)(2) of this section, the Commission will 
review the application for registration as a derivatives transaction 
execution facility pursuant to the 180-day timeframe and procedures 
specified in section 6(a) of the Act. The Commission shall approve or 
deny the application or, if deemed appropriate, register the applicant 
as a derivatives transaction execution facility subject to conditions.
    (i) The applicant must demonstrate that it satisfies the 
requirements for trading and the criteria for registration of sections 
5a(b) and 5a(c) of the Act, respectively, and the provisions of this 
part 37.
    (ii) The application must include the following:
    (A) The derivatives transaction execution facility's rules (as 
defined in Sec. 40.1 of this chapter);
    (B) Any technical manuals and other guides or instructions for users 
of such facility, descriptions of any system test procedures, tests 
conducted or test results, descriptions of the trading mechanism or 
algorithm used or to be used by such facility, and contingency or 
disaster recovery plans;
    (C) A copy of any documents describing the applicant's legal status 
and governance structure;
    (D) An executed or executable copy of any agreements or contracts 
entered into or to be entered into by the applicant, including 
partnership or limited liability company, third-party regulatory 
service, or member or user agreements, that enable or empower the 
applicant to comply with a requirement for trading or a registration 
criterion (final, executed copies of such documents must be submitted 
prior to registration);
    (E) A copy of any manual or other document describing, with 
specificity, the manner in which the applicant will conduct trade 
practice, market and financial surveillance;

[[Page 467]]

    (F) A document that describes the manner in which the applicable 
items in Sec. 37.5(b)(1)(ii)(A) through (E) enable or empower the 
applicant to comply with each requirement for trading and registration 
criterion (a regulatory chart); and
    (G) To the extent that any of the items in Sec. 37.5(b)(1)(ii)(A) 
through (E) raise issues that are novel, or for which compliance with a 
requirement for trading or condition for registration is not self-
evident, an explanation of how that item and the application satisfy the 
requirements for trading and registration criteria.
    (iii) The applicant must identify with particularity information in 
the application that will be subject to a request for confidential 
treatment pursuant to Sec. 145.9 of this chapter.
    (2) Ninety-day review procedures. A board of trade desiring to be 
registered as a derivatives transaction execution facility may request 
that its application be reviewed on an expedited basis and that the 
applicant be registered as a derivatives transaction execution facility 
not later than 90 days after the date of receipt of the application for 
registration by the Secretary of the Commission. The 90-day period shall 
begin on the first business day (during the business hours defined in 
Sec. 40.1 of this chapter) that the Commission is in receipt of the 
application. Unless the Commission notifies the applicant during the 90-
day period that the expedited review has been terminated pursuant to 
Sec. 37.5(c), the Commission will register the applicant as a 
derivatives transaction execution facility during the 90-day period. If 
deemed appropriate by the Commission, the registration may be subject to 
such conditions as the Commission may stipulate.
    (i) The applicant must demonstrate that it satisfies the 
requirements for trading and the criteria for registration of sections 
5a(b) and 5a(c) of the Act, respectively, and the provisions of this 
part 37;
    (ii) The application must include the items described in Sec. 
37.5(b)(1)(ii) and (iii); and
    (iii) The applicant must not amend or supplement the application, 
except as requested by the Commission or for correction of typographical 
errors, renumbering or other nonsubstantive revisions, during the 90-day 
review period.
    (c) Termination of 90-day review. (1) During the 90-day period for 
review pursuant to paragraph (b)(2) of this section, the Commission 
shall notify the applicant seeking registration that the Commission is 
terminating review under this section, and will review the application 
under the 180-day time period and procedures of section 6(a) of the Act, 
if it appears to the Commission that the application:
    (i) Is materially incomplete;
    (ii) Fails in form or substance to meet the requirements of this 
part;
    (iii) Raises novel or complex issues that require additional time 
for review; or
    (iv) Is amended or supplemented in a manner that is inconsistent 
with Sec. 37.5(b)(2)(iii).
    (2) The Commission shall also terminate review under this section if 
requested in writing to do so by the applicant.
    (3) The termination notification shall identify the deficiencies in 
the application that render it incomplete, the manner in which the 
application fails to meet the requirements of this part, the novel or 
complex issues that require additional time for review, or the amendment 
or supplement that is inconsistent with Sec. 37.5(b)(2)(iii).
    (d) Reinstatement of dormant registration. Before listing products 
for trading, a dormant derivatives transaction execution facility as 
defined in Sec. 40.1 must reinstate its registration under the 
procedures of paragraphs (a)(1), (b)(1) or (b)(2) of this section; 
provided, however, that an application for reinstatement may rely upon 
previously submitted materials that still pertain to, and accurately 
describe, current conditions.
    (e) Delegation of authority. (1) The Commission hereby delegates, 
until it orders otherwise, to the Director of the Division of Market 
Oversight or such other employee or employees as the Director may 
designate from time to time, with the concurrence of the General Counsel 
or the General Counsel's delegate, authority to notify the applicant 
seeking registration under section 6(a) of the Act that the application 
is

[[Page 468]]

materially incomplete and the running of the 180-day period is stayed or 
that the 90-day review under paragraph (b)(2) of this section is 
terminated.
    (2) The Director may submit to the Commission for its consideration 
any matter that has been delegated in this paragraph.
    (3) Nothing in this paragraph prohibits the Commission, at its 
election, from exercising the authority delegated in paragraph (e)(1) of 
this section.
    (f) Request for withdrawal of application for registration. An 
applicant for registration may withdraw its application submitted 
pursuant to paragraph (b)(1) or (b)(2) of this section by filing such a 
request with the Commission at its Washington, DC, headquarters. 
Withdrawal of an application for registration shall not affect any 
action taken or to be taken by the Commission based upon actions, 
activities or events occurring during the time that the application for 
registration was pending with the Commission.
    (g) Request for vacation of registration. A registered derivatives 
transaction execution facility may vacate its registration under section 
7 of the Act by filing such a request with the Commission at its 
Washington, DC, headquarters. Vacation of registration shall not affect 
any action taken or to be taken by the Commission based upon actions, 
activities or events occurring during the time that the facility was 
registered by the Commission.
    (h) Guidance for applicants. Appendix A to this part provides 
guidance on how the registration criteria in section 5a(c) of the Act 
can be satisfied.

[69 FR 67815, Nov. 22, 2004]



Sec. 37.6  Compliance with core principles.

    (a) In general. To maintain registration as a derivatives 
transaction execution facility upon commencing operations by listing 
products for trading or otherwise, or for a dormant derivatives 
transaction execution facility as defined in Sec. 40.1 of this chapter 
that has been reinstated under Sec. 37.5(d) upon recommencing 
operations by relisting products for trading or otherwise, and on a 
continuing basis thereafter, the derivatives transaction execution 
facility must have the capacity to be, and be, in compliance with the 
core principles of Section 5a(d) of the Act.
    (b) New and reinstated derivatives transaction execution 
facilities--(1) Certification of compliance. Unless an applicant for 
registration or for reinstatement of registration has chosen to make a 
voluntary demonstration under paragraph (b)(2) of this section, a newly 
registered derivatives transaction execution facility at the time it 
commences operations, or a dormant derivatives transaction execution 
facility as defined in Sec. 40.1 of this chapter at the time that it 
recommences operations, must certify to the Commission that it has the 
capacity to, and will, operate in compliance with the core principles 
under Section 5a(d) of the Act.
    (2) Voluntary demonstration of compliance. An applicant for 
registration or for reinstatement of registration may choose to make a 
voluntary demonstration of its capacity to operate in compliance with 
the core principles. Such demonstration may be included in an 
application submitted pursuant to Sec. 37.5 of this part.
    (i) The demonstration would include the following:
    (A) The label, ``Demonstration of Compliance with Core Principles 
for Operation''
    (B) A document that describes the manner in which the applicant will 
comply with each core principle (such as a regulatory chart), which 
could cite to documents previously submitted including documents 
submitted pursuant to Sec. 37.5(b)(1)(ii)(A)-(E); and
    (C) To the extent that any of the items in Sec. 37.5(b)(1)(ii)(A)-
(E) raise issues that are novel, or for which compliance with a core 
principle is not self-evident, an explanation as to how that item and 
the application satisfy the core principle.
    (ii) If it appears that the applicant has failed to make the 
requisite showing, the Commission will so notify the applicant at the 
end of that period. Upon commencement or recommencement of operations by 
the derivatives transaction execution facility, such a notice may be 
considered by the Commission in a determination to issue a notice of 
violation of core principles under Section 5c(d) of the Act.

[[Page 469]]

    (c) Existing derivatives transaction execution facilities--(1) In 
general. Upon request by the Commission, a registered derivatives 
transaction execution facility shall file with the Commission such data, 
documents and other information as the Commission may specify in its 
request that demonstrates that the registered derivatives transaction 
execution facility is in compliance with one or more core principles as 
specified in the request or that is requested by the Commission to 
enable the Commission to satisfy its obligations under the Act.
    (2) Delegation of authority. The Commission hereby delegates, until 
it orders otherwise, the authority set forth in paragraph (c)(1) of this 
section to the Director of the Division of Market Oversight or such 
other employee or employees as the Director may designate from time to 
time. The Director may submit to the Commission for its consideration 
any matter that has been delegated in this paragraph. Nothing in this 
paragraph prohibits the Commission, at its election, from exercising the 
authority delegated in this paragraph.
    (3) Change of owners. Upon a change of ownership of an existing 
registered derivatives transaction execution facility, the new owner 
shall file electronically with the Secretary of the Commission at its 
Washington, DC, headquarters, a certification that the derivatives 
transaction execution facility meets the requirements for trading and 
the criteria for registration of Sections 5a(b) and 5a(c) of the Act, 
respectively.
    (d) Guidance regarding compliance with core principles. Appendix B 
to this part provides guidance to registered derivatives transaction 
execution facilities on compliance with the core principles under 
Section 5a(d) of the Act.

[71 FR 1963, Jan. 12, 2006]



Sec. 37.7  Additional requirements.

    (a) Products. Notwithstanding the provisions of section 5c(c) of the 
Act and Sec. 40.2 of this chapter, derivatives transaction execution 
facilities need only notify the Commission of the listing of new 
products for trading, posting of new product descriptions, terms and 
conditions or trading protocols or providing for a new system product 
functionality, by filing with the Secretary of the Commission at its 
Washington, D.C. headquarters, a submission labeled ``DTF Notice of 
Product Listing'' that includes the text of the product's terms or 
conditions, product description, trading protocol or description of the 
system functionality or by electronic notification of the foregoing at 
the time traders or participants in the market are notified, but in no 
event later than the close of business on the business day preceding 
initial listing, posting or implementation of the trading protocol or 
system functionality.
    (b) Material modifications. Notwithstanding the provisions of 
Section 5c(c) of the Act, registered derivatives transaction execution 
facilities need not certify rules or rule amendments under Sec. 40.6 of 
this chapter, and must only notify the Commission prior to placing into 
effect or amending such a rule, (as defined in Sec. 40.1 of this 
chapter):
    (1) By electronic notification to the Commission of the rule to be 
placed into effect or to be changed, in a format approved by the 
Secretary of the Commission, at the time traders or participants in the 
market are notified, but (unless taken as an emergency action) in no 
event later than the close of business on the business day preceding 
implementation. The submission notification shall be labeled ``DTEF Rule 
Notices'' and shall include the text of the rule or rule amendment (with 
deletions and additions indicated). Provided, however, the derivatives 
transaction execution facility need not notify the Commission of rules 
or rule amendments for which no certification is required under Sec. 
40.6(c) of this chapter.
    (2) The derivatives transaction execution facility must maintain 
documentation regarding all changes to rules, terms and conditions or 
trading protocols.
    (c) Voluntary request for Commission approval of rules or products. 
(1) A board of trade or trading facility seeking to be registered as, or 
registered as, a derivatives transaction execution facility, may request 
that the Commission approve under section 5c(c) of the Act, any or all 
of its rules and subsequent amendments thereto, including both

[[Page 470]]

operational rules and the terms or conditions of products listed for 
trading on the facility, prior to their implementation or, 
notwithstanding the provisions of section 5c(c)(2) of the Act, at 
anytime thereafter, under the procedures of Sec. Sec. 40.5 or 40.3 of 
this chapter, as applicable. A derivatives transaction execution 
facility may label a product in its rules as, ``Listed for trading 
pursuant to Commission approval,'' if the product and its terms or 
conditions have been approved by the Commission and it may label as, 
``Approved by the Commission,'' only those rules that have been so 
approved.
    (2) Notwithstanding the forty-five day review period for voluntary 
approval under Sec. 40.3(b) of this chapter, the operating rules and 
the terms and conditions of one product submitted for voluntary 
Commission approval under Sec. 40.3 of this chapter, that has been 
submitted with, and at the same time as, an application for registration 
as a derivatives transaction execution facility, will be deemed approved 
by the Commission thirty days after receipt by the Commission, or at the 
conclusion of such extended period as provided under Sec. 40.3(c) of 
this chapter.
    (3) An applicant for registration, or a registered derivatives 
transaction execution facility may request that the Commission consider 
under the provisions of section 15(b) of the Act any of the derivatives 
transaction execution facility's rules or policies, including both 
operational rules and the terms or conditions of products listed for 
trading, at the time of registration or thereafter.
    (d) Identify participants. Registered derivatives transaction 
execution facilities must keep a record in permanent form, which shall 
show the true name, address, and principal occupation or business of any 
foreign trader executing transactions on the facility. In addition, upon 
request, a derivatives transaction execution facility shall provide to 
the Commission information regarding the name of any person exercising 
control over the trading of such foreign trader. Provided, however, this 
paragraph shall not apply to a derivatives transaction execution 
facility insofar as transactions in futures or option contracts of 
foreign traders are executed through, or the resulting transactions are 
maintained in accounts carried by, a registered futures commission 
merchant or introduced by an introducing broker subject to Sec. 1.37 of 
this chapter.
    (e) Identify persons subject to fitness requirement. Upon request by 
any representative of the Commission, a registered derivatives 
transaction execution facility shall furnish to the Commission's 
representative a current list of persons subject to the fitness 
requirements of section 5a(d)(6) of the Act.

[66 FR 42271, Aug. 10, 2001, as amended at 71 FR 1963, Jan. 12, 2006]



Sec. 37.8  Information relating to transactions on derivatives transaction execution facilities.

    (a) Special calls for information from derivatives transaction 
execution facilities. Upon special call by the Commission, a registered 
derivatives transaction execution facility shall provide to the 
Commission such information related to its business as a derivatives 
transaction execution facility, including information relating to data 
entry and trade details, in the form and manner and within the time as 
specified by the Commission in the special call.
    (b) Special calls for information from futures commission merchants 
or foreign brokers. Upon special call by the Commission, each person 
registered as a futures commission merchant or a foreign broker (as 
defined in Sec. 15.00 of this title) that carries or has carried an 
account for a customer on a derivatives transaction execution facility 
shall provide information to the Commission concerning such accounts or 
related positions carried for the customer on that or other facilities 
or markets, in the form and manner and within the time specified by the 
Commission in the special call.
    (c) Special calls for information from participants. Upon special 
call by the Commission, any person who enters into or has entered into 
an agreement, contract or transaction on a derivatives transaction 
execution facility shall provide information to the Commission 
concerning such agreements, contracts or transactions or related 
agreements, contracts or transactions,

[[Page 471]]

or concerning related positions on other facilities or markets, in the 
form and manner and within the time specified by the Commission in the 
special call.
    (d) Delegation of authority. The Commission hereby delegates, until 
the Commission orders otherwise, the authority set forth in paragraphs 
(a) through (c) of this section to the Directors of the Division of 
Clearing and Intermediary Oversight and separately to the Director of 
Market Oversight or such other employee or employees as the Directors 
may designate from time to time. The Directors may submit to the 
Commission for its consideration any matter that has been delegated in 
this paragraph. Nothing in this paragraph prohibits the Commission, at 
its election, from exercising the authority delegated in this paragraph.

[66 FR 42271, Aug. 10, 2001, as amended at 71 FR 1963, Jan. 12, 2006]



Sec. 37.9  Enforceability.

    An agreement, contract or transaction entered into on, or pursuant 
to the rules of, a registered derivatives transaction execution facility 
shall not be void, voidable, subject to rescission or otherwise 
invalidated or rendered unenforceable as a result of:
    (a) A violation by the registered derivatives transaction execution 
facility of the provisions of section 5a of the Act or this part 37; or
    (b) Any Commission proceeding to alter or supplement a rule, term or 
condition under section 8a(7) of the Act or any other proceeding the 
effect of which is to disapprove, alter, supplement, or require a 
registered derivatives transaction execution facility to adopt a 
specific term or condition, trading rule or procedure, or to take or 
refrain from taking a specific action.

[66 FR 42271, Aug. 10, 2001, as amended at 67 FR 62352, Oct. 7, 2002]



  Sec. Appendix A to Part 37--Guidance on Compliance With Registration 
                                Criteria

    This appendix provides guidance on meeting the criteria for 
registration under Sections 5a(c) and 6 of the Act and this part, both 
initially and on an ongoing basis. The guidance following each 
registration criterion is illustrative only of the types of matters an 
applicant may address, as applicable, and is not intended to be used as 
a mandatory checklist. Addressing the issues and questions set forth in 
this appendix would help the Commission in its consideration of whether 
the application has met the criteria for registration. To the extent 
that compliance with, or satisfaction of, a criterion for registration 
is not self-explanatory from the face of the derivatives transaction 
execution facility's rules, (as defined in Sec. 40.1 of this chapter), 
the application should include an explanation or other form of 
documentation demonstrating that the applicant meets the registration 
criteria of Section 5a(c) of the Act and Sec. 37.5.
    Registration Criterion 1 of section 5a(c) of the Act: IN GENERAL--To 
be registered as a registered derivatives transaction execution 
facility, the board of trade shall be required to demonstrate to the 
Commission only that the board of trade meets the criteria specified in 
Sec. 37.5(b).
    A board of trade preparing to submit to the Commission an 
application to operate as a registered derivatives transaction execution 
facility is encouraged to contact Commission staff for guidance and 
assistance in preparing its application. Applicants may submit a draft 
application for review prior to the submission of an actual application 
without triggering the application review procedures of Sec. 37.5.
    Registration Criterion 2 of section 5a(c) of the Act: DETERRENCE OF 
ABUSES--The board of trade shall establish and enforce trading and 
participation rules that will deter abuses and has the capacity to 
detect, investigate, and enforce those rules, including means to--(A) 
obtain information necessary to perform the functions required under 
this section; or (B) use technological means to--(i) provide market 
participants with impartial access to the market; and (ii) capture 
information that may be used in establishing whether rule violations 
have occurred.
    An application of a board of trade to operate as a registered 
derivatives transaction execution facility should include arrangements 
and resources to deter abuses by effective and affirmative rule 
enforcement, including documentation of the facility's authority to do 
so; such trading and participation rules should be designed with 
adequate specificity. The submission should include documentation on the 
ability of the facility either to obtain necessary information or to 
provide market participants with impartial access and capture 
information for use in establishing possible rule violations.
    Registration Criterion 3 of section 5a(c) of the Act: TRADING 
PROCEDURES--The board of trade shall establish and enforce rules or 
terms and conditions defining, or specifications

[[Page 472]]

detailing, trading procedures to be used in entering and executing 
orders traded on the facilities of the board of trade. The rules may 
authorize--(A) transfer trades or office trades; (B) an exchange of--(i) 
futures in connection with a cash commodity transaction; (ii) futures 
for cash commodities; or (iii) futures for swaps; or (C) a futures 
commission merchant, acting as principal or agent, to enter into or 
confirm the execution of a contract for the purchase or sale of a 
commodity for future delivery if the contract is reported, recorded, or 
cleared in accordance with the rules of the registered derivatives 
transaction execution facility or a derivatives clearing organization.
    (a) A submission of a board of trade to operate as an electronic 
registered derivatives transaction execution facility should include the 
system's trade-matching algorithm and order entry procedures. A 
submission involving a trade-matching algorithm that is based on order 
priority factors other than on a best price/earliest time basis should 
include a brief explanation of the alternative algorithm.
    (b) A board of trade's specifications on initial and periodic 
objective testing and review of proper system functioning, adequate 
capacity, and security for any automated systems should be included in 
its submission. The Commission believes that the guidelines issued by 
the International Organization of Securities Commissions (IOSCO) in 1990 
(which have been referred to as the ``Principles for Screen-Based 
Trading Systems''), and adopted by the Commission on November 21, 1990 
(55 FR 48670), as supplemented in October 2000, are appropriate 
guidelines for an electronic trading facility to apply to electronic 
trading systems. Any program of objective testing and review of the 
system should be performed by a qualified independent professional (but 
not necessarily a third-party contractor).
    (c) A registered derivatives transaction execution facility that 
authorizes transfer trades or office trades, an exchange of futures for 
physicals or futures for swaps, or any other non-competitive 
transactions, including block trades, should have rules particularly 
authorizing such transactions and establishing appropriate recordkeeping 
requirements. Block trading rules should ensure that the block trading 
does not operate in a manner that compromises the integrity of the 
prices or price discovery on the relevant market.
    Registration Criterion 4 of section 5a(c) of the Act: FINANCIAL 
INTEGRITY OF TRANSACTIONS--The board of trade shall establish and 
enforce rules or terms and conditions providing for the financial 
integrity of transactions entered on or through the facilities of the 
board of trade, and rules or terms and conditions to ensure the 
financial integrity of any futures commission merchants and introducing 
brokers and the protection of customer funds.
    (a) A board of trade operating as a registered derivatives 
transaction execution facility should provide for the financial 
integrity of transactions by setting appropriate minimum financial 
standards for members and non-intermediated market participants, 
appropriate margin forms, and appropriate default rules and procedures. 
If cleared, agreements, contracts and transactions in excluded or exempt 
commodities that are traded on a DTF may be cleared through clearing 
organizations other than DCOs registered with the Commission. The 
Commission believes ensuring and enforcing the financial integrity of 
transactions and intermediaries, and the protection of customer funds 
should include monitoring compliance with the facility's minimum 
financial standards. In order to monitor for minimum financial 
requirements, a facility should routinely receive and promptly review 
financial and related information.
    (b) A registered derivatives transaction execution facility that 
allows customers that qualify as ``eligible traders'' under the 
definition found in section 5a(b)(3) of the Act only by trading through 
a registered futures commission merchant pursuant to section 
5a(b)(3)(B), should have rules concerning the protection of customer 
funds that address appropriate minimum financial standards for 
intermediaries, the segregation of customer and proprietary funds, the 
custody of customer funds, the investment standards for customer funds, 
related recordkeeping procedures and related intermediary default 
procedures.

[66 FR 42271, Aug. 10, 2001, as amended at 71 FR 1964, Jan. 12, 2006]



 Sec. Appendix B to Part 37--Guidance on Compliance With Core Principles

    1. This appendix provides guidance on complying with the core 
principles in order to maintain registration under Section 5a(d) of the 
Act and this part. This guidance is illustrative only and is not 
intended to be used as a mandatory checklist.
    2. If a registered derivatives transaction execution facility 
chooses to certify that it has the capacity to, and upon initiation 
will, operate in compliance with the core principles under section 5a(d) 
of the Act and Sec. 37.6, it should consider the issues set forth in 
this appendix prior to certification.
    3. Alternatively, if an applicant for registration or for 
reinstatement of registration under Sec. 37.6(b)(2) chooses to provide 
the Commission with a demonstration of its compliance with core 
principles, addressing the issues set forth in this appendix would help 
the Commission in its consideration of such compliance. To the extent 
that compliance with, or satisfaction of, the core principles is

[[Page 473]]

not self-explanatory from the face of the derivatives transaction 
execution facility's rules, (as defined in Sec. 40.1 of this chapter) a 
submission under Sec. 37.6(b)(2) should include an explanation or other 
form of documentation demonstrating that the derivatives transaction 
execution facility complies with the core principles.
    Core Principle 1 of section 5a(d) of the Act: IN GENERAL--To 
maintain the registration of a board of trade as a derivatives 
transaction execution facility, a board of trade shall comply with the 
core principles specified in this appendix.
    The board of trade shall have reasonable discretion in establishing 
the manner in which the board of trade complies with the core 
principles. A board of trade newly registered to operate as a 
derivatives transaction execution facility must certify or 
satisfactorily demonstrate its capacity to operate in compliance with 
the core principles under section 5a(d) of the Act prior to the 
commencement of its operations. The Commission also may require that a 
board of trade operating as a registered derivatives transaction 
execution facility demonstrate to the Commission that it is operating in 
compliance with one or more core principles.
    Core Principle 2 of section 5a(d) of the Act: COMPLIANCE WITH 
RULES--The board of trade shall monitor and enforce the rules of the 
facility, including any terms and conditions of any contracts traded on 
or through the facility and any limitations on access to the facility.
    (a) A board of trade operating as a registered derivatives 
transaction execution facility should have arrangements, resources and 
authority to detect and deter abuses by effectively and affirmatively 
enforcing its rules (which, in the case of a facility that restricts 
traders to eligible commercial entities, may be the effective monitoring 
of limitations on access to the facility), including the authority and 
ability to collect or capture information and documents on both a 
routine and non-routine basis and to investigate effectively possible 
rule violations.
    (b) This should include the authority and ability to discipline, 
limit or suspend, and/or terminate activities or access of a member, 
including members with trading privileges but having no, or only nominal 
equity, in the facility and non-member market participants or, in the 
case of a derivatives transaction execution facility restricting its 
traders to eligible commercial entities, the authority and ability to 
terminate activities or access of such a member. In either case, any 
termination should be carried out pursuant to clear and fair standards 
that are available and transparent to the member or market participant.
    Core Principle 3 of section 5a(d) of the Act: MONITORING OF 
TRADING--The board of trade shall monitor trading in the contracts of 
the facility to ensure orderly trading in the contract and to maintain 
an orderly market while providing any necessary trading information to 
the Commission to allow the Commission to discharge the responsibilities 
of the Commission under the Act.
    (a) Arrangements and resources to detect and deter abuses through 
effective trade monitoring programs should facilitate, on both a routine 
and nonroutine basis, direct supervision of the market. Appropriate 
objective testing and review of any automated systems should occur 
initially and periodically to ensure proper system functioning, adequate 
capacity and security. The analysis of data collected should be suitable 
for the type of information collected and should occur in a timely 
fashion. A board of trade operating as a registered derivatives 
transaction execution facility should have the authority to collect the 
information and documents necessary to reconstruct trading for 
appropriate market analysis as it carries out its programs to ensure 
orderly trading and to maintain an orderly market. The facility also 
should have the authority to intervene as necessary to maintain an 
orderly market.
    (b) Alternatively, if a board of trade operating as a registered 
derivatives transaction execution facility restricts contracts traded to 
those under Sec. Sec. 37.3(a)(1) and 37.3(b), it may choose to satisfy 
this core principle by providing information to the Commission as 
requested by the Commission to satisfy its obligations under the Act. 
The facility should have the authority to collect or capture and 
retrieve all necessary information.
    Core Principle 4 of section 5a(d) of the Act: DISCLOSURE OF GENERAL 
INFORMATION--The board of trade shall disclose publicly and to the 
Commission information concerning--(A) contract terms and conditions; 
(B) trading conventions, mechanisms, and practices; (C) financial 
integrity protections; and (D) other information relevant to 
participation in trading on the facility.
    The Commission considers that the public disclosure of information 
required under the core principle refers to disclosure to market 
participants, where the facility's user agreement requires all market 
participants to keep such information confidential. A board of trade 
operating as a registered derivatives transaction execution facility 
should have arrangements and resources for the disclosure and 
explanation of contract terms and conditions, trading conventions, 
trading mechanisms, trading practices, system functioning, system 
capacity, and financial integrity protections, including whether 
eligible contract participants will have the right to opt out of 
segregation of customer funds. Such information may be made publicly 
available through the derivatives transaction execution facility's 
website. The facility should also, as appropriate to the market, make 
information regarding prices, bids

[[Page 474]]

and offers, or other information as determined by the Commission, 
readily available to market participants on a fair, equitable and timely 
basis. Furthermore, the facility should make available information 
concerning steps taken by the facility in response to an emergency.
    Core Principle 5 of section 5a(d) of the Act: DAILY PUBLICATION OF 
TRADING INFORMATION--The board of trade shall make public daily 
information on settlement prices, volume, open interest, and opening and 
closing ranges for contracts traded on the facility if the Commission 
determines that the contracts perform a significant price discovery 
function for transactions in the cash market for the commodity 
underlying the contracts.
    A board of trade operating as a registered derivatives transaction 
execution facility should provide to the public information regarding 
settlement prices, price range, trading volume, open interest and other 
related market information for all applicable contracts, as determined 
by the Commission. In making such determination, the Commission will 
consider whether a contract performs a significant price discovery 
function for transactions in the cash market for the commodity 
underlying the contract. The Commission will apply the same standards 
applicable to exempt boards of trade and exempt commercial markets (see 
Sec. Sec. 36.2(b)(2) and 36.3(c)(2), respectively) whereby a market 
performs a significant price discovery function for transactions in the 
cash market for an underlying commodity if: (1) Cash market bids, offers 
or transactions are directly based on, or quoted at a differential to, 
the prices generated on the market on a more than occasional basis; or 
(2) the market's prices are routinely disseminated in a widely 
distributed industry publication and are routinely consulted by industry 
participants in pricing cash market transactions. In the event the 
Commission has reason to believe that a derivatives transaction 
execution facility may meet either of the foregoing standards, or if the 
facility holds itself out to the public as performing a price discovery 
function for the cash market for the underlying commodity, the 
Commission shall notify the facility that it appears to meet the 
criteria for performing a significant price discovery function under 
Core Principle 5. Before making a final price discovery determination 
under this core principle, the Commission shall provide the facility 
with an opportunity for a hearing through the submission of written 
data, views and arguments. After consideration of all relevant matters, 
the Commission shall issue an order containing its determination whether 
the requirement of the core principle on publication of trading 
information under Section 5a(d)(5) of the Act applies to a particular 
contract traded on a facility. Provision of information for any 
applicable contract could be through such means as providing the 
information to a financial information service or by placing the 
information on a facility's Web site. Such information shall be made 
available to the public without charge no later than the business day 
following the day to which the information pertains.
    Core Principle 6 of section 5a(d): FITNESS STANDARDS--The board of 
trade shall establish and enforce appropriate fitness standards for 
directors, members of any disciplinary committee, members, and any other 
persons with direct access to the facility, including any parties 
affiliated with any of the persons described in this core principle.
    A derivatives transaction execution facility should have appropriate 
eligibility criteria for the categories of persons set forth in the core 
principle that would include standards for fitness and for the 
collection and verification of information supporting compliance with 
such standards. Minimum standards of fitness for persons who have member 
voting privileges, governing obligations or responsibilities, or who 
exercise disciplinary authority are those bases for refusal to register 
a person under section 8a(2) of the Act. In addition, persons who have 
governing obligations or responsibilities, or who exercise disciplinary 
authority, should not have a significant history of serious disciplinary 
offenses, such as those that would be disqualifying under Sec. 1.63 of 
this chapter. Eligible contract participants or eligible commercial 
entities who are members but do not have these privileges, obligations, 
responsibilities or disciplinary authority could satisfy minimum fitness 
standards by meeting the standards that they must meet to qualify under 
the Act's respective definitions of eligible contract participants or 
eligible commercial entities. Natural persons who directly or indirectly 
have greater than a ten percent ownership interest in a facility should 
meet the fitness standards applicable to members with voting rights. A 
demonstration of the fitness of the applicant's directors, members, or 
natural persons who directly or indirectly have greater than a ten 
percent ownership interest in a facility may include providing the 
Commission with registration information for such persons, certification 
to the fitness of such persons, an affidavit of such persons' fitness by 
the facility's counsel or other information substantiating the fitness 
of such persons.
    Core Principle 7 of section 5a(d) of the Act: CONFLICTS OF 
INTEREST--The board of trade shall establish and enforce rules to 
minimize conflicts of interest in the decision making process of the 
derivatives transaction execution facility and establish a process for 
resolving such conflicts of interest.
    The means to address conflicts of interest in decision-making of a 
board of trade operating as a registered derivatives transaction 
execution facility should include methods to

[[Page 475]]

ascertain the presence of conflicts of interest and to make decisions in 
the event of such a conflict. The Commission also believes that a board 
of trade operating as a registered derivatives transaction execution 
facility should provide for appropriate limitations on the use or 
disclosure of material non-public information gained through the 
performance of official duties by board members, committee members and 
facility employees or gained through an ownership interest in the 
facility.
    Core Principle 8 of section 5a(d) of the Act: RECORDKEEPING--The 
board of trade shall maintain records of all activities related to the 
business of the derivatives transaction execution facility in a form and 
manner acceptable to the Commission for a period of 5 years.
    Section 1.31 of this chapter governs recordkeeping obligations under 
the Act and the Commission's regulations thereunder. In order to provide 
broad flexible performance standards for recordkeeping, Sec. 1.31 was 
updated and amended by the Commission in 1999. Accordingly, Sec. 1.31 
itself establishes the guidance regarding the form and manner for 
keeping records.
    Core Principle 9 of section 5a(d) of the Act: ANTITRUST 
CONSIDERATIONS--Unless necessary or appropriate to achieve the purposes 
of this Act, the board of trade shall endeavor to avoid--(A) adopting 
any rules or taking any actions that result in any unreasonable 
restraint of trade; or (B) imposing any material anticompetitive burden 
on trading on the derivatives transaction execution facility.
    A board of trade seeking to operate as a registered derivatives 
transaction execution facility may request that the Commission consider 
under the provisions of section 15(b) of the Act any of the board of 
trade's rules, which may be trading protocols or policies, and including 
both operational rules and the terms or conditions of products listed 
for trading, at the time it submits its registration application or 
thereafter. The Commission intends to apply section 15(b) of the Act to 
its consideration of issues under this core principle in a manner 
consistent with that previously applied to contract markets.

[66 FR 42271, Aug. 10, 2001, as amended at 71 FR 1964, Jan. 12, 2006]



PART 38_DESIGNATED CONTRACT MARKETS--Table of Contents



Sec.
38.1 Scope.
38.2 Exemption.
38.3 Procedures for designation.
38.4 Procedures for listing products and implementing contract market 
          rules.
38.5 Information relating to contract market compliance.
38.6 Enforceability.

Appendix A to Part 38--Guidance on Compliance With Designation Criteria
Appendix B to Part 38--Guidance on, and Acceptable Practices in, 
          Compliance with Core Principles

    Authority: 7 U.S.C. 2, 5, 6, 6c, 7, 7a-2 and 12a, as amended by 
appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.

    Source: 66 FR 42277, Aug. 10, 2001, unless otherwise noted.



Sec. 38.1  Scope.

    The provisions of this part 38 shall apply to every board of trade 
that has been designated or is applying to become designated as a 
contract market under Sections 5 and 6 of the Act. Provided, however, 
nothing in this provision affects the eligibility of designated contract 
markets to operate under the provisions of Parts 36 or 37 of this 
chapter.

[71 FR 1964, Jan. 12, 2006]



Sec. 38.2  Exemption.

    Agreements, contracts, or transactions traded on a designated 
contract market under Section 5 of the Act, the contract market and the 
contract market's operator are exempt from all Commission regulations 
for such activity, except for the requirements of this part 38 and 
Sec. Sec. 1.3, 1.12(e), 1.31, 1.37(c)-(d), 1.38, 1.52, 1.59(d), 1.60, 
1.63(c), 1.67, 33.10, part 9, parts 15 through 21, part 40, part 41 and 
part 190 of this chapter, including any related definitions and cross-
referenced sections.

[71 FR 1964, Jan. 12, 2006]



Sec. 38.3  Procedures for designation.

    (a) Application procedures. (1) Statutory (180-day) review 
procedures. A board of trade desiring to be designated as a contract 
market shall file an application for designation with the Secretary of 
the Commission at its Washington, DC, headquarters. Except as provided 
under the 90-day review procedures described in paragraph (a)(2) of this 
section, the Commission will review the application for designation as a 
contract market pursuant to the 180-day timeframe and procedures 
specified in

[[Page 476]]

section 6(a) of the Act. The Commission shall approve or deny the 
application or, if deemed appropriate, designate the applicant as a 
contract market subject to conditions.
    (i) The applicant must demonstrate compliance with the criteria for 
designation of section 5(b) of the Act, the core principles for 
operation of section 5(d) of the Act and the provisions of this part 38.
    (ii) The application must include the following:
    (A) A copy of the applicant's rules (as defined in Sec. 40.1 of 
this chapter) and any technical manuals, other guides or instructions 
for users of, or participants in, the market, including minimum 
financial standards for members or market participants;
    (B) A description of the trading system, algorithm, security and 
access limitation procedures with a timeline for an order from input 
through settlement, and a copy of any system test procedures, tests 
conducted, test results and contingency or disaster recovery plans;
    (C) A copy of any documents describing the applicant's legal status 
and governance structure, including governance fitness information;
    (D) An executed or executable copy of any agreements or contracts 
entered into or to be entered into by the applicant, including 
partnership or limited liability company, third-party regulatory 
service, or member or user agreements, that enable or empower the 
applicant to comply with a designation criterion or core principle 
(final, executed copies of such documents must be submitted prior to 
designation);
    (E) A copy of any manual or other document describing, with 
specificity, the manner in which the applicant will conduct trade 
practice, market and financial surveillance;
    (F) A document that describes the manner in which the applicable 
items in Sec. 38.3(a)(1)(ii)(A) through (E) enable or empower the 
applicant to comply with each designation criterion and core principle 
(a regulatory chart); and
    (G) To the extent that any of the items in Sec. 38.3(a)(1)(ii)(A) 
through (E) raise issues that are novel, or for which compliance with a 
designation criterion or a core principle is not self-evident, an 
explanation of how that item and the application satisfy the designation 
criteria or the core principles.
    (iii) The applicant must identify with particularity information in 
the application that will be subject to a request for confidential 
treatment pursuant to Sec. 145.9 of this chapter.
    (2) Ninety-day review procedures. A board of trade desiring to be 
designated as a contract market may request that its application be 
reviewed on an expedited basis and that the applicant be designated as a 
contract market not later than 90 days after the date of receipt of the 
application for designation by the Secretary of the Commission. The 90-
day period shall begin on the first business day (during the business 
hours defined in Sec. 40.1 of this chapter) that the Commission is in 
receipt of the application. Unless the Commission notifies the applicant 
during the 90-day period that the expedited review has been terminated 
pursuant to Sec. 38.3(b), the Commission will designate the applicant 
as a contract market during the 90-day period. If deemed appropriate by 
the Commission, the designation may be subject to such conditions as the 
Commission may stipulate.
    (i) The applicant must demonstrate compliance with the criteria for 
designation of section 5(b) of the Act, the core principles for 
operation of section 5(d) of the Act and the provisions of this part 38;
    (ii) The application must include the items described in Sec. 
38.3(a)(1)(ii) and (iii); and
    (iii) The applicant must not amend or supplement the application, 
except as requested by the Commission or for correction of typographical 
errors, renumbering or other nonsubstantive revisions, during the 90-day 
review period.
    (b) Termination of 90-day review. (1) During the 90-day period for 
review pursuant to paragraph (a)(2) of this section, the Commission 
shall notify the applicant seeking designation that the Commission is 
terminating review under this section, and will review the application 
under the 180-day time period and procedures of section 6(a) of

[[Page 477]]

the Act, if it appears to the Commission that the application:
    (i) Is materially incomplete;
    (ii) Fails in form or substance to meet the requirements of this 
part;
    (iii) Raises novel or complex issues that require additional time 
for review; or
    (iv) Is amended or supplemented in a manner that is inconsistent 
with Sec. 38.3(a)(2)(iii).
    (2) The Commission shall also terminate review under this section if 
requested in writing to do so by the applicant.
    (3) The termination notification shall identify the deficiencies in 
the application that render it incomplete, the manner in which the 
application fails to meet the requirements of this part, the novel or 
complex issues that require additional time for review, or the amendment 
or supplement that is inconsistent with Sec. 38.3(a)(2)(iii).
    (c) Reinstatement of dormant designation. Before listing or 
relisting products for trading, a dormant designated contract market as 
defined in Sec. 40.1 of this chapter must reinstate its designation 
under the procedures of paragraph (a)(1) or (a)(2) of this section; 
provided, however, that an application for reinstatement may rely upon 
previously submitted materials that still pertain to, and accurately 
describe, current conditions.
    (d) Delegation of authority. (1) The Commission hereby delegates, 
until it orders otherwise, to the Director of the Division of Market 
Oversight or such other employee or employees as the Director may 
designate from time to time, with the concurrence of the General Counsel 
or the General Counsel's delegate, authority to notify the applicant 
seeking designation under section 6(a) of the Act that the application 
is materially incomplete and the running of the 180-day period is stayed 
or that the 90-day review under paragraph (a)(2) of this section is 
terminated.
    (2) The Director may submit to the Commission for its consideration 
any matter that has been delegated in this paragraph.
    (3) Nothing in this paragraph prohibits the Commission, at its 
election, from exercising the authority delegated in paragraph (d)(1) of 
this section.
    (e) Request for withdrawal of application for designation. An 
applicant for designation may withdraw its application submitted 
pursuant to paragraph (a)(1) or (a)(2) of this section by filing such a 
request with the Commission at its Washington, DC, headquarters. 
Withdrawal of an application for designation shall not affect any action 
taken or to be taken by the Commission based upon actions, activities or 
events occurring during the time that the application for designation 
was pending with the Commission.
    (f) Request for vacation of designation. A designated contract 
market may vacate its designation under section 7 of the Act by filing 
such a request with the Commission at its Washington, DC, headquarters. 
Vacation of designation shall not affect any action taken or to be taken 
by the Commission based upon actions, activities or events occurring 
during the time that the facility was designated by the Commission.
    (g) Guidance for applicants. Appendix A to this part provides 
guidance on how the criteria for designation under section 5(b) of the 
Act can be satisfied. Appendix B to this part provides guidance on how 
the core principles of section 5(d) of the Act can be satisfied.

[69 FR 67816, Nov. 22, 2004]



Sec. 38.4  Procedures for listing products and implementing contract market rules.

    (a) Request for Commission approval of rules and products. (1) An 
applicant for designation, or a designated contract market, may request 
that the Commission approve under section 5c(c) of the Act, any or all 
of its rules and subsequent amendments thereto, including both 
operational rules and the terms or conditions of products listed for 
trading on the facility, prior to their implementation or, 
notwithstanding the provisions of section 5c(c)(2) of the Act, at 
anytime thereafter, under the procedures of Sec. Sec. 40.5 or 40.3 of 
this chapter, as applicable. A designated contract market may label a 
product in its rules as, ``Listed for trading pursuant to Commission 
approval,'' if the product and its terms or conditions have been 
approved by the Commission and it may

[[Page 478]]

label as, ``Approved by the Commission,'' only those rules that have 
been so approved.
    (2) Notwithstanding the forty-five day review period for voluntary 
approval under Sec. Sec. 40.3(b) and 40.5(b) of this chapter, the 
operating rules and the terms and conditions of products submitted for 
voluntary Commission approval under Sec. 40.3 or Sec. 40.5 of this 
chapter that have been submitted at the same time as an application for 
contract market designation or an application under Sec. 38.3(a)(2) to 
reinstate the designation of a dormant contract market as defined in 
Sec. 40.1 of this chapter, or while one of the foregoing is pending, 
will be deemed approved by the Commission no earlier than the facility 
is deemed to be designated or reinstated.
    (b) Self-certification of rules and products. Rules of a designated 
contract market and subsequent amendments thereto, including both 
operational rules and the terms or conditions of products listed for 
trading on the facility, not voluntarily submitted for prior Commission 
approval pursuant to paragraph (a) of this section must be submitted to 
the Commission with a certification that the rule, rule amendment or 
product complies with the Act or rules thereunder pursuant to the 
procedures of Sec. Sec. 40.6 and 40.2 of this chapter, as applicable. 
Provided, however, any rule or rule amendment that would, for a delivery 
month having open interest, materially change a term or condition of a 
contract for future delivery in an agricultural commodity enumerated in 
section 1a(4) of the Act, or of an option on such a contract or 
commodity, must be submitted to the Commission prior to its 
implementation for review and approval under Sec. 40.4 of this chapter.
    (c) An applicant for designation, or a designated contract market, 
may request that the Commission consider under the provisions of section 
15(b) of the Act any of the contract market's rules or policies, 
including both operational rules and the terms or conditions of products 
listed for trading.

[66 FR 42277, Aug. 10, 2001, as amended at 67 FR 62878, Oct. 9, 2002]



Sec. 38.5  Information relating to contract market compliance.

    (a) Upon request by the Commission, a designated contract market 
shall file with the Commission such information related to its business 
as a contract market, including information relating to data entry and 
trade details, in the form and manner and within the time as specified 
by the Commission in the request.
    (b) Upon request by the Commission, a designated contract market 
shall file with the Commission a written demonstration, containing such 
supporting data, information and documents, in the form and manner and 
within such time as the Commission may specify, that the designated 
contract market is in compliance with one or more designation criteria 
or core principles as specified in the request, or that is requested by 
the Commission to enable the Commission to satisfy its obligations under 
the Act.
    (c) Delegation of authority. The Commission hereby delegates, until 
it orders otherwise, the authority set forth in paragraph (b) to the 
Director of the Division of Market Oversight or such other employee or 
employees as the Director may designate from time to time. The Director 
may submit to the Commission for its consideration any matter that has 
been delegated in this paragraph. Nothing in this paragraph prohibits 
the Commission, at its election, from exercising the authority delegated 
in this paragraph.
    (d) Upon a change of ownership of an existing designated contract 
market, the new owner shall file with the Secretary of the Commission at 
its Washington, DC, headquarters, a certification that the designated 
contract market meets all of the requirements of sections 5(b) and 5(d) 
of the Act and the provisions of this part 38.

[66 FR 42277, Aug. 10, 2001, as amended at 67 FR 62878, Oct. 9, 2002; 71 
FR 1964, Jan. 12, 2006]



Sec. 38.6  Enforceability.

    An agreement, contract or transaction entered into on or pursuant to 
the rules of a designated contract market shall not be void, voidable, 
subject to rescission or otherwise invalidated

[[Page 479]]

or rendered unenforceable as a result of:
    (a) A violation by the designated contract market of the provisions 
of section 5 of the Act or this part 38; or
    (b) Any Commission proceeding to alter or supplement a rule, term or 
condition under section 8a(7) of the Act, to declare an emergency under 
section 8a(9) of the Act, or any other proceeding the effect of which is 
to alter, supplement, or require a designated contract market to adopt a 
specific term or condition, trading rule or procedure, or to take or 
refrain from taking a specific action.



  Sec. Appendix A to Part 38--Guidance on Compliance With Designation 
                                Criteria

    This appendix provides guidance on meeting the criteria for 
designation under Sections 5(b) and 6 of the Act and this part, both 
initially and on an ongoing basis. The guidance following each 
designation criterion is illustrative only of the types of matters an 
applicant may address, as applicable, and is not intended to be used as 
a mandatory checklist. Addressing the issues and questions set forth in 
this appendix would help the Commission in its consideration of whether 
the application has met the criteria for designation. To the extent that 
compliance with, or satisfaction of, a criterion for designation is not 
self-explanatory from the face of the contract market's rules (as 
defined in Sec. 40.1 of this chapter), the application should include 
an explanation or other form of documentation demonstrating that the 
applicant meets the designation criteria of Section 5(b) of the Act.
    Designation Criterion 1 of section 5(b) of the Act: IN GENERAL--To 
be designated as a contract market, the board of trade shall demonstrate 
to the Commission that the board of trade meets the criteria specified 
in this appendix.
    A board of trade preparing to submit to the Commission an 
application for designation as a contract market is encouraged to 
contact Commission staff for guidance and assistance in preparing an 
application. Applicants may submit a draft application for review and 
feedback prior to the submission of an actual application without 
triggering the application review procedures of Sec. 38.3.
    Designation Criterion 2 of section 5(b) of the Act: PREVENTION OF 
MARKET MANIPULATION--The board of trade shall have the capacity to 
prevent market manipulation through market surveillance, compliance, and 
enforcement practices and procedures, including methods for conducting 
real-time monitoring of trading and comprehensive and accurate trade 
reconstructions.
    A designation application should demonstrate a capacity to prevent 
market manipulation, including that the contract market has trading and 
participation rules deterring abuses and a dedicated regulatory 
department, or an effective delegation of that function.
    Designation Criterion 3 of section 5(b) of the Act: FAIR AND 
EQUITABLE TRADING--The board of trade shall establish and enforce 
trading rules to ensure fair and equitable trading through the 
facilities of the contract market, and the capacity to detect, 
investigate, and discipline any person that violates the rules. The 
rules may authorize--(A) transfer trades or office trades; (B) an 
exchange of--(i) futures in connection with a cash commodity 
transaction; (ii) futures for cash commodities; or (iii) futures for 
swaps; or (C) a futures commission merchant, acting as principal or 
agent, to enter into or confirm the execution of a contract for the 
purchase or sale of a commodity for future delivery if the contract is 
reported, recorded, or cleared in accordance with the rules of the 
contract market or a derivatives clearing organization.
    (a) Establishing and enforcing trading rules to ensure fair and 
equitable trading on a contract market, among other things, includes 
providing to market participants, on a fair, equitable and timely basis, 
information regarding, prices, bids and offers, as applicable to the 
market.
    (b) Such trading rules should be designed with adequate specificity.
    (c) A contract market that authorizes transfer trades or office 
trades; an exchange of futures for physicals or futures for swaps; or 
any other non-competitive transactions, including block trades, should 
have rules particularly authorizing such transactions and establishing 
appropriate recordkeeping requirements.
    Designation Criterion 4 of section 5(b) of the Act: TRADE EXECUTION 
FACILITY--The board of trade shall--(A) establish and enforce rules 
defining, or specifications detailing, the manner of operation of the 
trade execution facility maintained by the board of trade, including 
rules or specifications describing the operation of any electronic 
matching platform; and (B) demonstrate that the trade execution facility 
operates in accordance with the rules or specifications.
    (a) An application of a board of trade to be designated as a 
contract market should include the system's trade-matching algorithm and 
order entry procedures. An application involving a trade-matching 
algorithm that is based on order priority factors other than price and 
time should include a brief explanation of the algorithm.
    (b) A designated contract market's specifications on initial and 
periodic objective

[[Page 480]]

testing and review of proper system functioning, adequate capacity and 
security for any automated systems should be included in its 
application. A board of trade should submit in the contract market 
application, information on the objective testing and review carried out 
on its automated system. The Commission believes that the guidelines 
issued by the International Organization of Securities Commissions 
(IOSCO) in 1990 (which have been referred to as the ``Principles for 
Screen-Based Trading Systems''), and adopted by the Commission on 
November 21, 1990 (55 FR 48670), as supplemented in October, 2000, are 
appropriate guidelines for an electronic trading facility to apply to 
electronic trading systems. Any program of objective testing and review 
of the system should be performed by a qualified independent 
professional (but not necessarily a third-party contractor).
    Designation Criterion 5 of section 5(b) of the Act: FINANCIAL 
INTEGRITY OF TRANSACTIONS--The board of trade shall establish and 
enforce rules and procedures for ensuring the financial integrity of 
transactions entered into by or through the facilities of the contract 
market, including the clearance and settlement of the transactions with 
a derivatives clearing organization.
    (a) A designated contract market should provide for the financial 
integrity of transactions by setting appropriate minimum financial 
standards for members and non-intermediated market participants, 
margining systems, appropriate margin forms and appropriate default 
rules and procedures. Absent Commission action pursuant to its exemptive 
authority under section 4(c) of the Act, transactions executed on the 
contract market (other than stock futures products), if cleared, must be 
cleared through a derivatives clearing organization registered as such 
with the Commission. The Commission believes ensuring and enforcing the 
financial integrity of transactions and intermediaries, and the 
protection of customer funds should include monitoring compliance with 
the contract market's minimum financial standards. In order to monitor 
for minimum financial requirements, a contract market should routinely 
receive and promptly review financial and related information.
    (b) A designated contract market should have rules concerning the 
protection of customer funds that address appropriate minimum financial 
standards for intermediaries, the segregation of customer and 
proprietary funds, the custody of customer funds, the investment 
standards for customer funds, related recordkeeping procedures and 
related intermediary default procedures.
    Designation Criterion 6 of section 5(b) of the Act: DISCIPLINARY 
PROCEDURES--The board of trade shall establish and enforce disciplinary 
procedures that authorize the board of trade to discipline, suspend, or 
expel members or market participants that violate the rules of the board 
of trade, or similar methods for performing the same functions, 
including delegation of the functions to third parties.
    The disciplinary procedures established by a designated contract 
market should give the contract market both the authority and ability to 
discipline and limit or suspend a member's activities as well as the 
authority and ability to terminate a member's activities pursuant to 
clear and fair standards. The authority to discipline or limit or 
suspend the activities of a member or of a market participant could be 
established in a contract market's rules, user agreements or other 
means. An organized exchange or a trading facility could satisfy this 
criterion for a member with trading privileges but having no, or only 
nominal, equity, in the facility and for a non-member market participant 
by expelling or denying future access to such persons upon a finding 
that such a person has violated the board of trade's rules.
    Designation Criterion 7 of section 5(b) of the Act: PUBLIC ACCESS--
The board of trade shall provide the public with access to the rules, 
regulations, and contract specifications of the board of trade.
    A designated contract market should provide information to the 
public by placing the information on its Web site.
    Designation Criterion 8 of section 5(b) of the Act: ABILITY TO 
OBTAIN INFORMATION--The board of trade shall establish and enforce rules 
that will allow the board of trade to obtain any necessary information 
to perform any of the functions described in this appendix, including 
the capacity to carry out such international information-sharing 
agreements as the Commission may require.
    A designated contract market should have the authority to collect 
information and documents on both a routine and non-routine basis 
including the examination of books and records kept by the contract 
market's members and by non-intermediated market participants. 
Appropriate information-sharing agreements could be established with 
other boards of trade or the Commission could act in conjunction with 
the contract market to carry out such information sharing.

[66 FR 42277, Aug. 10, 2001, as amended at 71 FR 1965, Jan. 12, 2006]



 Sec. Appendix B to Part 38--Guidance on, and Acceptable Practices in, 
                     Compliance With Core Principles

    1. This appendix provides guidance on complying with the core 
principles, both initially and on an ongoing basis, to maintain 
designation under Section 5(d) of the Act and this part. The guidance is 
provided in paragraph (a) following each core principle and it can be 
used to demonstrate to the Commission core principle compliance, under

[[Page 481]]

Sec. Sec. 38.3(a) and 38.5. The guidance for each core principle is 
illustrative only of the types of matters a board of trade may address, 
as applicable, and is not intended to be used as a mandatory checklist. 
Addressing the issues and questions set forth in this appendix would 
help the Commission in its consideration of whether the board of trade 
is in compliance with the core principles. To the extent that compliance 
with, or satisfaction of, a core principle is not self-explanatory from 
the face of the board of trade's rules (as defined in Sec. 40.1 of this 
chapter), an application pursuant to Sec. 38.3, or a submission 
pursuant to Sec. 38.5 should include an explanation or other form of 
documentation demonstrating that the board of trade complies with the 
core principles.
    2. Acceptable practices meeting selected requirements of the core 
principles are set forth in paragraph (b) following each core principle. 
Boards of trade that follow the specific practices outlined under 
paragraph (b) for any core principle in this appendix will meet the 
selected requirements of the applicable core principle. Paragraph (b) is 
for illustrative purposes only, and does not state the exclusive means 
for satisfying a core principle.
    Core Principle 1 of section 5(d) of the Act: IN GENERAL--To maintain 
the designation of a board of trade as a contract market, the board of 
trade shall comply with the core principles specified in this 
subsection. The board of trade shall have reasonable discretion in 
establishing the manner in which it complies with the core principles.
    A board of trade applying for designation as a contract market must 
satisfactorily demonstrate its capacity to operate in compliance with 
the core principles under section 5(d) of the Act and Sec. 38.3. The 
Commission may require that a board of trade operating as a contract 
market demonstrate to the Commission that it is in compliance with one 
or more core principles.
    Core Principle 2 of section 5(d) of the Act: COMPLIANCE WITH RULES--
The board of trade shall monitor and enforce compliance with the rules 
of the contract market, including the terms and conditions of any 
contracts to be traded and any limitations on access to the contract 
market.
    (a) Application guidance. (1) A designated contract market should 
have arrangements and resources for effective trade practice 
surveillance programs, with the authority to collect information and 
documents on both a routine and non-routine basis, including the 
examination of books and records kept by the contract market's members 
and by non-intermediated market participants. The arrangements and 
resources should facilitate the direct supervision of the market and the 
analysis of data collected. Trade practice surveillance programs may be 
carried out by the contract market itself or through delegation or 
contracting-out to a third party. If the contract market delegates or 
contracts-out the trade practice surveillance responsibility to a third 
party, such third party should have the capacity and authority to carry 
out such program, and the contract market should retain appropriate 
supervisory authority over the third party.
    (2) A designated contract market should have arrangements, resources 
and authority for effective rule enforcement. The Commission believes 
that this should include the authority and ability to discipline and 
limit, or suspend the activities of a member or market participant as 
well as the authority and ability to terminate the activities of a 
member or market participant pursuant to clear and fair standards. An 
organized exchange or a trading facility could satisfy this criterion 
for members with trading privileges but having no, or only nominal, 
equity, in the facility and non-member market participants, by expelling 
or denying such persons future access upon a determination that such a 
person has violated the board of trade's rules.
    (b) Acceptable practices. An acceptable trade practice surveillance 
program generally would include:
    (1) Maintenance of data reflecting the details of each transaction 
executed on the contract market;
    (2) Electronic analysis of this data routinely to detect potential 
trading violations;
    (3) Appropriate and thorough investigative analysis of these and 
other potential trading violations brought to the contract market's 
attention; and
    (4) Prompt and effective disciplinary action for any violation that 
is found to have been committed. The Commission believes that the latter 
element should include the authority and ability to discipline and limit 
or suspend the activities of a member or market participant pursuant to 
clear and fair standards that are available to market participants. See, 
e.g. 17 CFR part 8.
    Core Principle 3 of section 5(d) of the Act: CONTRACTS NOT READILY 
SUBJECT TO MANIPULATION--The board of trade shall list on the contract 
market only contracts that are not readily susceptible to manipulation.
    (a) Application guidance. Contract markets may list new products for 
trading by self-certification under Sec. 40.2 of this chapter or may 
submit products for Commission approval under Sec. 40.3 and part 40, 
appendix A, of this chapter.
    (b) Acceptable practices. Guideline No. 1, 17 CFR part 40, appendix 
A may be used as guidance in meeting this core principle for both new 
product listings and existing listed contracts.
    Core Principle 4 of section 5(d) of the Act: MONITORING OF TRADING--
The board of trade shall monitor trading to prevent manipulation, price 
distortion, and disruptions of the delivery or cash-settlement process.

[[Page 482]]

    (a) Application guidance. A contract market could prevent market 
manipulation through a dedicated regulatory department, or by delegation 
of that function to an appropriate third party.
    (b) Acceptable practices. (1) An acceptable program for monitoring 
markets will generally involve the collection of various market data, 
including information on traders' market activity. Those data should be 
evaluated on an ongoing basis in order to make an appropriate regulatory 
response to potential market disruptions or abusive practices.
    (2) The designated contract market should collect data in order to 
assess whether the market price is responding to the forces of supply 
and demand. Appropriate data usually include various fundamental data 
about the underlying commodity, its supply, its demand, and its movement 
through marketing channels. Especially important are data related to the 
size and ownership of deliverable supplies--the existing supply and the 
future or potential supply, and to the pricing of the deliverable 
commodity relative to the futures price and relative to similar, but 
nondeliverable, kinds of the commodity. For cash-settled markets, it is 
more appropriate to pay attention to the availability and pricing of the 
commodity making up the index to which the market will be settled, as 
well as monitoring the continued suitability of the methodology for 
deriving the index.
    (3) To assess traders' activity and potential power in a market, at 
a minimum, every contract market should have routine access to the 
positions and trading of its market participants and, if applicable, 
should provide for such access through its agreements with its third-
party provider of clearing services. Although clearing member data may 
be sufficient for some contract markets, an effective surveillance 
program for contract markets with substantial numbers of customers 
trading through intermediaries should employ a much more comprehensive 
large-trader reporting system (LTRS).
    Core Principle 5 of section 5(d) of the Act: POSITION LIMITATIONS OR 
ACCOUNTABILITY--To reduce the potential threat of market manipulation or 
congestion, especially during trading in the delivery month, the board 
of trade shall adopt position limitations or position accountability for 
speculators, where necessary and appropriate.
    (a) Application guidance. [Reserved]
    (b) Acceptable practices. (1) In order to diminish potential 
problems arising from excessively large speculative positions, and to 
facilitate orderly liquidation of expiring futures contracts, markets 
may need to set limits on traders' positions for certain commodities. 
These position limits specifically may exempt bona fide hedging, permit 
other exemptions, or set limits differently by markets, by delivery 
months, or by time periods. For purposes of evaluating a contract 
market's speculative-limit program, the Commission considers the 
specified limit levels, aggregation policies, types of exemptions 
allowed, methods for monitoring compliance with the specified levels, 
and procedures for enforcement to deal with violations.
    (2) Provisions concerning speculative position limits are set forth 
in part 150. In general, position limits are not necessary for markets 
where the threat of excessive speculation or manipulation is nonexistent 
or very low. Thus, contract markets do not need to adopt speculative 
position limits for futures markets on major foreign currencies, 
contracts based on certain financial instruments having very liquid and 
deep underlying cash markets, and contracts specifying cash settlement 
where the potential for distortion of such price is negligible. Where 
speculative position limits are necessary, acceptable speculative-limit 
levels typically should be set in terms of a trader's combined position 
in the futures contract plus its position in the related option contract 
(on a delta-adjusted basis).
    (3) A contract market may provide for position accountability 
provisions in lieu of position limits for contracts on financial 
instruments, intangible commodities, or certain tangible commodities. 
Markets appropriate for position accountability rules include those with 
large open-interest, high daily trading volumes and liquid cash markets.
    (4) Spot-month limits should be adopted for markets based on 
commodities having more limited deliverable supplies or where otherwise 
necessary to minimize the susceptibility of the market to manipulation 
or price distortions. The level of the spot limit for physical-delivery 
markets should be based upon an analysis of deliverable supplies and the 
history of spot-month liquidations. Spot-month limits for physical-
delivery markets are appropriately set at no more than 25 percent of the 
estimated deliverable supply. For cash-settled markets, spot-month 
position limits may be necessary if the underlying cash market is small 
or illiquid such that traders can disrupt the cash market or otherwise 
influence the cash-settlement price to profit on a futures position. In 
these cases, the limit should be set at a level that minimizes the 
potential for manipulation or distortion of the futures contract's or 
the underlying commodity's price. Markets may elect not to provide all-
months-combined and non-spot month limits.
    (5) Contract markets should have aggregation rules that apply to 
those accounts under common control, those with common ownership, i.e., 
where there is a ten percent or greater financial interest, and those 
traded according to an express or implied agreement. Contract markets 
will be permitted to set more stringent aggregation policies. For

[[Page 483]]

example, one major board of trade has adopted a policy of automatically 
aggregating the position of members of the same household, unless they 
were granted a specific waiver. Contract markets may grant exemptions to 
their position limits for bona fide hedging (as defined in Sec. 1.3(z) 
of this chapter) and may grant exemptions for reduced risk positions, 
such as spreads, straddles and arbitrage positions.
    (6) Contract markets with many products with large numbers of 
traders should have an automated means of detecting traders' violations 
of speculative limits or exemptions. Contract markets should monitor the 
continuing appropriateness of approved exemptions by periodically 
reviewing each trader's basis for exemption or requiring a 
reapplication.
    (7) Contract markets should establish a program for effective 
enforcement of these limits Contract markets should use their LTRS to 
monitor and enforce daily compliance with position limit rules. The 
Commission notes that a contract market may allow traders to 
periodically apply to the contract market for an exemption and, if 
appropriate, be granted a position level higher than the applicable 
speculative limit. The contract market should establish a program to 
monitor approved exemptions from the limits. The position levels granted 
under such hedge exemptions generally are based upon the trader's 
commercial activity in related markets. Contract markets may allow a 
brief grace period where a qualifying trader may exceed speculative 
limits or an existing exemption level pending the submission and 
approval of appropriate justification. A contract market should consider 
whether it wants to restrict exemptions during the last several days of 
trading in a delivery month. Acceptable procedures for obtaining and 
granting exemptions include a requirement that the contract market 
approve a specific maximum higher level.
    (8) Finally, an acceptable speculative limit program should have 
specific policies for taking regulatory action once a violation of a 
position limit or exemption is detected. The contract market policy 
should consider appropriate actions, regardless of whether the violation 
is by a non-member or member, and should address traders carrying 
accounts through more than one intermediary.
    (9) A violation of contract market position limits that have been 
approved by the Commission is also a violation of section 4a(e) of the 
Act. The Commission will consider for approval all contract market 
position limit rules.
    Core Principle 6 of section 5(d) of the Act: EMERGENCY AUTHORITY--
The board of trade shall adopt rules to provide for the exercise of 
emergency authority, in consultation or cooperation with the Commission, 
where necessary and appropriate, including the authority to--(A) 
liquidate or transfer open positions in any contract; (B) suspend or 
curtail trading in any contract; and (C) require market participants in 
any contract to meet special margin requirements.
    (a) Application guidance. A designated contract market should have 
clear procedures and guidelines for contract market decision-making 
regarding emergency intervention in the market, including procedures and 
guidelines to avoid conflicts of interest while carrying out such 
decision-making. A contract market should also have the authority to 
intervene as necessary to maintain markets with fair and orderly trading 
as well as procedures for carrying out the intervention. Procedures and 
guidelines should include notifying the Commission of the exercise of a 
contract market's regulatory emergency authority, explaining how 
conflicts of interest are minimized, and documenting the contract 
market's decision-making process and the reasons for using its emergency 
action authority. Information on steps taken under such procedures 
should be included in a submission of a certified rule and any related 
submissions for rule approval pursuant to part 40, when carried out 
pursuant to a contract market's emergency authority. To address 
perceived market threats, the contract market, among other things, 
should be able to impose position limits in the delivery month, impose 
or modify price limits, modify circuit breakers, call for additional 
margin either from customers or clearing members, order the liquidation 
or transfer of open positions, order the fixing of a settlement price, 
order a reduction in positions, extend or shorten the expiration date or 
the trading hours, suspend or curtail trading on the market, order the 
transfer of customer contracts and the margin for such contracts from 
one member including non-intermediated market participants of the 
contract market to another, or alter the delivery terms or conditions, 
or, if applicable, should provide for such actions through its 
agreements with its third-party provider of clearing services.
    (b) Acceptable practices. [Reserved]
    Core Principle 7 of section 5(d) of the Act: AVAILABILITY OF GENERAL 
INFORMATION--The board of trade shall make available to market 
authorities, market participants, and the public information 
concerning--(A) the terms and conditions of the contracts of the 
contract market; and (B) the mechanisms for executing transactions on or 
through the facilities of the contract market.
    (a) Application guidance. A designated contract market should have 
arrangements and resources for the disclosure of contract terms and 
conditions and trading mechanisms to the Commission, market participants 
and the public. Procedures should also include providing information on 
listing new products, rule amendments or other changes

[[Page 484]]

to previously disclosed information to the Commission, market 
participants and the public. Provision of all such information to market 
participants and the public could be by timely placement of the 
information on a contract market's web site.
    (b) Acceptable practices. In making information available to market 
participants and the public, on its Web site, a designated contract 
market should place information on the Web site no later than the day a 
new product is listed, the day a new or amended rule is implemented or 
the day previously disclosed information is changed. For example, the 
timely provision of this information on a contract market's Web site 
could be done through press releases, newsletters or notices to members. 
Additionally, a contract market should ensure that the rulebook posted 
on its Web site is available to the public (i.e., can be accessed by 
visitors to the Web site without the need to register, log in, provide a 
user name or obtain a password) and is kept current. A rulebook will be 
considered current if: (1) Notice of any substantive new or amended rule 
is provided within one day of implementation, either by press release, 
newsletter, notice to members or actual posting of the change in the 
rulebook; and (2) all new rules, both substantive and non-substantive, 
are posted in the rulebook within five days of implementation.
    Core Principle 8 of section 5(d) of the Act: DAILY PUBLICATION OF 
TRADING INFORMATION--The board of trade shall make public daily 
information on settlement prices, volume, open interest, and opening and 
closing ranges for actively traded contracts on the contract market.
    (a) Application guidance. A contract market should provide to the 
public information regarding settlement prices, price range, volume, 
open interest and other related market information for all actively 
traded contracts, as determined by the Commission, on a fair, equitable 
and timely basis. The Commission believes that section 5(d)(8) requires 
contract markets to publicize trading information for any non-dormant 
contract. Provision of information for any applicable contract could be 
through such means as provision of the information to a financial 
information service and by timely placement of the information on a 
contract market's web site.
    (b) Acceptable Practices. The mandatory compliance with Section 
16.01, ``Trading volume, open contracts, prices and critical dates,'' 
required under the regulations, would constitute an acceptable practice 
under Core Principle 8.
    Core Principle 9 of section 5(d) of the Act: EXECUTION OF 
TRANSACTIONS--The board of trade shall provide a competitive, open, and 
efficient market and mechanism for executing transactions.
    (a) Application guidance. (1) A competitive, open and efficient 
market and mechanism for executing transactions includes a board of 
trade's methodology for entering orders and executing transactions.
    (2) Appropriate objective testing and review of any automated 
systems should occur initially and periodically to ensure proper system 
functioning, adequate capacity and security. A designated contract 
market's analysis of its automated system should address appropriate 
principles for the oversight of automated systems, ensuring proper 
system function, adequate capacity and security. The Commission believes 
that the guidelines issued by the International Organization of 
Securities Commissions (IOSCO) in 1990 (which have been referred to as 
the ``Principles for Screen-Based Trading Systems''), and adopted by the 
Commission on November 21, 1990 (55 FR 48670), as supplemented in 
October 2000, are appropriate guidelines for a designated contract 
market to apply to electronic trading systems. Any program of objective 
testing and review of the system should be performed by a qualified 
independent professional. The Commission believes that information 
gathered by analysis, oversight or any program of objective testing and 
review of any automated systems regarding system functioning, capacity 
and security should be made available to the Commission.
    (3) A designated contract market that determines to allow block 
trading should ensure that the block trading does not operate in a 
manner that compromises the integrity of prices or price discovery on 
the relevant market.
    (b) Acceptable practices. A professional that is a certified member 
of the Information Systems Audit and Control Association experienced in 
the industry would be an example of an acceptable party to carry out 
testing and review of an electronic trading system.
    Core Principle 10 of section 5(d) of the Act: TRADE INFORMATION--The 
board of trade shall maintain rules and procedures to provide for the 
recording and safe storage of all identifying trade information in a 
manner that enables the contract market to use the information for 
purposes of assisting in the prevention of customer and market abuses 
and providing evidence of any violations of the rules of the contract 
market.
    (a) Application guidance. A designated contract market should have 
arrangements and resources for recording of full data entry and trade 
details and the safe storage of audit trail data. A designated contract 
market should have systems sufficient to enable the contract market to 
use the information for purposes of assisting in the prevention of 
customer and market abuses through reconstruction of trading.
    (b) Acceptable practices. (1) The goal of an audit trail is to 
detect and deter customer

[[Page 485]]

and market abuse. An effective contract market audit trail should 
capture and retain sufficient trade-related information to permit 
contract market staff to detect trading abuses and to reconstruct all 
transactions within a reasonable period of time. An audit trail should 
include specialized electronic surveillance programs that would identify 
potentially abusive trades and trade patterns, including, for instance, 
withholding or disclosing customer orders, trading ahead, and 
preferential allocation. An acceptable audit trail must be able to track 
a customer order from time of receipt through fill allocation or other 
disposition. The contract market must create and maintain an electronic 
transaction history database that contains information with respect to 
transactions executed on the designated contract market.
    (2) An acceptable audit trail should include the following: original 
source documents, transaction history, electronic analysis capability, 
and safe storage capability. A contract market whose audit trail 
satisfies the following acceptable practices would satisfy Core 
Principle 10.
    (i) Original source documents. Original source documents include 
unalterable, sequentially identified records on which trade execution 
information is originally recorded, whether recorded manually or 
electronically. For each customer order (whether filled, unfilled or 
cancelled, each of which should be retained or electronically captured), 
such records reflect the terms of the order, an account identifier that 
relates back to the account(s) owner(s), and the time of order entry. 
(For floor-based contract markets, the time of report of execution of 
the order should also be captured.)
    (ii) Tansaction history. A transaction history which consists of an 
electronic history of each transaction, including (a) all data that are 
input into the trade entry or matching system for the transaction to 
match and clear; (b) the categories of participants for which such 
trades are executed, including whether the person executing a trade was 
executing it for his/her own account or an account for which he/she has 
discretion, his/her clearing member's house account, the account of 
another member, including market participants present on the floor, or 
the account of any other customer; (c) timing and sequencing data 
adequate to reconstruct trading; and (d) the identification of each 
account to which fills are allocated.
    (iii) Electronic analysis capability. An electronic analysis 
capability that permits sorting and presenting data included in the 
transaction history so as to reconstruct trading and to identify 
possible trading violations with respect to both customer and market 
abuse.
    (iv) Safe storage capability. Safe storage capability provides for a 
method of storing the data included in the transaction history in a 
manner that protects the data from unauthorized alteration, as well as 
from accidental erasure or other loss. Data should be retained in 
accordance with the recordkeeping standards of Core Principle 17.
    Core Principle 11 of section 5(d) of the Act: FINANCIAL INTEGRITY OF 
CONTRACTS--The board of trade shall establish and enforce rules 
providing for the financial integrity of any contracts traded on the 
contract market (including the clearance and settlement of the 
transactions with a derivatives clearing organization), and rules to 
ensure the financial integrity of any futures commission merchants and 
introducing brokers and the protection of customer funds.
    (a) Application guidance. Clearing of transactions executed on a 
designated contract market other than transactions in security futures 
products, should be provided through a Commission-registered derivatives 
clearing organization. In addition, a designated contract market should 
maintain the financial integrity of its transactions by maintaining 
minimum financial standards for its members and non-intermediated market 
participants and by having default rules and procedures. The minimum 
financial standards should be monitored for compliance purposes. The 
Commission believes that in order to monitor for minimum financial 
requirements, a designated contract market should routinely receive and 
promptly review financial and related information from its members. 
Rules concerning the protection of customer funds should address the 
segregation of customer and proprietary funds, the custody of customer 
funds, the investment standards for customer funds, related 
recordkeeping and related intermediary default procedures. The contract 
market should audit its members that are intermediaries for compliance 
with the foregoing rules as well as applicable Commission rules. These 
audits should be conducted consistent with the guidance set forth in 
Division of Clearing and Intermediary Oversight Interpretations 4-1 and 
4-2. A contract market may delegate to a designated self-regulatory 
organization responsibility for receiving financial reports and for 
conducting compliance audits pursuant to the guidelines set forth in 
Sec. 1.52 of this chapter.
    (b) Acceptable Practices. [Reserved]
    Core Principle 12 of section 5(d) of the Act: PROTECTION OF MARKET 
PARTICIPANTS--The board of trade shall establish and enforce rules to 
protect market participants from abusive practices committed by any 
party acting as an agent for the participants.
    (a) Application guidance. A designated contract market should have 
rules prohibiting conduct by intermediaries that is fraudulent, 
noncompetitive, unfair, or an abusive practice in connection with the 
execution of trades and a program to detect and discipline

[[Page 486]]

such behavior. The contract market should have methods and resources 
appropriate to the nature of the trading system and the structure of the 
market to detect trade practice abuses.
    (b) Acceptable practices. [Reserved]
    Core Principle 13 of section 5(d) of the Act: DISPUTE RESOLUTION--
The board of trade shall establish and enforce rules regarding and 
provide facilities for alternative dispute resolution as appropriate for 
market participants and any market intermediaries.
    (a) Application guidance. A designated contract market should 
provide customer dispute resolution procedures that are fair and 
equitable and make them available on a voluntary basis, either directly 
or through another self-regulatory organization, to customers that are 
non-eligible contract participants.
    (b) Acceptable practices. (1) Under Core Principle 13, a designated 
contract market is required to provide for dispute resolution mechanisms 
that are appropriate to the nature of the market.
    (2) In order to satisfy acceptable standards, a designated contract 
market should provide a customer dispute resolution mechanism that is 
fundamentally fair and is equitable. An acceptable customer dispute 
resolution mechanism would:
    (i) Provide the customer with an opportunity to have his or her 
claim decided by an objective and impartial decision-maker,
    (ii) Provide each party with the right to be represented by counsel, 
at the party's own expense,
    (iii) Provide each party with adequate notice of the claims 
presented against him or her, an opportunity to be heard on all claims, 
defenses and permitted counterclaims, and an opportunity for a prompt 
hearing,
    (iv) Authorize prompt, written, final settlement awards that are not 
subject to appeal within the contract market, and
    (v) Notify the parties of the fees and costs that may be assessed.
    (3) The use of such procedures should be voluntary for customers who 
are not eligible contract participants, and could permit counterclaims 
as provided in Sec. 166.5 of this chapter.
    (4) If the designated contract market also provides a procedure for 
the resolution of disputes that do not involve customers (i.e., member-
to-member disputes), the procedure for resolving such disputes must be 
independent of and shall not interfere with or delay the resolution of 
customers' claims or grievances.
    (5) A designated contract market may delegate to another self-
regulatory organization or to a registered futures association its 
responsibility to provide for customer dispute resolution mechanisms, 
provided, however, that, if the designated contract market does delegate 
that responsibility, the contract market shall in all respects treat any 
decision issued by such other organization or association as if the 
decision were its own including providing for the appropriate 
enforcement of any award issued against a delinquent member.
    Core Principle 14 of section 5(d) of the Act: GOVERNANCE FITNESS 
STANDARDS--The board of trade shall establish and enforce appropriate 
fitness standards for directors, members of any disciplinary committee, 
members of the contract market, and any other persons with direct access 
to the facility (including any parties affiliated with any of the 
persons described in this core principle).
    (a) Application guidance. (1) A designated contract market should 
have appropriate eligibility criteria for the categories of persons set 
forth in the Core Principle that should include standards for fitness 
and for the collection and verification of information supporting 
compliance with such standards. Minimum standards of fitness for persons 
who have member voting privileges, governing obligations or 
responsibilities, or who exercise disciplinary authority are those bases 
for refusal to register a person under section 8a(2) of the Act. In 
addition, persons who have governing obligations or responsibilities, or 
who exercise disciplinary authority, should not have a significant 
history of serious disciplinary offenses, such as those that would be 
disqualifying under Sec. 1.63 of this chapter. Members with trading 
privileges but having no, or only nominal, equity, in the facility and 
non-member market participants who are not intermediated and do not have 
these privileges, obligations, responsibilities or disciplinary 
authority could satisfy minimum fitness standards by meeting the 
standards that they must meet to qualify as a ``market participant.'' 
Natural persons who directly or indirectly have greater than a ten 
percent ownership interest in a designated contract market should meet 
the fitness standards applicable to members with voting rights.
    (2) The Commission believes that such standards should include 
providing the Commission with fitness information for such persons, 
whether registration information, certification to the fitness of such 
persons, an affidavit of such persons' fitness by the contract market's 
counsel or other information substantiating the fitness of such persons. 
If a contract market provides certification of the fitness of such a 
person, the Commission believes that such certification should be based 
on verified information that the person is fit to be in his or her 
position.
    (b) Acceptable practices. [Reserved]
    Core Principle 15 of section 5(d) of the Act: CONFLICTS OF 
INTEREST--The board of trade shall establish and enforce rules to 
minimize conflicts of interest in the decision making

[[Page 487]]

process of the contract market and establish a process for resolving 
such conflicts of interest.
    (a) Application guidance. The means to address conflicts of interest 
in decision-making of a contract market should include methods to 
ascertain the presence of conflicts of interest and to make decisions in 
the event of such a conflict. In addition, the Commission believes that 
the contract market should provide for appropriate limitations on the 
use or disclosure of material non-public information gained through the 
performance of official duties by board members, committee members and 
contract market employees or gained through an ownership interest in the 
contract market.
    (b) Acceptable Practices. All designated contract markets (``DCMs'' 
or ``contract markets'') bear special responsibility to regulate 
effectively, impartially, and with due consideration of the public 
interest, as provided for in Section 3 of the Act. Under Core Principle 
15, they are also required to minimize conflicts of interest in their 
decision-making processes. To comply with this Core Principle, contract 
markets should be particularly vigilant for such conflicts between and 
among any of their self-regulatory responsibilities, their commercial 
interests, and the several interests of their management, members, 
owners, customers and market participants, other industry participants, 
and other constituencies. Acceptable Practices for minimizing conflicts 
of interest shall include the following elements:
    (1) Board Composition for Contract Markets
    (i) At least thirty-five percent of the directors on a contract 
market's board of directors shall be public directors; and
    (ii) The executive committees (or similarly empowered bodies) shall 
be at least thirty-five percent public.
    (2) Public Director
    (i) To qualify as a public director of a contract market, an 
individual must first be found, by the board of directors, on the 
record, to have no material relationship with the contract market. A 
``material relationship'' is one that reasonably could affect the 
independent judgment or decision making of the director.
    (ii) In addition, a director shall be considered to have a 
``material relationship'' with the contract market if any of the 
following circumstances exist:
    (A) The director is an officer or employee of the contract market or 
an officer or employee of its affiliate. In this context, ``affiliate'' 
includes parents or subsidiaries of the contract market or entities that 
share a common parent with the contract market;
    (B) The director is a member of the contract market, or an officer 
or director of a member. ``Member'' is defined according to Section 
1a(24) of the Commodity Exchange Act and Commission Regulation 1.3(q);
    (C) The director, or a firm with which the director is an officer, 
director, or partner, receives more than $100,000 in combined annual 
payments from the contract market, or any affiliate of the contract 
market (as defined in Subsection (2)(ii)(A)), for legal, accounting, or 
consulting services. Compensation for services as a director of the 
contract market or as a director of an affiliate of the contract market 
does not count toward the $100,000 payment limit, nor does deferred 
compensation for services prior to becoming a director, so long as such 
compensation is in no way contingent, conditioned, or revocable;
    (D) Any of the relationships above apply to a member of the 
director's ``immediate family,'' i.e., spouse, parents, children and 
siblings.
    (iii) All of the disqualifying circumstances described in Subsection 
(2)(ii) shall be subject to a one-year look back.
    (iv) A contract market's public directors may also serve as 
directors of the contract market's affiliate (as defined in Subsection 
(2)(ii)(A)) if they otherwise meet the definition of public director in 
this Section (2).
    (v) A contract market shall disclose to the Commission which members 
of its board are public directors, and the basis for those 
determinations.
    (3) Regulatory Oversight Committee
    (i) A board of directors of any contract market shall establish a 
Regulatory Oversight Committee (``ROC'') as a standing committee, 
consisting of only public directors as defined in Section (2), to assist 
it in minimizing actual and potential conflicts of interest. The ROC 
shall oversee the contract market's regulatory program on behalf of the 
board. The board shall delegate sufficient authority, dedicate 
sufficient resources, and allow sufficient time for the ROC to fulfill 
its mandate.
    (ii) The ROC shall:
    (A) Monitor the contract market's regulatory program for 
sufficiency, effectiveness, and independence;
    (B) Oversee all facets of the program, including trade practice and 
market surveillance; audits, examinations, and other regulatory 
responsibilities with respect to member firms (including ensuring 
compliance with financial integrity, financial reporting, sales 
practice, recordkeeping, and other requirements); and the conduct of 
investigations;
    (C) Review the size and allocation of the regulatory budget and 
resources; and the number, hiring and termination, and compensation of 
regulatory personnel;
    (D) Supervise the contract market's chief regulatory officer, who 
will report directly to the ROC;
    (E) Prepare an annual report assessing the contract market's self-
regulatory program

[[Page 488]]

for the board of directors and the Commission, which sets forth the 
regulatory program's expenses, describes its staffing and structure, 
catalogues disciplinary actions taken during the year, and reviews the 
performance of disciplinary committees and panels;
    (F) Recommend changes that would ensure fair, vigorous, and 
effective regulation; and
    (G) Review regulatory proposals and advise the board as to whether 
and how such changes may impact regulation.
    (4) Disciplinary Panels
    All contract markets shall minimize conflicts of interest in their 
disciplinary processes through disciplinary panel composition rules that 
preclude any group or class of industry participants from dominating or 
exercising disproportionate influence on such panels. Contract markets 
can further minimize conflicts of interest by including in all 
disciplinary panels at least one person who would qualify as a public 
director, as defined in Subsections (2)(ii) and (2)(iii) above, except 
in cases limited to decorum, attire, or the timely submission of 
accurate records required for clearing or verifying each day's 
transactions. If contract market rules provide for appeal to the board 
of directors, or to a committee of the board, then that appellate body 
shall also include at least one person who would qualify as a public 
director as defined in Subsections (2)(ii) and (2)(iii) above.
    Core Principle 16 of section 5(d) of the Act: COMPOSITION OF BOARDS 
OF MUTUALLY OWNED CONTRACT MARKETS--In the case of a mutually owned 
contract market, the board of trade shall ensure that the composition of 
the governing board reflects market participants.
    (a) Application guidance. The composition of a mutually-owned 
contract market's governing board should fairly represent the diversity 
of interests of the contract market's market participants.
    (b) Acceptable practices. [Reserved]
    Core Principle 17 of section 5(d) of the Act: RECORDKEEPING--The 
board of trade shall maintain records of all activities related to the 
business of the contract market in a form and manner acceptable to the 
Commission for a period of 5 years.
    (a) Application guidance. [Reserved]
    (b) Acceptable practices. Section 1.31 of this chapter governs 
recordkeeping obligations under the Act and the Commission's regulations 
thereunder. In order to provide broad flexible performance standards for 
recordkeeping, Sec. 1.31 was updated and amended by the Commission in 
1999. Accordingly, Sec. 1.31 itself establishes the guidance regarding 
the form and manner for keeping records.
    Core Principle 18 of section 5(d) of the Act: ANTITRUST 
CONSIDERATIONS--Unless necessary or appropriate to achieve the purposes 
of this Act, the board of trade shall endeavor to avoid--(A) adopting 
any rules or taking any actions that result in any unreasonable 
restraints of trade; or (B) imposing any material anticompetitive burden 
on trading on the contract market.
    (a) Application guidance. An entity seeking designation as a 
contract market may request that the Commission consider under the 
provisions of section 15(b) of the Act any of the entity's rules, 
including trading protocols or policies, and including both operational 
rules and the terms or conditions of products listed for trading, at the 
time of designation or thereafter. The Commission intends to apply 
section 15(b) of the Act to its consideration of issues under this core 
principle in a manner consistent with that previously applied to 
contract markets.
    (b) Acceptable practices. [Reserved]

[66 FR 42277, Aug. 10, 2001, as amended at 67 FR 62352, Oct. 7, 2002; 71 
FR 1965, 1966, Jan. 12, 2006; 72 FR 6957, Feb. 14, 2007; 72 FR 65658, 
Nov. 23, 2007; 74 FR 18990, Apr. 27, 2009]



PART 39_DERIVATIVES CLEARING ORGANIZATIONS--Table of Contents



Sec.
39.1 Scope.
39.2 Exemption.
39.3 Procedures for registration.
39.4 Procedures for implementing derivatives clearing organization rules 
          and clearing new products.
39.5 Information relating to derivatives clearing organization 
          operations.
39.6 Enforceability.
39.7 Fraud in connection with the clearing of transactions on a 
          derivatives clearing organization.

Appendix A to Part 39--Application Guidance and Compliance With Core 
          Principles

    Authority: 7 U.S.C. 7b as amended by appendix E of Pub. L. 106-554, 
114 Stat. 2763A-365.

    Source: 66 FR 45609, Aug. 29, 2001, unless otherwise noted.



Sec. 39.1  Scope.

    The provisions of this part apply to any derivatives clearing 
organization as defined under section 1a(9) of the Act which is 
registered or deemed to be registered with the Commission as a 
derivatives clearing organization, is required to register as such with 
the Commission pursuant to section 5b(a) of the Act, or which 
voluntarily applies to register as such with the Commission pursuant to 
section 5b(b) or otherwise.

[[Page 489]]



Sec. 39.2  Exemption.

    A derivatives clearing organization and the clearing of agreements, 
contracts and transactions on a derivatives clearing organization are 
exempt from all Commission regulations except for the requirements of 
this part 39 and Sec. Sec. 1.3, 1.12(f)(1), 1.20, 1.24, 1.25, 1.26, 
1.27, 1.29, 1.31, 1.36, 1.38(b), part 40 and part 190 of this chapter, 
and as applicable to the agreement, contract or transaction cleared, 
parts 15 through 18 of this chapter. The foregoing reserved regulations 
are applicable to a derivatives clearing organization and its activities 
as though they were set forth in this section and included specific 
reference to derivatives clearing organizations. Any reference to the 
term ``clearinghouse'' or ``clearing organization'' contained in the 
regulations shall be deemed to refer to a derivatives clearing 
organization.



Sec. 39.3  Procedures for registration.

    (a) Application Procedures. (1) 180-day review procedures. An 
organization desiring to be registered as a derivatives clearing 
organization shall file electronically an application for registration 
with the Secretary of the Commission at its Washington, DC, 
headquarters. Except as provided under the 90-day review procedures 
described in paragraph (a)(3) of this section, the Commission will 
review the application for registration as a derivatives clearing 
organization pursuant to the 180-day timeframe and procedures specified 
in section 6(a) of the Act. The Commission may approve or deny the 
application or, if deemed appropriate, register the applicant as a 
derivatives clearing organization subject to conditions.
    (2) The following must be included:
    (i) The application is labeled as being submitted pursuant to this 
part 39;
    (ii) The applicant represents that it will operate in accordance 
with the definition of derivatives clearing organization contained in 
section 1a(9) of the Act;
    (iii) The application includes a copy of the applicant's rules;
    (iv) The application demonstrates how the applicant is able to 
satisfy each of the core principles specified in section 5b(c)(2) of the 
Act;
    (v) The applicant submits agreements entered into or to be entered 
into between or among the applicant, its operator/service provider or 
its participants, that will enable the applicant to comply, or 
demonstrate the applicant's ability to comply, with the core principles 
specified in section 5b(c)(2) of the Act. The agreements must identify 
the services that will be provided. If a submitted agreement is not 
final and executed, the application must include evidence which 
constitutes reasonable assurances that such services will be provided as 
soon as operations require;
    (vi) The applicant submits descriptions of system test procedures, 
tests conducted or test results, that will enable the applicant to 
comply, or demonstrate the applicant's ability to comply, with the core 
principles specified in section 5b(c)(2) of the Act; and
    (vii) The applicant identifies with particularity information in the 
application that will be subject to a request for confidential treatment 
and supports that request for confidential treatment.
    (3) Ninety-day review procedures. An organization desiring to be 
registered as a derivatives clearing organization may request that its 
application be reviewed on a 90-day basis and that the applicant be 
registered as a derivatives clearing organization 90 days after the date 
of receipt of the application for registration by the Secretary of the 
Commission. The 90-day period shall begin on the first business day 
(during the business hours defined in Sec. 40.1 of this chapter) that 
the Commission is in receipt of the application. Unless the Commission 
notifies the applicant during the 90-day period that the expedited 
review has been terminated pursuant to Sec. 39.3(b), the Commission 
will register the applicant as a derivatives clearing organization 
during the 90-day period. If deemed appropriate by the Commission, the 
registration may be subject to such conditions as the Commission may 
stipulate.
    (i) The application must include the items described in Sec. Sec. 
39.3(a)(2)(i) through (vi); and
    (ii) The applicant must not amend or supplement the application 
except as requested by the Commission or for

[[Page 490]]

correction of typographical errors, renumbering or other nonsubstantive 
revisions, during that period.
    (b) Termination of 90-day review. (1) During the 90-day period for 
review pursuant to paragraph (a)(3) of this section, the Commission 
shall notify the applicant seeking registration that the Commission is 
terminating review under this section and will review the proposal under 
the 180-day time period and procedures of Section 6(a) of the Act, if it 
appears to the Commission that the application:
    (i) Is materially incomplete;
    (ii) Fails in form or substance to meet the requirements of this 
part;
    (iii) Raises novel or complex issues that require additional time 
for review; or
    (iv) Is amended or supplemented in a manner that is inconsistent 
with Sec. 39.3(a)(3)(ii).
    (2) This termination notification shall identify the deficiencies in 
the application that render it incomplete, the manner in which the 
application fails to meet the requirements of this part, or the novel or 
complex issues that require additional time for review. The Commission 
shall also terminate review under this section if requested in writing 
to do so by the applicant.
    (c) Withdrawal of application for registration. An applicant for 
registration may withdraw its application submitted pursuant to 
paragraphs (a)(1) through (2) or (a)(3) of this section by filing with 
the Commission such a request. Withdrawal of an application for 
registration shall not affect any action taken or to be taken by the 
Commission based upon actions, activities, or events occurring during 
the time that the application for registration was pending with the 
Commission.
    (d) Guidance for applicants and registrants. Appendix A to this part 
provides guidance to applicants and registrants on how the core 
principles specified in Section 5b(c)(2) of the Act may be satisfied.
    (e) Reinstatement of dormant registration. Before listing or 
relisting contracts for clearing, a dormant registered derivatives 
clearing organization as defined in Sec. 40.1 of this chapter must 
reinstate its registration under the procedures of paragraph (a)(1) 
through (2) or (a)(3) of this section; provided, however, that an 
application for reinstatement may rely upon previously submitted 
materials that still pertain to, and accurately describe, current 
conditions.
    (f) Request for vacation of registration. A registered derivatives 
clearing organization may vacate its registration under Section 7 of the 
Act by filing electronically such a request with the Commission at its 
Washington, DC headquarters. Vacation of registration shall not affect 
any action taken or to be taken by the Commission based upon actions, 
activities or events occurring during the time that the facility was 
designated by the Commission.
    (g) Delegation of authority. (1) The Commission hereby delegates, 
until it orders otherwise, to the Director of the Division of Clearing 
and Intermediary Oversight or the Director's delegates, with the 
concurrence of the General Counsel or the General Counsel's delegates, 
the authority to notify an applicant seeking designation under Section 
6(a) of the Act that the application is materially incomplete and the 
running of the 180-day period is stayed or that the 90-day review under 
paragraph (a)(3) of this section is terminated.
    (2) The Director of the Division of Clearing and Intermediary 
Oversight may submit to the Commission for its consideration any matter 
which has been delegated in this paragraph.
    (3) Nothing in this paragraph prohibits the Commission, at its 
election, from exercising the authority delegated in paragraph (g)(1) of 
this section.

[71 FR 1966, Jan. 12, 2006]



Sec. 39.4  Procedures for implementing derivatives clearing organization rules and clearing new products.

    (a) Request for approval of rules. An applicant for registration, or 
a registered derivatives clearing organization, may request, pursuant to 
the procedures of Sec. 40.5 of this chapter, that the Commission 
approve any or all of its rules and subsequent amendments thereto, 
including operational rules, prior to their implementation or, 
notwithstanding the provisions of section 5c(c)(2) of the Act, at any 
time thereafter, under the procedures of Sec. 40.5 of

[[Page 491]]

this chapter. A derivatives clearing organization may label as, 
``Approved by the Commission,'' only those rules that have been so 
approved.
    (b) Self-certification of rules. Proposed new or amended rules of a 
derivatives clearing organization not voluntarily submitted for prior 
Commission approval pursuant to paragraph (a) of this section must be 
submitted to the Commission with a certification that the proposed new 
rule or rule amendment complies with the Act and rules thereunder 
pursuant to the procedures of Sec. 40.6 of this chapter.
    (c) Acceptance of new products for clearing. (1) A dormant 
derivatives clearing organization within the meaning of Sec. 40.1 of 
this chapter may not accept for clearing a new product until its 
registration as a derivatives clearing organization is reinstated under 
the procedures of Sec. 39.3 of this part; provided however, that an 
application for reinstatement may rely upon previously submitted 
materials that still pertain to, and accurately describe, current 
conditions.
    (2) Acceptance of certain new products for clearing. A derivatives 
clearing organization that accepts for clearing a new product that is 
not traded on a designated contract market or a registered derivatives 
transaction execution facility must submit to the Commission any rules 
establishing the terms and conditions of the product that make it 
acceptable for clearing with a certification that the clearing of the 
product and the rules and terms and conditions comply with the Act and 
the rules thereunder pursuant to the procedures of Sec. 40.2 of this 
chapter.
    (d) Orders regarding competition. An applicant or a registered 
derivatives clearing organization may request that the Commission issue 
an order concerning whether a rule or practice of the organization is 
the least anticompetitive means of achieving the objectives, purposes, 
and policies of the Act.

[66 FR 45609, Aug. 29, 2001, as amended at 67 FR 62878, Oct. 9, 2002]



Sec. 39.5  Information relating to derivatives clearing organization operations.

    (a) Upon request by the Commission, a derivatives clearing 
organization shall file with the Commission such information related to 
its business as a clearing organization, including information relating 
to trade and clearing details, in the form and manner and within the 
time as specified by the Commission in the request.
    (b) Upon request by the Commission, a derivatives clearing 
organization shall file with the Commission a written demonstration, 
containing such supporting data, information and documents, in the form 
and manner and within such time as the Commission may specify that the 
derivatives clearing organization is in compliance with one or more core 
principles as specified in the request.
    (c) Information regarding transactions by large traders cleared by a 
derivatives clearing organization shall be filed with the Commission, in 
a form and manner acceptable to the Commission, by futures commission 
merchants, clearing members, foreign brokers or registered entities 
other than a derivatives clearing organization, as applicable. Provided, 
however, that if no such person or entity is required to file large 
trader information with the Commission, such information must be filed 
with the Commission by a derivatives clearing organization.
    (d) Upon special call by the Commission, each futures commission 
merchant, clearing member or foreign broker shall provide information to 
the Commission concerning customer accounts or related positions cleared 
on a derivatives clearing organization or other multilateral clearing 
organization in the form and manner and within the time specified by the 
Commission in the special call.



Sec. 39.6  Enforceability.

    An agreement, contract or transaction submitted to a derivatives 
clearing organization for clearance shall not be void, voidable, subject 
to rescission, or otherwise invalidated or rendered unenforceable as a 
result of:
    (a) A violation by the derivatives clearing organization of the 
provisions

[[Page 492]]

of the Act or of Commission regulations; or
    (b) Any Commission proceeding to alter or supplement a rule under 
section 8a(7) of the Act, to declare an emergency under section 8a(9) of 
the Act, or any other proceeding the effect of which is to alter, 
supplement, or require a derivatives clearing organization to adopt a 
specific rule or procedure, or to take or refrain from taking a specific 
action.



Sec. 39.7  Fraud in connection with the clearing of transactions on a derivatives clearing organization.

    It shall be unlawful for any person, directly or indirectly, in or 
in connection with the clearing of transactions by a derivatives 
clearing organization:
    (a) To cheat or defraud or attempt to cheat or defraud any person;
    (b) Willfully to make or cause to be made to any person any false 
report or statement or cause to be entered for any person any false 
record; or
    (c) Willfully to deceive or attempt to deceive any person by any 
means whatsoever.



  Sec. Appendix A to Part 39--Application Guidance and Compliance With 
                             Core Principles

    This appendix provides guidance concerning the core principles with 
which applicants must demonstrate the ability to comply and with which 
registered derivatives clearing organizations must continue to comply to 
be granted and to maintain registration as a derivatives clearing 
organization under section 5b of the Act and Sec. 39.3 and Sec. 39.5 
of the Commission's regulations. The guidance follows each core 
principle and can be used to demonstrate core principle compliance under 
Sec. 39.3(a)(iv) and Sec. 39.5(d). The guidance for each core 
principle is illustrative only of the types of matters a clearing 
organization may address, as applicable, and is not intended to be a 
mandatory checklist. Addressing the criteria set forth in this appendix 
would help the Commission in its consideration of whether the clearing 
organization is in compliance with the core principles. To the extent 
that compliance with, or satisfaction of, a core principle is not self-
explanatory from the face of a clearing organization's rules, an 
application pursuant to Sec. 39.3 or a submission pursuant to Sec. 
39.5 should include an explanation or other form of documentation 
demonstrating that the clearing organization is able to or does comply 
with the core principles.
    Core Principle A: IN GENERAL--To be registered and to maintain 
registration as a derivatives clearing organization, an applicant shall 
demonstrate to the Commission that the applicant complies with the core 
principles specified in this paragraph. The applicant shall have 
reasonable discretion in establishing the manner in which it complies 
with the core principles.
    An entity preparing to submit to the Commission an application to 
operate as a derivatives clearing organization is encouraged to contact 
Commission staff for guidance and assistance in preparing its 
application. Applicants may submit a draft application for review prior 
to the submission of an actual application without triggering the 
application review procedures of Sec. 39.3 of the Commission's 
regulations. The Commission also may require a derivatives clearing 
organization to demonstrate to the Commission that it is operating in 
compliance with one or more core principles.
    Core Principle B: FINANCIAL RESOURCES--The applicant shall 
demonstrate that the applicant has adequate financial, operational, and 
managerial resources to discharge the responsibilities of a derivatives 
clearing organization.
    In addressing Core Principle B, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. The resources dedicated to supporting the clearing function:
    a. The level of resources available to the clearing organization and 
the sufficiency of those resources to assure that no material adverse 
break in clearing operations will occur in a variety of market 
conditions; and
    b. The level of member/participant default such resources could 
support as demonstrated through use of hypothetical default scenarios 
that explain assumptions and variables factored into the illustrations.
    2. The nature of resources dedicated to supporting the clearing 
function:
    a. The type of the resources, including their liquidity, and how 
they could be accessed and applied by the clearing organization 
promptly;
    b. How financial and other material information will be updated and 
reported to members, the public, if and when appropriate, and to the 
Commission on an ongoing basis; and
    c. Any legal or operational impediments or conditions to access.
    Core Principle C: PARTICIPANT AND PRODUCT ELIGIBILITY--The applicant 
shall establish (i) appropriate admission and continuing eligibility 
standards (including appropriate minimum financial requirements) for 
members of and participants in the organization; and (ii) appropriate 
standards for determining eligibility of agreements, contracts, or 
transactions submitted to the applicant.
    In addressing Core Principle C, applicants and registered 
derivatives clearing organizations may describe or otherwise document:

[[Page 493]]

    1. Member/participant admission criteria:
    a. How admission standards for its clearing members/participants 
would contribute to the soundness and integrity of operations; and
    b. Matters such as whether these criteria would be in the form of 
organization rules that apply to all clearing members/participants, 
whether different levels of membership/participation would relate to 
different levels of net worth, income, and creditworthiness of members/
participants, and whether margin levels, position limits and other 
controls would vary in accordance with these levels.
    2. Member/participant continuing eligibility criteria:
    a. A program for monitoring the financial status of its members/
participants; and
    b. Whether and how the clearing organization would be able to change 
continuing eligibility criteria in accordance with changes in a 
member's/participant's financial status.
    3. Criteria for instruments acceptable for clearing:
    a. The criteria, and the factors considered in establishing the 
criteria, for the types of agreements, contracts, or transactions it 
will clear; and
    b. How those criteria take into account the different risks inherent 
in clearing different agreements, contracts, or transactions and how 
they affect maintenance of assets to support the guarantee function in 
varying risk environments.
    4. The clearing function for each instrument the organization 
undertakes to clear.
    Core Principle D: RISK MANAGEMENT--The applicant shall have the 
ability to manage the risks associated with discharging the 
responsibilities of a derivatives clearing organization through the use 
of appropriate tools and procedures.
    In addressing Core Principle D, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. Use of risk analysis tools and procedures:
    a. How the adequacy of the overall level of financial resources 
would be tested on an ongoing periodic basis in a variety of market 
conditions;
    b. How the organization would use specific risk management tools 
such as stress testing and value at risk calculations; and
    c. What contingency plans the applicant has for managing extreme 
market events.
    2. Use of collateral:
    a. What forms and levels of collateral would be established and 
collected;
    b. How amounts would be adequate to secure prudentially obligations 
arising from clearing transactions and, where applicable, performing as 
a central counterparty;
    c. The factors considered in determining appropriate margin levels 
for an instrument cleared and for clearing members/participants;
    d. The appropriateness of required or allowed forms of margin given 
the liquidity and related requirements of the clearing organization;
    e. How the clearing organization would value open positions and 
collateral assets; and
    f. The proposed margin collection schedule and how it would relate 
to changes in the value of market positions and collateral values.
    3. Use of credit limits:
    If systems would be implemented that would prevent members/
participants and other market participants from exceeding credit limits 
and how they would operate.
    Core Principle E: SETTLEMENT PROCEDURES--The applicant shall have 
the ability to (i) complete settlements on a timely basis under varying 
circumstances; (ii) maintain an adequate record of the flow of funds 
associated with each transaction that the applicant clears; and (iii) 
comply with the terms and conditions of any permitted netting or offset 
arrangements with other clearing organizations.
    In addressing Core Principle E, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. Settlement timeframe:
    a. Procedures for completing settlements on a timely basis during 
times of normal operating conditions; and
    b. Procedures for completing settlements on a timely basis in 
varying market circumstances including during a period when one or more 
significant members/participants have defaulted.
    2. Recordkeeping:
    a. The nature and quality of the information collected concerning 
the flow of funds involved in clearing and settlement; and
    b. How such information would be recorded, maintained and accessed.
    3. Interfaces with other clearing organizations:
    How compliance with the terms and conditions of netting or offset 
arrangements with other clearing organizations would be met, including, 
among others, common banking or common clearing programs.
    Core Principle F: TREATMENT OF FUNDS--The applicant shall have 
standards and procedures designed to protect and ensure the safety of 
member and participant funds.
    In addressing Core Principle F, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. Safe custody:
    a. The safekeeping of funds, whether in accounts, in depositories, 
or with custodians, and how it would meet industry standards of safety;

[[Page 494]]

    b. Any written terms regarding the legal status of the funds and the 
specific conditions or prerequisites for movement of the funds; and
    c. The extent to which the deposit of funds in accounts in 
depositories or with custodians would limit concentration of risk.
    2. Segregation between customer and proprietary funds:
    Requirements or restrictions regarding commingling customer funds 
with proprietary funds, obligating customer funds for any purpose other 
than to purchase, clear, and settle the products the clearing 
organization is clearing, or procedures regarding customer funds which 
are subject to cross-margin or similar agreements, and any other aspects 
of customer fund segregation.
    3. Investment standards:
    a. How customer funds would be invested consistent with high 
standards of safety; and
    b. How the organization will gather and keep associated records and 
data regarding the details of such investments.
    Core Principle G: DEFAULT RULES AND PROCEDURES--The applicant shall 
have rules and procedures designed to allow for efficient, fair, and 
safe management of events when members or participants become insolvent 
or otherwise default on their obligations to the derivatives clearing 
organization.
    In addressing Core Principle G, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. Definition of default:
    a. The events that will constitute member or participant default;
    b. What action the organization would take upon a default and how 
the organization would otherwise enforce the definition of default; and
    c. How the organization would address situations related to but 
which may not constitute an event of default, such as failure to comply 
with certain rules, failure to maintain eligibility standards, actions 
taken by other regulatory bodies, or other events.
    2. Remedial action:
    The authority pursuant to which, and how, the clearing organization 
may take appropriate action in the event of the default of a member/
participant which may include, among other things, closing out 
positions, replacing positions, set-off, and applying margin.
    3. Process to address shortfalls:
    Procedures for the prompt application of clearing organization and/
or member/participant financial resources to address monetary shortfalls 
resulting from a default.
    4. Use of cross-margin programs:
    How cross-margining programs would provide for clear, fair, and 
efficient means of covering losses in the event of a program participant 
default.
    5. Customer priority rule:
    Rules and procedures regarding priority of customer accounts over 
proprietary accounts of defaulting members/participants and, where 
applicable, in the context of specialized margin reduction programs such 
as cross-margining or trading links with other exchanges.
    Core Principle H: RULE ENFORCEMENT--The applicant shall (i) maintain 
adequate arrangements and resources for the effective monitoring and 
enforcement of compliance with rules of the applicant and for resolution 
of disputes; and (ii) have the authority and ability to discipline, 
limit, suspend, or terminate a member's or participant's activities for 
violations of rules of the applicant.
    In addressing Core Principle H, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. Surveillance:
    Arrangements and resources for the effective monitoring of 
compliance with rules relating to clearing practices and financial 
surveillance.
    2. Enforcement:
    Arrangements and resources for the effective enforcement of rules 
and authority and ability to discipline and limit or suspend a member's/
participant's activities pursuant to clear and fair standards.
    3. Dispute resolution:
    Where applicable, arrangements and resources for resolution of 
disputes between customers and members/participants, and between 
members/participants.
    Core Principle I: SYSTEM SAFEGUARDS--The applicant shall demonstrate 
that the applicant (i) has established and will maintain a program of 
oversight and risk analysis to ensure that the automated systems of the 
applicant function properly and have adequate capacity and security; and 
(ii) has established and will maintain emergency procedures and a plan 
for disaster recovery, and will periodically test backup facilities 
sufficient to ensure daily processing, clearing, and settlement of 
transactions.
    In addressing Core Principle I, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. Oversight/risk analysis program:
    a. Whether a program addresses appropriate principles and procedures 
for the oversight of automated systems to ensure that its clearing 
systems function properly and have adequate capacity and security. The 
Commission believes that the guidelines issued by the International 
Organization of Securities Commissions (IOSCO) in 1990 and adopted by 
the Commission on November 21, 1990 (55 FR 48670), as supplemented in 
October 2000, are appropriate guidelines for an automated clearing 
system to apply.
    b. Emergency procedures and a plan for disaster recovery; and
    c. Periodic testing of back-up facilities and ability to provide 
timely processing, clearing, and settlement of transactions.

[[Page 495]]

    2. Appropriate periodic objective system reviews/testing:
    a. Any program for the periodic objective testing and review of the 
system, including tests conducted and results; and
    b. Confirmation that such testing and review would be performed or 
assessed by a qualified independent professional.
    Core Principle J: REPORTING--The applicant shall provide to the 
Commission all information necessary for the Commission to conduct the 
oversight function of the applicant with respect to the activities of 
the derivatives clearing organization.
    In addressing Core Principle J, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. Information available to or generated by the clearing 
organization that will be made routinely available to the Commission, 
upon request and/or as appropriate, to enable the Commission to perform 
properly its oversight function, including information regarding 
counterparties and their positions, stress test results, internal 
governance, legal proceedings, and other clearing activities;
    2. Information the clearing organization will make available to the 
Commission on a non-routine basis and the circumstances which would 
trigger such action;
    3. The information the organization intends to make routinely 
available to members/participants and/or the general public; and
    4. Provision of information:
    a. The manner in which all relevant routine or non-routine 
information will be provided to the Commission, whether by electronic or 
other means; and
    b. The manner in which any information will be made available to 
members/participants and/or the general public.
    Core Principle K: RECORDKEEPING--The applicant shall maintain 
records of all activities related to the business of the applicant as a 
derivatives clearing organization in a form and manner acceptable to the 
Commission for a period of 5 years.
    In addressing Core Principle K, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. The different activities related to the entity as a clearing 
organization for which it must maintain records; and
    2. How the entity would satisfy the performance standards of 
Commission regulation 1.31 (17 CFR 1.31), reserved in this part 39 and 
applicable to derivatives clearing organizations, including:
    a. What ``full'' or ``complete'' would encompass with respect to 
each type of book or record that would be maintained;
    b. The form and manner in which books or records would be compiled 
and maintained with respect to each type of activity for which such 
books or records would be kept;
    c. Confirmation that books and records would be open to inspection 
by any representative of the Commission or of the U.S. Department of 
Justice;
    d. How long books and records would be readily available and how 
they would be made readily available during the first two years; and
    e. How long books and records would be maintained (and confirmation 
that, in any event, they would be maintained for at least five years).
    Core Principle L: PUBLIC INFORMATION--The applicant shall make 
information concerning the rules and operating procedures governing the 
clearing and settlement systems (including default procedures) available 
to market participants.
    In addressing Core Principle L, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    Disclosure of information regarding rules and operating procedures 
governing clearing and settlement systems:
    a. Which rules and operating procedures governing clearing and 
settlement systems should be disclosed to the public, to whom they would 
be disclosed, and how they would be disclosed;
    b. What other information would be available regarding the 
operation, purpose and effect of the clearing organization's rules;
    c. How members/participants may become familiar with such procedures 
before participating in operations; and
    d. How members/participants will be informed of their specific 
rights and obligations preceding a default and upon a default, and of 
the specific rights, options and obligations of the clearing 
organization preceding and upon the member's/participant's default.
    Core Principle M: INFORMATION SHARING--The applicant shall (i) enter 
into and abide by the terms of all appropriate and applicable domestic 
and international information-sharing agreements; and (ii) use relevant 
information obtained from the agreements in carrying out the clearing 
organization's risk management program.
    In addressing Core Principle M, applicants and registered 
derivatives clearing organizations may describe or otherwise document:
    1. Applicable appropriate domestic and international information-
sharing agreements and arrangements including the different types of 
domestic and international information-sharing arrangements, both formal 
and informal, which the clearing organization views as appropriate and 
applicable to its operations.
    2. How information obtained from information-sharing arrangements 
would be used to carry out risk management and surveillance programs:
    a. How information obtained from any information-sharing 
arrangements would be used to further the objectives of the clearing

[[Page 496]]

organization's risk management program and any of its surveillance 
programs including financial surveillance and continuing eligibility of 
its members/participants;
    b. How accurate information is expected to be obtained and the 
mechanisms or procedures which would make timely use and application of 
all information; and
    c. The types of information expected to be shared and how that 
information would be shared.
    Core Principle N: ANTITRUST CONSIDERATIONS--Unless appropriate to 
achieve the purposes of this Act, the derivatives clearing organization 
shall avoid (i) adopting any rule or taking any action that results in 
any unreasonable restraint of trade; or (ii) imposing any material 
anticompetitive burden on trading on the contract market.
    Pursuant to section 5b(c)(3) of the Act, a registered derivatives 
clearing organization or an entity seeking registration as a derivatives 
clearing organization may request that the Commission issue an order 
concerning whether a rule or practice of the organization is the least 
anticompetitive means of achieving the objectives, purposes, and 
policies of the Act. The Commission intends to apply section 15(b) of 
the Act to its consideration of issues under this core principle in a 
manner consistent with that previously applied to contract markets.



PART 40_PROVISIONS COMMON TO REGISTERED ENTITIES--Table of Contents



Sec.
40.1 Definitions.
40.2 Listing and accepting products for trading or clearing by 
          certification.
40.3 Voluntary submission of new products for Commission review and 
          approval.
40.4 Amendments to terms or conditions of enumerated agricultural 
          contracts.
40.5 Voluntary submission of rules for Commission review and approval.
40.6 Self-certification of rules.
40.7 Delegations.
40.8 Availability of public information.

Appendix A to Part 40--Guideline No. 1
Appendix B to Part 40--Schedule of fees
Appendix C to Part 40 [Reserved]
Appendix D to Part 40--Submission Cover Sheet and Instructions

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a, 8 and 12a, as amended by 
Title XIII of the Food, Conservation and Energy Act of 2008, Public Law 
No. 110-246, 122 Stat. 1624 (June 18, 2008).

    Source: 66 FR 42283, Aug. 10, 2001, unless otherwise noted.



Sec. 40.1  Definitions.

    As used in this part:
    (a) Business day means the intraday period of time starting at the 
business hour of 8:15 a.m. and ending at the business hour of 4:45 p.m.; 
business hour means any hour between 8:15 a.m. and 4:45 p.m., Eastern 
Standard Time or Eastern Daylight Savings Time, whichever is currently 
in effect in Washington, DC, on all days except Saturdays, Sundays and 
federal holidays in Washington, DC.
    (b) Dormant contract or dormant product means:
    (1) Any agreement, contract, transaction, or instrument, or any 
commodity futures or option contract with respect to all future or 
option expiries that has no open interest and in which no trading has 
occurred for a period of twelve complete calendar months following a 
certification with, or approval by, the Commission; provided, however, 
that no contract or instrument under this paragraph (b)(1) initially and 
originally certified with, or approved by, the Commission within the 
preceding 36 complete calendar months shall be considered to be dormant; 
or
    (2) Any commodity futures or option contract or other agreement, 
contract, transaction or instrument of a dormant designated contract 
market, derivatives transaction execution facility or derivatives 
clearing organization; or
    (3) Any commodity futures or option contract or other agreement, 
contract, transaction or instrument not otherwise dormant that a 
designated contract market, derivatives transaction execution facility 
or derivatives clearing organization self-declares through certification 
to be dormant.
    (c) Dormant designated contract market means any designated contract 
market on which no trading has occurred for a period of twelve complete 
calendar months; provided, however, no designated contract market shall 
be considered to be dormant if its initial and original Commission order 
of designation was issued within the preceding 36 complete calendar 
months.
    (d) Dormant derivatives clearing organization means any derivatives 
clearing organization registered pursuant to Section 5b of the Act that 
has not accepted for clearing any agreement, contract or transaction 
that is required or permitted to be cleared by a

[[Page 497]]

derivatives clearing organization under Sections 5b(a) and 5b(b) of the 
Act, respectively, for a period of twelve complete calendar months; 
provided, however, no derivatives clearing organization shall be 
considered to be dormant if its initial and original Commission order of 
registration was issued within the preceding 36 complete calendar 
months.
    (e) Dormant derivatives transaction execution facility means any 
derivatives transaction execution facility on which no trading has 
occurred for a period of twelve complete calendar months; provided, 
however, no derivatives transaction execution facility shall be 
considered to be dormant if its initial and original Commission order of 
designation was issued within the preceding 36 complete calendar months.
    (f) Dormant rule means:
    (1) Any registered entity rule which remains unimplemented for 
twelve complete calendar months following a certification with, or an 
approval by, the Commission; or
    (2) Any rule or rule amendment of a dormant designated contract 
market, derivatives transaction execution facility or derivatives 
clearing organization.
    (g) Emergency means any occurrence or circumstance that, in the 
opinion of the governing board of a registered entity, or a person or 
persons duly authorized to issue such an opinion on behalf of the 
governing board of a registered entity under circumstances and pursuant 
to procedures that are specified by rule, requires immediate action and 
threatens or may threaten such things as the fair and orderly trading 
in, or the liquidation of or delivery pursuant to, any agreements, 
contracts or transactions, including:
    (1) Any manipulative or attempted manipulative activity;
    (2) Any actual, attempted, or threatened corner, squeeze, 
congestion, or undue concentration of positions;
    (3) Any circumstances which may materially affect the performance of 
agreements, contracts or transactions, including failure of the payment 
system or the bankruptcy or insolvency of any participant;
    (4) Any action taken by any governmental body, or any other 
registered entity, board of trade, market or facility which may have a 
direct impact on trading; and
    (5) Any other circumstance which may have a severe, adverse effect 
upon the functioning of a registered entity.
    (h) Rule means any constitutional provision, article of 
incorporation, bylaw, rule, regulation, resolution, interpretation, 
stated policy, term and condition, trading protocol, agreement or 
instrument corresponding thereto, in whatever form adopted, and any 
amendment or addition thereto or repeal thereof, made or issued by a 
registered entity or by the governing board thereof or any committee 
thereof, except those provisions relating to the setting of levels of 
margin for commodities other than those subject to the provisions of 
Section 2(a)(1)(C)(v) of the Act and security futures as defined in 
Section 1a(31) of the Act.
    (i) Terms and conditions mean any definition of the trading unit or 
the specific commodity underlying a contract for the future delivery of 
a commodity or commodity option contract, specification of cash 
settlement or delivery standards and procedures, and establishment of 
buyers' and sellers' rights and obligations under the contract. Terms 
and conditions include provisions relating to the following:
    (1) Quality and other standards that define the commodity or 
instrument underlying the contract;
    (2) Quantity standards or other provisions related to contract size;
    (3) Any applicable premiums or discounts for delivery of nonpar 
products;
    (4) Trading hours, trading months and the listing of contracts;
    (5) The pricing basis and minimum price fluctuations;
    (6) Any price limits, trading halts, or circuit breaker provisions, 
and procedures for the establishment of daily settlement prices;
    (7) Position limits, position accountability standards, and position 
reporting requirements;
    (8) Delivery points and locational price differentials;

[[Page 498]]

    (9) Delivery standards and procedures, including fees related to 
delivery or the delivery process, alternatives to delivery and 
applicable penalties or sanctions for failure to perform;
    (10) If cash settled; all provisions related to the definition, 
composition, calculation and revision of the cash settlement price or 
index; and
    (11) Payment or collection of commodity option premiums or margins.

[71 FR 1967, Jan. 12, 2006, as amended at 73 FR 8604, Feb. 14, 2008; 74 
FR 12202, Mar. 23, 2009]



Sec. 40.2  Listing and accepting products for trading or clearing by certification.

    (a) Unless permitted otherwise by Sec. 37.7 of this chapter, a 
designated contract market or a registered derivatives transaction 
execution facility must comply with the submission requirements of this 
section prior to listing a product for trading that has not been 
approved under Sec. 40.3 of this chapter or that remains dormant 
subsequent to being submitted under this section or approved under Sec. 
40.3 of this chapter. A registered derivatives clearing organization 
must comply with the submission requirements of this section prior to 
accepting for clearing a product that is not traded on a designated 
contract market, derivatives transaction execution facility or 
derivatives clearing organization and has not been approved for clearing 
under Sec. 40.5 of this chapter or that remains dormant subsequent to 
being submitted under this section or approved under Sec. 40.5 of this 
chapter. A submission shall comply with the following conditions:
    (1) The designated contract market or derivatives transaction 
execution facility has filed its submission electronically in a format 
specified by the Secretary of the Commission with the Secretary of the 
Commission at [email protected], the relevant branch chief at the 
regional office having local jurisdiction over the registered entity, 
and, for filings submitted by a designated contract market or registered 
derivatives transaction execution facility, the Division of Market 
Oversight at [email protected];
    (2) The Commission has received the submission at its headquarters 
by the open of business on the business day preceding the product's 
listing or acceptance for clearing; and
    (3) The submission includes:
    (i) A copy of the submission cover sheet in accordance with the 
instructions in appendix D to this part;
    (ii) A copy of the product's rules, including all rules related to 
its terms and conditions, or the rules establishing the terms and 
conditions of the listed product that make it acceptable for clearing;
    (iii) The intended listing date; and
    (iv) A certification by the designated contract market or 
derivatives transaction execution facility that the product to be listed 
complies with the Act and regulations thereunder.
    (v) A request for confidential treatment as permitted under the 
procedures of 40.8.
    (b) A registered entity shall provide, if requested by Commission 
staff, additional evidence, information or data relating to whether any 
contract meets, initially or on a continuing basis, any of the 
requirements of the Act or Commission rules or policies thereunder which 
may be beneficial to the Commission in conducting a due diligence 
assessment of the product and the entity's compliance with these 
requirements.
    (c) Stay. The Commission may stay the listing of a contract pursuant 
to paragraph (a) of this section during the pendency of Commission 
proceedings for filing a false certification or to alter or amend the 
contract terms and conditions pursuant to Section 8a(7) of the Act. The 
decision to stay the listing of a contract in such circumstances shall 
not be delegable to any employee of the Commission.

[71 FR 1968, Jan. 12, 2006, as amended at 73 FR 8605, Feb. 14, 2008; 74 
FR 12202, Mar. 23, 2009; 74 FR 17394, Apr. 15, 2009]



Sec. 40.3  Voluntary submission of new products for Commission review and approval.

    (a) Request for approval. Pursuant to Section 5c(c) of the Act and 
Sec. Sec. 37.7 and

[[Page 499]]

38.4 of this chapter, a designated contract market or registered 
derivatives transaction execution facility may request that the 
Commission approve a new or dormant product prior to listing the product 
for trading, or if initially submitted under Sec. 40.2 of this chapter, 
subsequent to listing the product for trading. A submission requesting 
approval shall:
    (1) Be filed electronically with the Secretary of the Commission and 
at the regional office of the Commission having local jurisdiction over 
the submitting designated contract market or registered derivatives 
transaction execution facility in a format specified by the Secretary of 
the Commission;
    (2) Include a copy of the submission cover sheet in accordance with 
the instructions in appendix D to this part;
    (3) Include a copy of the rules that set forth the contract's terms 
and conditions;
    (4) Comply with the requirements of appendix A to this part--
Guideline No. 1. To demonstrate compliance, the submission shall 
include:
    (i) An explanation, if not self-evident from the rules, as to how 
the specific terms and conditions satisfy the acceptable practices set 
forth in Guideline No. 1, appendix A to part 40. This information may be 
provided in narrative form or by completion of the applicable chart.
    (ii) For physical delivery contracts, an explanation as to how the 
terms and conditions as a whole will result in a deliverable supply such 
that the contract will not be conducive to price manipulation or 
distortion and that the deliverable supply reasonably can be expected to 
be available to short traders and salable by long traders at its market 
value in normal cash marketing channels.
    (iii) For cash settled contracts, an explanation as to how the cash 
settlement of the contract is at a price reflecting the underlying cash 
market, will not be subject to manipulation or distortion, and is based 
on a cash price series that is reliable, acceptable, publicly available 
and timely.
    (iv)(A) A brief description of the cash market for the commodity, 
instrument, index or interest that underlies the contract. The 
description may include materials prepared by the designated contract 
market or registered derivatives transaction execution facility, 
existing studies by industry trade groups, academics, governmental 
bodies or other entities, reports of consultants, or other materials, 
which provide a description of the underlying cash market.
    (B) The cash market description may, however, be confined only to 
those aspects relevant to particular term(s) or condition(s) that differ 
from an existing contract, where a contract based on the same, or a 
closely related, commodity is already listed for trading and is not 
dormant.
    (5) Describe any agreements or contracts entered into with other 
parties that enable the designated contract market or derivatives 
transaction execution facility to carry out its responsibilities.
    (6) Include the certifications required in Sec. 41.22 for product 
approval of a commodity that is a security future or a security futures 
product as defined in Sections 1a(31) or 1a(32) of the Act, 
respectively;
    (7) Include a request for confidential treatment as permitted under 
the procedures of Sec. 40.8.
    (8) Include the filing fee required under appendix B to this part; 
and
    (9) Include, if requested by Commission staff, additional evidence, 
information or data relating to whether the contract meets, initially or 
on a continuing basis, any of the specific requirements of the Act, or 
any other requirement for designation under the Act or Commission 
regulations or policies thereunder.
    (b) Forty-five day review. All products submitted for Commission 
approval under this paragraph shall be deemed approved by the Commission 
forty-five days after receipt by the Commission, or at the conclusion of 
such extended period as provided under paragraph (c) of this section, 
unless notified otherwise within the applicable period, if:
    (1) The submission complies with the requirements of paragraph (a) 
of this section; and
    (2) The submitting entity does not amend the terms or conditions of 
the product or supplement the request for approval, except as requested 
by the

[[Page 500]]

Commission or for correction of typographical errors, renumbering or 
other such nonsubstantive revisions, during that period. Any voluntary, 
substantive amendment by the submitting entity will be treated as a new 
submission under this section.
    (c) Extension of time. The Commission may extend the forty-five day 
review period in paragraph (b) of this section for:
    (1) An additional forty-five days, if the product raises novel or 
complex issues that require additional time for review or is of major 
economic significance, in which case, the Commission would notify the 
submitting designated contract market or registered derivatives 
transaction execution facility within the initial forty-five day review 
period and would briefly describe the nature of the specific issues for 
which additional time for review would be required; or
    (2) Such extended period as the submitting designated contract 
market or registered derivatives transaction execution facility so 
instructs the Commission in writing.
    (d) Notice of non-approval. The Commission at any time during its 
review under this section may notify the submitting entity that it will 
not, or is unable to, approve the product or instrument. This 
notification will briefly specify the nature of the issues raised and 
the specific provision of the Act or regulations, including the form or 
content requirements of paragraph (a) of this section, that the product 
would violate, appears to violate or the violation of which cannot be 
ascertained from the submission.
    (e) Effect of non-approval. (1) Notification to a submitting entity 
under paragraph (d) of this section of the Commission's refusal to 
approve a product or instrument does not prejudice the entity from 
subsequently submitting a revised version of the product or instrument 
for Commission approval or from submitting the product or instrument as 
initially proposed pursuant to a supplemented submission.
    (2) Notification to a submitting registered entity under paragraph 
(d) of this section of the Commission's refusal to approve a product 
shall be presumptive evidence that the entity may not truthfully certify 
under Sec. 40.2 that the same, or substantially the same, product does 
not violate the Act or regulations thereunder.

[66 FR 42283, Aug. 10, 2001, as amended at 67 FR 62879, Oct. 9, 2002; 69 
FR 67505, Nov. 18, 2004; 71 FR 1968, Jan. 12, 2006; 73 FR 8605, Feb. 14, 
2008; 74 FR 12202, Mar. 23, 2009; 74 FR 17394, Apr. 15, 2009]



Sec. 40.4  Amendments to terms or conditions of enumerated agricultural contracts.

    (a) Notwithstanding the provisions of this part, a designated 
contract market must submit for Commission approval under the procedures 
of Sec. 40.5, prior to its implementation, any rule or dormant rule 
that, for a delivery month having open interest, would materially change 
a term or condition, as defined in Sec. 40.1(i), of a contract for 
future delivery in an agricultural commodity enumerated in Section 1a(4) 
of the Act, or of an option on such a contract or commodity.
    (b) The following rules or rule amendments are not material changes 
and, except as provided in paragraph (b)(9) of this section, may be 
reported to the Commission pursuant to the provisions of Sec. 40.6(c):
    (1) Changes in trading hours;
    (2) For each delivery location, changes in lists of approved 
delivery facilities and delivery service providers, including 
weighmasters and inspectors, pursuant to previously set standards or 
criteria;
    (3) Changes to terms and conditions of options on futures other than 
those relating to last trading day, expiration date, option strike price 
delistings, and speculative position limits;
    (4) Reductions in the minimum price fluctuation (or ``tick'');
    (5) Changes required to comply with a binding order of a court of 
competent jurisdiction, or of a rule, regulation or order of the 
Commission or of another federal regulatory authority;
    (6) Corrections of typographical errors, renumbering, periodic 
routine updates to identifying information about approved entities and 
other such nonsubstantive revisions of a product's terms and conditions 
that have no effect on the economic characteristics of the product;

[[Page 501]]

    (7) Fees or fee changes of less than $1.00 per contract;
    (8) Fees or fee changes that are $1.00 or more per contract and are 
established by an independent third party or are unrelated to delivery, 
trading, clearing or dispute resolution; and
    (9) Any other rule:
    (i) The text of which has been submitted for review to the Secretary 
of the Commission electronically in a format specified by the Secretary 
of the Commission, at least ten business days prior to its 
implementation and that has been labeled ``Non-Material Agricultural 
Rule Change;''
    (ii) For which the designated contract market has provided an 
explanation as to why it considers the rule ``non-material,'' and any 
other information that may be beneficial to the Commission in analyzing 
the merits of the entity's claim of non-materiality; and
    (iii) With respect to which the Commission has not notified the 
contract market during the review period that the rule appears to 
require or does require prior approval under this section.

[71 FR 1969, Jan. 12, 2006, as amended at 73 FR 8605, Feb. 14, 2008; 74 
FR 12202, Mar. 23, 2009]



Sec. 40.5  Voluntary submission of rules for Commission review and approval.

    (a) Request for approval of rules. Pursuant to Section 5c(c) of the 
Act and Sec. Sec. 37.7, 38.4 and 39.4 of this chapter, a registered 
entity may request that the Commission approve a new or dormant rule 
prior to implementation, or if initially submitted under Sec. Sec. 40.2 
or 40.6 of this chapter, subsequent to implementation. A submission 
requesting approval shall:
    (1) Be filed electronically with the Secretary of the Commission and 
at the regional office of the Commission having local jurisdiction over 
the registered entity in a format specified by the Secretary of the 
Commission.
    (2) Include a copy of the submission cover sheet in accordance with 
the instructions in appendix D to this part;
    (3) Set forth the text of the proposed rule or rule amendment (in 
the case of a rule amendment, deletions and additions must be 
indicated);
    (4) Describe the proposed effective date of a proposed rule and any 
action taken or anticipated to be taken to adopt the proposed rule by 
the registered entity or by its governing board or by any committee 
thereof, and cite the rules of the entity that authorize the adoption of 
the proposed rule;
    (5) Explain the operation, purpose, and effect of the proposed rule, 
including, as applicable, a description of the anticipated benefits to 
market participants or others, any potential anticompetitive effects on 
market participants or others, how the rule fits into the registered 
entity's framework of self-regulation, a demonstration that the 
submission complies with the requirements of appendix A to this part--
Guideline No. 1, and any other information which may be beneficial to 
the Commission in analyzing the proposed rule. If a proposed rule 
affects, directly or indirectly, the application of any other rule of 
the submitting registered entity, set forth the pertinent text of any 
such rule and describe the anticipated effect;
    (6) Briefly describe any substantive opposing views expressed to the 
registered entity by governing board or committee members, members of 
the entity or market participants with respect to the proposed rule that 
were not incorporated into the proposed rule;
    (7) Identify any Commission regulation that the Commission may need 
to amend, or sections of the Act or Commission regulations that the 
Commission may need to interpret, in order to approve the proposed rule. 
To the extent that such an amendment or interpretation is necessary to 
accommodate a proposed rule, the submission should include a reasoned 
analysis supporting the amendment to the Commission regulation or the 
interpretation;
    (8) Include a request for confidential treatment as permitted under 
the procedures of Sec. 40.8.
    (9) Include a copy of the submission cover sheet in accordance with 
the instructions in appendix D to this part.
    (b) Forty-five day review. All rules submitted for Commission 
approval under paragraph (a) of this section shall be deemed approved by 
the Commission under section 5c(c) of the Act,

[[Page 502]]

forty-five days after receipt by the Commission, or at the conclusion of 
such extended period as provided under paragraph (c) of this section, 
unless notified otherwise within the applicable period, if:
    (1) The submission complies with the requirements of paragraphs 
(a)(1)(i) through (vi) of this section, and
    (2) The submitting entity does not amend the proposed rule or 
supplement the submission, except as requested by the Commission, during 
the pendency of the review period. Any amendment or supplementation not 
requested by the Commission will be treated as the submission of a new 
filing under this section.
    (c) Commencement and extension of time for review. The Commission 
shall commence the review period in paragraph (b) of this section for a 
compliant submission under Sec. 40.4(b)(9) ten business days after its 
receipt and further may extend the review period in paragraph (b) of 
this section for any approval request for:
    (1) An additional forty-five days, if the proposed rule raises novel 
or complex issues that require additional time for review or is of major 
economic significance, in which case, the Commission would notify the 
submitting registered entity within the initial forty-five day review 
period and would briefly describe the nature of the specific issues for 
which additional time for review would be required; or
    (2) Such additional period as the submitting entity has so 
instructed the Commission in writing.
    (d) Notice of non-approval. The Commission at any time during its 
review under this section may notify the submitting entity that it will 
not, or is unable to, approve the proposed rule or rule amendment. This 
notification will briefly specify the nature of the issues raised and 
the specific provision of the Act or regulations, including the form or 
content requirements of this section, that the proposed rule would 
violate, appears to violate or the violation of which cannot be 
ascertained from the submission.
    (e) Effect of non-approval. (1) Notification to a registered entity 
under paragraph (d) of this section of the Commission's refusal to 
approve a proposed rule or rule amendment of a registered entity does 
not prejudice the entity from subsequently submitting a revised version 
of the proposed rule or rule amendment for Commission approval or from 
submitting the rule or rule amendment as initially proposed pursuant to 
a supplemented submission.
    (2) Notification to a registered entity under paragraph (d) of this 
section of the Commission's refusal to approve a proposed rule or rule 
amendment of a registered entity shall be presumptive evidence that the 
entity may not truthfully certify that the same, or substantially the 
same, proposed rule or rule amendment does not violate the Act or 
regulations thereunder.
    (f) Expedited approval. Notwithstanding the provisions of paragraph 
(b) of this section, changes to terms and conditions of a product that 
are consistent with the Act and Commission regulations and with 
standards approved or established by the Commission in a written 
notification to the registered entity of the applicability of this 
paragraph (f) shall be deemed approved by the Commission at such time 
and under such conditions as the Commission shall specify in the notice, 
provided, however, that the Commission may, at any time, alter or revoke 
the applicability of such a notice to any particular product.

[66 FR 42283, Aug. 10, 2001, as amended at 67 FR 62879, Oct. 9, 2002; 69 
FR 67505, Nov. 18, 2004; 71 FR 1969, Jan. 12, 2006; 73 FR 8605, Feb. 14, 
2008; 74 FR 17394, Apr. 15, 2009]



Sec. 40.6  Self-certification of rules.

    (a) Required certification. Unless permitted otherwise by Sec. 37.7 
of this chapter, a registered entity must comply with the following 
conditions prior to the implementation of any rule that has not obtained 
Commission approval under Sec. 40.5 of this chapter or that remains 
dormant subsequent to being submitted under this section or approved 
under Sec. 40.5 of this chapter:
    (1) The rule or rule amendment is not a rule or rule amendment of a 
designated contract market that materially changes a term or condition 
of a contract for future delivery of an agricultural commodity 
enumerated in section 1a(4) of the Act or an option on

[[Page 503]]

such a contract or commodity in a delivery month having open interest;
    (2) The registered entity has filed its submission electronically in 
a format specified by the Secretary of the Commission with the Secretary 
of the Commission at [email protected], the relevant branch chief at 
the regional office having local jurisdiction over the registered 
entity, and, for filings submitted by a designated contract market, 
registered derivatives transaction execution facility, or electronic 
trading facility on which significant price discovery contracts are 
traded or executed, the Division of Market Oversight at 
[email protected], and the Commission has received the submission 
at its headquarters by the open of business on the business day 
preceding implementation of the rule; provided, however, rules or rule 
amendments implemented under procedures of the governing board to 
respond to an emergency as defined in Sec. 40.1, shall, if practicable, 
be filed with the Commission prior to the implementation or, if not 
practicable, be filed with the Commission at the earliest possible time 
after implementation, but in no event more than twenty-four hours after 
implementation; and
    (3) The rule submission includes:
    (i) A copy of the submission cover sheet in accordance with the 
instructions in appendix D to this part (in the case of a rule or rule 
amendment that responds to an emergency, ``Emergency Rule 
Certification'' should be noted in the Description section of the 
submission coversheet);
    (ii) The text of the rule (in the case of a rule amendment, 
deletions and additions must be indicated);
    (iii) The date of implementation;
    (iv) A brief explanation of any substantive opposing views expressed 
to the registered entity by governing board or committee members, 
members of the entity or market participants, that were not incorporated 
into the rule; and
    (v) A certification by the registered entity that the rule complies 
with the Act and regulations thereunder.
    (vi) A request for confidential treatment as permitted under the 
procedures of 40.8.
    (4) The registered entity shall provide, if requested by Commission 
staff, additional evidence, information or data that may be beneficial 
to the Commission in conducting a due diligence assessment of the 
certification filing and the entity's compliance with any of the 
requirements of the Act or Commission regulations or policies 
thereunder.
    (b) Stay. The Commission may stay the effectiveness of a rule 
implemented pursuant to paragraph (a) of this section during the 
pendency of Commission proceedings for filing a false certification or 
to alter or amend the rule pursuant to section 8a(7) of the Act. The 
decision to stay the effectiveness of a rule in such circumstances shall 
not be delegable to any employee of the Commission.
    (c) Notification of rule amendments. Notwithstanding the rule 
certification requirement of Section 5c(c)(1) of the Act, and paragraphs 
(a)(1), (a)(2) and (a)(3) of this section, a registered entity may place 
the following rules or rule amendments into effect without certification 
to the Commission if the following conditions are met:
    (1) The registered entity provides to the Commission at least weekly 
a summary notice of all rule changes made effective pursuant to this 
paragraph during the preceding week. Such notice must be labeled 
``Weekly Notification of Rule Changes'' and need not be filed for weeks 
during which no such actions have been taken. One copy of each such 
submission shall be furnished electronically in a format specified by 
the Secretary of the Commission; and
    (2) The rule governs:
    (i) Nonmaterial revisions. Corrections of typographical errors, 
renumbering, periodic routine updates to identifying information about 
approved entities and other such nonsubstantive revisions of a product's 
terms and conditions that have no effect on the economic characteristics 
of the product;
    (ii) Delivery standards set by third parties. Changes to grades or 
standards of commodities deliverable on a product that are established 
by an independent third party and that are incorporated by reference as 
product terms, provided that the grade or standard is not established, 
selected or calculated solely for

[[Page 504]]

use in connection with futures or option trading and such changes do not 
affect deliverable supplies or the pricing basis for the product;
    (iii) Index products. Routine changes in the composition, 
computation, or method of selection of component entities of an index 
(other than routine changes to securities indexes to the extent that 
such changes are not described in paragraph (c)(3)(ii)(F) of this 
section) referenced and defined in the product's terms, that do not 
affect the pricing basis of the index, which are made by an independent 
third party whose business relates to the collection or dissemination of 
price information and which was not formed solely for the purpose of 
compiling an index for use in connection with a futures or option 
product;
    (iv) Option contract terms. Changes to option contract rules, which 
may qualify for implementation without notice pursuant to paragraph 
(c)(3)(ii)(G) of this section, relating to the strike price listing 
procedures, strike price intervals, and the listing of strike prices on 
a discretionary basis;
    (v) Fees. Fees or fee changes that are $1.00 or more per contract 
and are established by an independent third party or are unrelated to 
delivery, trading, clearing or dispute resolution.
    (vi) Survey lists. Changes to lists of banks, brokers, dealers, or 
other entities that provide price or cash market information to an 
independent third party and that are incorporated by reference as 
product terms.
    (vii) Approved brands. Changes in lists of approved brands or 
markings pursuant to previously certified or Commission approved 
standards or criteria;
    (viii) Delivery facilities and delivery service providers. Changes 
in lists of approved delivery facilities and delivery service providers 
(including weighmasters, assayers, and inspectors) at a delivery 
location, pursuant to previously certified or Commission approved 
standards or criteria; or
    (ix) Trading Months. The initial listing of trading months, which 
may qualify for implementation without notice pursuant to (c)(3)(ii)(H) 
of this section, within the currently established cycle of trading 
months.
    (3) Notification of rule amendments not required. Notwithstanding 
the rule certification requirements of section 5c(c)(1) of the Act and 
of paragraphs (a)(2) and (a)(3) of this section, registered entity may 
place the following rules or rule amendments into effect without 
certification or notice to the Commission if the following conditions 
are met:
    (i) The registered entity maintains documentation regarding all 
changes to rules; and
    (ii) The rule governs:
    (A) Transfer of membership or ownership. Procedures and forms for 
the purchase, sale or transfer of membership or ownership, but not 
including qualifications for membership or ownership, any right or 
obligation of membership or ownership or dues or assessments;
    (B) Administrative procedures. The organization and administrative 
procedures of a registered entity governing bodies such as a Board of 
Directors, Officers and Committees, but not voting requirements, Board 
of Directors or Committee composition requirements or procedures, use or 
disclosure of material non-public information gained through the 
performance of official duties, or requirements relating to conflicts of 
interest;
    (C) Administration. The routine, daily administration, direction and 
control of employees, requirements relating to gratuity and similar 
funds, but not guaranty, reserves, or similar funds; declaration of 
holidays, and changes to facilities housing the market, trading floor or 
trading area;
    (D) Standards of decorum. Standards of decorum or attire or similar 
provisions relating to admission to the floor, badges, or visitors, but 
not the establishment of penalties for violations of such rules; and
    (E) Fees. Fees or fee changes that are less than $1.00 or that 
relate to matters such as dues, badges, telecommunication services, 
booth space, real time quotations, historical information, publications, 
software licenses or other matters that are administrative in nature.
    (F) Securities Indexes. Routine changes to the composition, 
computation or method of security selection of an index that is 
referenced and defined

[[Page 505]]

in the product's rules, and which are made by an independent third 
party.
    (G) Option contract terms. For registered entities that are in 
compliance with the daily reporting requirements of Sec. 16.01 of this 
chapter, changes to option contract rules relating to the strike price 
listing procedures, strike price intervals, and the listing of strike 
prices on a discretionary basis.
    (H) Trading Months. For registered entities that are in compliance 
with the daily reporting requirements of Sec. 16.01 of this chapter, 
the initial listing of trading months which are within the currently 
established cycle of trading months.

[66 FR 42283, Aug. 10, 2001, as amended at 67 FR 62879, Oct. 9, 2002; 69 
FR 67505, Nov. 18, 2004; 71 FR 1970, Jan. 12, 2006; 73 FR 8605, Feb. 14, 
2008, 74 FR 12202, Mar. 23, 2009; 74 FR 17394, Apr. 15, 2009]



Sec. 40.7  Delegations.

    (a) Procedural matters--(1) Review of products or rules. The 
Commission hereby delegates, until it orders otherwise, to the Director 
of the Division of Clearing and Intermediary Oversight and separately to 
the Director of the Division of Market Oversight or to the Director's 
delegatee with the concurrence of the General Counsel or the General 
Counsel's delegatee, authority to request under Sec. 40.3(b)(2) or 
Sec. 40.5(b)(2) that the entity requesting approval amend the proposed 
product, rule or rule amendment or supplement the submission, to notify 
a submitting entity under Sec. 40.3(c) or Sec. 40.5(c) that the time 
for review has been extended, and to notify the submitting entity under 
Sec. 40.3(d) or Sec. 40.5(d) that the Commission is not approving, or 
is unable to approve, the proposed product, rule or rule amendment.
    (2) Emergency rules. The Commission hereby delegates authority to 
the Directors of Division of Market Oversight and Division of Clearing 
and Intermediary Oversight or the delegatees of the Directors, authority 
to receive notification and the required certification of emergency 
rules under Sec. 40.6(a)(2).
    (3) The Commission hereby delegates to the Director of the Division 
of Market Oversight or to the Director's delegate, with the concurrence 
of the General Counsel or the General Counsel's delegate, the authority 
to determine whether a rule change submitted by a DCM for a materiality 
determination under Sec. 40.4(b)(9) is not material (in which case it 
may be reported pursuant to the provisions of Sec. 40.6(c)), or is 
material, in which case he or she shall notify the DCM that the rule 
change must be submitted for the Commission's prior approval.
    (b) Approval authority. The Commission hereby delegates, until the 
Commission orders otherwise, to the Director of the Division of Clearing 
and Intermediary Oversight and separately to the Director of the 
Division of Market Oversight, with the concurrence of the General 
Counsel or the General Counsel's delegatee, to be exercised by either of 
such Directors or by such other employee or employees of the Commission 
under the supervision of such Directors as may be designated from time 
to time by the Directors, the authority to approve, pursuant to section 
5c(c)(3) of the Act and Sec. 40.5, rules or rule amendments of a 
registered entity that:
    (1) Relate to, but do not substantially change, the quantity, 
quality, or other delivery specifications, procedures, or obligations 
for delivery, cash settlement, or exercise under an agreement, contract 
or transaction approved for trading by the Commission; daily settlement 
prices; clearing position limits; requirements or procedures for 
governance of a registered entity; procedures for transfer trades; 
trading hours; minimum price fluctuations; and maximum price limit and 
trading suspension provisions;
    (2) Reflect routine modifications that are required or anticipated 
by the terms of the rule of a registered entity;
    (3) Establish or amend speculative limits or position accountability 
provisions that are in compliance with the requirements of the Act and 
Commission regulations;
    (4) Are in substance the same as a rule of the same or another 
registered entity which has been approved previously by the Commission 
pursuant to section 5c(c)(3) of the Act;
    (5) Are consistent with a specific, stated policy or interpretation 
of the Commission; or

[[Page 506]]

    (6) Relate to the listing of additional trading months of approved 
contracts.
    (c) The Directors may submit to the Commission for its consideration 
any matter that has been delegated pursuant to paragraph (a) or (b) of 
this section.
    (d) Nothing in this section shall be deemed to prohibit the 
Commission, at its election, from exercising the authority delegated in 
paragraph (a) or (b) of this section to the Directors.

[66 FR 42283, Aug. 10, 2001, as amended at 67 FR 62352, Oct. 7, 2002; 67 
FR 62880, Oct. 9, 2002; 71 FR 1971, Jan. 12, 2006; 74 FR 12203, Mar. 23, 
2009]



Sec. 40.8  Availability of public information.

    (a) The following sections of all applications to become a 
designated contract market, derivatives execution transaction facility 
or designated clearing organization will be public: transmittal letter, 
proposed rules, the applicant's regulatory compliance chart, documents 
establishing the applicant's legal status, documents setting forth the 
applicant's governance structure, and any other part of the application 
not covered by a request for confidential treatment.
    (b) The following submissions required by Sec. 36.3(c)(4) of this 
chapter by an electronic trading facility on which significant price 
discovery contracts are traded or executed will be public: rulebook, the 
facility's regulatory compliance chart, documents establishing the 
facility's legal status, documents setting forth the facility's 
governance structure, and any other parts of the submissions not covered 
by a request for confidential treatment.
    (c) Any information required to be made publicly available by a 
registered entity under Sections 5(d)(7), 5a(d)(4) and 5b(c)(2)(L) of 
the Act, respectively, will be treated as public information by the 
Commission at the time an order of designation or registration is issued 
by the Commission, a registered entity is deemed to be designated or 
registered, or a rule or rule amendment of the registered entity is 
approved or deemed to be approved by the Commission or can first be made 
effective the day following its certification by the registered entity.
    (d) Commission staff will not consider requests for confidential 
treatment of information that is required to be made public under 
section 5(d)(7) of the Act of Commission regulations Sec. 40.3(a)(7) or 
Sec. 40.5(a)(8).

[67 FR 62880, Oct. 9, 2002, as amended at 69 FR 67505, Nov. 18, 2004; 71 
FR 1971, Jan. 12, 2006; 74 FR 17394, Apr. 15, 2009]

    Editorial Note: At 74 FR 17394, Apr. 15, 2009, Sec. 40.8 was 
amended by adding (c); however, the amendment could not be incorporated 
because (c) already exists.



               Sec. Appendix A to Part 40--Guideline No. 1

 (a) Application for Designation of Physical Delivery Futures Contracts

    A board of trade shall submit:
    (1) The rules setting froth the terms and conditions of the futures 
contract.
    (2) A description of the cash market for the commodity on which the 
contract is based.
    (i) The description may include, in addition to or in lieu of 
materials prepared by the board of trade, existing studies by industry 
trade groups, academics, governmental bodies or other entities, reports 
of consultants, or other materials which provide a description of the 
underlying cash market.
    (ii) Where the same, or a closely related commodity, is already 
designated as a contract market which and is not dormant, the cash 
market description can be confined to those aspects relevant to 
particular term(s) or condition(s) which differ from such existing 
contract.
    (3) A demonstration that the terms and conditions, as a whole, will 
result in a deliverable supply such that the contract will not be 
conducive to price manipulation or distortion and that the deliverable 
supply reasonably can be expected to be available to short traders and 
salable by long traders at its market value in normal cash marketing 
channels.
    For purposes of this demonstration, provide the following 
information in chart or narrative form.

[[Page 507]]



                                          Contract Terms and Conditions
----------------------------------------------------------------------------------------------------------------
                                                                                               Explanation as to
                                                                              Rule number of   consistency with,
                                                              Exchange          identical        or reason for
                   Term or condition                          proposal           approved        variance from
                                                                            provision, if any     cash market
                                                                                   \1\              practice
----------------------------------------------------------------------------------------------------------------
1. Commodity characteristics (e.g., grade, quality,      .................  .................  .................
 weight, class, growth, issuer, origin, maturity,
 source, rating, etc.).................................
2. Any quality differentials for nonpar deliveries, or   .................  .................  .................
 lack thereof..........................................
3. Delivery points/region..............................  .................  .................  .................
4. Any locational differentials for nonpar deliveries,   .................  .................  .................
 or lack thereof.......................................
5. Delivery facilities (type, number, capacity,          .................  .................  .................
 ownership)............................................
6. Contract size and/or trading unit...................  .................  .................  .................
7. Delivery pack or composition of delivery units......  .................  .................  .................
8. Delivery instrument (e.g., warehouse receipt,         .................  .................  .................
 shipping certificate, bill of lading).................
9. Transportation terms (e.g., FOB, CIF, prepay freight  .................  .................  .................
 to destination).......................................
10. Delivery procedures................................  .................  .................  .................
11. Delivery months....................................  .................  .................  .................
12. Delivery period and last trading day...............  .................  .................  .................
13. Inspection/certification procedures (verification    .................  .................  .................
 of delivery eligibility, any discounts applied for
 age)..................................................
14. Minimum price change (tick) equal to or less than    .................  .................  .................
 cash market minimum price increment...................
15. Daily price limit provisions (note relationship to   .................  .................  .................
 cash market price movements)..........................
----------------------------------------------------------------------------------------------------------------
   DELIVERABLE SUPPLIES \2\--ESTIMATE OF DELIVERABLE
   SUPPLIES FOR TRADING MONTH(S) WITH LOWEST SUPPLIES
ESTIMATION METHODOLOGY.................................  .................  .................  .................
----------------------------------------------------------------------------------------------------------------
\1\ If an identical provision has been approved for a nondormant contract in the same commodity, there is no
  need to provide an explanation in the next column.
\2\ No estimate of deliverable supply is needed if a previously designated nondormant contract is trading. Also,
  no justification of the spot month limit is needed if the limit is the same as that approved by the Commission
  for an identical contract in that commodity (relative to the quantity or value of the identical contract).
  Where more than one contract is based on the same underlying commodity or instrument, positions should be
  combined for purposes of applying speculative limits.


                               Terms and Conditions Related to Speculative Limits
----------------------------------------------------------------------------------------------------------------
                                                                                                Level  (exchange
               Speculative limit                                   Standard                          rule)
----------------------------------------------------------------------------------------------------------------
1. Spot month..................................  No greater than one-fourth of estimated       .................
                                                  deliverable supply.
2. Nonspot individual month or all months        5,000 contract..............................  .................
 combined (financial and energy contract).
3. Nonspot individual month or all months        1,000 contracts.............................  .................
 combined (tangible commodity contracts).
4. Reporting level.............................  Equal to or less than levels specified in     .................
                                                  CFTC rule 15.03.
5. Aggregation rule............................  Same as CFTC rule 150.5(g) or previously      .................
                                                  approved language.
----------------------------------------------------------------------------------------------------------------

    (4) As specifically requested, such additional evidence, information 
or data relating to whether the contract meets, initially or on a 
continuing basis, any of the specific requirements of the Act, including 
the public interest standard contained in Section 5(7) of the Act, and 
whether the contract reasonably can be expected to be, or has been, used 
for hedging and/or price basing on more than an occasional basis, or any 
other requirement for designation under the Act or Commission rules and 
policies.

           (b) Application for Cash Settled Futures Contracts

    A board of trade shall submit:
    (1) The rules setting forth the terms and conditions of the proposed 
futures contract.
    (2) A description of the cash market for the commodity on which the 
contract is based.
    (i) The description may include, in addition to or in lieu of 
materials prepared by the board of trade, existing studies by industry 
trade groups, academics, governmental bodies or other entities, reports 
of consultants, or other materials which provide a description of the 
underlying cash market.

[[Page 508]]

    (ii) Where the same, or a closely related commodity, is already 
designated as a contract market which is not dormant, the cash market 
description can be confined to those aspects relevant to particular 
term(s) or conditions(s) which differ from such existing contract.
    (3) A demonstration that cash settlement of the contract is at a 
price reflecting the underlying cash market, will not be subject to 
manipulation or distortion, and is based on a cash price series that is 
reliable, acceptable, publicly available and timely.
    For purposes of this demonstration, provide the following 
information in chart or narrative form.

                                          Contract Terms and Conditions
----------------------------------------------------------------------------------------------------------------
                                                                                               Explanation as to
                                                                              Rule number of   consistency with,
                                                                                identical        or reason for
                   Term or condition                                             approved        variance from,
                                                                            provision, if any     cash market
                                                                                   \1\              practice
----------------------------------------------------------------------------------------------------------------
1. Commodity characteristics (e.g., grade, quality,      .................  .................  .................
 weight, class, growth, issuer, maturity, source,
 rating, etc.).........................................
2. Delivery months, noting any cyclical variations in    .................  .................  .................
 trading activity that may affect the potential for
 manipulating the cash settlement price................
3. Last trading day....................................  .................  .................  .................
4. Contract size.......................................  .................  .................  .................
5. Minimum price change (tick).........................  .................  .................  .................
6. Daily price limit provisions, relative to cash
 market price movements................................
----------------------------------------------------------------------------------------------------------------
\1\ If an identical provision has been approved for a nondormant contract in the same commodity, there is not
  need to provide an explanation in the next column.


      Terms and Conditions Related to Cash Settlement Price Series
------------------------------------------------------------------------
                                      Rule number of
                                        identical        Explanation or
            Requirement                  approved        justification
                                        provision
------------------------------------------------------------------------
1. Where an independent third       .................  .................
 party calculate the cash
 settlement price series, evidence
 that the third party does not
 object to its use and provides
 safeguards against susceptibility
 to manipulation..................
2. Where board of trade generates   .................  .................
 cash settlement rice series,
 specifications of calculation
 procedure and safeguards in cash
 settlement process to protect
 against susceptibility to
 manipulation (e.g., if self-
 generated survey, polling sample
 representative of cash market,
 but with a minimum of 4
 nontrading entities or 8 entities
 that trade for own account)......
3. Procedure for, and timeliness    .................  .................
 of, dissemination to public......
4. Evidence that price is reliable  .................  .................
 indicator of cash market values
 and acceptable for hedging.......
------------------------------------------------------------------------


                               Terms and Conditions Related to Speculative Limits
----------------------------------------------------------------------------------------------------------------
                                                                                                Level  (exchange
               Speculative limit                                   Standard                          rule)
----------------------------------------------------------------------------------------------------------------
1. Spot month..................................  Must be no greater than necessary to          .................
                                                  minimize the potential for manipulation or
                                                  distortion of the contract's or the
                                                  underlying commodity's price.
2. Nonspot individual month or all months        5,000 contracts.............................  .................
 combined (financial and energy contracts).
3. Nonspot individual month or all months        1,000 contracts.............................  .................
 combined (tangible commodity contracts).
4. Reporting level.............................  Equal to or less than levels specified in     .................
                                                  CFTC rule 15.03.
5. Aggregation rule............................  Same as CFTC rule 150.5(g) or previously      .................
                                                  approved language.
----------------------------------------------------------------------------------------------------------------

    (4) As specifically requested, such additional evidence, information 
or data relating to whether the contract meets, initially or on a 
continuing basis, any of the specific requirements of the Act, including 
the public interest standard contained in Section 5(7) of the Act, and 
whether the contract reasonably can be expected to be, or has been, used 
for hedging and/or price basing on more than

[[Page 509]]

an occasional basis, or any other requirement for designation under the 
Act or Commission rules and policies.

                  (c) Application for Option Contracts

    A board of trade shall submit:
    (1) The rules setting forth the terms and conditions of the proposed 
option contract.
    (2)(i) For options on futures contracts, the terms and conditions of 
the proposed or existing underlying futures contract.
    (2)(ii) For options on physical commodities:
    (A) A description of the cash market for the commodity on which the 
contract is based.
    (1) The description may include, in addition to or in lieu of 
material prepared by the board of trade: existing studies by industry 
trade groups, academics, governmental bodies or other entities; 
promotional or marketing materials prepared by or for the board of 
trade; reports of consultants; or other materials which provide a 
description of the underlying cash market.
    (2) Where the same, or a closely related commodity, is already 
designated and is not dormant, the cash market description can be 
confined to those aspects relevant to particular term(s) or condition(s) 
which differ from such existing contract.
    (B) Depending on the method of settling the option, the relevant 
chart for either a physical delivery or cash settled futures contract.
    (3) The following completed chart.

                                              Terms and Conditions
----------------------------------------------------------------------------------------------------------------
                                                                                               Justification for
                                                                                                  not meeting
                                  Applicable CFTC                            Met by exchange   standard, or rule
           Criterion               Rule (17 CFR)           Standard            rule number         number of
                                                                                                   identical
                                                                                                 approved rule
----------------------------------------------------------------------------------------------------------------
1. Speculative limits..........  150.5............  Combined net position   .................  .................
                                                     in futures and
                                                     options on a futures-
                                                     equivalent basis at
                                                     the futures position
                                                     levels, with inter-
                                                     month spread
                                                     exemptions that are
                                                     consistent with those
                                                     of the futures
                                                     contracts or
                                                     consistent with
                                                     Commission Rule
                                                     150.5(e) for
                                                     underlying future.
2. Aggregation rule............  150.4............  Same as Rule 150.5(g)   .................  .................
                                                     or previously
                                                     approved language.
3. Reporting level.............  15.00(b)(2)......  50 contracts or fewer.  .................  .................
4. Strike prices (number listed  33.4(b)(1).......  Procedures for routine  .................  .................
 & increments).                                      listing of strikes
                                                     are specified and
                                                     automatic, provisions
                                                     for listing
                                                     discretionary strikes
                                                     are specified.
5. Option expiration & last      33.4(b)(2).......  Except for options on   .................  .................
 trading day.                                        cash-settled futures
                                                     contracts, expiration
                                                     is not less than one
                                                     business day before
                                                     the earlier of the
                                                     last trading day or
                                                     the first notice day
                                                     of the underlying
                                                     future.
6. Minimum tick................  33.4(d)..........  Equal to, or less       .................  .................
                                                     than, the underlying
                                                     futures tick.
7. Daily price limit, if         33.4(d)..........  Equal to, or greater    .................  .................
 specified.                                          than, the underlying
                                                     futures price limit.
----------------------------------------------------------------------------------------------------------------

    (4) As specifically requested, such additional evidence, information 
or data relating to whether the contract meets, initially or on a 
continuing basis, any of the specific requirements of the Act, including 
the public interest standard contained in Section 5(7) of the Act, or 
any other requirement for designation under the Act or Commission rules 
and policies.

[64 FR 29221, June 1, 1999. Redesignated at 66 FR 42287, Aug. 10, 2001]



              Sec. Appendix B to Part 40--Schedule of Fees

    (a) Applications for product approval. Each application for product 
approval under Sec. 40.3 must be accompanied by a check or money order 
made payable to the Commodity Futures Trading Commission in an amount to 
be determined annually by the Commission and published in the Federal 
Register.
    (b) Checks and applications should be sent to the attention of the 
Office of the Secretariat, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. No checks 
or money orders may be accepted by

[[Page 510]]

personnel other than those in the Office of the Secretariat.
    (c) Failure to submit the fee with an application for product 
approval will result in return of the application. Fees will not be 
returned after receipt.



                  Sec. Appendix C to Part 40 [Reserved]



   Sec. Appendix D to Part 40--Submission Cover Sheet and Instructions

    A properly completed submission cover sheet must accompany all rule 
submissions submitted electronically by a registered entity to the 
Secretary of the Commodity Futures Trading Commission, at 
[email protected] in a format specified by the Secretary of the 
Commission.
    Each submission should include the following:
    1. Identifier Code (optional)--If applicable, the exchange or 
clearing organization Identifier Code at the top of the cover sheet. 
Such codes are commonly generated by the exchanges or clearing 
organizations to provide an identifier that is unique to each filing 
(e.g., NYMEX Submission 03-116).
    2. Date--The date of the filing.
    3. Organization--The name of the organization filing the submission 
(e.g., CBOT).
    4. Filing as a--Check the appropriate box for a designated contract 
market (DCM), derivatives clearing organization (DCO), derivatives 
transaction execution facility (DTEF), or electronic trading facility 
with a significant price discovery contract (ECM-SPDC).
    5. Type of Filing--Indicate whether the filing is a rule amendment 
or new product and the applicable category under that heading.
    6. Rule Numbers--For rule filings only, identify rule number(s) 
being adopted or modified in the case of rule amendment filings.
    7. Description--For rule or rule amendment filings only, enter a 
brief description of the new rule or rule amendment. This narrative 
should describe the substance of the submission with enough specificity 
to characterize all essential aspects of the filing.
    8. Other Requirements--Comply with all filing requirements for the 
underlying proposed rule or rule amendment. The filing of the submission 
cover sheet does not obviate the responsibility to comply with any 
applicable filing requirement (e.g., rules submitted for Commission 
approval under Sec. 40.5 must be accompanied by an explanation of the 
purpose and effect of the proposed rule along with a description of any 
substantive opposing views). Rules submitted for Commission approval 
under Sec. 40.5 must be accompanied by an explanation of the purpose 
and effect of the proposed rule along with a description of any 
substantive opposing views). Checking the box marked ``confidential 
treatment requested'' on the Submission Cover Sheet does not obviate the 
submitter's responsibility to comply with all applicable requirements 
for requesting confidential treatment in rule 40.8(c) and, where 
appropriate, rule 145.9, and will not substitute for notice or full 
compliance with such requirements.

[74 FR 12203, Mar. 23, 2009, as amended at 74 FR 17394, Apr. 15, 2009]



PART 41_SECURITY FUTURES PRODUCTS--Table of Contents



                      Subpart A_General Provisions

Sec.
41.1 Definitions.
41.2 Required records.
41.3 Application for an exemptive order pursuant to section 4f(a)(4)(B) 
          of the Act.
41.4-41.9 [Reserved]

                 Subpart B_Narrow-Based Security Indexes

41.11 Method for determining market capitalization and dollar value of 
          average daily trading volume; application of the definition of 
          narrow-based security index.
41.12 Indexes underlying futures contracts trading for fewer than 30 
          days.
41.13 Futures contracts on security indexes trading on or subject to the 
          rules of a foreign board of trade.
41.14 Transition period for indexes that cease being narrow-based 
          security indexes.
41.15 Exclusion from definition of narrow-based security index for 
          indexes composed of debt securities.

   Subpart C_Requirements and Standards for Listing Security Futures 
                                Products

41.21 Requirements for underlying securities.
41.22 Required certifications.
41.23 Listing of security futures products for trading.
41.24 Rule amendments to security futures products.
41.25 Additional conditions for trading for security futures products.
41.27 Prohibition of dual trading in security futures products by floor 
          brokers.

    Subpart D_Notice_Designated Contract Markets in Security Futures 
                                Products

41.31 Notice-designation requirements.
41.32 Continuing obligations.
41.33 Applications for exemptive orders.
41.34 Exempt provisions.

[[Page 511]]

           Subpart E_Customer Accounts and Margin Requirements

41.41 Security futures products accounts.
41.42 Customer margin requirements for security futures--authority, 
          purpose, interpretation, and scope.
41.43 Definitions.
41.44 General provisions.
41.45 Required margin.
41.46 Type, form and use of margin.
41.47 Withdrawal of margin.
41.48 Undermargined accounts.
41.49 Filing proposed margin rule changes with the Commission.

    Authority: Sections 206, 251 and 252, Pub. L. 106-554, 114 Stat. 
2763, 7 U.S.C. 1a, 2, 6f, 6j, 7a-2, 12a; 15 U.S.C. 78g(c)(2).

    Source: 66 FR 44511, Aug. 23, 2001, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 41.1  Definitions.

    For purposes of this part:
    (a) Alternative trading system shall have the meaning set forth in 
section 1a(1) of the Act.
    (b) Board of trade shall have the meaning set forth in section 1a(2) 
of the Act.
    (c) Broad-based security index means a group or index of securities 
that does not constitute a narrow-based security index.
    (d) Foreign board of trade means a board of trade located outside of 
the United States, its territories or possessions, whether incorporated 
or unincorporated, where foreign futures or foreign options are entered 
into.
    (e) Narrow-based security index has the same meaning as in section 
1a(25) of the Commodity Exchange Act.
    (f) National securities association means a board of trade 
registered with the Securities and Exchange Commission pursuant to 
section 15A(a) of the Securities Exchange Act of 1934.
    (g) National securities exchange means a board of trade registered 
with the Securities and Exchange Commission pursuant to section 6(a) of 
the Securities Exchange Act of 1934.
    (h) Rule shall have the meaning set forth in Commission regulation 
40.1.
    (i) Security futures product shall have the meaning set forth in 
section 1a(32) of the Act.
    (j) Opening price means the price at which a security opened for 
trading, or a price that fairly reflects the price at which a security 
opened for trading, during the regular trading session of the national 
securities exchange or national securities association that lists the 
security. If the security is not listed on a national securities 
exchange or a national securities association, then opening price shall 
mean the price at which a security opened for trading, or a price that 
fairly reflects the price at which a security opened for trading, on the 
primary market for the security.
    (k) Regular trading session of a security means the normal hours for 
business of a national securities exchange or national securities 
association that lists the security.
    (l) Regulatory halt means a delay, halt, or suspension in the 
trading of a security, that is instituted by the national securities 
exchange or national securities association that lists the security, as 
a result of:
    (1) A determination that there are matters relating to the security 
or issuer that have not been adequately disclosed to the public, or that 
there are regulatory problems relating to the security which should be 
clarified before trading is permitted to continue; or
    (2) The operation of circuit breaker procedures to halt or suspend 
trading in all equity securities trading on that national securities 
exchange or national securities association.

[66 FR 44511, Aug. 23, 2001, as amended at 66 FR 44965, Aug. 27, 2001; 
67 FR 36761, May 24, 2002]



Sec. 41.2  Required records.

    A designated contract market or registered derivatives transaction 
execution facility that trades a security index or security futures 
product shall maintain in accordance with the requirements of Sec. 1.31 
books and records of all activities related to the trading of such 
products, including: Records related to any determination under subpart 
B of this part whether or not a futures contract on a security index is 
a narrow-based security index or a broad-based security index.

[[Page 512]]



Sec. 41.3  Application for an exemptive order pursuant to section 4f(a)(4)(B) of the Act.

    (a) Any futures commission merchant or introducing broker registered 
in accordance with the notice registration provisions of Sec. 3.10 of 
this chapter, or any broker or dealer exempt from floor broker or floor 
trader registration pursuant to section 4f(a)(3) of the Act, may apply 
to the Commission for an order pursuant to section 4f(a)(4)(B) of the 
Act granting exemption to such person from any provision of the Act or 
the Commission's regulations other than sections 4c(b), 4c(d), 4c(e), 
4c(g), 4d, 4e, 4h, 4f(b), 4f(c), 4j, 4k(1), 4p, 6d, 8(d), 8(g), and 16 
of the Act and the rules thereunder.
    (b) An application pursuant to this section must set forth in 
writing or in an electronic mail message the following information:
    (1) The name, main business address and main business telephone 
number of the person applying for an order;
    (2) The capacity in which the person is registered with the 
Securities and Exchange Commission and the person's CRD number (if a 
member of the National Association of Securities Dealers, Inc.) or 
equivalent self-regulatory organization identification, together with a 
certification, if true, that the person's registration is not suspended 
pursuant to an order of the Securities and Exchange Commission;
    (3) The particular section(s) of the Act and/or provision(s) of the 
Commission's regulations with respect to which the person seeks 
exemption;
    (4) Any provision(s) of the securities laws or rules, or of the 
rules of a securities self-regulatory organization analogous to the 
provision(s);
    (5) A clear explanation of the facts and circumstances under which 
the person believes that the requested exemptive relief is necessary or 
appropriate in the public interest; and
    (6) A clear explanation of the extent to which the requested 
exemptive relief is consistent with the protection of investors.
    (c) A national securities exchange or other securities industry 
self-regulatory organization may submit an application for an order 
pursuant to this section on behalf of its members.
    (d) An application for an order must be submitted to the Director of 
the Division of Clearing and Intermediary Oversight, Commodity Futures 
Trading Commission, 1155 21st Street, NW., Washington, DC 20581, if in 
paper form, or to [email protected] if submitted via electronic mail.
    (e) The Commission may, in its sole discretion, grant the 
application, deny the application, decline to entertain the application, 
or grant the application subject to one or more conditions.

[66 FR 43086, Aug. 17, 2001. Redesignated at 67 FR 53171, Aug. 14, 2002, 
as amended at 67 FR 62352, Oct. 7, 2002]



Sec. Sec. 41.4-41.9  [Reserved]



                 Subpart B_Narrow-Based Security Indexes



Sec. 41.11  Method for determining market capitalization and dollar value of

average daily trading volume; application of the definition of narrow-based 
          security index.

    (a) Market capitalization. For purposes of Section 1a(25)(B) of the 
Act (7 U.S.C. 1a(25)(B)):
    (1) On a particular day, a security shall be 1 of 750 securities 
with the largest market capitalization as of the preceding 6 full 
calendar months when it is included on a list of such securities 
designated by the Commission and the SEC as applicable for that day.
    (2) In the event that the Commission and the SEC have not designated 
a list under paragraph (a)(1) of this section:
    (i) The method to be used to determine market capitalization of a 
security as of the preceding 6 full calendar months is to sum the values 
of the market capitalization of such security for each U.S. trading day 
of the preceding 6 full calendar months, and to divide this sum by the 
total number of such trading days.
    (ii) The 750 securities with the largest market capitalization shall 
be identified from the universe of all NMS securities as defined in 
Sec. 242.600 that are common stock or depositary shares.
    (b) Dollar value of ADTV. (1) For purposes of Section 1a(25)(A) and 
(B) of the Act (7 U.S.C. 1a(25)(A) and (B)):

[[Page 513]]

    (i)(A) The method to be used to determine the dollar value of ADTV 
of a security is to sum the dollar value of ADTV of all reported 
transactions in such security in each jurisdiction as calculated 
pursuant to paragraphs (b)(1)(ii) and (iii) of this section.
    (B) The dollar value of ADTV of a security shall include the value 
of all reported transactions for such security and for any depositary 
share that represents such security.
    (C) The dollar value of ADTV of a depositary share shall include the 
value of all reported transactions for such depositary share and for the 
security that is represented by such depositary share.
    (ii) For trading in a security in the United States, the method to 
be used to determine the dollar value of ADTV as of the preceding 6 full 
calendar months is to sum the value of all reported transactions in such 
security for each U.S. trading day during the preceding 6 full calendar 
months, and to divide this sum by the total number of such trading days.
    (iii)(A) For trading in a security in a jurisdiction other than the 
United States, the method to be used to determine the dollar value of 
ADTV as of the preceding 6 full calendar months is to sum the value in 
U.S. dollars of all reported transactions in such security in such 
jurisdiction for each trading day during the preceding 6 full calendar 
months, and to divide this sum by the total number of trading days in 
such jurisdiction during the preceding 6 full calendar months.
    (B) If the value of reported transactions used in calculating the 
ADTV of securities under paragraph (b)(1)(iii)(A) is reported in a 
currency other than U.S. dollars, the total value of each day's 
transactions in such currency shall be converted into U.S. dollars on 
the basis of a spot rate of exchange for that day obtained from at least 
one independent entity that provides or disseminates foreign exchange 
quotations in the ordinary course of its business.
    (iv) The dollar value of ADTV of the lowest weighted 25% of an index 
is the sum of the dollar value of ADTV of each of the component 
securities comprising the lowest weighted 25% of such index.
    (2) For purposes of Section 1a(25)(B)(III)(cc) of the Act (7 U.S.C. 
1a(25)(B)(III)(cc)):
    (i) On a particular day, a security shall be 1 of 675 securities 
with the largest dollar value of ADTV as of the preceding 6 full 
calendar months when it is included on a list of such securities 
designated by the Commission and the SEC as applicable for that day.
    (ii) In the event that the Commission and the SEC have not 
designated a list under paragraph (b)(2)(i) of this section:
    (A) The method to be used to determine the dollar value of ADTV of a 
security as of the preceding 6 full calendar months is to sum the value 
of all reported transactions in such security in the United States for 
each U.S. trading day during the preceding 6 full calendar months, and 
to divide this sum by the total number of such trading days.
    (B) The 675 securities with the largest dollar value of ADTV shall 
be identified from the universe of all NMS securities as defined in 
Sec. 242.600 that are common stock or depositary shares.
    (c) Depositary Shares and Section 12 Registration. For purposes of 
Section 1a(25)(B)(III)(aa) of the Act (7 U.S.C. 1a(25)(B)(III)(aa)), the 
requirement that each component security of an index be registered 
pursuant to Section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 
78l) shall be satisfied with respect to any security that is a 
depositary share if the deposited securities underlying the depositary 
share are registered pursuant to Section 12 of the Securities Exchange 
Act of 1934 and the depositary share is registered under the Securities 
Act of 1933 (15 U.S.C. 77a et seq.) on Form F-6 (17 CFR 239.36).
    (d) Definitions. For purposes of this section:
    (1) SEC means the Securities and Exchange Commission.
    (2) Closing price of a security means:
    (i) If reported transactions in the security have taken place in the 
United States, the price at which the last transaction in such security 
took place in the regular trading session of the principal market for 
the security in the United States.

[[Page 514]]

    (ii) If no reported transactions in a security have taken place in 
the United States, the closing price of such security shall be the 
closing price of any depositary share representing such security divided 
by the number of shares represented by such depositary share.
    (iii) If no reported transactions in a security or in a depositary 
share representing such security have taken place in the United States, 
the closing price of such security shall be the price at which the last 
transaction in such security took place in the regular trading session 
of the principal market for the security. If such price is reported in a 
currency other than U.S. dollars, such price shall be converted into 
U.S. dollars on the basis of a spot rate of exchange relevant for the 
time of the transaction obtained from at least one independent entity 
that provides or disseminates foreign exchange quotations in the 
ordinary course of its business.
    (3) Depositary share has the same meaning as in Sec. 240.12b-2.
    (4) Foreign financial regulatory authority has the same meaning as 
in Section 3(a)(52) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(52)).
    (5) Lowest weighted 25% of an index. With respect to any particular 
day, the lowest weighted component securities comprising, in the 
aggregate, 25% of an index's weighting for purposes of Section 
1a(25)(A)(iv) of the Act (7 U.S.C. 1a(25)(A)(iv)) (``lowest weighted 25% 
of an index'') means those securities:
    (i) That are the lowest weighted securities when all the securities 
in such index are ranked from lowest to highest based on the index's 
weighting methodology; and
    (ii) For which the sum of the weight of such securities is equal to, 
or less than, 25% of the index's total weighting.
    (6) Market capitalization of a security on a particular day:
    (i) If the security is not a depositary share, is the product of:
    (A) The closing price of such security on that same day; and
    (B) The number of outstanding shares of such security on that same 
day.
    (ii) If the security is a depositary share, is the product of:
    (A) The closing price of the depositary share on that same day 
divided by the number of deposited securities represented by such 
depositary share; and
    (B) The number of outstanding shares of the security represented by 
the depositary share on that same day.
    (7) Outstanding shares of a security means the number of outstanding 
shares of such security as reported on the most recent Form 10-K, Form 
10-Q, Form 10-KSB, Form 10-QSB, or Form 20-F (17 CFR 249.310, 249.308a, 
249.310b, 249.308b, or 249.220f) filed with the Securities and Exchange 
Commission by the issuer of such security, including any change to such 
number of outstanding shares subsequently reported by the issuer on a 
Form 8-K (17 CFR 249.308).
    (8) Preceding 6 full calendar months means, with respect to a 
particular day, the period of time beginning on the same day of the 
month 6 months before and ending on the day prior to such day.
    (9) Principal market for a security means the single securities 
market with the largest reported trading volume for the security during 
the preceding 6 full calendar months.
    (10) Reported transaction means:
    (i) With respect to securities transactions in the United States, 
any transaction for which a transaction report is collected, processed, 
and made available pursuant to an effective transaction reporting plan, 
or for which a transaction report, last sale data, or quotation 
information is disseminated through an automated quotation system as 
described in Section 3(a)(51)(A)(ii) of the Securities Exchange Act of 
1934 (15 U.S.C. 78c(a)(51)(A)(ii)); and
    (ii) With respect to securities transactions outside the United 
States, any transaction that has been reported to a foreign financial 
regulatory authority in the jurisdiction where such transaction has 
taken place.
    (11) U.S. trading day means any day on which a national securities 
exchange is open for trading.
    (12) Weighting of a component security of an index means the 
percentage of such index's value represented, or

[[Page 515]]

accounted for, by such component security.

[66 FR 44511, Aug. 23, 2001, as amended at 70 FR 43750, July 29, 2005]



Sec. 41.12  Indexes underlying futures contracts trading for fewer than 30 days.

    (a) An index on which a contract of sale for future delivery is 
trading on a designated contract market, registered derivatives 
transaction execution facility, or foreign board of trade is not a 
narrow-based security index under Section 1a(25) of the Act (7 U.S.C. 
1a(25)) for the first 30 days of trading, if:
    (1) Such index would not have been a narrow-based security index on 
each trading day of the preceding 6 full calendar months with respect to 
a date no earlier than 30 days prior to the commencement of trading of 
such contract;
    (2) On each trading day of the preceding 6 full calendar months with 
respect to a date no earlier than 30 days prior to the commencement of 
trading such contract:
    (i) Such index had more than 9 component securities;
    (ii) No component security in such index comprised more than 30 
percent of the index's weighting;
    (iii) The 5 highest weighted component securities in such index did 
not comprise, in the aggregate, more than 60 percent of the index's 
weighting; and
    (iv) The dollar value of the trading volume of the lowest weighted 
25% of such index was not less than $50 million (or in the case of an 
index with 15 or more component securities, $30 million); or
    (3) On each trading day of the 6 full calendar months preceding a 
date no earlier than 30 days prior to the commencement of trading such 
contract:
    (i) Such index had at least 9 component securities;
    (ii) No component security in such index comprised more than 30 
percent of the index's weighting; and
    (iii) Each component security in such index was:
    (A) Registered pursuant to Section 12 of the Securities Exchange Act 
of 1934 (15 U.S.C. 78) or was a depositary share representing a security 
registered pursuant to Section 12 of the Securities Exchange Act of 
1934;
    (B) 1 of 750 securities with the largest market capitalization that 
day; and
    (C) 1 of 675 securities with the largest dollar value of trading 
volume that day.
    (b) An index that is not a narrow-based security index for the first 
30 days of trading pursuant to paragraph (a) of this section, shall 
become a narrow-based security index if such index has been a narrow-
based security index for more than 45 business days over 3 consecutive 
calendar months.
    (c) An index that becomes a narrow-based security index solely 
because it was a narrow-based security index for more than 45 business 
days over 3 consecutive calendar months pursuant to paragraph (b) of 
this section shall not be a narrow-based security index for the 
following 3 calendar months.
    (d) Definitions. For purposes of this section:
    (1) Market capitalization has the same meaning as in Sec. 
41.11(d)(6) of this chapter.
    (2) Dollar value of trading volume of a security on a particular day 
is the value in U.S. dollars of all reported transactions in such 
security on that day. If the value of reported transactions used in 
calculating dollar value of trading volume is reported in a currency 
other than U.S. dollars, the total value of each day's transactions 
shall be converted into U.S. dollars on the basis of a spot rate of 
exchange for that day obtained from at least one independent entity that 
provides or disseminates foreign exchange quotations in the ordinary 
course of its business.
    (3) Lowest weighted 25% of an index has the same meaning as in Sec. 
41.11(d)(5) of this chapter.
    (4) Preceding 6 full calendar months has the same meaning as in 
Sec. 41.11(d)(8) of this chapter.
    (5) Reported transaction has the same meaning as in Sec. 
41.11(d)(10) of this chapter.



Sec. 41.13  Futures contracts on security indexes trading on or subject to the 

rules of a foreign board of trade.

    When a contract of sale for future delivery on a security index is 
traded on or subject to the rules of a foreign board of trade, such 
index shall not be a narrow-based security index if it

[[Page 516]]

would not be a narrow-based security index if a futures contract on such 
index were traded on a designated contract market or registered 
derivatives transaction execution facility.



Sec. 41.14  Transition period for indexes that cease being narrow-based security indexes.

    (a) Forty-five day tolerance provision. An index that is a narrow-
based security index that becomes a broad-based security index for no 
more than 45 business days over 3 consecutive calendar months shall be a 
narrow-based security index.
    (b) Transition period for indexes that cease being narrow-based 
security indexes for more than forty-five days. An index that is a 
narrow-based security index that becomes a broad-based security index 
for more than 45 business days over 3 consecutive calendar months shall 
continue to be a narrow-based security index for the following 3 
calendar months.
    (c) Trading in months with open interest following transition 
period. After the transition period provided for in paragraph (b) of 
this section ends, a national securities exchange may continue to trade 
only in those months in the security futures product that had open 
interest on the date the transition period ended.
    (d) Definition of calendar month. Calendar month means, with respect 
to a particular day, the period of time beginning on a calendar date and 
ending during another month on a day prior to such date.



Sec. 41.15  Exclusion from definition of narrow-based security index for 

indexes composed of debt securities.

    (a) An index is not a narrow-based security index if:
    (1)(i) Each of the securities of an issuer included in the index is 
a security, as defined in section 2(a)(1) of the Securities Act of 1933 
and section 3 (a)(10) of the Securities Exchange Act of 1934 and the 
respective rules promulgated thereunder, that is a note, bond, 
debenture, or evidence of indebtedness;
    (ii) None of the securities of an issuer included in the index is an 
equity security, as defined in section 3(a)(11) of the Securities 
Exchange Act of 1934 and the rules promulgated thereunder;
    (iii) The index is comprised of more than nine securities that are 
issued by more than nine non-affiliated issuers;
    (iv) The securities of any issuer included in the index do not 
comprise more than 30 percent of the index's weighting;
    (v) The securities of any five non-affiliated issuers included in 
the index do not comprise more than 60 percent of the index's weighting;
    (vi) Except as provided in paragraph (a)(1)(viii) of this section, 
for each security of an issuer included in the index one of the 
following criteria is satisfied:
    (A) The issuer of the security is required to file reports pursuant 
to section 13 or section 15(d) of the Securities Exchange Act of 1934;
    (B) The issuer of the security has a worldwide market value of its 
outstanding common equity held by non-affiliates of $700 million or 
more;
    (C) The issuer of the security has outstanding securities that are 
notes, bonds, debentures, or evidences of indebtedness having a total 
remaining principal amount of at least $1 billion;
    (D) The security is an exempted security as defined in section 
3(a)(12) of the Securities Exchange Act of 1934 and the rules 
promulgated thereunder; or
    (E) The issuer of the security is a government of a foreign country 
or a political subdivision of a foreign country; and
    (vii) Except as provided in paragraph (a)(1)(viii) of this section, 
for each security of an issuer included in the index one of the 
following criteria is satisfied:
    (A) The security has a total remaining principal amount of at least 
$250,000,000; or
    (B) The security is a municipal security (as defined in section 
3(a)(29) of the Securities Exchange Act of 1934 and the rules 
promulgated thereunder) that has a total remaining principal amount of 
at least $200,000,000 and the issuer of such municipal security has 
outstanding securities that are notes, bonds, debentures, or evidences 
of indebtedness having a total remaining principal amount of at least $1 
billion; and

[[Page 517]]

    (viii) Paragraphs (a)(1)(vi) and (a)(1)(vii) of this section will 
not apply to securities of an issuer included in the index if:
    (A) All securities of such issuer included in the index represent 
less than five percent of the index's weighting; and
    (B) Securities comprising at least 80 percent of the index's 
weighting satisfy the provisions of paragraphs (a)(1)(vi) and 
(a)(1)(vii) of this section.
    (2)(i) The index includes exempted securities, other than municipal 
securities as defined in section 3(a)(29) of the Securities Exchange Act 
of 1934 and the rules promulgated thereunder, that are:
    (A) Notes, bonds, debentures, or evidences of indebtedness; and
    (B) Not equity securities, as defined in section 3(a)(11) of the 
Securities Exchange Act of 1934 and the rules promulgated thereunder; 
and
    (ii) Without taking into account any portion of the index composed 
of such exempted securities, other than municipal securities, the 
remaining portion of the index would not be a narrow-based security 
index meeting all the conditions under paragraph (a)(1) of this section.
    (b) For purposes of this section:
    (1) An issuer is affiliated with another issuer if it controls, is 
controlled by, or is under common control with, that issuer.
    (2) For purposes of this section, ``control'' means ownership of 20 
percent or more of an issuer's equity, or the ability to direct the 
voting of 20 percent or more of the issuer's voting equity.
    (3) The term ``issuer'' includes a single issuer or group of 
affiliated issuers.

[71 FR 39541, July 13, 2006]



   Subpart C_Requirements and Standards for Listing Security Futures 
                                Products

    Source: 66 FR 55083, Nov. 1, 2001, unless otherwise noted.



Sec. 41.21  Requirements for underlying securities.

    (a) Security futures products based on a single security. A futures 
contract on a single security is eligible to be traded as a security 
futures product only if:
    (1) The underlying security is registered pursuant to Section 12 of 
the Securities Exchange Act of 1934;
    (2) The underlying security is:
    (i) Common stock,
    (ii) Such other equity security as the Commission and the SEC 
jointly deem appropriate, or
    (iii) A note, bond, debenture, or evidence of indebtedness; and
    (3) The underlying security conforms with the listing standards for 
the security futures product that the designated contract market or 
registered derivatives transaction execution facility has filed with the 
SEC under Section 19(b) of the Securities Exchange Act of 1934.
    (b) Security futures product based on two or more securities. A 
futures contract on an index of two or more securities is eligible to be 
traded as a security futures product only if:
    (1) The index is a narrow-based security index as defined in Section 
1a(25) of the Act;
    (2) The securities in the index are registered pursuant to Section 
12 of the Securities Exchange Act of 1934;
    (3) The securities in the index are:
    (i) Common stock,
    (ii) Such other equity securities as the Commission and the SEC 
jointly deem appropriate, or
    (iii) A note, bond, debenture, or evidence of indebtedness; and
    (4) The index conforms with the listing standards for the security 
futures product that the designated contract market or registered 
derivatives transaction execution facility has filed with the SEC under 
Section 19(b) of the Securities Exchange Act of 1934.

[66 FR 55083, Nov. 1, 2001, as amended at 71 FR 39542, July 13, 2006]



Sec. 41.22  Required certifications.

    It shall be unlawful for a designated contract market or registered 
derivatives transaction execution facility to list for trading or 
execution a security futures product unless the designated contract 
market or registered derivatives transaction execution facility has

[[Page 518]]

provided the Commission with a certification that the specific security 
futures product or products and the designated contract market or 
registered derivatives transaction execution facility meet, as 
applicable, the following criteria:
    (a) The underlying security or securities satisfy the requirements 
of Sec. 41.21;
    (b) If the security futures product is not cash settled, 
arrangements are in place with a clearing agency registered pursuant to 
section 17A of the Securities Exchange Act of 1934 for the payment and 
delivery of the securities underlying the security futures product;
    (c) Common clearing. [Reserved]
    (d) Only futures commission merchants, introducing brokers, 
commodity trading advisors, commodity pool operators or associated 
persons subject to suitability rules comparable to those of a national 
securities association registered pursuant to section 15A(a) of the 
Securities Exchange Act of 1934 and the rules and regulations 
thereunder, except to the extent otherwise permitted under the 
Securities Exchange Act of 1934 and the rules and regulations 
thereunder, may solicit, accept any order for, or otherwise deal in any 
transaction in or in connection with security futures products;
    (e) If the board of trade is a designated contract market pursuant 
to section 5 of the Act or is a registered derivatives transaction 
execution facility pursuant to section 5a of the Act, dual trading in 
these security futures products is restricted in accordance with Sec. 
41.27;
    (f) Trading in the security futures products is not readily 
susceptible to manipulation of the price of such security futures 
product, nor to causing or being used in the manipulation of the price 
of any underlying security, option on such security, or option on a 
group or index including such securities, consistent with the conditions 
for trading of Sec. 41.25;
    (g) Procedures are in place for coordinated surveillance among the 
board of trade, any market on which any security underlying a security 
futures product is traded, and other markets on which any related 
security is traded to detect manipulation and insider trading. A board 
of trade that is an alternative trading system does not need to make 
this certification, provided that:
    (1) The alternative trading system is a member of a national 
securities association registered pursuant to section 15A(a) of the 
Securities Exchange Act of 1934 or national securities exchange 
registered pursuant to section 6(a) of the Securities Exchange Act of 
1934; and
    (2) The national securities association or national securities 
exchange of which the alternative trading system is a member has in 
place such procedures;
    (h) An audit trail is in place to facilitate coordinated 
surveillance among the board of trade, any market on which any security 
underlying a security futures product is traded, and any market on which 
any related security is traded. A board of trade that is an alternative 
trading system does not need to make this certification, provided that:
    (1) The alternative trading system is a member of a national 
securities association registered pursuant to section 15A(a) of the 
Securities Exchange Act of 1934 or national securities exchange 
registered pursuant to section 6(a) of the Securities Exchange Act of 
1934; and
    (2) The national securities association or national securities 
exchange of which the alternative trading system is a member has in 
place such procedures;
    (i) Procedures are in place to coordinate regulatory trading halts 
between the board of trade and markets on which any security underlying 
the security futures product is traded and other markets on which any 
related security is traded. A board of trade that is an alternative 
trading system does not need to make this certification, provided that:
    (1) The alternative trading system is a member of a national 
securities association registered pursuant to section 15A(a) of the 
Securities Exchange Act of 1934 or national securities exchange 
registered pursuant to section 6(a) of the Securities Exchange Act of 
1934; and
    (2) The national securities association or national securities 
exchange of which the alternative trading system is a member has in 
place such procedures; and

[[Page 519]]

    (j) The margin requirements for the security futures product will 
comply with the provisions specified in Sec. 41.43 through Sec. 41.48.



Sec. 41.23  Listing of security futures products for trading.

    (a) Initial listing of products for trading. To list new security 
futures products for trading, a designated contract market or registered 
derivatives transaction execution facility shall submit to the 
Commission at its Washington, DC headquarters, either in electronic or 
hard-copy form, to be received by the Commission no later than the day 
prior to the initiation of trading, a filing that:
    (1) Is labeled ``Listing of Security Futures Product;''
    (2) Includes a copy of the product's rules, including its terms and 
conditions;
    (3) Includes the certifications required by Sec. 41.22;
    (4) Includes a certification that the terms and conditions of the 
contract comply with the additional conditions for trading of Sec. 
41.25;
    (5) If the board of trade is a designated contract market pursuant 
to section 5 of the Act or a registered derivatives transaction 
execution facility pursuant to section 5a of the Act, it includes a 
certification that the security futures product complies with the Act 
and rules thereunder; and
    (6) Includes a copy of the submission cover sheet in accordance with 
the instructions in appendix D of part 40.
    (7) Includes a request for confidential treatment as permitted under 
the procedures of Sec. 40.8.
    (b) Voluntary submission of security futures products for Commission 
approval. A designated contract market or registered derivatives 
transaction execution facility may request that the Commission approve 
any security futures product under the procedures of Sec. 40.5 of this 
chapter, provided however that the registered entity shall include the 
certification required by Sec. 41.22 with its submission under Sec. 
40.5 of this chapter. Notice designated contract markets may not request 
Commission approval of security futures products.

[66 FR 55083, Nov. 1, 2001, as amended at 69 FR 67507, Nov. 18, 2004; 74 
FR 17394, Apr. 15, 2009]



Sec. 41.24  Rule amendments to security futures products.

    (a) Self-certification of rules and rule amendments by designated 
contract markets and registered derivatives clearing organizations. A 
designated contract market or registered derivatives clearing 
organization may implement any new rule or rule amendment relating to a 
security futures product by submitting to the Commission at its 
Washington, DC headquarters, either in electronic or hard-copy form, to 
be received by the Commission no later than the day prior to the 
implementation of the rule or rule amendment, a filing that:
    (1) Is labeled ``Security Futures Product Rule Submission;'
    (2) Includes a copy of the new rule or rule amendment;
    (3) Includes a certification that the designated contract market or 
registered derivatives clearing organization has filed the rule or rule 
amendment with the Securities and Exchange Commission, if such a filing 
is required;
    (4) If the board of trade is a designated contract market pursuant 
to section 5 of the Act or is a registered derivatives clearing 
organization pursuant to section 5b of the Act, it includes the 
documents and certifications required to be filed with the Commission 
pursuant to Sec. 40.6 of this chapter, including a certification that 
the security futures product complies with the Act and rules thereunder; 
and
    (5) Includes a copy of the submission cover sheet in accordance with 
the instructions in appendix D of part 40.
    (6) Includes a request for confidential treatment as permitted under 
the procedures of Sec. 40.8.
    (b) Self-certification of rules by registered derivatives 
transaction execution facilities. Notwithstanding Sec. 37.7 of this 
chapter, a registered derivatives transaction execution facility may 
only implement a new rule or rule amendment relating to a security 
futures product if the registered derivatives transaction execution 
facility has certified the rule

[[Page 520]]

or rule amendment pursuant to the procedures of paragraph (a) of this 
section.
    (c) Voluntary submission of rules for Commission review and 
approval. A designated contract market, registered derivatives 
transaction execution facility, or a registered derivatives clearing 
organization clearing security futures products may request that the 
Commission approve any rule or proposed rule or rule amendment relating 
to a security futures product under the procedures of Sec. 40.5 of this 
chapter, provided however that the registered entity shall include the 
certifications required by Sec. 41.22 with its submission under Sec. 
40.5 of this chapter. Notice designated contract markets may not request 
Commission approval of rules.

[66 FR 55083, Nov. 1, 2001, as amended at 69 FR 67507, Nov. 18, 2004; 74 
FR 17394, Apr. 15, 2009]



Sec. 41.25  Additional conditions for trading for security futures products.

    (a) Common provisions--(1) Reporting of data. The designated 
contract market or registered derivatives transaction execution facility 
shall comply with chapter 16 of this title requiring the daily reporting 
of market data.
    (2) Regulatory trading halts. The rules of a designated contract 
market or registered derivatives transaction execution facility that 
lists or trades one or more security futures products must include the 
following provisions:
    (i) Trading of a security futures product based on a single security 
shall be halted at all times that a regulatory halt has been instituted 
for the underlying security; and
    (ii) Trading of a security futures product based on a narrow-based 
security index shall be halted at all times that a regulatory halt has 
been instituted for one or more underlying securities that constitute 50 
percent or more of the market capitalization of the narrow-based 
security index.
    (3) Speculative position limits. The designated contract market or 
registered derivatives transaction execution facility shall have rules 
in place establishing position limits or position accountability 
procedures for the expiring futures contract month. The designated 
contract market or registered derivatives transaction execution facility 
shall,
    (i) Adopt a net position limit no greater than 13,500 (100-share) 
contracts applicable to positions held during the last five trading days 
of an expiring contract month; except where,
    (A) For security futures products where the average daily trading 
volume in the underlying security exceeds 20 million shares, or exceeds 
15 million shares and there are more than 40 million shares of the 
underlying security outstanding, the designated contract market or 
registered derivatives transaction execution facility may adopt a net 
position limit no greater than 22,500 (100-share) contracts applicable 
to positions held during the last five trading days of an expiring 
contract month; or
    (B) For security futures products where the average daily trading 
volume in the underlying security exceeds 20 million shares and there 
are more than 40 million shares of the underlying security outstanding, 
the designated contract market or registered derivatives transaction 
execution facility may adopt a position accountability rule. Upon 
request by the designated contract market or registered derivatives 
transaction execution facility, traders who hold net positions greater 
than 22,500 (100-share) contracts, or such lower level specified by 
exchange rules, must provide information to the exchange and consent to 
halt increasing their positions when so ordered by the exchange.
    (ii) For a security futures product comprised of more than one 
security, the criteria in paragraphs (a)(3)(i)(A) and (a)(3)(i)(B) of 
this section must apply to the security in the index with the lowest 
average daily trading volume.
    (iii) Exchanges may approve exemptions from these position limits 
pursuant to rules that are consistent with Sec. 150.3 of this chapter.
    (iv) For purposes of this section, average daily trading volume 
shall be calculated monthly, using data for the most recent six-month 
period. If the data justify a higher or lower speculative limit for a 
security future, the designated contract market or registered

[[Page 521]]

derivatives transaction execution facility may raise or lower the 
position limit for that security future effective no earlier than the 
day after it has provided notification to the Commission and to the 
public under the submission requirements of Sec. 41.24. If the data 
require imposition of a reduced position limit for a security future, 
the designated contract market or registered derivatives transaction 
execution facility may permit any trader holding a position in 
compliance with the previous position limit, but in excess of the 
reduced limit, to maintain such position through the expiration of the 
security futures contract; provided that the designated contract market 
or registered derivatives transaction execution facility does not find 
that the position poses a threat to the orderly expiration of such 
contract.
    (b) Final settlement prices for security futures products. (1) The 
final settlement price of a cash-settled security futures product must 
fairly reflect the opening price of the underlying security or 
securities;
    (2) Notwithstanding paragraph (b)(1) of this section, if an opening 
price for one or more securities underlying a security futures product 
is not readily available, the final settlement price of the security 
futures product shall fairly reflect:
    (i) The price of the underlying security or securities during the 
most recent regular trading session for such security or securities; or
    (ii) The next available opening price of the underlying security or 
securities.
    (3) Notwithstanding paragraphs (b)(1) or (b)(2) of this section, if 
a derivatives clearing organization registered under Section 5b of the 
Act or a clearing agency exempt from registration pursuant to Section 
5b(a)(2) of the Act, to which the final settlement price of a security 
futures product is or would be reported determines, pursuant to its 
rules, that such final settlement price is not consistent with the 
protection of customers and the public interest, taking into account 
such factors as fairness to buyers and sellers of the affected security 
futures product, the maintenance of a fair and orderly market in such 
security futures product, and consistency of interpretation and 
practice, the clearing organization shall have the authority to 
determine, under its rules, a final settlement price for such security 
futures product.
    (c) Special requirements for physical delivery contracts. For 
security futures products settled by actual delivery of the underlying 
security or securities, payment and delivery of the underlying security 
or securities must be effected through a clearing agency that is 
registered pursuant to section 17A of the Securities Exchange Act of 
1934.
    (d) The Commission may exempt from the provisions of paragraphs 
(a)(2) and (b) of this section, either unconditionally or on specified 
terms and conditions, any designated contract market or registered 
derivatives transaction execution facility, if the Commission determines 
that such exemption is consistent with the public interest and the 
protection of customers. An exemption granted pursuant to this paragraph 
shall not operate as an exemption from any Securities and Exchange 
Commission rules. Any exemption that may be required from such rules 
must be obtained separately from the Securities and Exchange Commission.

[66 FR 55083, Nov. 1, 2001, as amended at 67 FR 36761, May 24, 2002]



Sec. 41.27  Prohibition of dual trading in security futures products by floor brokers.

    (a) Definitions. For purposes of this section:
    (1) Trading session means hours during which a designated contract 
market or registered derivatives transaction execution facility is 
scheduled to trade continuously during a trading day, as set forth in 
its rules, including any related post settlement trading session. A 
designated contract market or registered derivatives transaction 
execution facility may have more than one trading session during a 
trading day.
    (2) Member shall have the meaning set forth in section 1a(24) of the 
Act.
    (3) Broker association includes two or more designated contract 
market or registered derivatives transaction execution facility members 
with floor

[[Page 522]]

trading privileges of whom at least one is acting as a floor broker who:
    (i) Engage in floor brokerage activity on behalf of the same 
employer;
    (ii) Have an employer and employee relationship which relates to 
floor brokerage activity;
    (iii) Share profits and losses associated with their brokerage or 
trading activity; or
    (iv) Regularly share a deck of orders.
    (4) Customer means an account owner for which a trade is executed 
other than:
    (i) An account in which such floor broker has any interest;
    (ii) An account for which a floor broker has discretion;
    (iii) An account controlled by a person with whom a floor broker has 
a relationship through membership in a broker association;
    (iv) A house account of the floor broker's clearing member; or
    (v) An account for another member present on the floor of a 
designated contract market or registered derivatives transaction 
execution facility or an account controlled by such other member.
    (5) Dual trading means the execution of customer orders by a floor 
broker through open outcry during the same trading session in which the 
floor broker executes directly or by initiating and passing to another 
member, either through open outcry or through a trading system that 
electronically matches bids and offers pursuant to a predetermined 
algorithm, a transaction for the same security futures product on the 
same designated contract market or registered derivatives transaction 
execution facility for an account described in paragraphs (a)(4)(i)-(v) 
of this section.
    (b) Dual Trading Prohibition. (1) No floor broker shall engage in 
dual trading in a security futures product on a designated contract 
market or registered derivatives transaction execution facility, except 
as otherwise provided under paragraphs (d), (e), and (f) of this 
section.
    (2) A designated contract market or a registered derivatives 
transaction execution facility operating an electronic market or 
electronic trading system that provides market participants with a time 
or place advantage or the ability to override a predetermined algorithm 
must submit an appropriate rule proposal to the Commission consistent 
with the procedures set forth in Sec. 40.5. The proposed rule must 
prohibit electronic market participants with a time or place advantage 
or the ability to override a predetermined algorithm from trading a 
security futures product for accounts in which these same participants 
have any interest during the same trading session that they also trade 
the same security futures product for other accounts. This paragraph, 
however, is not applicable with respect to execution priorities or 
quantity guarantees granted to market makers who perform that function, 
or to market participants who receive execution priorities based on 
price improvement activity, in accordance with the rules governing the 
designated contract market or registered derivatives transaction 
execution facility.
    (c) Rules Prohibiting Dual Trading--(1) Designated contract markets. 
Prior to listing a security futures product for trading on a trading 
floor where bids and offers are executed through open outcry, a 
designated contract market:
    (i) Must submit to the Commission in accordance with Sec. 40.6, a 
rule prohibiting dual trading, together with a written certification 
that the rule complies with the Act and the regulations thereunder, 
including this section; or
    (ii) Must obtain Commission approval of such rule pursuant to Sec. 
40.5.
    (2) Registered derivatives transaction execution facilities. Prior 
to listing a security futures product for trading on a trading floor 
where bids and offers are executed through open outcry, a registered 
derivatives transaction execution facility:
    (i) Must notify the Commission in accordance with Sec. 37.7(b) that 
it has adopted a rule prohibiting dual trading; or
    (ii) Must obtain Commission approval of such rule pursuant to Sec. 
37.7(c).
    (d) Specific Permitted Exceptions. Notwithstanding the applicability 
of a dual trading prohibition under paragraph (b) of this section, dual 
trading may be permitted on a designated contract market or a registered 
derivatives transaction execution facility

[[Page 523]]

pursuant to one or more of the following specific exceptions:
    (1) Correction of errors. To offset trading errors resulting from 
the execution of customer orders, provided, that the floor broker must 
liquidate the position in his or her personal error account resulting 
from that error through open outcry or through a trading system that 
electronically matches bids and offers as soon as practicable, but, 
except as provided herein, not later than the close of business on the 
business day following the discovery of error. In the event that a floor 
broker is unable to offset the error trade because the daily price 
fluctuation limit is reached, a trading halt is imposed by the 
designated contract market or registered derivatives transaction 
execution facility, or an emergency is declared pursuant to the rules of 
the designated contract market or registered derivatives transaction 
execution facility, the floor broker must liquidate the position in his 
or her personal error account resulting from that error as soon as 
practicable thereafter.
    (2) Customer consent. To permit a customer to designate in writing 
not less than once annually a specifically identified floor broker to 
dual trade while executing orders for such customer's account. An 
account controller acting pursuant to a power of attorney may designate 
a dual trading broker on behalf of its customer, provided, that the 
customer explicitly grants in writing to the individual account 
controller the authority to select a dual trading broker.
    (3) Spread transactions. To permit a broker who unsuccessfully 
attempts to leg into a spread transaction for a customer to take the 
executed leg into his or her personal account and to offset such 
position, provided, that a record is prepared and maintained to 
demonstrate that the customer order was for a spread.
    (4) Market emergencies. To address emergency market conditions 
resulting in a temporary emergency action as determined by a designated 
contract market or registered derivatives transaction execution 
facility.
    (e) Rules Permitting Specific Exceptions--(1) Designated contract 
markets. Prior to permitting dual trading under any of the exceptions 
provided in paragraphs (d)(1)-(4) of this section, a designated contract 
market:
    (i) Must submit to the Commission in accordance with Sec. 40.6, a 
rule permitting the exception(s), together with a written certification 
that the rule complies with the Act and the regulations thereunder, 
including this section; or
    (ii) Must obtain Commission approval of such rule pursuant to Sec. 
40.5.
    (2) Registered derivatives transaction execution facilities. Prior 
to permitting dual trading under any of the exceptions provided in 
paragraphs (d)(1)-(4) of this section, a registered derivatives 
transaction execution facility:
    (i) Must notify the Commission in accordance with Sec. 37.7(b) that 
it has adopted a rule permitting the exception(s); or
    (ii) Must obtain Commission approval of such rule pursuant to Sec. 
37.7(c).
    (f) Unique or Special Characteristics of Agreements, Contracts, or 
Transactions, or of Designated Contract Markets or Registered 
Derivatives Transaction Execution Facilities. Notwithstanding the 
applicability of a dual trading prohibition under paragraph (b) of this 
section, dual trading may be permitted on a designated contract market 
or registered derivatives transaction execution facility to address 
unique or special characteristics of agreements, contracts, or 
transactions, or of the designated contract market or registered 
derivatives transaction execution facility as provided herein. Any rule 
of a designated contract market or registered derivatives transaction 
execution facility that would permit dual trading when it would 
otherwise be prohibited, based on a unique or special characteristic of 
agreements, contracts, or transactions, or of the designated contract 
market or registered derivatives transaction execution facility must be 
submitted to the Commission for prior approval under the procedures set 
forth in Sec. 40.5. The rule submission must include a detailed 
demonstration of why an exception is warranted.

[67 FR 11227, Mar. 13, 2002]

[[Page 524]]



    Subpart D_Notice-Designated Contract Markets in Security Futures 
                                Products

    Source: 66 FR 44965, Aug. 27, 2001, unless otherwise noted.



Sec. 41.31  Notice-designation requirements.

    (a) Any board of trade that is a national securities exchange, a 
national securities association, or an alternative trading system, and 
that seeks to operate as a designated contract market in security 
futures products under section 5f of the Act, shall so notify the 
Commission. Such notification shall be filed with the Secretary of the 
Commission at its Washington, D.C. headquarters, in either electronic or 
hard copy form, shall be labeled as ``Notice of Designation as a 
Contract Market in Security Futures Products,'' and shall include:
    (1) The name and address of the board of trade;
    (2) The name and telephone number of a contact person designated to 
receive communications from the Commission on behalf of the board of 
trade;
    (3) A description of the security futures products that the board of 
trade intends to make available for trading, including an identification 
of all facilities that would clear transactions in security futures 
products on behalf of the board of trade;
    (4) A copy of the current rules of the board of trade; and
    (5) A certification that the board of trade--
    (i) Will not list or trade any contracts of sale for future 
delivery, except for security futures products;
    (ii) Is registered with the Securities and Exchange Commission as a 
national securities exchange, national securities association, or 
alternative trading system, and such registration is not suspended 
pursuant to an order by the Securities and Exchange Commission;
    (iii) Will meet the criteria specified in subclauses (I) through 
(XI) of section 2(a)(1)(D)(i) of the Act, except as otherwise provided 
in section 2(a)(1)(D)(vi) of the Act, for each specific security futures 
product that the board of trade intends to make available for trading;
    (iv) Will comply with the conditions for designation under this 
section and section 5f of the Act, including a specific representation 
by any alternative trading system that it is a member of a futures 
association registered under section 17 of the Act; and
    (v) Will comply with the continuing obligations of regulation 41.32.
    (b) A board of trade which files notice with the Commission under 
this section shall be deemed a designated contract market in security 
futures products upon the Commission's receipt of such notice. 
Accordingly, the Commission shall send prompt acknowledgment of receipt 
to the filer.
    (c) Designation as a contract market in security futures products 
pursuant to this section shall be deemed suspended if the board of 
trade:
    (1) Lists or trades any contracts of sale for future delivery, 
except for security futures products; or
    (2) Has its registration as a national securities exchange, national 
securities association, or alternative trading system suspended pursuant 
to an order by the Securities and Exchange Commission.



Sec. 41.32  Continuing obligations.

    (a)(1) A board of trade designated as a contract market in security 
futures products pursuant to Sec. 41.31 of this chapter shall:
    (i) Notify the Commission of any change in its regulatory status 
with the Securities and Exchange Commission or with a futures 
association registered under section 17 of the Act;
    (ii) Comply with the filing requirements of section 2(a)(1)(D)(vii) 
of the Act each time the board of trade lists a security futures product 
for trading;
    (iii) Provide the Commission with any new rules or rule amendments 
that relate to the trading of security futures products, including both 
operational rules and the terms and conditions of products listed for 
trading on the facility, promptly after final implementation of such 
rules or rule amendments; and
    (iv) Upon request, file promptly with the Commission--

[[Page 525]]

    (A) Such information related to its business as a designated 
contract market in security futures products as the Commission may 
request; and
    (B) A written demonstration, containing such supporting data and 
other information and documents as the Commission may specify, that the 
board of trade is in compliance with one or more applicable provisions 
of the Act or regulations thereunder as specified in the request.
    (2) Any information filed pursuant to paragraph (a) of this section 
shall be addressed to the Secretary of the Commission at its Washington, 
D.C. headquarters, shall be labeled ``SFPCM Continuing Obligations,'' 
and may be transmitted in either electronic or hard copy form.
    (b) Except as exempted under section 5f(b) of the Act or under 
Sec. Sec. 41.33 and 41.34 of this chapter, any board of trade 
designated as a contract market in security futures products pursuant to 
Sec. 41.31 of this chapter shall be subject to all applicable 
requirements of the Act and regulations thereunder. Failure to comply 
shall subject the board of trade to Commission action under, among other 
provisions, sections 5e and 6(b) of the Act.



Sec. 41.33  Applications for exemptive orders.

    (a) Any board of trade designated as a contract market in security 
futures products pursuant to Sec. 41.31 of this chapter may apply to 
the Commission for an exemption from any provision of the Act or 
regulations thereunder. Except as provided in sections 5f(b)(1) and 
5f(b)(2) of the Act, the Commission shall have sole discretion to exempt 
a board of trade, conditionally or unconditionally, from any provision 
of the Act or regulations thereunder pursuant to this section. The 
Commission may issue such an exemptive order in response to an 
application only to the extent it finds, after review, that the issuance 
of an exemptive order is necessary or appropriate in the public interest 
and is consistent with the protection of investors.
    (b) Each application for exemptive relief must comply with the 
requirements of this section. The Commission may, in its sole 
discretion, decline to entertain any application for an exemptive order 
under this section without explanation; provided, however, that the 
Commission shall notify the board of trade of such a decision in 
writing.
    (c) Application requirements. (1) Each application for an exemptive 
order made pursuant to this section must include:
    (i) The name and address of the board of trade requesting relief, 
and the name and telephone number of a person whom Commission staff may 
contact to obtain additional information regarding the request;
    (ii) A certification that the registration of the board of trade is 
not suspended pursuant to an order of the Securities and Exchange 
Commission;
    (iii) The provision(s) of the Act or regulations thereunder from 
which the board of trade seeks relief and, if applicable, whether the 
board of trade is otherwise subject to similar provisions as a result of 
Securities and Exchange Commission jurisdiction; and
    (iv) The type of relief requested and the order sought; an 
explanation of the need for relief, including all material facts and 
circumstances giving rise to the request; and the extent to which such 
relief is necessary or appropriate in the public interest and consistent 
with the protection of investors.
    (2) Each application must be filed with the Secretary of the 
Commission at its Washington, D.C. headquarters, in either electronic or 
hard copy form, signed by an authorized representative of the board of 
trade, and labeled ``Application for an Exemptive Order pursuant to 
Commission regulation 41.33.''
    (d) Review Period. (1) The Commission shall have 90 days upon 
receipt of an application for an exemptive order in which to make a 
determination as to whether such relief should be granted or denied.
    (2) The Commission may request additional information from the 
applicant at any time prior to the end of the review period.
    (3) The Commission may stay the review period if it determines that 
an application is materially incomplete; provided, however, that this 
paragraph (d) does not limit the Commission's authority, under paragraph 
(b) of this

[[Page 526]]

section, to decline to entertain an application.
    (e) Upon conclusion of the review period, the Commission shall issue 
an order granting or denying relief, or granting relief subject to 
conditions; provided, however, that the Commission's obligations under 
this paragraph shall not limit its authority, under paragraph (b) of 
this section, to decline to entertain an application. The Commission 
shall notify the board of trade in writing of its decision to grant or 
deny relief under this paragraph.
    (f) An application for an exemptive order may be withdrawn by the 
applicant at any time, without explanation, by filing with the Secretary 
of the Commission a written request for withdrawal, signed by an 
authorized representative of the board of trade.
    (g) The Commission hereby delegates, until it orders otherwise, to 
the Director of the Division of Division of Market Oversight, with the 
concurrence of the General Counsel, authority to make determinations on 
applications for exemptive orders pursuant to this section; provided, 
however, that:
    (1) The Director of the Division of Market Oversight may submit to 
the Commission for its consideration any matter which has been delegated 
pursuant to paragraph (g) of this section; and
    (2) Nothing in this section shall be deemed to prohibit the 
Commission, at its election, from exercising the authority delegated to 
the Director of the Division of Market Oversight under paragraph (g) of 
this section.

[66 FR 44511, Aug. 23, 2001, as amended at 67 FR 62352, Oct. 7, 2002]



Sec. 41.34  Exempt Provisions.

    Any board of trade notice-designated as a contract market in 
security futures products pursuant to Sec. 41.31 also shall be exempt 
from:
    (a) The following provisions of the Act, pursuant to section 
5f(b)(1) of the Act:
    (1) Section 4(c)(c);
    (2) Section 4(c)(e);
    (3) Section 4(c)(g);
    (4) Section 4j;
    (5) Section 5;
    (6) Section 5c;
    (7) Section 6a;
    (8) Section 8(d);
    (9) Section 9(f);
    (10) Section 16 and;
    (b) The following provisions, pursuant to section 5f(b)(4) of the 
Act:
    (1) Section 6(a);
    (2) Part 38 of this chapter;
    (3) Part 40 of this chapter; and
    (4) Section 41.27.

[67 FR 11229, Mar. 13, 2002]



           Subpart E_Customer Accounts and Margin Requirements

    Source: 67 FR 53171, Aug. 14, 2002, unless otherwise noted.



Sec. 41.41  Security futures products accounts.

    (a) Where security futures products may be held. (1) A person 
registered with the Commission as a futures commission merchant pursuant 
to section 4f(a)(1) of the Commodity Exchange Act (``CEA'') and 
registered with the Securities and Exchange Commission (``SEC'') as a 
broker or dealer pursuant to section 15(b)(1) of the Securities Exchange 
Act of 1934 (``Securities Exchange Act'') (``Full FCM/Full BD'') may 
hold all of a customer's security futures products in a futures account, 
all of a customer's security futures products in a securities account, 
or some of a customer's security futures products in a futures account 
and other security futures products of the same customer in a securities 
account. A person registered with the Commission as a futures commission 
merchant pursuant to section 4f(a)(2) of the CEA (a notice-registered 
FCM) may hold a customer's security futures products only in a 
securities account. A person registered with the SEC as a broker or 
dealer pursuant to section 15(b)(11) of the Securities Exchange Act (a 
notice-registered broker-dealer) may hold a customer's security futures 
products only in a futures account.
    (2) A Full FCM/Full BD shall establish written policies or 
procedures for determining whether customer security futures products 
will be placed in a futures account and/or a securities account and, if 
applicable, the process by which a customer may elect the

[[Page 527]]

type or types of account in which security futures products will be held 
(including the procedure to be followed if a customer fails to make an 
election of account type).
    (b) Disclosure requirements. (1) Except as provided in paragraph 
(b)(2), before a futures commission merchant accepts the first order for 
a security futures product from or on behalf of a customer, the firm 
shall furnish the customer with a disclosure document containing the 
following information:
    (i) A description of the protections provided by the requirements 
set forth under section 4d of the CEA applicable to a futures account;
    (ii) A description of the protections provided by the requirements 
set forth under Securities Exchange Act Rule 15c3-3 and the Securities 
Investor Protection Act of 1970 applicable to a securities account;
    (iii) A statement indicating whether the customer's security futures 
products will be held in a futures account and/or a securities account, 
or whether the firm permits customers to make or change an election of 
account type; and
    (iv) A statement that, with respect to holding the customer's 
security futures products in a securities account or a futures account, 
the alternative regulatory scheme is not available to the customer in 
connection with that account.
    (2) Where a customer account containing an open security futures 
product position is transferred to a futures commission merchant, that 
futures commission merchant may instead provide the statements described 
in paragraphs (b)(1)(iii) and (b)(1)(iv) above no later than ten 
business days after the date the account is transferred.
    (c) Changes in account type. A Full FCM/Full BD may change the type 
of account in which a customer's security futures products will be held; 
provided, that:
    (1) The firm creates a record of each change in account type, 
including the name of the customer, the account number, the date the 
firm received the customer's request to change the account type, if 
applicable, and the date the change in account type became effective; 
and
    (2) The firm, at least ten business days before the customer's 
account type is changed:
    (i) Notifies the customer in writing of the date that the change 
will become effective; and
    (ii) Provides the customer with the disclosures described in 
paragraph (b)(1) above.
    (d) Recordkeeping requirements. The Commission's recordkeeping rules 
set forth in Sec. Sec. 1.31, 1.32, 1.35, 1.36, 1.37, 4.23, 4.33, 18.05 
and 190.06 of this chapter shall apply to security futures product 
transactions and positions in a futures account (as that term is defined 
in Sec. 1.3(vv) of this chapter). These rules shall not apply to 
security futures product transactions and positions in a securities 
account (as that term is defined in Sec. 1.3(ww) of this chapter); 
provided, that the SEC's recordkeeping rules apply to those transactions 
and positions.
    (e) Reports to customers. The Commission's reporting requirements 
set forth in Sec. Sec. 1.33 and 1.46 of this chapter shall apply to 
security futures product transactions and positions in a futures account 
(as that term is defined in Sec. 1.3(vv) of this chapter). These rules 
shall not apply to security futures product transactions and positions 
in a securities account (as that term is defined in Sec. 1.3(ww) of 
this chapter); provided, that the SEC's rules set forth in Sec. Sec. 
240.10b-10 and 240.15c3-2 of this chapter regarding delivery of 
confirmations and account statements apply to those transactions and 
positions.
    (f) Segregation of customer funds. All money, securities, or 
property held to margin, guarantee or secure security futures products 
held in a futures account, or accruing to customers as a result of such 
products, are subject to the segregation requirements of section 4d of 
the CEA and the rules thereunder.

[67 FR 58297, Sept. 13, 2002]



Sec. 41.42  Customer margin requirements for security futures--authority, 

purpose, interpretation, and scope.

    (a) Authority and purpose. Subpart E, Sec. Sec. 41.42 through 
41.49, and 17 CFR 242.400 through 242.406 (``this Regulation'') are 
issued by the Commodity Futures Trading Commission (``Commission'')

[[Page 528]]

jointly with the Securities and Exchange Commission (``SEC''), pursuant 
to authority delegated by the Board of Governors of the Federal Reserve 
System under section 7(c)(2)(A) of the Securities Exchange Act of 1934 
(``Exchange Act''). The principal purpose of this Regulation (Subpart E, 
Sec. Sec. 41.42 through 41.49) is to regulate customer margin collected 
by brokers, dealers, and members of national securities exchanges, 
including futures commission merchants required to register as brokers 
or dealers under section 15(b)(11) of the Exchange Act, relating to 
security futures.
    (b) Interpretation. This Regulation (Subpart E, Sec. Sec. 41.42 
through 41.49) shall be jointly interpreted by the SEC and the 
Commission, consistent with the criteria set forth in clauses (i) 
through (iv) of section 7(c)(2)(B) of the Exchange Act and the 
provisions of Regulation T (12 CFR part 220).
    (c) Scope. (1) This Regulation (Subpart E, Sec. Sec. 41.42 through 
41.49) does not preclude a self-regulatory authority, under rules that 
are effective in accordance with section 19(b)(2) of the Exchange Act or 
section 19(b)(7) of the Exchange Act and, as applicable, section 5c(c) 
of the Commodity Exchange Act (``Act''), or a security futures 
intermediary from imposing additional margin requirements on security 
futures, including higher initial or maintenance margin levels, 
consistent with this Regulation (Subpart E, Sec. Sec. 41.42 through 
41.49), or from taking appropriate action to preserve its financial 
integrity.
    (2) This Regulation (Subpart E, Sec. Sec. 41.42 through 41.49) does 
not apply to:
    (i) Financial relations between a customer and a security futures 
intermediary to the extent that they comply with a portfolio margining 
system under rules that meet the criteria set forth in section 
7(c)(2)(B) of the Exchange Act and that are effective in accordance with 
section 19(b)(2) of the Exchange Act and, as applicable, section 5c(c) 
of the Act;
    (ii) Financial relations between a security futures intermediary and 
a foreign person involving security futures traded on or subject to the 
rules of a foreign board of trade;
    (iii) Margin requirements that clearing agencies registered under 
section 17A of the Exchange Act or derivatives clearing organizations 
registered under section 5b of the Act impose on their members;
    (iv) Financial relations between a security futures intermediary and 
a person based on a good faith determination by the security futures 
intermediary that such person is an exempted person; and
    (v) Financial relations between a security futures intermediary and, 
or arranged by a security futures intermediary for, a person relating to 
trading in security futures by such person for its own account, if such 
person:
    (A) Is a member of a national securities exchange or national 
securities association registered pursuant to section 15A(a) of the 
Exchange Act; and
    (B) Is registered with such exchange or such association as a 
security futures dealer pursuant to rules that are effective in 
accordance with section 19(b)(2) of the Exchange Act and, as applicable, 
section 5c(c) of the Act, that:
    (1) Require such member to be registered as a floor trader or a 
floor broker with the Commission under section 4f(a)(1) of the Act, or 
as a dealer with the SEC under section 15(b) of the Exchange Act;
    (2) Require such member to maintain records sufficient to prove 
compliance with this paragraph (c)(2)(v) and the rules of the exchange 
or association of which it is a member;
    (3) Require such member to hold itself out as being willing to buy 
and sell security futures for its own account on a regular or continuous 
basis; and
    (4) Provide for disciplinary action, including revocation of such 
member's registration as a security futures dealer, for such member's 
failure to comply with this Regulation (Subpart E, Sec. Sec. 41.42 
through 41.49) or the rules of the exchange or association.
    (d) Exemption. The Commission may exempt, either unconditionally or 
on specified terms and conditions, financial relations involving any 
security futures intermediary, customer, position, or transaction, or 
any class of security futures intermediaries, customers, positions, or 
transactions,

[[Page 529]]

from one or more requirements of this Regulation (Subpart E, Sec. Sec. 
41.42 through 41.49), if the Commission determines that such exemption 
is necessary or appropriate in the public interest and consistent with 
the protection of customers. An exemption granted pursuant to this 
paragraph shall not operate as an exemption from any SEC rules. Any 
exemption that may be required from such rules must be obtained 
separately from the SEC.



Sec. 41.43  Definitions.

    (a) For purposes of this Regulation (Subpart E, Sec. Sec. 41.42 
through 41.49) only, the following terms shall have the meanings set 
forth in this section.
    (1) Applicable margin rules and margin rules applicable to an 
account mean the rules and regulations applicable to financial relations 
between a security futures intermediary and a customer with respect to 
security futures and related positions carried in a securities account 
or futures account as provided in Sec. 41.44(a) of this subpart.
    (2) Broker shall have the meaning provided in section 3(a)(4) of the 
Exchange Act.
    (3) Contract multiplier means the number of units of a narrow-based 
security index expressed as a dollar amount, in accordance with the 
terms of the security future contract.
    (4) Current market value means, on any day:
    (i) With respect to a security future:
    (A) If the instrument underlying such security future is a stock, 
the product of the daily settlement price of such security future as 
shown by any regularly published reporting or quotation service, and the 
applicable number of shares per contract; or
    (B) If the instrument underlying such security future is a narrow-
based security index, as defined in section 1a(25)(A) of the Act, the 
product of the daily settlement price of such security future as shown 
by any regularly published reporting or quotation service, and the 
applicable contract multiplier.
    (ii) With respect to a security other than a security future, the 
most recent closing sale price of the security, as shown by any 
regularly published reporting or quotation service. If there is no 
recent closing sale price, the security futures intermediary may use any 
reasonable estimate of the market value of the security as of the most 
recent close of business.
    (5) Customer excludes an exempted person and includes:
    (i) Any person or persons acting jointly:
    (A) On whose behalf a security futures intermediary effects a 
security futures transaction or carries a security futures position; or
    (B) Who would be considered a customer of the security futures 
intermediary according to the ordinary usage of the trade;
    (ii) Any partner in a security futures intermediary that is 
organized as a partnership who would be considered a customer of the 
security futures intermediary absent the partnership relationship; and
    (iii) Any joint venture in which a security futures intermediary 
participates and which would be considered a customer of the security 
futures intermediary if the security futures intermediary were not a 
participant.
    (6) Daily settlement price means, with respect to a security future, 
the settlement price of such security future determined at the close of 
trading each day, under the rules of the applicable exchange, clearing 
agency, or derivatives clearing organization.
    (7) Dealer shall have the meaning provided in section 3(a)(5) of the 
Exchange Act.
    (8) Equity means the equity or margin equity in a securities or 
futures account, as computed in accordance with the margin rules 
applicable to the account and subject to adjustment under Sec. 
41.46(c), (d) and (e) of this subpart.
    (9) Exempted person means:
    (i) A member of a national securities exchange, a registered broker 
or dealer, or a registered futures commission merchant, a substantial 
portion of whose business consists of transactions in securities, 
commodity futures, or commodity options with persons other than brokers, 
dealers, futures commission merchants, floor brokers, or floor traders, 
and includes a person who:
    (A) Maintains at least 1000 active accounts on an annual basis for 
persons

[[Page 530]]

other than brokers, dealers, persons associated with a broker or dealer, 
futures commission merchants, floor brokers, floor traders, and persons 
affiliated with a futures commission merchant, floor broker, or floor 
trader that are effecting transactions in securities, commodity futures, 
or commodity options;
    (B) Earns at least $10 million in gross revenues on an annual basis 
from transactions in securities, commodity futures, or commodity options 
with persons other than brokers, dealers, persons associated with a 
broker or dealer, futures commission merchants, floor brokers, floor 
traders, and persons affiliated with a futures commission merchant, 
floor broker, or floor trader; or
    (C) Earns at least 10 percent of its gross revenues on an annual 
basis from transactions in securities, commodity futures, or commodity 
options with persons other than brokers, dealers, persons associated 
with a broker or dealer, futures commission merchants, floor brokers, 
floor traders, and persons affiliated with a futures commission 
merchant, floor broker, or floor trader.
    (ii) For purposes of paragraph (a)(9)(i) of this section only, 
persons affiliated with a futures commission merchant, floor broker, or 
floor trader means any partner, officer, director, or branch manager of 
such futures commission merchant, floor broker, or floor trader (or any 
person occupying a similar status or performing similar functions), any 
person directly or indirectly controlling, controlled by, or under 
common control with such futures commission merchant, floor broker, or 
floor trader, or any employee of such a futures commission merchant, 
floor broker, or floor trader.
    (iii) A member of a national securities exchange, a registered 
broker or dealer, or a registered futures commission merchant that has 
been in existence for less than one year may meet the definition of 
exempted person based on a six-month period.
    (10) Exempted security shall have the meaning provided in section 
3(a)(12) of the Exchange Act.
    (11) Floor broker shall have the meaning provided in section 1a(16) 
of the Act.
    (12) Floor trader shall have the meaning provided in section 1a(17) 
of the Act.
    (13) Futures account shall have the meaning provided in Sec. 
1.3(vv) of this chapter.
    (14) Futures commission merchant shall have the meaning provided in 
section 1a(20) of the Act.
    (15) Good faith, with respect to making a determination or accepting 
a statement concerning financial relations with a person, means that the 
security futures intermediary is alert to the circumstances surrounding 
such financial relations, and if in possession of information that would 
cause a prudent person not to make the determination or accept the 
notice or certification without inquiry, investigates and is satisfied 
that it is correct.
    (16) Listed option means a put or call option that is:
    (i) Issued by a clearing agency that is registered under section 17A 
of the Exchange Act or cleared and guaranteed by a derivatives clearing 
organization that is registered under section 5b of the Act; and
    (ii) Traded on or subject to the rules of a self-regulatory 
authority.
    (17) Margin call means a demand by a security futures intermediary 
to a customer for a deposit of cash, securities or other assets to 
satisfy the required margin for security futures or related positions or 
a special margin requirement.
    (18) Margin deficiency means the amount by which the required margin 
in an account is not satisfied by the equity in the account, as computed 
in accordance with Sec. 41.46 of this subpart.
    (19) Margin equity security shall have the meaning provided in 
Regulation T.
    (20) Margin security shall have the meaning provided in Regulation 
T.
    (21) Member shall have the meaning provided in section 3(a)(3) of 
the Exchange Act, and shall include persons registered under section 
15(b)(11) of the Exchange Act that are permitted to effect transactions 
on a national securities exchange without the services of another person 
acting as executing broker.

[[Page 531]]

    (22) Money market mutual fund means any security issued by an 
investment company registered under section 8 of the Investment Company 
Act of 1940 that is considered a money market fund under Sec. 270.2a-7 
of this title.
    (23) Persons associated with a broker or dealer shall have the 
meaning provided in section 3(a)(18) of the Exchange Act.
    (24) Regulation T means Regulation T promulgated by the Board of 
Governors of the Federal Reserve System, 12 CFR part 220, as amended 
from time to time.
    (25) Regulation T collateral value, with respect to a security, 
means the current market value of the security reduced by the percentage 
of required margin for a position in the security held in a margin 
account under Regulation T.
    (26) Related position, with respect to a security future, means any 
position in an account that is combined with the security future to 
create an offsetting position as provided in Sec. 41.45(b)(2) of this 
subpart.
    (27) Related transaction, with respect to a position or transaction 
in a security future, means:
    (i) Any transaction that creates, eliminates, increases or reduces 
an offsetting position involving a security future and a related 
position, as provided in Sec. 41.45(b)(2) of this subpart; or
    (ii) Any deposit or withdrawal of margin for the security future or 
a related position, except as provided in Sec. 41.47(b) of this 
subpart.
    (28) Securities account shall have the meaning provided in Sec. 
1.3(ww) of this chapter.
    (29) Security futures intermediary means any creditor as defined in 
Regulation T with respect to its financial relations with any person 
involving security futures, including:
    (i) Any futures commission merchant;
    (ii) Any partner, officer, director, or branch manager (or person 
occupying a similar status or performing similar functions) of a futures 
commission merchant;
    (iii) Any person directly or indirectly controlling, controlled by, 
or under common control with (except for business entities controlling 
or under common control with) a futures commission merchant; and
    (iv) Any employee of a futures commission merchant (except an 
employee whose functions are solely clerical or ministerial).
    (30) Self-regulatory authority means a national securities exchange 
registered under section 6 of the Exchange Act, a national securities 
association registered under section 15A of the Exchange Act, a contract 
market registered under section 5 of the Act or section 5f of the Act, 
or a derivatives transaction execution facility registered under section 
5a of the Act.
    (31) Special margin requirement shall have the meaning provided in 
Sec. 41.46(e)(1)(ii) of this subpart.
    (32) Variation settlement means any credit or debit to a customer 
account, made on a daily or intraday basis, for the purpose of marking 
to market a security future or any other contract that is:
    (i) Issued by a clearing agency that is registered under section 17A 
of the Exchange Act or cleared and guaranteed by a derivatives clearing 
organization that is registered under section 5b of the Act; and
    (ii) Traded on or subject to the rules of a self-regulatory 
authority.
    (b) Terms used in this Regulation (Subpart E, Sec. Sec. 41.42 
through 41.49) and not otherwise defined in this section shall have the 
meaning set forth in the margin rules applicable to the account.
    (c) Terms used in this Regulation (Subpart E, Sec. Sec. 41.42 
through 41.49) and not otherwise defined in this section or in the 
margin rules applicable to the account shall have the meaning set forth 
in the Exchange Act and the Act; if the definitions of a term in the 
Exchange Act and the Act are inconsistent as applied in particular 
circumstances, such term shall have the meaning set forth in rules, 
regulations, or interpretations jointly promulgated by the SEC and the 
Commission.



Sec. 41.44  General provisions.

    (a) Applicable margin rules. Except to the extent inconsistent with 
this Regulation (Subpart E, Sec. Sec. 41.42 through 41.49):
    (1) A security futures intermediary that carries a security future 
on behalf

[[Page 532]]

of a customer in a securities account shall record and conduct all 
financial relations with respect to such security future and related 
positions in accordance with Regulation T and the margin rules of the 
self-regulatory authorities of which the security futures intermediary 
is a member.
    (2) A security futures intermediary that carries a security future 
on behalf of a customer in a futures account shall record and conduct 
all financial relations with respect to such security future and related 
positions in accordance with the margin rules of the self-regulatory 
authorities of which the security futures intermediary is a member.
    (b) Separation and consolidation of accounts. (1) The requirements 
for security futures and related positions in one account may not be met 
by considering items in any other account, except as permitted or 
required under paragraph (b)(2) of this section or applicable margin 
rules. If withdrawals of cash, securities or other assets deposited as 
margin are permitted under this Regulation (Subpart E, Sec. Sec. 41.42 
through 41.49), bookkeeping entries shall be made when such cash, 
securities, or assets are used for purposes of meeting requirements in 
another account.
    (2) Notwithstanding paragraph (b)(1) of this section, the security 
futures intermediary shall consider all futures accounts in which 
security futures and related positions are held that are within the same 
regulatory classification or account type and are owned by the same 
customer to be a single account for purposes of this Regulation (Subpart 
E, Sec. Sec. 41.42 through 41.49). The security futures intermediary 
may combine such accounts with other futures accounts that are within 
the same regulatory classification or account type and are owned by the 
same customer for purposes of computing a customer's overall margin 
requirement, as permitted or required by applicable margin rules.
    (c) Accounts of partners. If a partner of the security futures 
intermediary has an account with the security futures intermediary in 
which security futures or related positions are held, the security 
futures intermediary shall disregard the partner's financial relations 
with the firm (as shown in the partner's capital and ordinary drawing 
accounts) in calculating the margin or equity of any such account.
    (d) Contribution to joint venture. If an account in which security 
futures or related positions are held is the account of a joint venture 
in which the security futures intermediary participates, any interest of 
the security futures intermediary in the joint account in excess of the 
interest which the security futures intermediary would have on the basis 
of its right to share in the profits shall be margined in accordance 
with this Regulation (Subpart E, Sec. Sec. 41.42 through 41.49).
    (e) Extensions of credit. (1) No security futures intermediary may 
extend or maintain credit to or for any customer for the purpose of 
evading or circumventing any requirement under this Regulation (Subpart 
E, Sec. Sec. 41.42 through 41.49).
    (2) A security futures intermediary may arrange for the extension or 
maintenance of credit to or for any customer by any person, provided 
that the security futures intermediary does not willfully arrange credit 
that would constitute a violation of Regulation T, U or X of the Board 
of Governors of the Federal Reserve System (12 CFR parts 220, 221, and 
224) by such person.
    (f) Change in exempted person status. Once a person ceases to 
qualify as an exempted person, it shall notify the security futures 
intermediary of this fact before entering into any new security futures 
transaction or related transaction that would require additional margin 
to be deposited under this Regulation (Subpart E, Sec. Sec. 41.42 
through 41.49). Financial relations with respect to any such 
transactions shall be subject to the provisions of this Regulation 
(Subpart E, Sec. Sec. 41.42 through 41.49).



Sec. 41.45  Required margin.

    (a) Applicability. Each security futures intermediary shall 
determine the required margin for the security futures and related 
positions held on behalf of a customer in a securities account or 
futures account as set forth in this section.
    (b) Required margin--(1) General rule. The required margin for each 
long or short position in a security future shall

[[Page 533]]

be twenty (20) percent of the current market value of such security 
future.
    (2) Offsetting positions. Notwithstanding the margin levels 
specified in paragraph (b)(1) of this section, a self-regulatory 
authority may set the required initial or maintenance margin level for 
an offsetting position involving security futures and related positions 
at a level lower than the level that would be required under paragraph 
(b)(1) of this section if such positions were margined separately, 
pursuant to rules that meet the criteria set forth in section 7(c)(2)(B) 
of the Exchange Act and are effective in accordance with section 
19(b)(2) of the Exchange Act and, as applicable, section 5c(c) of the 
Act.
    (c) Procedures for certain margin level adjustments. An exchange 
registered under section 6(g) of the Exchange Act, or a national 
securities association registered under section 15A(k) of the Exchange 
Act, may raise or lower the required margin level for a security future 
to a level not lower than that specified in this section, in accordance 
with section 19(b)(7) of the Exchange Act.



Sec. 41.46  Type, form and use of margin.

    (a) When margin is required. Margin is required to be deposited 
whenever the required margin for security futures and related positions 
in an account is not satisfied by the equity in the account, subject to 
adjustment under paragraph (c) of this section.
    (b) Acceptable margin deposits. (1) The required margin may be 
satisfied by a deposit of cash, margin securities (subject to paragraph 
(b)(2) of this section), exempted securities, any other asset permitted 
under Regulation T to satisfy a margin deficiency in a securities margin 
account, or any combination thereof, each as valued in accordance with 
paragraph (c) of this section.
    (2) Shares of a money market mutual fund may be accepted as a margin 
deposit for purposes of this Regulation (Subpart E, Sec. Sec. 41.42 
through 41.49), Provided that:
    (i) The customer waives any right to redeem the shares without the 
consent of the security futures intermediary and instructs the fund or 
its transfer agent accordingly;
    (ii) The security futures intermediary (or clearing agency or 
derivatives clearing organization with which the shares are deposited as 
margin) obtains the right to redeem the shares in cash, promptly upon 
request; and
    (iii) The fund agrees to satisfy any conditions necessary or 
appropriate to ensure that the shares may be redeemed in cash, promptly 
upon request.
    (c) Adjustments--(1) Futures accounts. For purposes of this section, 
the equity in a futures account shall be computed in accordance with the 
margin rules applicable to the account, subject to the following:
    (i) A security future shall have no value;
    (ii) Each net long or short position in a listed option on a 
contract for future delivery shall be valued in accordance with the 
margin rules applicable to the account;
    (iii) Except as permitted in paragraph (e) of this section, each 
margin equity security shall be valued at an amount no greater than its 
Regulation T collateral value;
    (iv) Each other security shall be valued at an amount no greater 
than its current market value reduced by the percentage specified for 
such security in Sec. 240.15c3-1(c)(2)(vi) of this title;
    (v) Freely convertible foreign currency may be valued at an amount 
no greater than its daily marked-to-market U.S. dollar equivalent;
    (vi) Variation settlement receivable (or payable) by an account at 
the close of trading on any day shall be treated as a credit (or debit) 
to the account on that day; and
    (vii) Each other acceptable margin deposit or component of equity 
shall be valued at an amount no greater than its value under Regulation 
T.
    (2) Securities accounts. For purposes of this section, the equity in 
a securities account shall be computed in accordance with the margin 
rules applicable to the account, subject to the following:
    (i) A security future shall have no value;
    (ii) Freely convertible foreign currency may be valued at an amount 
no greater than its daily mark-to-market U.S. dollar equivalent; and

[[Page 534]]

    (iii) Variation settlement receivable (or payable) by an account at 
the close of trading on any day shall be treated as a credit (or debit) 
to the account on that day.
    (d) Satisfaction restriction. Any transaction, position or deposit 
that is used to satisfy the required margin for security futures or 
related positions under this Regulation (Subpart E, Sec. Sec. 41.42 
through 41.49), including a related position, shall be unavailable to 
satisfy the required margin for any other position or transaction or any 
other requirement.
    (e) Alternative collateral valuation for margin equity securities in 
a futures account. (1) Notwithstanding paragraph (c)(1)(iii) of this 
section, a security futures intermediary need not value a margin equity 
security at its Regulation T collateral value when determining whether 
the required margin for the security futures and related positions in a 
futures account is satisfied, provided that:
    (i) The margin equity security is valued at an amount no greater 
than the current market value of the security reduced by the lowest 
percentage level of margin required for a long position in the security 
held in a margin account under the rules of a national securities 
exchange registered pursuant to section 6(a) of the Exchange Act;
    (ii) Additional margin is required to be deposited on any day when 
the day's security futures transactions and related transactions would 
create or increase a margin deficiency in the account if the margin 
equity securities were valued at their Regulation T collateral value, 
and shall be for the amount of the margin deficiency so created or 
increased (a ``special margin requirement''); and
    (iii) Cash, securities, or other assets deposited as margin for the 
positions in an account are not permitted to be withdrawn from the 
account at any time that:
    (A) Additional cash, securities, or other assets are required to be 
deposited as margin under this section for a transaction in the account 
on the same or a previous day; or
    (B) The withdrawal, together with other transactions, deposits, and 
withdrawals on the same day, would create or increase a margin 
deficiency if the margin equity securities were valued at their 
Regulation T collateral value.
    (2) All security futures transactions and related transactions on 
any day shall be combined to determine the amount of a special margin 
requirement. Additional margin deposited to satisfy a special margin 
requirement shall be valued at an amount no greater than its Regulation 
T collateral value.
    (3) If the alternative collateral valuation method set forth in 
paragraph (e) of this section is used with respect to an account in 
which security futures or related positions are carried:
    (i) An account that is transferred from one security futures 
intermediary to another may be treated as if it had been maintained by 
the transferee from the date of its origin, if the transferee accepts, 
in good faith, a signed statement of the transferor (or, if that is not 
practicable, of the customer), that any margin call issued under this 
Regulation (Subpart E, Sec. Sec. 41.42 through 41.49) has been 
satisfied; and
    (ii) An account that is transferred from one customer to another as 
part of a transaction, not undertaken to avoid the requirements of this 
Regulation (Subpart E, Sec. Sec. 41.42 through 41.49), may be treated 
as if it had been maintained for the transferee from the date of its 
origin, if the security futures intermediary accepts in good faith and 
keeps with the transferee account a signed statement of the transferor 
describing the circumstances for the transfer.
    (f) Guarantee of accounts. No guarantee of a customer's account 
shall be given any effect for purposes of determining whether the 
required margin in an account is satisfied, except as permitted under 
applicable margin rules.



Sec. 41.47  Withdrawal of margin.

    (a) By the customer. Except as otherwise provided in Sec. 
41.46(e)(1)(ii) of this subpart, cash, securities, or other assets 
deposited as margin for positions in an account may be withdrawn, 
provided that the equity in the account after such withdrawal is 
sufficient to satisfy the required margin for the security futures and 
related positions in

[[Page 535]]

the account under this Regulation (Subpart E, Sec. Sec. 41.42 through 
41.49).
    (b) By the security futures intermediary. Notwithstanding paragraph 
(a) of this section, the security futures intermediary, in its usual 
practice, may deduct the following items from an account in which 
security futures or related positions are held if they are considered in 
computing the balance of such account:
    (1) Variation settlement payable, directly or indirectly, to a 
clearing agency that is registered under section 17A of the Exchange Act 
or a derivatives clearing organization that is registered under section 
5b of the Act;
    (2) Interest charged on credit maintained in the account;
    (3) Communication or shipping charges with respect to transactions 
in the account;
    (4) Payment of commissions, brokerage, taxes, storage and other 
charges lawfully accruing in connection with the positions and 
transactions in the account;
    (5) Any service charges that the security futures intermediary may 
impose; or
    (6) Any other withdrawals that are permitted from a securities 
margin account under Regulation T, to the extent permitted under 
applicable margin rules.



Sec. 41.48  Undermargined accounts.

    (a) Failure to satisfy margin call. If any margin call required by 
this Regulation (Subpart E, Sec. Sec. 41.42 through 41.49) is not met 
in full, the security futures intermediary shall take the deduction 
required with respect to an undermargined account in computing its net 
capital under SEC or Commission rules.
    (b) Accounts that liquidate to a deficit. If at any time there is a 
liquidating deficit in an account in which security futures are held, 
the security futures intermediary shall take steps to liquidate 
positions in the account promptly and in an orderly manner.
    (c) Liquidation of undermargined accounts not required. 
Notwithstanding Sec. 41.44(a)(1) of this subpart, Sec. 220.4(d) of 
Regulation T (12 CFR 220.4(d)) respecting liquidation of positions in 
lieu of deposit shall not apply with respect to security futures carried 
in a securities account.



Sec. 41.49  Filing proposed margin rule changes with the Commission.

    (a) Notification requirement for notice-designated contract markets. 
Any self-regulatory authority that is registered with the Commission as 
a designated contract market under section 5f of the Act shall, when 
filing a proposed rule change regarding customer margin for security 
futures with the SEC for approval in accordance with section 19(b)(2) of 
the Exchange Act, concurrently provide to the Commission a copy of such 
proposed rule change and any accompanying documentation filed with the 
SEC.
    (b) Filing requirements under the Act. Any self-regulatory authority 
that is registered with the Commission as a designated contract market 
under section 5 of the Act or a derivatives transaction execution 
facility under section 5a of the Act shall, when filing a proposed rule 
change regarding customer margin for security futures with the SEC for 
approval in accordance with section 19(b)(2) of the Exchange Act, submit 
such proposed rule change to the Commission as follows:
    (1) If the self-regulatory authority elects to request the 
Commission's prior approval for the proposed rule change pursuant to 
section 5c(c)(2) of the Act, it shall concurrently file the proposed 
rule change with the Commission in accordance with Sec. 40.5 of this 
chapter.
    (2) If the self-regulatory authority elects to implement a proposed 
rule change by written certification pursuant to section 5c(c)(1) of the 
Act, it shall concurrently provide to the Commission a copy of the 
proposed rule change and any accompanying documentation filed with the 
SEC. Promptly after obtaining SEC approval for the proposed rule change, 
such self-regulatory authority shall file its written certification with 
the Commission in accordance with Sec. 40.6 of this chapter.

[[Page 536]]



PART 42_ANTI-MONEY LAUNDERING, TERRORIST FINANCING--Table of Contents



                      Subpart A_General Provisions

Sec.
42.1 [Reserved]
42.2 Compliance with Bank Secrecy Act

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6b, 6d, 6f, 6g, 7, 7a, 7a-1, 7a-2, 
7b, 7b-1, 7b-2, 9, 12, 12a, 12c, 13a, 13a-1, 13c, 16 and 21; 12 U.S.C. 
1786(q), 1818, 1829b and 1951-1959; 31 U.S.C. 5311-5314 and 5316-5332; 
title III, secs. 312-314, 319, 321, 326, 352, Pub. L. 107-56, 115 Stat. 
307.

    Source: 68 FR 25159, May 9, 2003, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 42.1  [Reserved]



Sec. 42.2  Compliance with Bank Secrecy Act.

    Every futures commission merchant and introducing broker shall 
comply with the applicable provisions of the Bank Secrecy Act and the 
regulations promulgated by the Department of the Treasury under that Act 
at 31 CFR part 103, and with the requirements of 31 U.S.C. 5318(l) and 
the implementing regulation jointly promulgated by the Commission and 
the Department of the Treasury at 31 CFR 103.123, which require that a 
customer identification program be adopted as part of the firm's Bank 
Secrecy Act compliance program.



PART 44_INTERIM FINAL RULE FOR PRE-ENACTMENT SWAP TRANSACTIONS--Table of Contents



Sec.
44.00 Definition of terms used in Part 44 of this chapter.
44.01 Effective date.
44.02 Reporting pre-enactment swaps to a swap data repository or the 
          Commission.
44.03 Reporting transition swaps to a swap data repository or to the 
          Commission.

    Authority: 7 U.S.C. 2(h)(5), 4r, and 12a(5), as amended by Title VII 
of the Wall Street Reform and Consumer Protection Act (Dodd-Frank Act of 
2010), Pub. L. 111-203, 124 Stat. 1376 (2010).

    Source: 75 FR 63084, Oct. 14, 2010, unless otherwise noted.



Sec. 44.00  Definition of terms used in Part 44 of this chapter.

    (a) Major swap participant shall have the meaning provided in 
Section 1a(33) of the Commodity Exchange Act, as amended, and any rules 
or regulations thereunder.
    (b) Pre-enactment unexpired swap means any swap entered into prior 
to the enactment of the Dodd-Frank Act of 2010 (July 21, 2010) the terms 
of which had not expired as of the date of enactment of that Act;
    (c) Transition swap means any swap entered into after the enactment 
of the Dodd-Frank Act of 2010 (July 21, 2010) and prior to the effective 
date of the swap data reporting and recordkeeping rule implemented under 
Section 2(h)(5)(B) of the CEA.
    (d) Reporting entity, when used in this Part, means any counterparty 
referenced or identified in Section 4r(a)(3)(A)-(C) of the Commodity 
Exchange Act, as amended;
    (e) Swap Data Repository shall have the meaning provided in Section 
1a(48) of the Commodity Exchange Act, as amended, and any rules or 
regulations thereunder;
    (f) Swap Dealer shall have the meaning provided in Section 1(a)(49) 
of the Commodity Exchange Act, as amended, and any rules or regulations 
thereunder;

[75 FR 63084, Oct. 14, 2010, as amended at 75 FR 78896, Dec. 17, 2010]



Sec. 44.01  Effective date.

    The provisions of this part are effective immediately on publication 
in the Federal Register.



Sec. 44.02  Reporting pre-enactment swaps to a swap data repository or the Commission.

    (a) A counterparty to a pre-enactment unexpired swap transaction 
shall:
    (1) Report to a registered swap data repository or the Commission by 
the compliance date established in the reporting rules required under 
Section 2(h)(5) of the Commodity Exchange Act, or within 60 days after a 
swap data repository becomes registered with the Commission and 
commences operations to receive and maintain data related to such swap, 
whichever occurs first, the

[[Page 537]]

following information with respect to the swap transaction:
    (i) A copy of the transaction confirmation, in electronic form if 
available, or in written form if there is no electronic copy; and
    (ii) The time, if available, that the transaction was executed; and
    (2) Report to the Commission on request, in a form and manner 
prescribed by the Commission, any information relating to the swap 
transaction.
    Note to Paragraphs (a)(1) and (a)(2). In order to comply with the 
reporting requirements contained in paragraph (a)(1) and (a)(2) of this 
section, each counterparty to a pre-enactment unexpired swap transaction 
that may be required to report such transaction should retain, in its 
existing format, all information and documents, to the extent and in 
such form as they presently exist, relating to the terms of a swap 
transaction, including but not limited to any information necessary to 
identify and value the transaction; the date and time of execution of 
the transaction; information relevant to the price of the transaction; 
whether the transaction was accepted for clearing and, if so, the 
identity of such clearing organization; any modification(s) to the terms 
of the transaction; and the final confirmation of the transaction.
    (b) Reporting party. The counterparties to a swap transaction shall 
report the information required under paragraph (a) of this section as 
follows:
    (1) Where only one counterparty to a swap transaction is a swap 
dealer or a major swap participant, the swap dealer or major swap 
participant shall report the transaction;
    (2) Where one counterparty to a swap transaction is a swap dealer 
and the other counterparty is a major swap participant, the swap dealer 
shall report the transaction; and
    (3) Where neither counterparty to a swap transaction is a swap 
dealer or a major swap participant, the counterparties to the 
transaction shall select the counterparty who will report the 
transaction.



Sec. 44.03  Reporting transition swaps to a swap data repository or to the Commission.

    (a) A counterparty to a post-enactment pre-effective swap 
transaction shall:
    (1) As required by the reporting rules required to be adopted 
pursuant to Section 2(h)(5)(B) of the Commodity Exchange Act, report 
data related to a transition swap to a registered swap data repository 
or the Commission by the compliance date established in such reporting 
rules or within 60 days after an appropriate swap data repository 
becomes registered with the Commission and commences operations to 
receive and maintain data related to such swap, whichever occurs first, 
the following information with respect to the swap transaction:
    (i) A copy of the transaction confirmation, in electronic form if 
available, or in written form if there is no electronic copy;
    (ii) The time, if available, that the transaction was executed; and
    (2) Report to the Commission on request, in the form and manner 
prescribed by the Commission, any information relating to the swap 
transaction.
    Note to Paragraphs (a). In order to comply with the reporting 
requirements contained in paragraphs (a)(1) and (a)(2) of this section, 
each counterparty to a post-enactment pre-effective swap transaction 
that may be required to report such transaction should retain, in its 
existing format, all information and documents, to the extent and in 
such form as they exist on the effective date of this section, relating 
to: the terms of a swap transaction, including but not limited to any 
information necessary to identify and value the transaction (e.g., 
underlying asset and tenor); the date and time of execution of the 
transaction; volume (e.g., notional or principal amount); information 
relevant to the price and payment for the transaction until the swap is 
terminated, reaches maturity or is novated; whether the transaction was 
accepted for clearing and, if so, the identity of such clearing 
organization; any modification(s) to the terms of the transaction; and 
the final confirmation of the transaction.
    (b) Reporting party. The counterparties to a swap transaction shall 
report the information required under paragraph (a) of this section as 
follows:
    (1) Where only one counterparty to a swap transaction is a swap 
dealer or a

[[Page 538]]

major swap participant, the swap dealer or major swap participant shall 
report the transaction;
    (2) Where one counterparty to a swap transaction is a swap dealer 
and the other counterparty is a major swap participant, the swap dealer 
shall report the transaction; and
    (3) Where neither counterparty to a swap transaction is a swap 
dealer or a major swap participant, the counterparties to the 
transaction shall select the counterparty who will report the 
transaction.

[75 FR 78896, Dec. 17, 2010]



PART 100_DELIVERY PERIOD REQUIRED--Table of Contents



    Authority: 7 U.S.C. 7a(a)(4) and 12a.



Sec. 100.1  Delivery period required with respect to certain grains.

    A period of seven business days is required during which contracts 
for future delivery in the current delivery month of wheat, corn, oats, 
barley, rye, or flaxseed may be settled by delivery of the actual cash 
commodity after trading in such contracts has ceased, for each delivery 
month after May 1938, on all contract markets on which there is trading 
in futures in any of such commodities, and such contract markets, and 
each of them, are directed to provide therefor.

[41 FR 3211, Jan. 21, 1976]



PART 140_ORGANIZATION, FUNCTIONS, AND PROCEDURES OF THE COMMISSION--Table of Contents



                         Subpart A_Organization

Sec.
140.1 Headquarters office.
140.2 Regional office--regional coordinators.

                           Subpart B_Functions

140.10 The Commission.
140.11 Emergency action by the senior Commissioner available.
140.12 Disposition of business by seriatim Commission consideration.
140.13 Vacancy in position of Chairman.
140.14 Delegation of authority to the Secretary of the Commission.
140.20 Designation of senior official to oversee Commission use of 
          national security information.
140.21 Definitions.
140.22 Procedures.
140.23 General access requirements.
140.24 Control and accountability procedures.
140.61 [Reserved]
140.72 Delegation of authority to disclose confidential information to a 
          contract market, registered futures association or self-
          regulatory organization.
140.73 Delegation of authority to disclose information to United States, 
          States, and foreign government agencies and foreign futures 
          authorities.
140.74 Delegation of authority to issue special calls for Series 03 
          Reports and Form 40.
140.75 Delegation of authority to the Director of the Division of 
          Clearing and Intermediary Oversight.
140.76 Delegation of authority to disclose information in a receivership 
          or bankruptcy proceeding.
140.77 Delegation of authority to determine that applications for 
          contract market designation are materially incomplete.
140.80 Disclosure of information pursuant to a subpoena or summons.
140.81 [Reserved]
140.91 Delegation of authority to the Director of the Division of 
          Trading and Markets.
140.92 Delegation of authority to grant registrations and renewals 
          thereof.
140.93 Delegation of authority to the Director of the Division of 
          Clearing and Intermediary Oversight.
140.94 Delegation of authority to the Director of the Division of 
          Clearing and Intermediary Oversight.
140.95 Delegation of authority with respect to withdrawals from 
          registration.
140.96 Delegation of authority to publish in the Federal Register.
140.97 Delegation of authority regarding requests for classification of 
          positions as bona fide hedging.
140.98 Publication of no-action, interpretative and exemption letters 
          and other written communications.
140.99 Requests for exemptive, no-action and interpretative letters.

  Subpart C_Regulation Concerning Conduct of Members and Employees and 
             Former Members and Employees of the Commission

140.735-1 Authority and purpose.
140.735-2 Prohibited transactions.
140.735-2a Prohibited interests.
140.735-3 Non-governmental employment and other outside activity.

[[Page 539]]

140.735-4 Receipt and disposition of foreign gifts and decorations.
140.735-5 Disclosure of information.
140.735-6 Practice by former members and employees of the Commission.
140.735-7 Statutory violations applicable to conduct of Commission 
          members and employees.
140.735-8 Interpretative and advisory service.

    Authority: 7 U.S.C. 2 and 12a.



                         Subpart A_Organization



Sec. 140.1  Headquarters office.

    (a) General. The headquarters office of the Commission is located at 
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.
    (b) [Reserved]

[48 FR 2734, Jan. 21, 1983, as amended at 60 FR 49335, Sept. 25, 1995]



Sec. 140.2  Regional office--regional coordinators.

    Each of the Regional offices described herein functions as set forth 
in this section under the direction of a Regional Coordinator who, as a 
collateral duty, oversees the administration of the office and 
represents the Commission in negotiations with employee union officials 
and in interactions with external parties. Each regional office has 
delegated authority for the enforcement of the Act and administration of 
the programs of the Commission in the particular regions.
    (a) The Eastern Regional Office is located at 140 Broadway, New 
York, New York, 10005 and is responsible for enforcement of the Act and 
administration of programs of the Commission in the States of Alabama, 
Connecticut, Delaware, Florida, Georgia, Kentucky, Maine, Maryland, 
Massachusetts, Mississippi, New Hampshire, New Jersey, New York, North 
Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee, 
Vermont, Virginia, and West Virginia.
    (b) The Central Regional Office is located at 525 West Monroe 
Street, Suite 1100, Chicago, Illinois 60661 and is responsible for 
enforcement of the Act and administration of programs of the Commission 
in the States of Illinois, Indiana, Michigan, Ohio and Wisconsin.
    (c) The Southwestern Regional Office is located at Two Emanuel 
Cleaver II Blvd., Suite 300, Kansas City, Missouri 64112, and is 
responsible for enforcement of the Act and administration of the 
programs of the Commission in the States of Alaska, Arizona, Arkansas, 
California, Colorado, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, 
Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, 
Oregon, South Dakota, Texas, Utah, Washington, and Wyoming.

[69 FR 41426, July 9, 2004, as amended at 72 FR 16269, Apr. 4, 2007]



                           Subpart B_Functions



Sec. 140.10  The Commission.

    The Commission is composed of a Chairman and four other 
Commissioners, not more than three of whom may be members of the same 
political party, who are appointed by the President, with the advice and 
consent of the Senate, for 5-year terms, one term ending each year. The 
Commission is assisted by a staff, which includes lawyers, economists, 
accountants, investigators and examiners, as well as administrative and 
clerical employees.

[41 FR 28474, July 12, 1976]



Sec. 140.11  Emergency action by the senior Commissioner available.

    (a) Authority of senior Commissioner. When it is not feasible to 
convene a quorum of the Commission, the Senior Commissioner present at 
the principal offices of the Commission (or, during non-business hours, 
available in the Washington, DC area) may take emergency action on 
behalf of and in the name of the Commission in accordance with the 
procedures set forth in this section. Members of the Commission shall be 
considered senior in the following order: The Chairman, the Vice-
Chairman, and other Commissioners in order of their length of service on 
the Commission. Where two or more Commissioners have commenced their 
service on the same date, the Commissioner whose unexpired term in 
office is the longest will be considered senior.
    (b) Exercise of authority. Subject to the right of the Commission to 
review

[[Page 540]]

any emergency action taken as hereinafter provided, the Senior 
Commissioner may act on behalf of and in the name of the Commission with 
respect to all of the functions of the Commission except general 
rulemaking functions: Provided, however, That the Senior Commissioner 
shall not exercise any authority on behalf of the Commission (1) without 
consultation with such other member of the Commission as may at the time 
be present at the Commission's offices in Washington, DC, and without a 
reasonable attempt to consult, by telephone, with other members of the 
Commission; and (2) unless, in the opinion of the Senior Commissioner 
(after consulting with the General Counsel or his deputy or associate, 
and such other members of the Commission staff as the Senior 
Commissioner deems appropriate) the public interest requires that action 
be taken prior to the next scheduled meeting of the Commission.
    (c) Report to the Commission. The exercise of Senior Commissioner 
authority shall be reported to the Commission within one business day 
thereafter either by the Senior Commissioner or at his direction, and 
shall be recorded by the Secretariat in the Minute Record of all 
official actions of the Commission. The Secretariat shall promptly 
notify any directly affected person of the action taken and that it was 
the Senior Commissioner available, rather than the Commission as a 
whole, who took the action.
    (d) Review by the Commission. The Commission may, in the following 
circumstances, review any action taken under Senior Commissioner 
authority and may affirm, modify, alter or set aside the decision:
    (1) Upon the request of any member of the Commission, any action 
taken by a Senior Commissioner shall be reviewed by the Commission.
    (2) In the event action by a Senior Commissioner suspends, denies or 
revokes or otherwise directly and adversely affects any license, right 
or privilege of any person, that person may in writing request review by 
the Commission and shall be entitled to have the action of the Senior 
Commissioner reviewed by the Commission.
    (3) The Commission may, in its discretion, review any action taken 
by a Senior Commissioner upon petition by any other person.
    (e) Final effect of action by Senior Commissioner. In any matter, 
the action taken under Senior Commissioner authority shall be deemed the 
action of the Commission unless and until the Commission shall otherwise 
direct.

[41 FR 28474, July 12, 1976]



Sec. 140.12  Disposition of business by seriatim Commission consideration.

    (a) Whenever the Chairman of the Commission is of the opinion that 
joint deliberation among the members of the Commission upon any matter 
is unnecessary in light of the nature of the matter, impracticable, or 
would impede the orderly disposition of agency business, but is of the 
view that such matter should be the subject of a vote of the Commission, 
such matter may be disposed of by circulation of any relevant materials 
concerning the matter. The relevant materials shall be circulated to 
each member of the Commission, unless a member is unavailable or has 
determined not to participate in the matter. A written record of the 
vote of each participating Commission member shall be reported to the 
Secretariat who shall retain it in the records of the Commission.
    (b) Whenever any member of the Commission so requests, any matter 
circulated for disposition pursuant to paragraph (a) of this section 
shall be withdrawn from circulation and scheduled instead for a 
Commission meeting.

[43 FR 43452, Sept. 26, 1978]



Sec. 140.13  Vacancy in position of Chairman.

    At any time that a vacancy exists in the position of Chairman of the 
Commission the remaining members of the Commission shall elect a member 
to serve as acting Chairman who shall exercise the executive and 
administrative functions of the Commission that would otherwise be 
exercised by a Chairman in accordance with section 2(a)(6) of the 
Commodity Exchange Act, as amended, until a new Chairman has been 
appointed by the President and confirmed by the Senate: Provided,

[[Page 541]]

however, That if the President shall appoint a new Chairman from among 
the existing members of the Commission, that Commissioner shall serve as 
acting Chairman for these purposes until such time as his appointment as 
Chairman has been confirmed or rejected by the Senate.

[43 FR 50167, Oct. 27, 1978]



Sec. 140.14  Delegation of authority to the Secretary of the Commission.

    After the Commission has formally reached a decision or taken other 
action on a matter, has agreed upon the language of the document which 
embodies the Commission decision or other action, including, but not 
limited to, a rule, regulation or order, and has directed that the 
document be issued, the Secretary of the Commission (or a person 
designated in writing by the Secretary) shall sign the document on 
behalf of the Commission. Signature by the Secretary shall be a 
ministerial function and shall not be discretionary. The delegation to 
the Secretary of the authority to sign documents on the Commission's 
behalf shall not affect any other delegation which the Commission has 
made, or may make, which authorizes any other officer or employee of the 
Commission to take action and to sign documents on the Commission's 
behalf. In addition, the Commission reserves the authority to provide 
for signature on its behalf by the Chairman or any other member of the 
Commission in particular circumstances.

[44 FR 33677, June 12, 1979]



Sec. 140.20  Designation of senior official to oversee Commission use of national security information.

    (a) The Executive Director is hereby designated to oversee the 
Commission's program to ensure the safeguarding of national security 
information received by the Commission from other agencies, to chair a 
Commission committee composed of members of the staff selected by him 
with authority to act on all suggestions and complaints with respect to 
the Commission administration of its information security program, and, 
in conjunction with the Security Officer of the Commission, to ensure 
that practices for safeguarding national security information are 
systematically reviewed and that those practices which are duplicative 
or unnecessary are eliminated.
    (b) The Executive Director may submit any matter for which he has 
been designated under paragraph (a) of this section to the Commission 
for its consideration.

[44 FR 65736, Nov. 15, 1979, as amended at 61 FR 21955, May 13, 1996]



Sec. 140.21  Definitions.

    (a) Classified information. Information or material that is:
    (1) Owned by, produced for or by, or under control of the United 
States Government, and
    (2) Determined pursuant to Executive Order 12356 or prior or 
succeeding orders to require protection against unauthorized disclosure, 
and
    (3) So designated.
    (b) Compromise. The disclosure of classified information to persons 
not authorized access thereto.
    (c) Custodians. An individual who has possession of or is otherwise 
charged with the responsibility for safeguarding or accounting for 
classified information.
    (d) Classification levels. Refers to Top Secret ``(TS)'', Secret 
``(S)'', and Confidential ``(C)'' levels used to identify national 
security information. Markings ``For Official Use Only,'' and ``Limited 
Official Use'' shall not be used to identify national security 
information.

[48 FR 15464, Apr. 11, 1983]



Sec. 140.22  Procedures.

    (a) Original classification. The Commodity Futures Trading 
Commission has no original classification authority.
    (b) Derivative classification. Personnel of the Commission shall 
respect the original classification markings assigned to information 
they receive from other agencies.
    (c) Declassification and downgrading. Since the Commission does no 
original classification of material, declassification and downgrading of 
sensitive material is not applicable.
    (d) Dissemination. All classified national security information 
which the

[[Page 542]]

Commission receives from any agency will be cared for and returned in 
accordance with the particular agency's policy guidelines and may not be 
disseminated to any other agency without the consent of the originating 
agency.

[48 FR 15464, Apr. 11, 1983]



Sec. 140.23  General access requirements.

    (a) Determination of trustworthiness. No person shall be given 
access to classified information unless a favorable determination has 
been made as to the person's trustworthiness. The determination of 
eligibility, referred to as a security clearance, shall be based on such 
investigations as the Commission may require in accordance with the 
applicable Office of Personnel Management standards and criteria.
    (b) Determination of need-to-know. A person is not entitled to 
receive classified information solely by virtue of having been granted a 
security clearance. A person must also have a need for access to the 
particular classified information sought in connection with the 
performance of official government duties or contractual obligations. 
The determination of that need shall be made by officials having 
responsibility for the classified information.

[48 FR 15464, Apr. 11, 1983]



Sec. 140.24  Control and accountability procedures.

    Persons entrusted with classified information shall be responsible 
for providing protection and accountability for such information at all 
times and for locking classified information in approved security 
equipment whenever it is not in use or under direct supervision of 
authorized persons.
    (a) General safeguards. (1) Classified material must not be left in 
unoccupied rooms or be left inadequately protected in an occupied 
office, or one occupied by other than security cleared employees. Under 
no circumstances shall classified material be placed in desk drawers or 
anywhere other than in approved storage containers.
    (2) Employees using classified material shall take every precaution 
to prevent deliberate or casual inspection of it by unauthorized 
persons. Classified material shall be kept under constant surveillance 
and face down or covered when not in use.
    (3) All copies of classified documents and any informal material 
such as memoranda, rough drafts, shorthand notes, carbon copies, carbon 
paper, typewriter ribbons, recording discs, spools and tapes shall be 
given the same classification and secure handling as the classified 
information they contain.
    (4) Commission personnel authorized to use classified materials will 
obtain them from the Executive Director or his delegee on the day 
required and return them to the Executive Director or his delegee before 
the close of business on the same day.
    (5) Classified information shall not be revealed in telephone or 
telecommunications conversations.
    (6) Any person who has knowledge of the loss or possible compromise 
of classified information shall immediately report the circumstances 
either to the Security Officer or to the Executive Director or his 
delegee. The Executive Director or his delegee shall initiate a 
preliminary inquiry to determine the circumstances surrounding an actual 
or possible compromise, and to determine what corrective measures and 
administrative, disciplinary, or legal action is necessary.
    (b) Reproduction controls. (1) The number of copies of documents 
containing classified information must be kept to the minimum required 
by operational necessity to decrease the risk of compromise and reduce 
storage costs.
    (2) Top Secret documents, except for the controlled initial 
distribution of information processed or received electrically, shall 
not be reproduced without the consent of the originator.
    (3) Unless restricted by the originating agency, Secret and 
Confidential documents may be reproduced to the extent required by 
operational needs.
    (4) Reproduced copies of classified documents shall be subject to 
the same accountability and controls as the original documents.
    (5) Classified reproduction shall be controlled by persons with the 
proper level of security clearance.
    (6) Records shall be maintained to show the number and distribution 
of reproduced copies to all Top Secret

[[Page 543]]

documents, of all classified documents covered by special access 
programs distributed outside the originating agency, and of all Secret 
and Confidential documents which are marked with special dissemination 
and reproduction limitations.
    (7) Unauthorized reproduction of classified material will be subject 
to appropriate disciplinary action.
    (c) Storage of classified material. (1) All classified material in 
the custody of the Commission will be stored in accordance with the 
guidelines set forth in 32 CFR 2001.43.
    (2) In addition, the Commission remains subject to the provisions of 
32 CFR part 2001, et seq., insofar as they are applicable to classified 
materials held by the Commission.

[48 FR 15464, Apr. 11, 1983, as amended at 61 FR 21955, May 13, 1996]



Sec. 140.61  [Reserved]



Sec. 140.72  Delegation of authority to disclose confidential information to a

contract market, registered futures association or self-regulatory organization.

    (a) Pursuant to the authority granted under sections 2(a)(11), 8a(5) 
and 8a(6) of the Act, the Commission hereby delegates, until such time 
as the Commission orders otherwise, to the Executive Director, the 
Deputy Executive Director, the Special Assistant to the Executive 
Director, the Director of the Division of Clearing and Intermediary 
Oversight, each Deputy Director of the Division of Clearing and 
Intermediary Oversight, the Chief Accountant, the General Counsel, each 
Deputy General Counsel, the Director of the Division of Market 
Oversight, each Deputy Director of the Division of Market Oversight, the 
Director of the Market Surveillance Section, the Director of the 
Division of Enforcement, each Deputy Director of the Division of 
Enforcement, each Associate Director of the Division of Enforcement, the 
Chief Counsel of the Division of Enforcement, each Regional Counsel of 
the Division of Enforcement, each of the Regional Administrators, each 
of the Directors of the Market Surveillance Branches, the Chief 
Economist of the Office of the Chief Economist, the Deputy Chief 
Economist of the Office of the Chief Economist, the Director of the 
Office of International Affairs, and the Deputy Director of the Office 
of International Affairs, the authority to disclose to an official of 
any contract market, registered futures association, or self-regulatory 
organization as defined in section 3(a)(26) of the Securities Exchange 
Act of 1934, any information necessary or appropriate to effectuate the 
purposes of the Act, including, but not limited to, the full facts 
concerning any transaction or market operation, including the names of 
the parties thereto. This authority to disclose shall be based on a 
determination that the transaction or market operation disrupts or tends 
to disrupt any market or is otherwise harmful or against the best 
interests of producers, consumers, or investors or that disclosure is 
necessary or appropriate to effectuate the purposes of the Act. The 
authority to make such a determination is also delegated by the 
Commission to the Commission employees identified in this section. A 
Commission employee delegated authority under this section may exercise 
that authority on his or her own initiative or in response to a request 
by an official of a contract market, registered futures association or 
self-regulatory organization.
    (b) Disclosure under this section shall only be made to a contract 
market, registered futures association or self-regulatory organization 
official who is named in a list filed with the Commission by the chief 
executive officer of the contract market, registered futures association 
or self-regulatory organization, which sets forth the official's name, 
business address and telephone number. The chief executive officer shall 
thereafter notify the Commission of any deletions or additions to the 
list of officials authorized to receive disclosures under this section. 
The original list and any supplemental list required by his paragraph 
shall be filed with the Secretary of the Commission, and a copy thereof 
shall also be filed with the Regional Coordinator for the region in 
which the contract

[[Page 544]]

market is located or in which the registered futures association or 
self-regulatory organization has its principal office.
    (c) Notwithstanding the provisions of paragraph (a) of this section, 
in any case in which a Commission employee delegated authority under 
this section believes it appropriate, he or she may submit to the 
Commission for its consideration the question of whether disclosure of 
information should be made.
    (d) For purposes of this section, the term ``official'' shall mean 
any officer or member of a committee of a contract market, registered 
futures association or self-regulatory organization who is specifically 
charged with market surveillance or audit or investigative 
responsibilities, or their duly authorized representative or agent, who 
is named on the list filed pursuant to paragraph (b) of this section or 
any supplement thereto.
    (e) For the purposes of this section, the term ``self-regulatory 
organization'' shall mean the same as that defined in section 3(a) (26) 
of the Securities Exchange Act of 1934.
    (f) Any contract market, registered futures association or self-
regulatory organization receiving information from the Commission under 
these provisions shall not disclose such information except that 
disclosure may be made in any self-regulatory action or proceeding.

[48 FR 22134, May 17, 1983, as amended at 57 FR 20638, May 14, 1992; 61 
FR 1709, Jan. 23, 1996; 66 FR 1576, Jan. 9, 2001; 67 FR 62352, Oct. 7, 
2002; 73 FR 79609, Dec. 30, 2008]



Sec. 140.73  Delegation of authority to disclose information to United States, 

States, and foreign government agencies and foreign futures authorities.

    (a) Pursuant to sections 2(a)(11), 8a(5) and 8(e) of the Act, the 
Commission hereby delegates, until such time as the Commission orders 
otherwise, to the General Counsel or, in his or her absence, to each 
Deputy General Counsel, the Director of the Division of Enforcement, 
each Deputy Director of the Division of Enforcement, the Chief Counsel 
of the Division of Enforcement, each Associate Director of the Division 
of Enforcement, each Regional Counsel of the Division of Enforcement, 
the Director of the Division of Market Oversight or, in his or her 
absence, each Deputy Director of the Division of Market Oversight, the 
Director of the Market Surveillance Section, the Director of the 
Division of Clearing and Intermediary Oversight or, in his or her 
absence, each Deputy Director of the Division of Clearing and 
Intermediary Oversight, the Chief Economist of the Office of the Chief 
Economist, the Deputy Chief Economist of the Office of the Chief 
Economist, and the Director of the Office of International Affairs or, 
in his or her absence, the Deputy Director of the Office of 
International Affairs, the authority to furnish information in the 
possession of the Commission obtained in connection with the 
administration of the Act, upon written request, to:
    (1) Any department or agency of the United States, including for 
this purpose an independent regulatory agency, acting within the scope 
of its jurisdiction;
    (2) Any department or agency of any State or any political 
subdivision thereof, acting within the scope of its jurisdiction; or
    (3) Any foreign futures authority, as defined in section 1a(10) of 
the Act, or any department or agency of any foreign government or 
political subdivision thereof, acting within the scope of its 
jurisdiction, provided that the Commission official making the 
disclosure is satisfied that the information will not be disclosed 
except in connection with an adjudicatory action or proceeding brought 
under the laws of such foreign government or political subdivision to 
which such foreign government or political subdivision or any department 
or agency thereof, or foreign futures authority is a party.
    (b) Any disclosure made pursuant to paragraph (a) of this section 
shall be made with the concurrence of the Director of the Division of 
Enforcement or in his or her absence a Deputy Director of the Division 
of Enforcement. Provided, however, that no such concurrence is necessary 
for the Director of the Division of Market Oversight or in his or her 
absence each Deputy Director of the Division or for the Director of the 
Market Surveillance Section

[[Page 545]]

to release information under paragraph (a)(1) of this section concerning 
current or on-going market transactions or operations.
    (c) In furnishing information under this delegation pursuant to 
paragraphs (a)(1) and (2) of this section, the Commission official 
making the disclosure shall remind the department or agency involved 
that section 8(e) of the Act prohibits the disclosure by such department 
or agency of information that would separately disclose the business 
transactions or market positions of any person and trade secrets or 
names of customers except in an action or proceeding under the laws of 
the United States, the State, or a political subdivision thereof to 
which the department or the agency of either the state or political 
subdivision, the Commission, or the United States is a party.
    (d) This delegation shall not affect any other delegation which the 
Commission has made or may make, which authorizes any other officer or 
employee of the Commission to furnish information to governmental bodies 
on the Commission's behalf.
    (e) Notwithstanding the provisions of paragraph (a) of this section, 
in any case in which any employee delegated authority therein believes 
it appropriate the matter may be submitted to the Commission for its 
consideration. Nothing in this section shall prohibit the Commission 
from exercising the authority delegated in paragraph (a) of this 
section.

[48 FR 22135, May 17, 1983, as amended at 57 FR 20638, May 14, 1992; 61 
FR 1709, Jan. 23, 1996; 66 FR 1576, Jan. 9, 2001; 67 FR 62352, Oct. 7, 
2002; 73 FR 79609, Dec. 30, 2008]



Sec. 140.74  Delegation of authority to issue special calls for Series 03 Reports and Form 40.

    (a) The Commodity Futures Trading Commission hereby delegates, until 
such time as the Commission orders otherwise, to the Director of the 
Division of Market Oversight, or the Director's designee, the authority 
to issue special calls under Commission Rule 18.00 for series 03 
reports, and under Commission Rule 18.04 for a Form 40.
    (b) The Director of the Division of Market Oversight may submit any 
matter which has been delegated to the Director under paragraph (a) of 
this section to the Commission for its consideration.
    (c) Nothing in this section may prohibit the Commission, at its 
election, from exercising the authority delegated to the Director of the 
Division of Market Oversight under paragraph (a) of this section.

[50 FR 47530, Nov. 19, 1985, as amended at 67 FR 62352, Oct. 7, 2002]



Sec. 140.75  Delegation of authority to the Director of the Division of 

Clearing and Intermediary Oversight.

    Pursuant to sections 2(a)(11), 8a(5) and 8(g) of the Act, the 
Commission hereby delegates to the Director of the Division of Clearing 
and Intermediary Oversight and to such members of the Commission's staff 
acting under his or her direction as the Director may designate from 
time to time, the authority to disclose any registration information 
contained in the registration applications filed by Commission 
registrants or any compilation of such information maintained by the 
Commission to any department or agency of any State or any political 
subdivision thereof. Disclosure under this section may be made upon 
reasonable request made to the Commission or without request whenever 
the Director of Trading and Markets or any Commission employee 
designated by the Director to make disclosures under this section 
determines that such information may be appropriate for use by any 
department or agency of a State or political subdivision thereof. 
Notwithstanding the provisions of this section, in any case in which the 
Director of Division of Clearing and Intermediary Oversight deems it 
appropriate, or in any case in which the Commission so requests, the 
Director may submit matter to the Commission for its consideration.

[48 FR 22136, May 17, 1983, as amended at 67 FR 62352, Oct. 7, 2002]



Sec. 140.76  Delegation of authority to disclose information in a receivership 

or bankruptcy proceeding.

    (a) Pursuant to sections 2(a)(11) and 8(b) of the Act, the 
Commission hereby

[[Page 546]]

delegates, until such time as the Commission orders otherwise, to the 
Director of the Division of Enforcement, the Director of the Division of 
Clearing and Intermediary Oversight, the General Counsel or any 
Commission employee under their direction as they may designate, the 
authority to disclose data and information that would separately 
disclose the business transactions or market positions of any person and 
trade secrets or names of customers, when such disclosure is made in any 
receivership proceeding involving a receiver appointed in a judicial 
proceeding brought under the Act, or in any bankruptcy proceeding in 
which the Commission has intervened or in which the Commission has the 
right to appear and be heard under title 11 of the United States Code.
    (b) Notwithstanding the provisions of paragraph (a), in any case in 
which the Director of the Division of Enforcement, the Director of the 
Division of Clearing and Intermediary Oversight, the General Counsel, or 
any employee designated by them to make disclosures pursuant to this 
section believes it appropriate, the matter may be submitted to the 
Commission for consideration. In addition, the Commission reserves to 
itself the authority to determine whether to grant a request for 
information in any particular case.

[49 FR 4464, Feb. 7, 1984, as amended at 67 FR 62352, Oct. 7, 2002]



Sec. 140.77  Delegation of authority to determine that 

applications for contract market designation are materially incomplete.

    (a) The Commodity Futures Trading Commission hereby delegates, until 
such time as the Commission orders otherwise, to the Director of the 
Division of Market Oversight or the Director's designees, the authority 
to determine that an application for contract market designation is 
materially incomplete under section 6 of the Commodity Exchange Act and 
to so notify the applicant.
    (b) The Director of the Division of Market Oversight may submit any 
matter which has been delegated to the director under paragraph (a) of 
this section to the Commission for its consideration.
    (c) Nothing in this section may prohibit the Commission, at its 
election, from exercising the authority delegated to the Director of the 
Division of Market Oversight under paragraph (a) of this section.

[48 FR 34946, Aug. 2, 1983, as amended at 57 FR 20638, May 14, 1992; 67 
FR 62353, Oct. 7, 2002]



Sec. 140.80  Disclosure of information pursuant to a subpoena or summons.

    The Commission shall provide notice to any person who has submitted 
information to the Commission when a summons or subpoena seeking the 
submitted information is received by the Commission. Notice ordinarily 
will be provided by mailing a copy of the summons or subpoena to the 
last known home or business address of the person who submitted the 
information. However, under circumstances which would make notice by 
mail unduly burdensome or costly, notice of the existence of the summons 
or subpoena may be affected by alternative means such as publication in 
the Federal Register. The Commission will not disclose such information 
until the expiration of at least fourteen days from the date of mailing, 
or such other notice as is given. This section shall not apply to (a) 
Congressional subpoenas or Congressional requests for information, (b) 
information which is considered by the Commission to be public 
information, or (c) information as to which the submitter has waived the 
notice provision of this section.

[49 FR 4464, Feb. 7, 1984]



Sec. 140.81  [Reserved]



Sec. 140.91  Delegation of authority to the Director of the Division of Trading and Markets.

    (a) The Commission hereby delegates, until such time as the 
Commission orders otherwise, the following functions to the Director of 
the Division of Clearing and Intermediary Oversight and to such members 
of the Commission's staff acting under his direction as he may designate 
from time to time:
    (1) All functions reserved to the Commission in Sec. 1.10 of this 
chapter, except

[[Page 547]]

for those relating to nonpublic treatment of reports set forth in Sec. 
1.10(g) of this chapter;
    (2) All functions reserved to the Commission in Sec. 1.12 of this 
chapter;
    (3) All functions reserved to the Commission in Sec. 1.14 of this 
chapter;
    (4) All functions reserved to the Commission in Sec. 1.15 of this 
chapter;
    (5) All functions reserved to the Commission in Sec. 1.16 of this 
chapter; and
    (6) All functions reserved to the Commission in Sec. 1.17 of this 
chapter, except for those relating to non-enumerated cover cases set 
forth in Sec. 1.17(j)(3) of this chapter.
    (7) All functions reserved to the Commission in Sec. 1.25 of this 
chapter.
    (8) All functions reserved to the Commission in Sec. 41.41 of this 
chapter. Any action taken pursuant to the delegation of authority under 
this paragraph (a)(8) shall be made with the concurrence of the General 
Counsel or, in his or her absence, a Deputy General Counsel.
    (b) The Director of the Division of Clearing and Intermediary 
Oversight may submit any matter which has been delegated to him under 
paragraph (a) of this section to the Commission for its consideration.

[44 FR 13460, Mar. 12, 1979, as amended at 60 FR 8195, Feb. 13, 1995; 66 
FR 43087, Aug. 17, 2001; 66 FR 53523, Oct. 23, 2001; 67 FR 62353, Oct. 
7, 2002]



Sec. 140.92  Delegation of authority to grant registrations and renewals thereof.

    (a) The Commission hereby delegates, until such time as the 
Commission orders otherwise, to the Director of the Division of Clearing 
and Intermediary Oversight and to such members of the Commission's staff 
acting under his direction as he may designate, the authority to grant 
registrations and renewals thereof.
    (b) The Director of the Division of Clearing and Intermediary 
Oversight may submit any matter which has been delegated to him under 
paragraph (a) of this section to the Commission for its consideration.
    (c) Nothing in this section may prohibit the Commission, at its 
election, from exercising the authority delegated to the Director of the 
Division of Clearing and Intermediary Oversight under paragraph (a) of 
this section.

[45 FR 20785, Mar. 31, 1980, as amended at 67 FR 62353, Oct. 7, 2002]



Sec. 140.93  Delegation of authority to the Director of the Division of 

Clearing and Intermediary Oversight.

    (a) The Commission hereby delegates, until such time as the 
Commission orders otherwise, the following functions to the Director of 
the Division of Clearing and Intermediary Oversight and to such members 
of the Commission's staff acting under his direction as he may designate 
from time to time:
    (1) All functions reserved to the Commission in Sec. 4.12(a) of 
this chapter.
    (2) All functions reserved to the Commission in Sec. 4.22(g)(3) of 
this chapter.
    (3) All functions reserved to the Commission in Sec. 4.20(a) of 
this chapter.
    (4) All functions reserved to the Commission in Sec. 4.5(c)(2)(ii) 
of this chapter.
    (5) All functions reserved to the Commission in Sec. 4.6(b) of this 
chapter.
    (b) The Director of the Division of Clearing and Intermediary 
Oversight may submit any matter which has been delegated to him under 
paragraph (a) of this section to the Commission for its consideration.
    (c) Nothing in this section may prohibit the Commission, at its 
election, from exercising the authority delegated to the Director of the 
Division of Clearing Intermediary Oversight under paragraph (a) of this 
section.

[46 FR 26023, May 8, 1981, as amended at 46 FR 34311, July 1, 1981; 50 
FR 15884, Apr. 23, 1985; 52 FR 41986, Nov. 2, 1987; 67 FR 62353, Oct. 7, 
2002; 70 FR 2566, Jan. 14, 2005]



Sec. 140.94  Delegation of authority to the Director of the Division of 

Clearing and Intermediary Oversight.

    (a) The Commission hereby delegates, until such time as the 
Commission orders otherwise, the following functions to the Director of 
the Division of Clearing and Intermediary Oversight and to such members 
of the Commission's staff acting under his direction as he may designate 
from time to time:
    (1) All functions reserved to the Commission in Sec. 5.7 of this 
chapter;

[[Page 548]]

    (2) All functions reserved to the Commission in Sec. 5.10 of this 
chapter;
    (3) All functions reserved to the Commission in Sec. 5.11 of this 
chapter;
    (4) All functions reserved to the Commission in Sec. 5.12 of this 
chapter, except for those relating to nonpublic treatment of reports set 
forth in Sec. 5.12(i) of this chapter; and
    (5) All functions reserved to the Commission in Sec. 5.14 of this 
chapter.
    (b) The Director of the Division of Clearing and Intermediary 
Oversight may submit any matter which has been delegated to him under 
paragraph (a) of this section to the Commission for its consideration.
    (c) Nothing in this section may prohibit the Commission, at its 
election, from exercising the authority delegated to the Director of the 
Division of Clearing and Intermediary Oversight under paragraph (a) of 
this section.

[75 FR 55449, Sept. 10, 2010]



Sec. 140.95  Delegation of authority with respect to withdrawals from registration.

    (a) The Commission hereby delegates, until such time as the 
Commission orders otherwise, to the Director of the Division of Clearing 
and Intermediary Oversight and to such members of the Commission's staff 
acting under his direction as he may designate, the authority to review, 
postpone, condition, deny, or otherwise act upon a request for 
withdrawal from registration.
    (b) The Director of the Division of Clearing and Intermediary 
Oversight may submit any matter which has been delegated to him under 
paragraph (a) of this section to the Commission for its consideration.
    (c) Nothing in this section shall prohibit the Commission, at its 
election, from exercising the authority delegated to the Director of the 
Division of Clearing and Intermediary Oversight under paragraph (a) of 
this section.

[46 FR 48918, Oct. 5, 1981, as amended at 67 62353, Oct. 7, 2002]



Sec. 140.96  Delegation of authority to publish in the Federal Register.

    (a) The Commodity Futures Trading Commission hereby delegates, until 
such time as the Commission orders otherwise, to the Director of the 
Division of Market Oversight or the Director's designee, with the 
concurrence of the General Counsel or the General Counsel's designee, 
the authority to publish in the Federal Register notice of the 
availability for comment of the proposed terms and conditions of 
applications for contract market designation, and to determine to 
publish, and to publish, requests for public comment on proposed 
exchange rule amendments of major economic significance.
    (b) The Commodity Futures Trading Commission hereby delegates, until 
such time as the Commission orders otherwise, to the Director of the 
Division of Market Oversight or the Director's designee, and to the 
Director of the Division of Clearing and Intermediary Oversight or the 
Director's designee, with the concurrence of the General Counsel or the 
General Counsel's designee, the authority to determine to publish, and 
to publish, in the Federal Register, requests for public comment on 
proposed exchange and self-regulatory organization rule amendments when 
publication of the proposed rule amendment is in the public interest and 
will assist the Commission in considering the views of interested 
persons.
    (c) The Director of the Division of Market Oversight or the Director 
of the Division of Clearing and Intermediary Oversight may submit any 
matter which has been delegated to such Director under paragraphs (a) or 
(b) of this section to the Commission for its consideration.
    (d) Nothing in this section may prohibit the Commission, at its 
election, from exercising the authority delegated to the Director of the 
Division of Market Oversight and to the Director of the Division of 
Clearing and Intermediary Oversight under paragraphs (a) and (b) of this 
section.

[50 FR 47532, Nov. 19, 1985, as amended at 55 FR 35897, Sept. 4, 1990; 
57 FR 20638, May 14, 1992; 67 FR 62353, Oct. 7, 2002]



Sec. 140.97  Delegation of authority regarding requests for classification of 

positions as bona fide hedging.

    (a) The Commodity Futures Trading Commission hereby delegates, until

[[Page 549]]

such time as the Commission orders otherwise, to the Director of the 
Division of Market Oversight, or the Director's designee, all functions 
reserved to the Commission in Sec. Sec. 1.47 and 1.48 of this chapter.
    (b) The Director of the Division of Market Oversight may submit any 
matter which has been delegated to the Director under paragraph (a) of 
this section to the Commission for its consideration.
    (c) Nothing in this section may prohibit the Commission, at its 
election, from exercising the authority delegated to the Director of the 
Division of Market Oversight under paragraph (a) of this section.

[57 FR 12874, Apr. 14, 1992, as amended at 67 FR 62353, Oct. 7, 2002]



Sec. 140.98  Publication of no-action, interpretative and exemption letters 

and other written communications.

    (a) Except as provided in paragraphs (b) and (c) of this section, 
and except for applications for orders granting exemptions submitted 
pursuant to section 4(c) of the Commodity Exchange Act and any written 
responses thereto, each written response by the Commission or its staff 
to a letter or other written communication requesting:
    (1) Interpretative legal advice with respect to the Commodity 
Exchange Act or any rule, regulation or order issued or adopted by the 
Commission thereunder;
    (2) A statement that, on the basis of the facts stated in such 
letter or other communication, the staff would not recommend that the 
Commission take any enforcement action; or
    (3) An exemption, on the basis of the facts stated in such letter or 
other communication, from the provisions of the Commodity Exchange Act 
or any rules, or regulations or orders issued or adopted by the 
Commission thereunder; shall be made available, together with the letter 
or other written communication making the request, for inspection and 
copying by any person as soon as practicable after the response has been 
sent or given to the person requesting it.
    (b) Any person submitting a letter or other written communication 
making such a request may also submit therewith a request that the 
letter or other written communication, as well as any Commission or 
staff response thereto, be accorded confidential treatment for a 
specified period of time, not exceeding 120 days from the date of the 
response thereto, together with a statement setting forth the 
considerations upon which the request for such treatment is based. If 
the staff determines that the request is reasonable and appropriate it 
will be granted and the letter or other written communication as well as 
the response thereto will not be made available for public inspection or 
copying until the expiration of the specified period. If it appears to 
the staff that the request for confidential treatment should be denied, 
the staff shall so advise the person making the request and such person 
may withdraw the letter or other written communication within 30 days 
thereafter. In such case, no response will be sent or given and the 
letter or other written communication shall remain in the Commission's 
files but will not be made public pursuant to this section. If such 
letter or other written communication is not so withdrawn, it shall be 
deemed to be available for public inspection and copying together with 
any written response thereto.
    (c) Notwithstanding the provisions of paragraphs (a) and (b) of this 
section, no portion of a letter or other written communication received 
by the Commission or its staff of the type described in paragraph (a) of 
this section, or any written response thereto, shall be made available 
for inspection and copying or otherwise published which would separately 
disclose the business transactions or market positions of any person and 
trade secrets or names of customers, except in accordance with the 
provisions of section 8 of the Commodity Exchange Act.

[57 FR 61291, Dec. 24, 1992]



Sec. 140.99  Requests for exemptive, no-action and interpretative letters.

    (a) Definitions. For the purpose of this section:
    (1) Exemptive letter means a written grant of relief issued by the 
staff of a Division of the Commission from the applicability of a 
specific provision of the Act or of a rule, regulation or order

[[Page 550]]

issued thereunder by the Commission. An exemptive letter may only be 
issued by staff of a Division when the Commission itself has exemptive 
authority and that authority has been delegated by the Commission to the 
Division in question. An exemptive letter binds the Commission and its 
staff with respect to the relief provided therein. Only the Beneficiary 
may rely upon the exemptive letter.
    (2) No-action letter means a written statement issued by the staff 
of a Division of the Commission or of the Office of the General Counsel 
that it will not recommend enforcement action to the Commission for 
failure to comply with a specific provision of the Act or of a 
Commission rule, regulation or order if a proposed transaction is 
completed or a proposed activity is conducted by the Beneficiary. A no-
action letter represents the position only of the Division that issued 
it, or the Office of the General Counsel if issued thereby. A no-action 
letter binds only the issuing Division or the Office of the General 
Counsel, as applicable, and not the Commission or other Commission 
staff. Only the Beneficiary may rely upon the no-action letter.
    (3) Interpretative letter means written advice or guidance issued by 
the staff of a Division of the Commission or the Office of the General 
Counsel. An interpretative letter binds only the issuing Division or the 
Office of the General Counsel, as applicable, and does not bind the 
Commission or other Commission staff. An interpretative letter may be 
relied upon by persons in addition to the Beneficiary.
    (4) Letter means an exemptive, no-action or interpretative letter.
    (5) Division means the Division of Clearing and Intermediary 
Oversight or the Division of Market Oversight.
    (b) General requirements. (1) Issuance of a Letter is entirely 
within the discretion of Commission staff.
    (2) Each request for a Letter must comply with the requirements of 
this section. Commission staff may reject or decline to respond to a 
request that does not comply with the requirements of this section.
    (3) The request must relate to a proposed transaction or a proposed 
activity. Absent extraordinary circumstances, Commission staff will not 
issue a Letter based upon transactions or activities that have been 
completed or activities that have been conducted prior to the date upon 
which the request is filed with the Commission.
    (4) The request must be made by or on behalf of the person whose 
activities or transactions are the subject of the request. Commission 
staff will not respond to a request for a Letter that is made by or on 
behalf of an unidentified person.
    (5)(i) The request must set forth as completely as possible all 
material facts and circumstances giving rise to the request.
    (ii) Commission staff will not respond to a request based on a 
hypothetical situation. However, a requester may set forth one or more 
alternative structures or fact situations for a proposed transaction or 
activity; Provided, That the request complies with this section with 
respect to each alternative structure or fact situation.
    (c) Information requirements. Each request for a Letter must comply 
with the following information requirements:
    (1)(i) A request made by the person on whose behalf the Letter is 
sought must contain:
    (A) The name, main business address, main telephone number and, if 
applicable, the National Futures Association registration identification 
number of such person; and
    (B) The name and, if applicable, the National Futures Association 
registration identification number of each other person for whose 
benefit the person is seeking the Letter.
    (ii) When made by a requester other than the person on whose behalf 
the Letter is sought, the request must contain:
    (A) The name, main business address and main business telephone 
number of the requester;
    (B) The name and, if applicable, the National Futures Association 
registration identification number of the person on whose behalf the 
Letter is sought; and
    (C) The name and, if applicable, the National Futures Association 
registration identification number of each

[[Page 551]]

other person for whose benefit the requester is seeking the Letter.
    (iii) The request must provide the name, address and telephone 
number of a contact person from whom Commission staff may obtain 
additional information if necessary.
    (2) The section number of the particular provision of the Act and/or 
Commission rules, regulations or orders to which the request relates 
must be set forth in the upper right-hand corner of the first page of 
the request.
    (3) The request must be accompanied by:
    (i) A certification by a person with knowledge of the facts that the 
material facts as represented in the request are true and complete. The 
following form of certification is sufficient for this purpose:

    I hereby certify that the material facts set forth in the attached 
letter dated -------- are true and complete to the best of my knowledge.
(name and title)________________________________________________________


and
    (ii) An undertaking made by the person on whose behalf the Letter is 
sought or by that person's authorized representative that, if at any 
time prior to issuance of a Letter, any material representation made in 
the request ceases to be true and complete, the person who made the 
undertaking will ensure that Commission staff is informed promptly in 
writing of all materially changed facts and circumstances. If a material 
change in facts or circumstances occurs subsequent to issuance of a 
Letter, the person on whose behalf the Letter is sought (or that 
person's authorized representative at the time of the change) must 
promptly so inform Commission staff.
    (4) The request must identify the type of relief requested and 
Letter sought and must clearly state why a Letter is needed. The request 
must identify all relevant legal and factual issues and discuss the 
legal and public policy bases supporting issuance of the Letter.
    (5) The request must contain references to all relevant authorities, 
including applicable provisions of the Act, Commission rules, 
regulations and orders, judicial decisions, administrative decisions, 
relevant statutory interpretations and policy statements. Adverse 
authority must be cited and discussed.
    (6) The request must identify prior publicly available Letters 
issued by Commission staff in response to circumstances similar to those 
surrounding the request (including adverse Letters), and must identify 
any conditions imposed by prior Letters as prerequisites for the 
issuance of those Letters. Citation of a representative sample of prior 
Letters is sufficient where a comprehensive recitation of prior Letters 
on a given topic would be repetitious or would not assist the staff in 
considering the request.
    (7) Requests may ask that, if the requested exemptive relief, no-
action position or interpretative guidance is denied, the staff consider 
granting alternative relief or adopting an alternative position.
    (d) Filing requirements. Each request for a Letter must comply with 
the following filing requirements:
    (1) The request must be in writing and signed.
    (2) A request for a Letter relating to the provisions of the Act or 
the Commission's rules, regulations or orders governing designated 
contract markets, registered derivatives transaction execution 
facilities, exempt commercial markets, exempt boards of trade, the 
nature of particular transactions and whether they are exempt or 
excluded from being required to be traded on one of the foregoing 
entities, foreign trading terminals, hedging exemptions, and the 
reporting of market positions shall be filed with the Director, Division 
of Market Oversight, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. A request 
for a Letter relating to all other provisions of the Act or Commission 
rules shall be filed with the Director, Division of Clearing and 
Intermediary Oversight Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. A request 
for a Letter relating to all

[[Page 552]]

other provisions of the Act or Commission rules shall be filed with the 
Director, Division of Clearing and Intermediary Oversight, Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, 
NW., Washington, DC 20581. The request must be submitted electronically 
using the e-mail address [email protected] (for request filed with the 
Division of Market Oversight), or [email protected] (for requests 
filed with the Division of Clearing and Intermediary Oversight), as 
appropriate, and a properly signed paper copy of the request must be 
provided to the Division of Market Oversight or the Division of Clearing 
and Intermediary Oversight, as appropriate, within ten days for purposes 
of verification of the electronic submission.
    (e) Form of staff response. No response to any request governed by 
this section is effective unless it is in writing, signed by appropriate 
Commission staff, and transmitted in final form to the recipient. 
Failure by Commission staff to respond to a request for a Letter does 
not constitute approval of the request. Nothing in this section shall 
preclude Commission staff from responding to a request for a Letter by 
way of endorsement or any other abbreviated, written form of response.
    (f) Withdrawal of requests. (1) A request for a Letter may be 
withdrawn by filing with Commission staff a written request for 
withdrawal, signed by the person on whose behalf the Letter was sought 
or by that person's authorized representative, that states whether the 
person on whose behalf the Letter was sought will proceed with the 
proposed transaction or activity.
    (2) Where a request has been submitted by an authorized 
representative of the person on whose behalf a Letter is sought, the 
authorized representative may withdraw from representation at any time 
without explanation, Provided, That Commission staff is promptly so 
notified.
    (g) Failure to pursue a request. In the event that Commission staff 
requests additional information or analysis from a requester and the 
requester does not provide that information or analysis within thirty 
calendar days, Commission staff generally will issue a denial of the 
request; Provided, however, that Commission staff in its discretion may 
issue an extension of time to provide the information and or analysis.
    (h) Confidential treatment. Confidential treatment of a request for 
a Letter must be requested separately in accordance with Sec. 140.98 or 
Sec. 145.9 of this chapter, as applicable.
    (i) Applicability to other sections. The provisions of this section 
shall not affect the requirements of, or otherwise be applicable to:
    (1) Notice filings required to be made to claim relief from the Act 
or from a Commission rule, regulation, or order including, without 
limitations, Sec. Sec. 4.5, 4.7(a), 4.7(b), 4.12(b), 4.13(b) and 
4.14(a)(8) of this chapter;
    (2) Requests for exemption pursuant to section 4(c) of the Act; or
    (3) Requests for exemption pursuant to Sec. 41.33 of this chapter.

[63 FR 68181, Dec. 10, 1998, as amended at 65 FR 47859, Aug. 4, 2000; 66 
FR 44967, Aug. 27, 2001; 67 FR 62353, Oct. 7, 2002; 69 FR 41426, July 9, 
2004]



  Subpart C_Regulation Concerning Conduct of Members and Employees and 
             Former Members and Employees of the Commission

    Authority: 7 U.S.C. 4a(f) and (j), 12a(5), and 13, as amended by the 
Commodity Futures Modernization Act of 2000, Appendix E of Pub. L. 106-
554, 114 Stat. 2763 (2000).

    Source: 41 FR 27511, July 2, 1976, unless otherwise noted.



Sec. 140.735-1  Authority and purpose.

    This subpart sets forth specific standards of conduct required of 
Commission members, employees of the Commission, and special government 
employees as well as regulations concerning former Commissioners, 
employees, and special government employees of the Commodity Futures 
Trading Commission. These rules are separate from and in addition to the 
Office of Government Ethics' conduct rules, Standards of Ethical Conduct 
for Employees of the Executive Branch, 5 CFR part 2635. In addition, 
this subpart contains references to various statutes governing employee 
conduct in order

[[Page 553]]

to aid Commission members, employees of the Commission and others in 
their understanding of statutory restrictions and requirements. \1\ 
Absent compelling countervailing reasons, all Commission members and 
employees are subject to all the terms of this section.
---------------------------------------------------------------------------

    \1\ These references, however, do not purport to cover all 
restrictions and requirements, and paraphrased restatements of statutory 
provisions are not intended to be, and should not be construed as, 
verbatim quotations of the law. Statutory text should be consulted in 
any situation in which it might apply.

[67 FR 5939, Feb. 8, 2002]



Sec. 140.735-2  Prohibited transactions.

    (a) Application. This section applies to all transactions effected 
by or on behalf of a Commission member or employee of the Commission, 
including transactions for the account of other persons effected by the 
member or employee, directly or indirectly under a power of attorney or 
otherwise. A member or employee shall be deemed to have a sufficient 
interest in the transactions of his or her spouse, minor child, or other 
relative who is a resident of the immediate household of the member or 
employee so that such transactions must be reported and are subject to 
all the terms of this section.
    (b) Prohibitions. Except as otherwise provided in this subsection, 
no member or employee of the Commission shall:
    (1) Participate, directly or indirectly, in any transaction:
    (i) In commodity futures;
    (ii) Involving any commodity that is of the character of or which is 
commonly known to the trade as an option, privilege, indemnity, bid, 
offer, put, call, advance guaranty, or decline guaranty; or
    (iii) For the delivery of any commodity under a standardized 
contract commonly known to the trade as a margin account, margin 
contract, leverage account, or leverage contract, or under any contract, 
account, arrangement, scheme, or device that the Commission determines 
serves the same function or functions as such a standardized contract, 
or is marketed or managed in substantially the same manner as such a 
standardized contract;
    (2) Effect any purchase or sale of an option, futures contract, or 
option on a futures contract involving a security or group of 
securities;
    (3) Sell a security which he or she does not own or consummate a 
sale by the delivery of a security borrowed by or for his or her 
account;
    (4) Participate, directly or indirectly, in any investment 
transaction in an actual commodity if:
    (i) Nonpublic information is used in the investment transaction;
    (ii) It is prohibited by rule or regulation of the Commission; or
    (iii) It is effected by means of any instrument regulated by the 
Commission and is not otherwise permitted by an exception under this 
section;
    (5) Purchase or sell any securities of a company which, to his or 
her knowledge, is involved in any:
    (i) Pending investigation by the Commission;
    (ii) Proceeding before the Commission or to which the Commission is 
a party;
    (iii) Other matter under consideration by the Commission that could 
have a direct and predictable effect upon the company; or
    (6) Recommend or suggest to another person any transaction in which 
the member or employee is not permitted to participate in any 
circumstance where the member or employee could reasonably expect to 
benefit or where the member or employee has or may have control or 
substantial influence over such person.
    (c) Exception for farming, ranching, and natural resource 
operations. The prohibitions in paragraphs (b)(1)(i) and (ii) of this 
section shall not apply to a transaction in connection with any farming, 
ranching, oil and gas, mineral rights, or other natural resource 
operation in which the member or employee has a financial interest, if 
he or she is not involved in the decision to engage in, and does not 
have prior knowledge of, the actual futures or options transaction and 
has previously

[[Page 554]]

notified the General Counsel \2\ in writing of the nature of the 
operation, the extent of the member's or employee's interest, the types 
of transactions in which the operation may engage, and the identity of 
the person or persons who will make trading decisions for the operation; 
\3\
---------------------------------------------------------------------------

    \2\ As used in this subpart, ``General Counsel'' refers to the 
General Counsel in his or her capacity as counselor for the Commission 
and designated agency ethics official for the Commission, and includes 
his or her designee and the alternate designated agency ethics official 
appointed by the agency head pursuant to 5 CFR 2638.202.
    \3\ Although not required, if they choose to do so, members or 
employees may use powers of attorney or other arrangements in order to 
meet the notice requirements of, and to assure that they have no control 
or knowledge of, futures or options transactions permitted under 
paragraph (c) of this section. A member or employee considering such 
arrangements should consult with the Office of General Counsel in 
advance for approval. Should a member or employee gain knowledge of an 
actual futures or option transaction entered into by an operation 
described in paragraph (c) of this section that has already taken place 
and the market position represented by that transaction remains open, he 
or she should promptly report that fact and all other details to the 
General Counsel and seek advice as to what action, including recusal 
from any particular matter that will have a direct and predictable 
effect on the financial interest in question, may be appropriate.
---------------------------------------------------------------------------

    (d) Other exceptions. The prohibitions in paragraphs (b)(1), (2) and 
(3) of this section shall not apply to:
    (1) A transaction entered into by any publicly-available pooled 
investment vehicle (such as a mutual fund or exchange-traded fund) other 
than one operated by a person who is a commodity pool operator with 
respect to such entity if the direct or indirect ownership interest of 
the member or employee neither exercises control nor has the ability to 
exercise control over the transactions entered into by such vehicle; \4\
---------------------------------------------------------------------------

    \4\ Section 9(c) of the Commodity Exchange Act makes it a felony for 
any member or employee, or agent thereof, to participate, directly or 
indirectly in, inter alia, any transaction in commodity futures, option, 
leverage transaction, or other arrangement that the Commission 
determines serves the same function, unless authorized to do so by 
Commission rule or regulation. 17 CFR 4.5 excludes certain otherwise 
regulated persons from the definition of ``commodity pool operator'' 
with respect to operation of specific investment entities enumerated in 
the regulation.
---------------------------------------------------------------------------

    (2) The acceptance or exercise of any stock option or similar right 
granted by an employer as part of a compensation package to a spouse or 
minor child or other related member of the immediate household of a 
member or employee, or to the exercise of any stock option or similar 
right granted to the member or employee by a previous employer prior to 
commencement of the member's or employee's tenure with the Commission as 
part of such member's or employee's compensation package from such 
previous employer;
    (3) A transaction by any trust or estate of which the member or 
employee or the spouse, minor child, or other related member of the 
immediate household of the member or employee is solely a beneficiary, 
has no power to control, and does not in fact control or advise with 
respect to the investments of the trust or estate;
    (4) The exercise of any privilege to convert or exchange securities, 
of rights accruing unconditionally by virtue of ownership of other 
securities (as distinguished from a contingent right to acquire 
securities not subscribed for by others), or of rights in order to round 
out fractional shares in securities;
    (5) The acceptance of stock dividends on securities already owned, 
the reinvestment of cash dividends on a security already owned, or the 
participation in a periodic investment plan when the original purchase 
was otherwise consistent with this rule; or
    (6) Investment in any fund established pursuant to the Federal 
Employees Retirement System.
    (e) No prohibition on stocks or funds. Nothing in paragraph (b)(1) 
or (2) of this section shall prohibit a member or employee from 
purchasing, selling, or retaining any share that represents ownership of 
a publicly-owned corporation or interest in a publicly-available pooled 
investment vehicle containing any such shares (such as a mutual fund or 
exchange-traded fund) other than one operated by a person who is a 
commodity pool operator with respect to

[[Page 555]]

such pooled investment vehicle, regardless of whether any security 
futures product may at any time be or have been based upon shares of 
such corporation or pooled investment vehicle, and regardless of whether 
such pooled investment vehicle may, by design or effect, track or follow 
any group of securities that also underlies a futures contract.
    (f) Exception applicable to legally separated employees. This 
section shall not apply to transactions of a legally separated spouse of 
a member or employee, including transactions for the benefit of a minor 
child, if the member or employee has no power to control, and does not, 
in fact, advise or control with respect to such transactions. If the 
member or employee has actual or constructive knowledge of such 
transactions of a legally separated spouse or for the benefit of a minor 
child, the disqualification provisions of Sec. 140.735-2a(d)(2)(i)-
(iii) and 18 U.S.C. 208 are applicable.

[67 FR 5939, Feb. 8, 2002]



Sec. 140.735-2a  Prohibited interests.

    (a) Application. This section applies to all financial interests of 
a Commission member or employee of the Commission, including financial 
interests held by the member or employee for the account of other 
persons. A member or employee shall be deemed to have a sufficient 
interest in the financial interests of his or her spouse, minor child, 
or other relative who is a resident of the immediate household of the 
member or employee, so that such financial interests must be reported 
and are subject to all the terms of this section.
    (b) Prohibitions. Except as otherwise provided in this subsection, 
no member or employee of the Commission shall:
    (1) Have a financial interest, through ownership of securities or 
otherwise, in any person \5\ registered with the Commission (including 
futures commission merchants, associated persons and agents of futures 
commission merchants, floor brokers, commodity trading advisors and 
commodity pool operators, and any other persons required to be 
registered in a fashion similar to any of the above under the Commodity 
Exchange Act or pursuant to any rule or regulation promulgated by the 
Commission), or any contract market, board of trade, or other trading 
facility, or any clearing organization subject to regulation or 
oversight by the Commission; \6\ or
---------------------------------------------------------------------------

    \5\ As defined in section 1a(16) of the Commodity Exchange Act and 
17 CFR 1.3(u) thereunder, a ``person'' includes an individual, 
association, partnership, corporation and a trust.
    \6\ Attention is directed to 18 U.S.C. 208.
---------------------------------------------------------------------------

    (2) Own or control, through securities or otherwise, ten percent or 
more of the total ownership interests in any other person required to 
file reports under the Commodity Exchange Act, or pursuant to any rule 
or regulation promulgated by the Commission. \7\
---------------------------------------------------------------------------

    \7\ The Division of Market Oversight maintains information on 
persons whose commodity futures and options positions are or have been 
reportable under the Commission's large trader reporting system. Members 
and employees should consult with DEA to determine whether any of their 
financial interests involve entities subject to such reporting.
---------------------------------------------------------------------------

    (c) Exceptions. The prohibitions in paragraph (b) of this section 
shall not apply to:
    (1) A financial interest in any publicly-available pooled investment 
vehicle (such as a mutual fund or exchange-traded fund) other than one 
operated by a person who is a commodity pool operator with respect to 
such entity if such vehicle does not have invested, or indicate in its 
prospectus the intent to invest, ten percent or more of its assets in 
securities of persons described in paragraph (b) of this section and the 
member or employee neither exercises control nor has the ability to 
exercise control over the financial interests held in such vehicle;
    (2) A financial interest in any corporate parent or affiliate of a 
person described in paragraph (b)(1) of this section if the operations 
of such person provide less than ten percent of the gross revenues of 
the corporate parent or affiliate; \8\
---------------------------------------------------------------------------

    \8\ It is the member's or employee's responsibility to monitor his 
or her financial interests and those of a spouse or minor child or other 
related member of his or her immediate household, to promptly report 
relevant changes to the General Counsel in writing, and to seek the 
advice of the General Counsel as to what action may be appropriate. In 
this regard, attention is directed to 18 U.S.C. 208, which bars an 
employee from participating in any particular matter that will have a 
direct and predictable effect on the financial interest in question.

---------------------------------------------------------------------------

[[Page 556]]

    (3) A financial interest in any trust or estate of which the member 
or employee is solely a beneficiary, has no power to control, and does 
not in fact control or advise with respect to the investments of the 
trust or estate; except that such interest is subject to the provisions 
of paragraphs (d) and (f) of this section.
    (d) Retention or passive acquisition of prohibited financial 
interests. Nothing in this section shall prohibit a member or employee, 
or a spouse or minor child or other related member of the immediate 
household of the member or employee, from:
    (1) Retaining a financial interest that was permitted to be retained 
by the member or employee prior to the adoption of this regulation, was 
obtained prior to the commencement of employment with the Commission, or 
was acquired by a spouse prior to marriage to the member or employee; or
    (2) Acquiring, retaining, or controlling an otherwise prohibited 
financial interest, including but not limited to any security or option 
on a security (but not a security futures product), where the financial 
interest was acquired by inheritance, gift, stock split, involuntary 
stock dividend, merger, acquisition, or other change in corporate 
ownership, exercise of preemptive right, or otherwise without specific 
intent to acquire the financial interest, or by a spouse or minor child 
or other related member of the immediate household of the member or 
employee as part of an employment compensation package; provided, 
however, that retention of any interest allowed by paragraph (c)(3) or 
(d) of this section is permitted only where the employee:
    (i) Makes full disclosure of any such interest on his or her annual 
financial disclosure (Standard Form 278 or Standard Form 450);
    (ii) Makes full written disclosure to the General Counsel within 30 
days of commencing employment or, for incumbents, within twenty days of 
his or her receipt of actual or constructive notice that the interest 
has been acquired; \9\ and
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    \9\ Changes in holdings, other than by purchase, which do not affect 
disqualification, such as those resulting from the automatic 
reinvestment of dividends, stock splits, stock dividends or 
reclassifications, may be reported on the annual statement, SF 278 or SF 
450, rather than when notification of the transaction is received. 
Acquisition by, for example, gifts, inheritance, or spinoffs, which may 
result in additional disqualifications pursuant to paragraph (d)(2)(iii) 
of this section and 18 U.S.C. 208 shall be reported to the General 
Counsel within 20 days of the receipt of actual or constructive notice 
thereof.
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    (iii) Will be disqualified in accordance with 5 CFR part 2635, 
subpart D, and 18 U.S.C. 208 from participating in any particular matter 
that will have a direct and predictable effect on the financial interest 
in question. Any Commission member or employee affected by this section 
may, pursuant to 18 U.S.C. 208(b)(1) and 5 CFR 2640.301-303, request a 
waiver of the disqualification requirement.
    Note: With respect to any financial interest retained under 
paragraph (c)(3) or (d) of this section, Commission members and 
employees are reminded of their obligations under 18 U.S.C. 208 and 5 
CFR part 2635, subpart D, to disqualify themselves from participating in 
any particular matter in which they, their spouses or minor children 
have a financial interest.
    (e) Exception applicable to legally separated employees. This 
section shall not apply to the financial interests of a legally 
separated spouse of a Commission member or employee, including 
transactions for the benefit of a minor child, if the member or employee 
has no power to control and does not, in fact, advise or control with 
respect to such transactions. If the member or employee has actual or 
constructive knowledge of such financial interests held by a legally 
separated spouse or for the benefit of a minor child, the 
disqualification provisions of paragraphs (d)(2)(i)-(iii) of this 
section and 18 U.S.C. 208 are applicable.
    (f) Divestiture. Based upon a determination of substantial conflict 
under 5 CFR 2635.403(b) and 18 U.S.C. 208, the Commission, or its 
designee, may require in writing that a member or employee, or the 
spouse or minor child or

[[Page 557]]

other related member of the immediate household of a member or employee, 
divest a financial interest that he or she is otherwise authorized to 
retain under this section. \10\
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    \10\ Any evidence of a violation of 18 U.S.C. 208 must be reported 
by the General Counsel to the Commission, which may refer the matter to 
the Criminal Division of the Department of Justice and the United States 
Attorney in whose venue the violations lie. See 28 U.S.C. 535.

[67 FR 5940, Feb. 8, 2002, as amended at 67 FR 62353, Oct. 7, 2002]



Sec. 140.735-3  Non-governmental employment and other outside activity.

    A Commission member or employee shall not accept employment or 
compensation from any person, exchange or clearinghouse subject to 
regulation by the Commission. For purposes of this section, a person 
subject to regulation by the Commission includes but is not limited to a 
contract market or clearinghouse or member thereof, a registered futures 
commission merchant, any person associated with a futures commission 
merchant or with any agent of a futures commission merchant, floor 
broker, commodity trading advisor, commodity pool operator or any person 
required to be registered in a fashion similar to any of the above or 
file reports under the Act or pursuant to any rule or regulation 
promulgated by the Commission. \8\
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    \8\ Attention is directed to section 2(a)(7) of the Commodity 
Exchange Act, which provides, among other things, that no Commission 
member or employee shall accept employment or compensation from any 
person, exchange or clearinghouse subject to regulation by the 
Commission, or participate, directly or indirectly, in any contract 
market operations or transactions of a character subject to regulation 
by the Commission.

[58 FR 52658, Oct. 12, 1993]



Sec. 140.735-4  Receipt and disposition of foreign gifts and decorations.

    (a) For purposes of this section only:
    (1) Commission member or employee means any Commission member or any 
person employed by or who occupies an office or a position in the 
Commission; an expert or consultant under contract with the Commission, 
or in the case of an organization performing services under such 
contract, any individual involved in the performance of such service; 
and the spouse, unless the individual and his or her spouse are 
separated, and any dependent, as defined by section 152 of the Internal 
Revenue Code of 1954, of any such person.
    (2) Foreign government means:
    (A) Any unit of foreign governmental authority, including any 
foreign national, state, local, and municipal government;
    (B) Any international or multinational organization whose membership 
is composed of any unit of foreign government described in paragraph 
(a)(2)(A) of this section; and
    (C) Any agent or representative of any such unit or such 
organization, while acting as such.
    (3) Gift means a tangible or intangible present (other than a 
decoration) tendered by, or received from, a foreign government, except 
grants and other forms of assistance to which section 108A of the Mutual 
Educational and Cultural Exchange Act of 1961 applies.
    (4) Decoration means an order, device, medal, badge, insignia, 
emblem, or award tendered by, or received from, a foreign government.
    (5) Minimal value means a retail value in the United States at the 
time of acceptance of $140 or less, except as redefined to reflect 
changes in the consumer price index at three year intervals by the 
Administrator of General Services pursuant to authority granted in 5 
U.S.C. 7342(a)(5)(A).
    (b) Commission members and employees shall not:
    (1) Request or otherwise encourage the tender of a gift or 
decoration;
    (2) Accept a gift of currency, except that which has an historical 
or numismatic value;
    (3) Accept gifts of travel or gifts of expenses for travel, such as 
transportation, food and lodging, from foreign governments, other than 
those authorized in paragraph (c)(5) of this section; or
    (4) Accept any gift or decoration, except as authorized by this 
section.
    (c) Gifts which may be accepted:
    (1) Commission members and employees may accept and retain gifts of 
minimal value tendered or received as a souvenir or mark of courtesy 
from a

[[Page 558]]

foreign government without further approval. If the value of a gift is 
uncertain, the recipient shall be responsible for establishing that it 
is of minimal value, as defined in this section. Documentary evidence 
may be required in support of the valuation.
    (2) Commission members and employees may accept, on behalf of the 
United States, gifts of more than minimal value tendered or received 
from a foreign government when it appears that to refuse the gift would 
likely cause offense or embarrassment or otherwise adversely affect the 
foreign relations of the United States. When a tangible gift of more 
than minimal value is accepted on behalf of the United States, it 
becomes the property of the United States.
    (3) Commission members and employees may accept a gift of more than 
minimal value where such gift is in the nature of an educational 
scholarship or medical treatment.
    (4) Within 60 days after accepting a tangible gift of more than 
minimal value, other than a gift described in paragraph (c)(5) of this 
section, a Commission member or employee shall file a statement with the 
Executive Director of the Commission which shall include the following 
information:
    (A) The name and position of the Commission member or employee;
    (B) A brief description of the gift and the circumstances justify 
acceptance;
    (C) The identity, if known, of the foreign government and the name 
and position of the individual who presented the gift;
    (D) The date of acceptance of the gift;
    (E) The estimated value in the United States of the gift at the time 
of acceptance; and
    (F) The disposition or current location of the gift.
    (5) Commission members and employees are authorized to accept from a 
foreign government gifts of travel or gifts of expenses for travel 
taking place entirely outside the United States, such as transportation, 
food and lodging, of more than minimal value if the acceptance is 
approved by the Executive Director, upon a finding that it is consistent 
with the interests of the Commission. Either prior to or within 30 days 
after accepting each gift of travel or gift of travel expenses pursuant 
to this paragraph, the Commission member or employee concerned shall 
file a statement with the Executive Director containing the following 
information:
    (A) The name and position of the Commission member or employee;
    (B) A brief description of the gift and the circumstances justifying 
acceptance;
    (C) The identity, if known, of the foreign government and the name 
and position of the individual who presented the gift; and
    (D) The date of acceptance.
    (6) Not later than January 31 of each year the Executive Director 
shall compile a listing of all statements filed during the preceding 
year by Commission members and employees pursuant to paragraphs (c)(4) 
and (c)(5) of this section and shall transmit the listing to the 
Secretary of State.
    (d) Commission members or employees may accept, retain and wear 
decorations tendered by a foreign government in recognition of active 
field service in time of combat operations or awarded for other 
outstanding or unusually meritorious performance, subject to the 
approval of the Executive Director. Without this approval, the 
decoration is deemed to have been accepted on behalf of the United 
States, shall become the property of the United States, and shall be 
deposited by the employee, within 60 days of acceptance, with the 
Executive Director for official use or forwarding to the Administrator 
of General Services for disposal in accordance with paragraph (g) of 
this section. Under normal circumstances, it can be expected that a 
Commission member or employee will be notified of the intent of a 
foreign government to award him or her or a spouse or dependent a 
decoration for outstanding or unusually meritorious service sufficiently 
in advance so that the approval required can be sought prior to its 
acceptance. A request for the approval of the Executive Director shall 
be submitted in writing, stating the nature of the decoration and the 
reason why it is being awarded. Whenever possible, the request should 
also be accompanied by a statement from the foreign government, 
preferably in

[[Page 559]]

the form of the citation, which shows the basis for the tender of the 
award, whether it is in recognition of active field service in time of 
combat operations or for other outstanding or unusually meritorious 
performance.
    (e) Within 60 days after acceptance of a tangible gift of more than 
minimal value or a decoration for which the Executive Director has not 
given approval, a Commission member or employee shall:
    (1) Deposit the gift or decoration for disposal with the Executive 
Director; or
    (2) Subject to the approval of the Commission, upon the 
recommendation of the Executive Director, deposit the gift or decoration 
with the Commission for official use.

A gift or decoration may be retained for official use if the Commission 
determines that it can be properly displayed in an area accessible to 
employees and members of the public. Within 30 days after termination of 
the official use of a gift, the Executive Director shall forward the 
gift to the Administrator of General Services in accordance with 
paragraph (g) of this section.
    (f) Whenever possible, gifts and decorations that have been 
deposited with the Executive Director for disposal shall be returned to 
the donor. The Executive Director, in coordination with the Office of 
the General Counsel, shall examine the circumstances surrounding the 
donation, assessing whether any adverse effect on the foreign relations 
of the United States might result from the return of the gift or 
decoration to the donor. The appropriate Department of State officials 
shall be consulted if a question of adverse effect on United States 
foreign relations arises.
    (g) Gifts and decorations that have not been returned to the donor, 
retained for official use, or for which official use has terminated, 
shall be forwarded by the Executive Director to the Administrator of 
General Services for transfer, donation, or other disposal in accordance 
with the provisions of the Federal Property and Administrative Services 
Act of 1949, as amended, and 5 U.S.C. 7342.
    (h) In accordance with 5 U.S.C. 7342(h), the U.S. Attorney General 
may bring a civil action in any United States district court against any 
Commission member or employee who knowingly solicits or accepts a gift 
from a foreign government not consented to by the Congress of the United 
States in 5 U.S.C. 7342, or who fails to deposit or report such gift as 
required by 5 U.S.C. 7342. The court may assess a penalty against such 
Commission member or employee in any amount not exceeding the retail 
value of the gift improperly solicited or received plus $5,000.
    (i) A violation of the requirements set forth in this section by a 
Commission employee may be cause for appropriate disciplinary action 
which may be in addition to any penalty prescribed by law.
    (j)(1) The burden of proving minimal value shall be on the 
recipient. In the event of a dispute over the value of a gift, the 
Executive Director shall arrange for an outside appraiser to determine 
whether the gift is of more or less than minimal value.
    (2) When requested by the Administrator of Government Services, the 
Executive Director shall arrange for an appraisal of a gift or 
decoration.
    (k) No appropriated funds of the Commission may be used to buy any 
tangible gift of more than minimal value for any foreign individual, 
unless the gift has been approved by Congress.

[47 FR 24115, June 3, 1982. Redesignated at 58 FR 52658, Oct. 12, 1993; 
63 FR 32733, June 16, 1998]



Sec. 140.735-5  Disclosure of information.

    A Commission employee or former employee shall not divulge, or cause 
or allow to be divulged, confidential or non-public commercial, economic 
or official information to any unauthorized person, or release such 
information in advance of authorization for its release. \9\ Except as 
directed by the Commission or its General Counsel as provided in these 
regulations, no Commission employee or former employee is

[[Page 560]]

authorized to accept service of any subpoena for documentary information 
contained in or relating to the files of the Commission. Any employee or 
former employee who is served with a subpoena requiring testimony 
regarding non-public information or documents shall, unless the 
Commission authorizes the disclosure of such information, respectfully 
decline to disclose the information or produce the documents called for, 
basing his refusal on these regulations. \10\ Any employee or former 
employee who is served with a subpoena calling for information regarding 
the Commission's business shall promptly advise the General Counsel of 
the service of such subpoena, the nature of the information or documents 
sought, and any circumstances which may bear upon the desirability of 
making such information or document available in the public interest. 
\11\ In any proceeding in which the Commission is not a party, no 
employee of the Commission shall testify concerning matters related to 
the business of the Commission unless authorized to do so by the 
Commission.
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    \9\ Attention is directed to section 9(d) of the Commodity Exchange 
Act, which provides that it shall be a felony punishable by a fine of 
not more than $500,000 or imprisonment for not more than five years, or 
both, together with the costs of prosecution--(1) for any Commissioner 
of the Commission or any employee or agent thereof who, by virtue of his 
employment or position, acquires information which may affect or tend to 
affect the price of any commodity future or commodity and which 
information has not been promptly made public, to impart such 
information with intent to assist another person, directly or 
indirectly, to participate in any transaction in commodity futures, any 
transaction in an actual commodity, or in any transaction of the 
character of or which is commonly known to the trade as an option, 
privilege, indemnity, bid, offer, put, call, advance guaranty or decline 
guaranty, or in any transaction for the delivery of any commodity under 
a standardized contract commonly known to the trade as a margin account, 
margin contract, leverage account or leverage contract, or under any 
contract or other arrangement that the Commission determines to serve 
the same function or is marketed in the same manner as such standardized 
contract, and (2) for any person to acquire such information from any 
Commissioner of the Commission or any employee or agent thereof and to 
use such information in any of the foregoing transactions.
    \10\ No employee shall disclose such information unless directed to 
do so by the Commission.
    \11\ The prohibitions regarding confidential or nonpublic 
information stated above are intended to cover the matters addressed in 
sections 4(c), 8, and 9(d) of the Commodity Exchange Act as well as 
nonpublic information under the Freedom of Information Act, 5 U.S.C. 
552, the rules of the Commission thereunder, 17 CFR part 145, the 
Privacy Act, 5 U.S.C. 552a, the rules of the Commission thereunder, 17 
CFR part 146, and cases where, apart from specific prohibitions in any 
statute or rule, the disclosure or use of such information would be 
unethical.

[58 FR 52658, Oct. 12, 1993]



Sec. 140.735-6  Practice by former members and employees of the Commission.

    (a) Personal and substantial participation or nonpublic knowledge of 
a particular matter. No person who has been a member or employee of the 
Commission shall ever knowingly make, with the intent to influence, any 
communication to or appearance before the Commission in connection with 
any particular matter involving a specific party or parties \12\ in 
which such person, or one participating with him or her in the 
particular matter, participated personally and substantially, or gained 
nonpublic knowledge of facts thereof, while with the Commission. \13\
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    \12\ The phrase ``particular matter involving a specific party or 
parties'' does not apply to general rulemaking, general policy and 
standards formulation or other similar matters. See Sec. 2637.201(c)(1) 
of the regulations of the Office of Government Ethics, 5 CFR 
2637.201(c)(1); cf., memorandum of the Attorney General dealing with the 
conflict-of-interest provisions prior to amendment by the Ethics in 
Government Act (reproduced following 18 U.S.C. 201).
    \13\ Attention is directed to 18 U.S.C. 207(a)(1), as amended, which 
generally prohibits former Federal officers and employees permanently 
from knowingly making, with the intent to influence, any communication 
to or appearance before any Federal (or District of Columbia) 
department, agency or court, or court martial, or any officer or 
employee thereof, in connection with any particular matter involving a 
specific party or parties in which the United States (or the District of 
Columbia) is a party or has a direct and substantial interest and in 
which the former officer or employee participated personally and 
substantially while with the government.
---------------------------------------------------------------------------

    (b) Particular matter under an individual's official responsibility. 
No person

[[Page 561]]

who has been a member or employee of the Commission shall, within two 
years after that employment has ceased, knowingly make, with the intent 
to influence, any communication to or appearance before the Commission 
in connection with a particular matter involving a specific party or 
parties which was actually pending under his official responsibility as 
a member or employee of the Commission at any time within one year prior 
to the termination of government service. \14\
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    \14\ Attention is directed to 18 U.S.C. 207(a)(2), as amended. 
Section 207(a)(2) generally prohibits former Federal officers and 
employees, within two years after their Federal employment has ceased, 
from knowingly making, with the intent to influence, any communication 
to or appearance before any Federal (or District of Columbia) 
department, agency or court, or court martial, or any officer or 
employee thereof, in connection with any particular matter involving a 
specific party or parties in which the United States (or the District of 
Columbia) is a party or has a direct and substantial interest and which 
was actually pending under the official responsibility of the former 
officer or employee within one year prior to the termination of 
government service.
    As used in paragraph (b) of this section, the term ``official 
responsibility'' has the meaning assigned to it in 18 U.S.C. 202(b), 
namely, the ``direct administrative or operating authority, whether 
intermediate or final, and either exercisable alone or with others, and 
either personally or through subordinates, to approve, disapprove, or 
otherwise direct Government action.''
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    (c) Restrictions on former members and senior employees. A former 
member or employee of the Commission who occupied a ``senior'' position 
specified in 18 U.S.C. 207(c)(2), as amended, shall not within one year 
after such ``senior'' employment has ceased, knowingly make, with the 
intent to influence, any communication to or appearance before the 
Commission on behalf of any other person in connection with any matter 
in which such person seeks official action by the Commission. \15\
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    \15\ Attention is directed to 18 U.S.C. 207(c), as amended, which 
places restrictions on the representational activities of certain senior 
officers and employees after their departure from a senior position. 
Section 207(c) generally makes it unlawful for one year after service in 
a ``senior'' position terminates for a former ``senior'' Federal 
employee to knowingly make, with the intent to influence, any 
communication to or appearance before an employee of a department or 
agency in which he served in any capacity during the one year period 
prior to termination from ``senior'' service, if that communication or 
appearance is on behalf of any other person (except the United States), 
in connection with any matter concerning which he seeks official action 
by that employee.
    Note that the one year period is measured from the date when the 
employee ceases to be a senior employee, not from the termination of 
Government service, unless the two occur simultaneously. This provision 
prohibits communications to or appearances before the Government and 
does not prohibit ``behind-the-scenes'' assistance. The restriction does 
not require that the former employee have ever been in any way involved 
in the matter that is the subject of the communication or appearance. 
The restriction applies with respect to any matter, whether or not 
involving a specific party.
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    (d) Exceptions. The prohibitions contained in paragraphs (a), (b), 
and (c) of this section do not apply to communications solely for the 
purpose of furnishing scientific or technological information if 
approved by the Commission or generally to giving testimony under oath 
or making a statement which is subject to penalty or perjury. Further, 
the prohibition contained in paragraph (c) of this section does not 
apply to an uncompensated statement in a particular area within the 
special knowledge of the former Commission member or employee. \16\
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    \16\ Attention is directed to 18 U.S.C. 207(j), as amended (listing 
other exceptions). Self-representation is not prohibited under section 
207.
---------------------------------------------------------------------------

    (e) Reporting requirement. Any former member or employee of the 
Commission who, within two years after ceasing to be such, is employed 
or retained as the representative of any person (except the United 
States) in connection with a matter in which it is contemplated that he 
will appear before or communicate with the Commission shall, within ten 
days of such retainer or employment, or of the time when appearance 
before or communication with the Commission is first contemplated, file 
with the General Counsel of the Commission a statement as to the nature 
thereof together with any desired explanation as to why it is deemed 
consistent with this section. Employment of a recurrent character

[[Page 562]]

may be covered by a single comprehensive statement. Each such statement 
should include an appropriate caption indicating that it is filed 
pursuant to this section. The reporting requirement of this paragraph 
does not apply to communications incidental to court appearances in 
litigation involving the Commission.
    (f) Definitions. As used in this section, the phrase ``appearance 
before the Commission'' means any formal or informal appearance on 
behalf of any person (except the United States) before the Commission, 
or any member or employee thereof with an intent to influence. As used 
in this section, the phrase ``communication with the Commission'' means 
any oral or written communication made to the Commission, or any member 
or employee thereof, on behalf of any person (except the United States) 
with an intent to influence.
    (g) Advisory ruling. Persons in doubt as to the applicability of 
this section may apply for an advisory ruling by addressing a letter 
requesting such a ruling to the General Counsel.
    (h) Procedures for administrative enforcement of statutory 
restrictions on post-government employment conflicts of interest \17\--
(1) Scope. The provisions of this paragraph prescribe procedures for 
administrative enforcement of the restrictions which 18 U.S.C. 207 (a), 
(b), and (c), as amended, place on appearances before or communications 
with Federal (and District of Columbia) departments, agencies and 
courts, and other enumerated entities, as well as the officers and 
employees thereof, by former Commission members and employees.
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    \17\ This section does not apply to employees who leave service 
after December 31, 1990.
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    (2) Investigations. The General Counsel of the Commission, or his or 
her designee, shall conduct such investigations as he or she deems 
appropriate to determine whether any former Commission member or 
employee have violated 18 U.S.C. 207 (a), (b) or (c), as amended. The 
General Counsel shall report the results of his or her investigations to 
the Commission and shall recommend to the Commission such action as he 
or she deems appropriate.
    (3) Hearings. Hearings required to be held under the provisions of 
this section shall be held before an Administrative Law Judge, utilizing 
the procedures prescribed by the Commission's rules of practice for 
adjudicatory proceedings (17 CFR part 10), except to the extent that 
those rules are inconsistent with the provisions of this section. Any 
proceeding brought under the provisions of this section shall be 
prosecuted by the General Counsel or his or her designee.
    (4) Sanctions. If the Commission finds, after notice and opportunity 
for a hearing, that a former Commission member or employee has violated 
18 U.S.C. 207 (a), (b) or (c), as amended, the Commission may prohibit 
that person from making, on behalf of any other person (except the 
United States), any formal or informal appearance before, or with the 
intent to influence any oral or written communication to, the Commission 
on a pending matter of business for a period not to exceed five years, 
or may take other appropriate disciplinary action.

[58 FR 52658, Oct. 12, 1993; 58 FR 58593, Nov. 2, 1993]



Sec. 140.735-7  Statutory violations applicable to conduct of Commission members and employees.

    A violation of section 2(a)(7), 8 or 9 (c) or (d) of the Commodity 
Exchange Act, as amended, shall be deemed to be a violation of this 
subpart as well.

[58 FR 52660, Oct. 12, 1993]



Sec. 140.735-8  Interpretative and advisory service.

    (a) Counselor for the Commission. The General Counsel, or his or her 
designee, will serve as Counselor for the Commission and as the 
Commission's representative to the Office of Government Ethics, on 
matters covered by this subpart. The General Counsel will also serve as 
the Commission's designated agency ethics official to review the 
financial reports filed by high-level Commission officials under title 
II of the Ethics in Government Act, as well as otherwise to coordinate 
and manage the Commission's ethics program.
    (b) Duties of the Counselor. The Counselor shall:

[[Page 563]]

    (1) Coordinate the agency's counseling services and assure that 
counseling and interpretations on questions of conflict of interests and 
other matters covered by the regulations in this subpart are available 
as needed to Regional Deputy Counselors, who shall be appointed by the 
General Counsel, in coordination with the Chairman of the Commission, 
for each Regional Office of the Commission;
    (2) Render authoritative advice and guidance on matters covered by 
the regulations in this subpart which are presented to him or her by 
employees in the Washington, DC headquarters office; and
    (3) Receive information on, and resolve or forward to the Commission 
for consideration, any conflict of interests or apparent conflict of 
interests which appears in the annual financial disclosure (Standard 
Form 278 or Standard Form 450), or is disclosed to the General Counsel 
by a member or employee pursuant to Sec. 140.735-2a(d) of this part, or 
otherwise is made known to the General Counsel.
    (i) A conflict of interests or apparent conflict of interests is 
considered resolved by the General Counsel when the affected member or 
employee has executed an ethics agreement pursuant to 5 CFR 2634.801 et 
seq. to undertake specific actions in order to resolve the actual or 
apparent conflict.
    (ii) If, after advice and guidance from the General Counsel, a 
member or employee does not execute an ethics agreement, the conflict of 
interests is considered unresolved and must be referred to the 
Commission for resolution or further action consistent with 18 U.S.C. 
208 and 28 U.S.C. 535.
    (iii) Where an unresolved conflict of interests or apparent conflict 
of interests is to be forwarded to the Commission by the General 
Counsel, the General Counsel will promptly notify the affected member or 
employee in writing of his or her intent to forward the matter to the 
Commission. Any member or employee so affected will be afforded an 
opportunity to be heard by the Commission through written submission.
    (c) Regional Deputy Counselors. Regional Deputy Counselors shall:
    (1) Give advice and guidance as requested to the employees assigned 
to their respective Regional Offices; and
    (2) Receive information on and refer to the Director of Human 
Resources, any conflict of interests or appearance of conflict of 
interests in Statements of Employment and Financial Interests submitted 
by employees to whom they are required to give advice and guidance.
    (d) Confidentiality of communications. Communications between the 
Counselor and Regional Deputy Counselors and an employee shall be 
confidential, except as deemed necessary by the Commission or the 
Counselor to carry out the purposes of this subpart and of the laws of 
the United States. \18\
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    \18\ No attorney-client privilege, however, attaches to such 
communications since the Counselors are counsel to the Commission, not 
to the employee. Thus, any evidence of criminal law violations divulged 
by an employee to the Counselor must be reported by the latter to the 
Commission, which may refer the matter to the Criminal Division of the 
Department of Justice and the United States Attorney in whose venue the 
violations lie.
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    (e) Furnishing of conduct regulations. The Director of Human 
Resources shall furnish a copy of this Conduct Regulation to each 
member, employee, and special government employee immediately upon his 
or her entrance on duty and shall thereafter, annually, and at such 
other times as circumstances warrant, bring to the attention of each 
member and employee this Conduct Regulation and all revisions thereof.
    (f) Availability of counseling services. The Director of Human 
Resources shall notify each member, employee, and special government 
employee of the availability of counseling services and of how and where 
these services are available at the time of entrance on duty and 
periodically thereafter.

[58 FR 52660, Oct. 12, 1993, as amended at 61 FR 21955, May 13, 1996; 62 
FR 13302, Mar. 20, 1997; 67 FR 5941, Feb. 8, 2002]



PART 141_SALARY OFFSET--Table of Contents



Sec.
141.1 Purpose and scope.
141.2 Definitions.

[[Page 564]]

141.3 Applicability.
141.4 Notice requirements.
141.5 Hearing.
141.6 Written decision.
141.7 Coordinating offset with another Federal agency.
141.8 Procedures for salary offset.
141.9 Refunds.
141.10 Statute of limitations.
141.11 Non-waiver of rights.
141.12 Interest, penalties, and administrative costs.

    Authority: 5 U.S.C. 5514, E.O. 11609 (redesignated E.O. 12197), 5 
CFR part 550, subpart K, and 7 U.S.C. 4a(j), unless otherwise noted.

    Source: 55 FR 5207, Feb. 14, 1990, unless otherwise noted.



Sec. 141.1  Purpose and scope.

    (a) This regulation provides procedures for the collection by 
administrative offset of a federal employee's salary without his/her 
consent to satisfy certain debts owed to the federal government. These 
regulations apply to employees of other federal agencies and current 
employees of the Commission who owe debts to the Commission and to 
current employees of the Commission who owe debts to other federal 
agencies. This regulation does not apply when the employee consents to 
recovery from his/her current pay account.
    (b) This regulation does not apply to debts or claims arising under:
    (1) The Internal Revenue Code of 1954, as amended, 26 U.S.C. 1 et 
seq.;
    (2) The Social Security Act, 42 U.S.C. 301 et seq.;
    (3) The tariff laws of the United States; or
    (4) Any case where a collection of a debt by salary offset is 
explicitly provided for or prohibited by another statute.
    (c) This regulation does not apply to any adjustment to pay arising 
out of an employee's selection of coverage or a change in coverage under 
a federal benefits program requiring periodic deductions from pay if the 
amount to be recovered was accumulated over four pay periods or less.
    (d) This regulation does not preclude the compromise, suspension, or 
termination of collection action where appropriate under the standards 
implementing the Federal Claims Collection Act, 31 U.S.C. 3711 et seq., 
4 CFR parts 101 through 105, 45 CFR part 1177.
    (e) This regulation does not preclude an employee from requesting 
waiver of an overpayment under 5 U.S.C. 5584, 10 U.S.C. 2774 or 32 
U.S.C. 716 or in any way questioning the amount or validity of the debt 
by submitting a subsequent claim to the General Accounting Office in 
accordance with General Accounting Office procedures. This regulation 
does not preclude an employee from requesting a waiver pursuant to other 
statutory provisions applicable to the particular debt being collected. 
Neither the requesting of a waiver nor the filing of a claim with the 
General Accounting Office will affect the amount or validity of the debt 
being collected until a waiver has been granted or the debt has been 
determined to be for an incorrect amount or invalid.
    (f) Matters not addressed in these regulations should be reviewed in 
accordance with the Federal Claims Collection Standards at 4 CFR 101.1 
et seq.



Sec. 141.2  Definitions.

    For the purposes of this part the following definitions will apply:
    Agency means an executive agency as defined at 5 U.S.C. 105 
including the U.S. Postal Service, the U.S. Postal Commission, a 
military department as defined at 5 U.S.C. 102, an agency or court in 
the judicial branch, an agency of the legislative branch including the 
U.S. Senate and House of Representatives and other independent 
establishments that are entities of the Federal government.
    Creditor agency means the agency to which the debt is owed.
    Debt means an amount owed to the United States from sources which 
include loans insured or guaranteed by the United States and all other 
amounts due the United States from fees, leases, rents, royalties, 
services, sales of real or personal property, overpayments, penalties, 
damages, interests, fines, forfeitures (except those arising under the 
Uniform Code of Military Justice), and all other similar sources.
    Disposable pay means the amount that remains from an employee's 
federal pay after required deductions for social security, federal, 
state or local

[[Page 565]]

income tax, health insurance premiums, retirement contributions, life 
insurance premiums, federal employment taxes, and any other deductions 
that are required to be withheld by law.
    Hearing official means an individual responsible for conducting any 
hearing with respect to the existence or amount of a debt claimed, and 
who renders a decision on the basis of such hearing. A hearing official 
shall be an impartial member of the Office of the Executive Director not 
under the supervision or control of the head of the Commission.
    Paying agency means the agency that employs the individual who owes 
the debt and authorizes the payment of his/her current pay.
    Salary offset means an administrative offset to collect a debt 
pursuant to 5 U.S.C. 5514 by deduction(s) at one or more officially 
established pay intervals from the current pay account of an employee 
without his/her consent.



Sec. 141.3  Applicability.

    These regulations are to be followed when:
    (a) The Commission is owed a debt by an individual currently 
employed by another federal agency;
    (b) The Commission is owed a debt by an individual who is a current 
employee of the Commission;
    (c) The Commission employs an individual who owes a debt to another 
federal agency.



Sec. 141.4  Notice requirements.

    (a) Deductions shall not be made unless the employee is provided 
with written notice of the debt at least 30 days before salary offset 
commences.
    (b) The written notice shall contain:
    (1) A statement that the debt is owed and an explanation of its 
nature, and amount;
    (2) The agency's intention to collect the debt by deducting from the 
employee's current disposable pay account;
    (3) The amount, frequency, proposed beginning date, and duration of 
the intended deduction(s);
    (4) An explanation of interest, penalties, and administrative 
charges, including a statement that such charges will be assessed unless 
excused in accordance with the Federal Claims Collections Standards at 4 
CFR 101.1 et seq.;
    (5) The employee's right to inspect, request, and receive a copy of 
government records relating to the debt;
    (6) The opportunity to establish a written schedule for the 
voluntary repayment of the debt;
    (7) The right to a hearing conducted by an impartial hearing 
official;
    (8) The methods and time period for petitioning for hearings;
    (9) A statement that the timely filing of a petition for a hearing 
will stay the commencement of collection proceedings;
    (10) A statement that a final decision on the hearing will be issued 
not later than 60 days after the filing of the petition requesting the 
hearing unless the employee requests and the hearing official grants a 
delay in the proceedings;
    (11) A statement that knowingly false or frivolous statements, 
representations, or evidence may subject the employee to:
    (i) Disciplinary procedures appropriate under chapter 75 of 5 
U.S.C., 5 CFR part 752, or any other applicable statutes or regulations;
    (ii) Penalties under the False Claims Act, 31 U.S.C. 3729-3731, or 
any other applicable statutory authority; or
    (iii) Criminal penalties under 18 U.S.C. 286, 287, 1001, and 1002 or 
any other applicable statutory authority.
    (12) A statement of other rights and remedies available to the 
employee under statutes or regulations governing the program for which 
the collection is being made; and
    (13) Unless there are contractual or statutory provisions to the 
contrary, a statement that amounts paid on or deducted for the debt 
which are later waived or found not owed to the United States will be 
promptly refunded to the employee.



Sec. 141.5  Hearing.

    (a) Request for hearing. (1) An employee must file a petition for a 
hearing in accordance with the instructions outlined in the Commission's 
notice to offset.
    (2) A hearing may be requested by filing a written petition 
addressed to the Executive Director stating why the

[[Page 566]]

employee disputes the existence or amount of the debt. The petition for 
a hearing must be received by the Executive Director no later than 
fifteen (15) calendar days after the date of the notice to offset unless 
the employee can show good cause for failing to meet the deadline date.
    (b) Hearing procedures. (1) The hearing will be presided over by an 
impartial hearing official.
    (2) The hearing shall conform to procedures contained in the Federal 
Claims Collection Standards 4 CFR 102.3(c). The burden shall be on the 
employee to demonstrate that the existence or the amount of the debt is 
in error.



Sec. 141.6  Written decision.

    (a) The hearing official shall issue a written opinion no later than 
60 days after the hearing.
    (b) The written opinion will include a statement of the facts 
presented to demonstrate the nature and origin of the alleged debt; the 
hearing official's analysis, findings and conclusions; the amount and 
validity of the debt, and the repayment schedule.



Sec. 141.7  Coordinating offset with another Federal agency.

    (a) The Commission as the creditor agency. When the Commission 
determines that an employee of another federal agency owes a delinquent 
debt to the Commission, the Commission shall as appropriate:
    (1) Arrange for a hearing upon the proper petitioning by the 
employee;
    (2) Certify to the paying agency in writing that the employee owes 
the debt, the amount and basis of the debt, the date on which payment is 
due, the date the Government's right to collect the debt accrued, and 
that Commission regulations for salary offset have been approved by the 
Office of Personnel Management;
    (3) If collection must be made in installments, the Commission must 
advise the paying agency of the amount or percentage of disposable pay 
to be collected in each installment;
    (4) Advise the paying agency of the actions taken under 5 U.S.C. 
5514(b) and provide the dates on which action was taken unless the 
employee has consented to salary offset in writing or signed a statement 
acknowledging that the Commission has complied with the procedures 
required by law. The written consent or acknowledgment must be sent to 
the paying agency;
    (5) If the employee is in the process of separating, the Commission 
must submit its debt claim to the paying agency as provided in this 
part. The paying agency must certify any amounts already collected, 
notify the employee, and send a copy of the certification and notice of 
the employee's separation to the Commission. If the paying agency is 
aware that the employee is entitled to payments from the Civil Service 
Retirement and Disability Fund or similar payments, it must certify to 
the agency responsible for making such payments the amount of the debt 
and that the provisions of 5 CFR 550.1108 have been followed; and
    (6) If the employee has already separated and all payments due from 
the paying agency have been paid, the Commission may request, unless 
otherwise prohibited, that money payable to the employee from the Civil 
Service Retirement and Disability Fund or other similar funds be 
collected by administrative offset.
    (b) The Commission as the paying agency. (1) Upon receipt of a 
properly certified debt claim from another agency, deductions will be 
scheduled to begin at the next established pay interval. The employee 
must receive written notice from the Commission that the Commission has 
received a certified debt claim from the creditor agency, the amount of 
the debt, the date salary offset will begin, and the amount of the 
deduction(s). The Commission shall not review the merits of the creditor 
agency's determination of the validity or the amount of the certified 
claim.
    (2) If the employee transfers to another agency after the creditor 
agency has submitted its debt claim to the Commission and before the 
debt is collected completely, the Commission must certify the total 
amount collected. One copy of the certification must be furnished to the 
employee. A copy must be furnished the creditor agency with notice of 
the employee's transfer.

[[Page 567]]



Sec. 141.8  Procedures for salary offset.

    (a) Deductions to liquidate an employee's debt will be by the method 
and in the amount stated in the Commission's notice of intention to 
offset as provided in Sec. 141.4. Debts will be collected in one lump 
sum where possible. If the employee is financially unable to pay in one 
lump sum, collection must be made in installments.
    (b) Debts will be collected by deduction at officially established 
pay intervals from an employee's current pay account unless alternative 
arrangements for repayment are made.
    (c) Installment deductions will be made over a period not greater 
than the anticipated period of employment. The size of installment 
deductions must bear a reasonable relationship to the size of the debt 
and the employee's ability to pay. The deduction for the pay intervals 
for any period must not exceed 15% of disposable pay unless the employee 
has agreed in writing to a deduction of a greater amount.
    (d) Unliquidated debts may be offset against any financial payment 
due to a separated employee including but not limited to final salary or 
leave payments in accordance with 31 U.S.C. 3716.



Sec. 141.9  Refunds.

    (a) The Commission will refund promptly any amounts deducted to 
satisfy debts owed to the Commission when the debt is waived, found not 
owed to the Commission or when directed by an administrative or judicial 
order.
    (b) The creditor agency will promptly return any amounts deducted by 
the Commission to satisfy debts owed to the creditor agency when the 
debt is waived, found not owed, or when directed by an administrative or 
judicial order.
    (c) Unless required by law, refunds under this subsection shall not 
bear interest.



Sec. 141.10  Statute of limitations.

    If a debt has been outstanding for more than 10 years after the 
agency's right to collect the debt first accrued, the agency may not 
collect by salary offset unless facts material to the Government's right 
to collect were not known and could not reasonably have been known by 
the official or officials who were charged with the responsibility for 
discovery and collection of such debts.



Sec. 141.11  Non-waiver of rights.

    An employee's involuntary payment of all or any part of a debt 
collected under these regulations will not be construed as a waiver of 
any rights that employee may have under 5 U.S.C. 5514 or any other 
provision of contract or law unless there are statutes or contract(s) to 
the contrary.



Sec. 141.12  Interest, penalties, and administrative costs.

    Charges may be assessed for interest, penalties, and administrative 
costs in accordance with the Federal Claims Collection Standards, 4 CFR 
102.13.



PART 142_INDEMNIFICATION OF CFTC EMPLOYEES--Table of Contents



Sec.
142.1 Purpose and scope.
142.2 Policy.

    Authority: 7 U.S.C. 4a(j).

    Source: 54 FR 25234, June 14, 1989, unless otherwise noted.



Sec. 142.1  Purpose and scope.

    This part sets forth the policy and procedure with respect to the 
indemnification of Commission employees who are sued in their individual 
capacities and suffer an adverse judgment as a result of conduct taken 
within the scope of employment. (For purposes of this part the term 
Commission employees includes all present and former Commissioners and 
employees of the Commission). This part is intended to provide 
indemnification for adverse judgments for constitutional and federal 
statutory torts excepted from the Federal Tort Claims Act exclusive 
remedy provision 28 U.S.C. 2679(b) (as amended by the Federal Employees 
Liability Reform and Tort Compensation Act of 1988 (Pub. L. 100-694)). 
In any lawsuit which is filed against the employee alleging a common law 
tort occurring within the scope of employment, the United States may be 
substituted for the individual employee

[[Page 568]]

and any liability which may be found will be assessed against the 
government, pursuant to the Federal Employees Liability Reform and Tort 
Compensation Act of 1988.



Sec. 142.2  Policy.

    (a) The Commission may indemnify its employees by the payment of 
available funds, in whole, or in part, for any verdict, judgment or 
other monetary award which is rendered against any employee, provided 
that the conduct giving rise to the verdict, judgment or award was taken 
within the scope of his or her employment with the Commission and that 
such indemnification is in the interest of the United States, as 
determined by the Commission.
    (b) The Commission may settle or compromise a personal damage claim 
against its employee by the payment of available funds, at any time, 
provided the alleged conduct giving rise to the personal damage claim 
was taken within the scope of employment and that such settlement is in 
the interest of the United States as determined by the Commission in its 
discretion.
    (c) Absent exceptional circumstances, as determined by the 
Commission, the Commission will not entertain a request either to agree 
to indemnify or to settle a personal damage claim before entry of an 
adverse verdict, judgment or monetary award.
    (d) When an employee of the Commission becomes aware that an action 
may be or has been filed against the employee in his or her individual 
capacity as a result of conduct taken within the scope of his or her 
employment, the employee should immediately notify the Commission's 
Office of General Counsel that such an action is pending or threatened.
    (e) The employee may thereafter request either (1) indemnification 
to satisfy a verdict, judgment or award entered against the employee or 
(2) payment to satisfy the requirements of a settlement proposal. The 
employee shall submit a written request, with documentation including 
copies of the verdict, judgment, award or settlement proposal, as 
appropriate, to the head of his or her division or office, who thereupon 
shall submit to the General Counsel, in a timely manner, a recommended 
disposition of the request. The General Counsel shall also seek the 
views of the Department of Justice. The General Counsel shall forward 
the request, the division or office's recommendation and the General 
Counsel's recommendation to the Commission for decision.
    (f) Any payment under this section either to indemnify a Commodity 
Futures Trading Commission employee or to settle a personal damage claim 
shall be contingent upon the availability of appropriated funds of the 
Commodity Futures Trading Commission.



PART 143_COLLECTION OF CLAIMS OWED THE UNITED STATES 

ARISING FROM ACTIVITIES UNDER THE COMMISSION'S JURISDICTION--Table of Contents



Sec.
143.1 Purpose.

                      Subpart A_General Provisions

143.2 Notice of claim.
143.3 Interest, penalty charges, and administrative costs.
143.4 Collection by offset.
143.5 Collection by compromise.
143.6 Referral for litigation.
143.7 Delegation of authority to the Executive Director.
143.8 Inflation-adjusted civil monetary penalties.

                Subpart B_Administrative Wage Garnishment

143.9 Administrative wage garnishment orders.
143.10 Garnishment hearings.

    Authority: 7 U.S.C. 9 and 15, 9a, 12a(5), 13a, 13a-1(d), and 13(a); 
31 U.S.C. 3701-3720E; 28 U.S.C. 2461 note.

    Source: 50 FR 5384, Feb. 8, 1985, unless otherwise noted.



Sec. 143.1  Purpose.

    This part provides procedures that the Commission will use to 
collect debts owed the United States arising from activities under the 
Commission's jurisdiction. As applicable, these procedures are based 
upon, and conform to, the Federal Claims Collection Act, as amended, 31 
U.S.C. 3701-3720E; the Federal Claims Collection Standards, 31

[[Page 569]]

CFR Parts 900-905, issued by the Department of the Treasury and the 
Department of Justice; administrative wage garnishment regulations 
issued by the Department of the Treasury, 31 CFR 285.11; and other laws 
applicable to the collection of non-tax debts owed to the United States 
arising from activities under the Commission's jurisdiction. Subpart A 
describes procedures for collection by offset against obligations of the 
United States to the debtor, by compromise, and by referral to the 
Department of Justice for litigation. It also sets forth the 
Commission's policy on collecting interest on unpaid claims, the method 
used in calculating such interest, and the maximum inflation-adjusted 
civil monetary penalties that may be assessed and enforced for each 
violation of the Commodity Exchange Act or regulations or orders of the 
Commission promulgated thereunder. Subpart B describes procedures for 
collection by administrative garnishment of the debtor's wages.

[69 FR 52997, Aug. 31, 2004]



                      Subpart A_General Provisions



Sec. 143.2  Notice of claim.

    (a) The Commission will send a written notice to any person who owes 
payment to the United States under this part, stating the basis for the 
claim, the interest, penalties, and administrative costs that may be 
imposed for non-payment, and the date full payment is due.
    (b) If the claim is disputed, the debtor shall respond to the notice 
in writing and state the reasons for non-payment. If the claim is not 
disputed but full payment is not made by the date indicated in the 
notice, the debtor shall state the reasons for the failure to make full 
payment.
    (c) If no response or an unsatisfactory response is received by the 
date indicated in the notice, the Commission may take further action as 
appropriate under the Commodity Exchange Act or regulations thereunder, 
or under 31 CFR parts 900-905 or the Federal Claims Collection Act as 
amended, 31 U.S.C. 3701-3720E.

[50 FR 5384, Feb. 8, 1985, as amended at 69 FR 52997, Aug. 31, 2004]



Sec. 143.3  Interest, penalty charges, and administrative costs.

    (a) The Commission will assess interest on unpaid claims. The rate 
of interest assessed shall be the rate of the current value of funds to 
the U.S. Treasury (i.e., the Treasury tax and loan account rate) as 
prescribed and published by the Secretary of the Treasury. The 
Commission will charge penalty fees of not more than 6 percent per year 
on any portion of a claim that is delinquent for more than 90 days. The 
Commission will also impose actual administrative costs to cover the 
processing and handling of delinquent claims.
    (b) Interest on claims will be charged and will run from the date 
the notice of claim is mailed if the amount of the claim is not paid 
within 30 days from that date. Interest will be calculated only on the 
principal of the claim. The rate of interest charged is the rate in 
effect on the date from which interest begins to run. The rate will 
remain fixed for the duration of the indebtedness.
    (c) The Commission may waive in whole or in part interest, penalty 
charges or administrative costs if it finds that:
    (1) The debtor is unable to pay any significant sum within a 
reasonable period of time;
    (2) Collection of interest or penalty charges jeopardizes collection 
of the principal of the claim; or
    (3) It is in the best interests of the United States.



Sec. 143.4  Collection by offset.

    (a) Whenever feasible, the Commission will collect claims under this 
part by means of administrative offset against obligations of the United 
States to the debtor.
    (b) The Commission will notify the debtor in writing of its intent 
to use offset procedures to collect the debt unless the debtor agrees to 
repayment. The notice to the debtor shall include the type and amount of 
the claim and an explanation of the debtor's rights

[[Page 570]]

for records and review under 31 U.S.C. 3716(a).
    (c) The Commission will seek to coordinate administrative offset 
with other federal agencies in accordance with 4 CFR part 102.



Sec. 143.5  Collection by compromise.

    The Commission may settle claims not exceeding $100,000 (excluding 
interest) by compromise at less than the principal amount of the claim 
if--
    (a) The debtor shows an inability to pay the full amount within a 
reasonable period of time;
    (b) The Government would be unable to enforce collection in full 
through litigation or administrative means within a reasonable period of 
time;
    (c) The cost of collecting the claim in full is not justified by the 
amount of the claim; or
    (d) The Commission's enforcement policy would be served by 
settlement of the claim for less than the full amount.

[50 FR 5384, Feb. 8, 1985, as amended at 57 FR 61292, Dec. 24, 1992]



Sec. 143.6  Referral for litigation.

    Claims that cannot be collected by the Commission under this part or 
for which collection action cannot be ended or suspended under 4 CFR 
part 104 will be referred to the Department of Justice for litigation.



Sec. 143.7  Delegation of authority to the Executive Director.

    (a) The Commission hereby delegates, until such time as the 
Commission orders otherwise, to the Executive Director or to any 
Commission employee under the Executive Director's supervision as he or 
she may designate, authority to take action to carry out subpart A and 
subpart B of this part and the requirements of 31 CFR parts 900-905 and 
31 CFR 285.11.
    (b) Delegated waivers or compromise under this part shall be with 
the concurrence of the General Counsel and the Director of the Division 
of Enforcement or of their respective designees.

[50 FR 5384, Feb. 8, 1985, as amended at 69 FR 52997, Aug. 31, 2004]



Sec. 143.8  Inflation-adjusted civil monetary penalties.

    (a) Unless otherwise amended by an act of Congress, the inflation-
adjusted maximum civil monetary penalty for each violation of the 
Commodity Exchange Act or the rules or orders promulgated thereunder 
that may be assessed or enforced by the Commission under the Commodity 
Exchange Act pursuant to an administrative proceeding or a civil action 
in Federal court will be:
    (1) Except as provided in paragraph (v) hereof, for each violation 
for which a civil monetary penalty is assessed against any person (other 
than a registered entity) pursuant to Section 6(c) of the Commodity 
Exchange Act, 7 U.S.C. 9:
    (i) For violations committed between November 27, 1996 and October 
22, 2000, not more than the greater of $110,000 or triple the monetary 
gain to such person for each such violation;
    (ii) For violations committed between October 23, 2000 and October 
22, 2004, not more than the greater of $120,000 or triple the monetary 
gain to such person for each such violation;
    (iii) For violations committed between October 23, 2004 and October 
22, 2008, not more than the greater of $130,000 or triple the monetary 
gain to such person for each such violation; and
    (iv) For violations committed on or after October 23, 2008, not more 
than the greater of $140,000 or triple the monetary gain to such person 
for each such violation; provided that--
    (v) In any case of manipulation or attempted manipulation in 
violation of Section 6(c), 6(d), or 9(a)(2) of the Act committed on or 
after May 22, 2008, not more than the greater of $1,000,000 or triple 
the monetary gain to such person for each such violation; and
    (2) Except as provided in paragraph (v) hereof, for each violation 
for which a civil monetary penalty is assessed against any registered 
entity or other person pursuant to Section 6c of the Commodity Exchange 
Act, 7 U.S.C. 13a-l:
    (i) For violations committed between November 27, 1996 and October 
22, 2000, not more than the greater of $110,000 or

[[Page 571]]

triple the monetary gain to such person for each such violation;
    (ii) For violations committed between October 23, 2000 and October 
22, 2004, not more than the greater of $120,000 or triple the monetary 
gain to such person for each such violation;
    (iii) For violations committed between October 23, 2004 and October 
22, 2008, not more than the greater of $130,000 or triple the monetary 
gain to such person for each such violation; and
    (iv) For violations committed on or after October 23, 2008, not more 
than the greater of $140,000 or triple the monetary gain to such person 
for each such violation; provided that--
    (v) In any case of manipulation or attempted manipulation in 
violation of Section 6(c), 6(d), or 9(a)(2) of the Act committed on or 
after May 22, 2008, not more than the greater of $1,000,000 or triple 
the monetary gain to such person for each such violation;
    (3) For each violation for which a civil monetary penalty is 
assessed against any registered entity or any director, officer, agent, 
or employee of any registered entity pursuant to Section 6b of the 
Commodity Exchange Act, 7 U.S.C. 13a:
    (i) For violations committed between November 27, 1996 and October 
22, 2000, not more than $550,000 for each such violation;
    (ii) For violations committed between October 23, 2000 and October 
22, 2004, not more than $575,000 for each such violation;
    (iii) For violations committed between October 23, 2004 and October 
22, 2008, not more than $625,000 for each such violation; and
    (iv) For violations committed on or after October 23, 2008, not more 
than the greater of $675,000 or triple the monetary gain to such person 
for each such violation, provided that--
    (v) In any case of manipulation or attempted manipulation in 
violation of Section 6(c), 6(d), or 9(a)(2) of the Act committed on or 
after May 22, 2008, not more than the greater of $1,000,000 or triple 
the monetary gain each such violation.
    (b) The Commission will adjust for inflation the maximum penalties 
set forth in this section at least once every four years.
    (c) Unless otherwise amended by an act of Congress, the penalties 
set forth in this section or any penalty adjusted for inflation in the 
future pursuant to paragraph (b) of this section shall be applicable 
only to violations of the Commodity Exchange Act, Commission rules, or 
Commission orders which occur after the date on which such future 
inflation adjustments become effective.

[61 FR 55566, Oct. 28, 1996, as amended at 65 FR 45711, July 25, 2000; 
69 FR 52995, Aug. 31, 2004; 73 FR 57514, Oct. 3, 2008]



                Subpart B_Administrative Wage Garnishment

    Source: 69 FR 52997, Aug. 31, 2004, unless otherwise noted.



Sec. 143.9  Administrative wage garnishment orders.

    Whenever an individual owes the United States a delinquent non-tax 
debt arising from activities under the Commission's jurisdiction, the 
Commission, or another federal agency collecting the debt on behalf of 
the Commission, may initiate administrative proceedings to garnish the 
disposable income of the delinquent debtor in accordance with the 
requirements of, and the procedures set forth in, 31 CFR 285.11. The 
Commission's use of other debt-collection measures set forth in subpart 
A of this part does not preclude the initiation of an administrative 
wage garnishment proceeding against a delinquent debtor.



Sec. 143.10  Garnishment hearings.

    Any oral or written hearing required to establish the Commission's 
right to collect a delinquent debt through administrative wage 
garnishment shall be presided over by a hearing official designated by 
the Executive Director, with the concurrence of the General Counsel or 
the General Counsel's designee. Any qualified and impartial employee of 
the Commission designated by the Executive Director may serve as a 
hearing official. Except as otherwise provided in this section, the 
hearing shall be conducted in accordance with

[[Page 572]]

the requirements of, and the procedures set forth in, 31 CFR 285.11(f). 
All documents presented to the hearing official for his or her 
consideration shall be marked as exhibits and retained in the record. 
All testimony given at an oral hearing, either in person or by 
telephone, shall be under oath or affirmation; a transcript of the 
hearing shall be prepared and made part of the record. When a debtor 
requests a hearing, the designated hearing official shall hold the 
hearing and issue his or her written decision within 60 days of the 
Commission's receipt of the request, unless otherwise approved, in 
writing, by the Executive Director.



  PART 144_PROCEDURES REGARDING THE DISCLOSURE OF INFORMATION AND THE TESTIMONY
  
  OF PRESENT OR FORMER OFFICERS AND EMPLOYEES IN RESPONSE TO SUBPOENAS OR OTHER 
DEMANDS OF A COURT--Table of Contents



Sec.
144.0 Purpose and scope.
144.1 Service upon the Commission.
144.2 Service upon an employee or former employee of the Commission.
144.3 Testimony by present or former Commission employees.
144.4 Production or disclosure of records by present or former 
          employees.
144.5 Procedures when production or disclosure of Commission records or 
          information relating to Commission business is sought.
144.6 Fees.

    Authority: 5 U.S.C. 301; 7 U.S.C. 4a(j) and 12a(5); 31 U.S.C. 9701, 
unless otherwise noted.

    Source: 50 FR 11149, Mar. 20, 1985, unless otherwise noted.



Sec. 144.0  Purpose and scope.

    (a) The regulations in this part set forth procedures to be followed 
with respect to the disclosure, in response to a subpoena, order or 
other demand (collectively ``demand'') of a court or other authority of 
any material contained in the files of the Commission, of any 
information relating to material contained in the files of the 
Commission or any information acquired by any person while such person 
is or was an employee of the Commission as part of the performance of 
that person's official duties or by virtue of that person's official 
status. Employee as used in this part includes both members and 
employees of the Commission. Demand as used in this part does not 
include requests for the production of documents in compliance with Fed. 
R. Civ. P. 34.
    (b) Nothing in this part affects disclosure of information under the 
Freedom of Information Act (FOIA), 5 U.S.C. 552, the Privacy Act, 5 
U.S.C. 552a, the Sunshine Act, 552b, or the Commission's implementing 
regulations in part 145, 17 CFR 145.0, et seq., or pursuant to 
Congressional subpoena or pursuant to other Commission regulation. 
Nothing in this part otherwise permits disclosure of information by the 
Commission except as is provided by statute or other applicable law.
    (c) This part is intended to provide guidance for the internal 
operations of the Commission and is not intended to, does not, and may 
not be relied upon to create any right or benefit, substantive or 
procedural, enforceable at law against the Commission.



Sec. 144.1  Service upon the Commission.

    (a) Subject to paragraph (e) of this section, the Secretary of the 
Commission is the only person authorized to accept service of a demand 
directed to the Commission or to an employee of the Commission for 
documentary information contained in or relating to information 
contained in the files of the Commission.
    (b) Any such demand must be addressed to the Secretary of the 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581.
    (c) In the event that any such demand is attempted to be served upon 
an employee of the Commission other than the Secretary of the 
Commission, unless otherwise directed by the Commission's General 
Counsel, that employee shall respectfully decline to accept service on 
the ground that the employee is without authority to do so.
    (d) The Secretary shall promptly advise the General Counsel of any 
service of any demand, and the General Counsel shall thereafter advise 
the Commission regarding the matter.
    (e) A demand for information contained in the Commission's files 
concerning the registration of persons or

[[Page 573]]

entities for which authority has been delegated to the National Futures 
Association must be served upon the National Futures Association, 200 
West Madison Street, Suite 1600, Chicago, Illinois 60606, to the 
attention of the General Counsel.

[50 FR 11149, Mar. 20, 1985, as amended at 60 FR 49335, Sept. 25, 1995]



Sec. 144.2  Service upon an employee or former employee of the Commission.

    (a) Any employee of the Commission who is served or is attempted to 
be served with a demand of a court or other authority seeking 
information or documents relating to the business of the Commission 
shall promptly advise the General Counsel of the service or attempted 
service of such demand, the nature of the information or documents 
sought by the demand and any circumstances that may bear upon the 
desirability in the public interest of disclosure of the information or 
the production of documents.
    (b) Any former employee of the Commission who is served or is 
attempted to be served with a demand of a court or other authority 
seeking information or documents relating to the business of the 
Commission shall promptly advise the General Counsel of the service or 
the attempted service of such demand, the nature of the information or 
documents sought by the demand and any circumstances that might bear 
upon the desirability in the public interest of the disclosure of the 
information or the production of documents.
    (c) After such further inquiry as appropriate, the General Counsel 
shall advise the Commission concerning the matter.



Sec. 144.3  Testimony by present or former Commission employees.

    (a) In any proceeding to which the Commission is not a party, an 
employee of the Commission shall not testify concerning matters related 
to the business of the Commission unless authorized to do so by the 
Commission upon the advice of the General Counsel.
    (b) In any proceeding, an employee or former employee of the 
Commission shall not testify concerning non-public matters related to 
the business of the Commission unless authorized to do so by the 
Commission upon the advice of the General Counsel. See Sec. 140.735-9 
of these regulations.



Sec. 144.4  Production or disclosure of records by present or former employees.

    (a) No employee of the Commission shall, in response to a demand by 
a court or other authority or otherwise in any proceeding in which the 
Commission is not a party, produce any material contained in the files 
of the Commission or disclose any information relating to material 
contained in the files of the Commission or disclose any information or 
produce any material acquired as part of the performance of the 
employee's official duties or by virtue of the employee's official 
status unless authorized to do so by the Commission, provided that 
Commission authorization shall not be required to comply with a demand 
solely for Commission documents generally available to the public. In 
litigation in which the Commission is a party no employee may produce 
any confidential Commission material without Commission authorization.
    (b) No former employee of the Commission shall, in response to a 
demand by a court or other authority or otherwise in any proceeding in 
which the Commission is not a party, produce without Commission 
authorization any material contained in or from the files of the 
Commission acquired as part of the performance of the former employee's 
official duties while employed by the Commission. No former employee may 
in any litigation produce confidential material acquired as part of the 
performance of the former employee's official duties while employed by 
the Commission unless authorized to do so by the Commission.



Sec. 144.5  Procedures when production or disclosure of Commission

records or information relating to Commission business is sought.

    (a) If in any proceeding oral testimony of an employee or former 
employee of the Commission is sought concerning matters related to the 
business of the Commission, an affidavit or,

[[Page 574]]

if that is not feasible, a signed statement by the party seeking the 
testimony or by his attorney, setting forth with particularity a summary 
of the testimony sought and its relevance to the proceeding, must be 
furnished to the Commission's General Counsel at the Commission's office 
in Washington, DC. When authorization by the Commission is required, any 
authorization shall be limited to the scope of the demand as summarized 
in such statement.
    (b) If a response to a demand by a court or other authority is 
required before instructions from the Commission are received, and 
Commission authorization is required, a Commission attorney shall be 
designated by the General Counsel to appear and to inform the court or 
other authority of these regulations and that the subpoena or demand has 
been referred for prompt consideration by the Commission. The Commission 
attorney shall request a stay of the demand pending receipt of 
instructions.
    (c) In the event that the court or other authority declines to stay 
the effect of the demand pending receipt of instructions or in the event 
that the court rules that there must be compliance with the demand 
irrespective of instructions not to produce the material or disclose the 
information sought, the Commission employee or former employee upon whom 
the demand has been made shall respectfully decline to comply with the 
demand.



Sec. 144.6  Fees.

    The provisions of Sec. 145.8 of these regulations with respect to 
fees for production of documents pursuant to the FOIA are applicable to 
this part.



PART 145_COMMISSION RECORDS AND INFORMATION--Table of Contents



Sec.
145.0 Definitions.
145.1 Information published in the Federal Register.
145.2 Records available for public inspection and copying; documents 
          published and indexed.
145.3 [Reserved]
145.4 Public records available with identifying details deleted; 
          nonpublic records available in abridged or summary form.
145.5 Disclosure of nonpublic records.
145.6 Commission offices to contact for assistance; registration records 
          available.
145.7 Requests for Commission records and copies thereof.
145.8 Fees for records services.
145.9 Petition for confidential treatment of information submitted to 
          the Commission.

Appendix A to Part 145--Compilation of Commission Records Available to 
          the Public
Appendix B to Part 145--Schedule of Fees
Appendix C to Part 145 [Reserved]

    Authority: Pub. L. 99-570, 100 Stat. 3207; Pub. L. 89-554, 80 Stat. 
383; Pub. L. 90-23, 81 Stat. 54; Pub. L. 98-502, 88 Stat. 1561-1564 (5 
U.S.C. 552); Sec. 101(a), Pub. L. 93-463, 88 Stat. 1389 (5 U.S.C. 
4a(j)); unless otherwise noted.



Sec. 145.0  Definitions.

    For the purposes of part 145 the following definitions are 
applicable:
    Assistant Secretary--refers to the Assistant Secretary of the 
Commission for FOI, Privacy and Sunshine Acts Compliance.
    Compliance staff--refers to the FOI, Privacy and Sunshine Acts 
Compliance staff of the Office of the Secretariat at the Commission's 
principal office in Washington, DC assigned to respond to requests for 
information and to handle various other matters under the Freedom of 
Information Act, the Privacy Act of 1974, and the Government in the 
Sunshine Act.
    Public records--in addition to the records described in Sec. 145.1 
(material published in the Federal Register) and in Sec. 145.2 (records 
required to be made publicly available under the Freedom of Information 
Act), includes those records that have been determined by the Commission 
to be generally available to the public directly upon oral or written 
request from the Commission office or division responsible for the 
maintenance of such records. A compilation of Commission records 
routinely available to the public upon request appears in appendix A to 
this part 145.
    Nonpublic records--are records not identified in Sec. 145.1, Sec. 
145.2, or appendix A of this part 145. Nonpublic records must be 
requested, in writing, in accordance with the provisions of Sec. 145.7.
    Record--is any information or agency record maintained by the 
Commission

[[Page 575]]

in any format, including an electronic format. It includes any document, 
writing, photograph, sound or magnetic recording, videotape, microfiche, 
drawing, or computer-stored information or output in the possession of 
the Commission. The term ``record'' does not include personal 
convenience materials over which the Commission has no control, such as 
appointment calendars and handwritten notes, which may be retained or 
destroyed at an employee's discretion.

[62 FR 17069, Apr. 9, 1997]



Sec. 145.1  Information published in the Federal Register.

    Except as provided in Sec. 145.5, pertaining to nonpublic matters, 
the following materials shall be published in the Federal Register for 
the guidance of the public:
    (a) Description of the Commission's central and field organization 
and the established place at which, the employees from whom, and the 
methods whereby the public may obtain information, make submittals or 
requests, or obtain decisions;
    (b) Statements of the general course and method by which the 
Commission's functions are channeled and determined, including the 
nature and requirements of all formal and informal procedures available;
    (c) Rules of procedure, descriptions of forms available or the 
places at which forms may be obtained, and instructions as to the scope 
and contents of all papers, reports, or examinations;
    (d) Substantive rules of general applicability adopted as authorized 
by law, and statements of general policy or interpretations of general 
applicability formulated and adopted by the Commission; and
    (e) Each amendment, revision, or repeal of the foregoing.

[41 FR 16290, Apr. 16, 1976]



Sec. 145.2  Records available for public inspection and copying; documents published and indexed.

    Except as provided in Sec. 145.5, pertaining to nonpublic matters, 
and in addition to those documents listed in appendix A to part 145, 
Compilation of Commission Records Available to the Public, the following 
materials are available for public inspection and copying during normal 
business hours at the Commission's Public Reading Room, located at the 
principal office of the Commission in Washington, DC and at the regional 
offices of the Commission:
    (a) A guide for requesting records or publicly available information 
from the Commission which includes:
    (1) An index of all publicly available information of the 
Commission;
    (2) A description of major information and record locator systems;
    (3) Guidance for obtaining various types and categories of public 
information from the Commission;
    (b) Final opinions and orders of the Commission in the adjudication 
of cases, including concurring and dissenting opinions;
    (c) Statements of policy and interpretations which have been adopted 
by the Commission and are not published in the Federal Register;
    (d) Records released in response to FOIA requests that have been, or 
the Commission anticipates will be, the subject of additional FOIA 
requests;
    (e) Administrative manuals and instructions that affect the public; 
and
    (f) Indices providing identifying information to the public as to 
the materials made available pursuant to paragraphs (a) through (e) of 
this section.

[62 FR 17069, Apr. 9, 1997]



Sec. 145.3  [Reserved]



Sec. 145.4  Public records available with identifying

details deleted; nonpublic records available in abridged or summary form.

    (a) To the extent required to prevent a clearly unwarranted invasion 
of personal privacy, the Commission may delete identifying details when 
it makes available ``public records'' as defined in Sec. 145.0(c). In 
such instances, the Commission shall explain the justification for the 
deletion fully in writing.
    (b) Certain ``nonpublic records,'' as defined in Sec. 145.0(d), 
may, as authorized by the Commission, be made available for public 
inspection and copying in an abridged or summary form, with identifying 
details deleted.

[51 FR 26869, July 28, 1986]

[[Page 576]]



Sec. 145.5  Disclosure of nonpublic records.

    The Commission may decline to publish or make available to the 
public any ``nonpublic records,'' as defined in Sec. 145.0(d), if those 
records fall within the descriptions in paragraphs (a) through (i) of 
this section. The Commission shall publish or make available reasonably 
segregable portions of ``nonpublic records'' subject to a request under 
Sec. 145.7 if those portions do not fall within the descriptions in 
paragraphs (a) through (i) of this section. Requests for confidential 
treatment of segregable public information will not be processed.
    (a)(1) Specifically authorized under criteria established by an 
executive order to be kept secret in the interest of national defense or 
foreign policy, and (2) are in fact properly classified pursuant to such 
executive order;
    (b) Related solely to the internal personnel rules and practices of 
the Commission or any other agency of the Government of the United 
States, including operation rules, guidelines, and manuals of procedure 
for investigators, auditors, and other employees (other than those rules 
and practices which establish legal requirements to which members of the 
public are expected to conform);
    (c) Specifically exempted from disclosure by statute, including:
    (1) Data and information which would separately disclose the 
business transactions or market positions of any person and trade 
secrets or names of customers; and
    (2) Any data or information concerning or obtained in connection 
with any pending investigation of any person;
    (d) Trade secrets and commercial or financial information obtained 
from a person and privileged or confidential, including, but not limited 
to:
    (1)(i) Reports of stocks of grain, such as Forms 38, 38C, 38M and 
38T required to be filed pursuant to 17 CFR 1.44;
    (ii) Statements of reporting traders on Form 40 required to be filed 
pursuant to 17 CFR 18.04;
    (iii) Statements concerning special calls on positions required to 
be filed pursuant to 17 CFR part 21;
    (iv) Statements concerning identification of special accounts on 
Form 102 required to be filed pursuant to 17 CFR 17.01;
    (v) Reports required to be filed pursuant to parts 15 through 21 of 
this chapter;
    (vi) Reports concerning option positions of large traders required 
to be filed pursuant to part 16 of this chapter;
    (vii) Form 188; and
    (viii) The following reports and statements that are also set forth 
in paragraph (h) of this section, except as specified in 17 CFR 
1.10(g)(2), 17 CFR 31.13(m), or 17 CFR 5.12(h): Forms 1-FR required to 
be filed pursuant to 17 CFR 1.10 or 17 CFR 5.12; FOCUS reports that are 
filed in lieu of Forms 1-FR pursuant to 17 CFR 1.10(h); Forms 2-FR 
required to be filed pursuant to 17 CFR 31.13; the accountant's report 
on material inadequacies filed in accordance with 17 CFR 1.16(c)(5); and 
all reports and statements required to be filed pursuant to 17 CFR 
1.17(c)(6);
    (2) Information contained in reports, summaries, analyses, 
transcripts, letters or memoranda arising out of, in anticipation of or 
in connection with an examination or inspection of the books and records 
of any person or any other formal or informal inquiry or investigation; 
and
    (3) Information for which confidential treatment has been requested 
and granted in accordance with Sec. 145.9;
    (e) Inter-agency or intra-agency memoranda or letters, except those 
which by law would routinely be made available to a party other than an 
agency in litigation with the Commission, including:
    (1) Records which reflect discussions between or consideration by 
members of the Commission or members of its staff, or both, of any 
action taken or proposed to be taken by the Commission or by any member 
of its staff; and
    (2) Reports, summaries, analyses, conclusions, or any other work 
product of members of the Commission or of attorneys, accountants, 
economists, analysts, or other members of the Commission's staff, 
prepared in the course of an inspection of the books or records of any 
person whose affairs are regulated

[[Page 577]]

by the Commission, or prepared otherwise in the course of any formal or 
informal inquiry, examination or investigation or related litigation 
conducted by or on behalf of the Commission;
    (f) Personnel files, medical files and similar files the disclosure 
of which would constitute a clearly unwarranted invasion of personal 
privacy, including but not limited to, information of that character 
contained in:
    (1) Files concerning employees of the Commission;
    (2) Files concerning persons subject to regulation by the 
Commission, including files with respect to applications for 
registration and biographical supplements submitted with such 
applications. Examples of the information on the applications and 
biographical supplements which may be protected are an individual's home 
address and telephone number, social security number, date and place of 
birth, fingerprints and, in appropriate cases, the information 
concerning prior arrests, indictments, criminal convictions or other 
judgments or sanctions imposed by State or Federal courts or regulatory 
authorities;
    (3) Files concerning information for which confidential treatment 
has been requested and granted in accordance with Sec. 145.9;
    (g) Records or information compiled for law enforcement purposes to 
the extent that the production of such records or information:
    (1) Could reasonably be expected to interfere with enforcement 
activities undertaken or likely to be undertaken by the Commission or 
any other authority including, but not limited to, the Department of 
Justice or any United States Attorney or any Federal, State, local, or 
foreign governmental authority or any futures or securities industry 
self-regulatory organization;
    (2) Would deprive a person of a right to a fair trail or an 
impartial adjudication;
    (3) Could reasonably be expected to constitute an unwarranted 
invasion of personal privacy;
    (4) Could reasonably be expected to disclose the identity of a 
confidential source including a State, local or foreign agency or 
authority or any private institution which furnished information on a 
confidential basis and, in the case of a record or information compiled 
by a criminal law enforcement authority in the course of a criminal 
investigation or by an agency conducting a lawful national security 
intelligence investigation, information furnished by a confidential 
source;
    (5) Would disclose techniques or procedures or would disclose 
guidelines for law enforcement investigations or prosecutions if such 
disclosure could reasonably be expected to risk circumvention of the 
law; or
    (6) Could reasonably be expected to endanger the life or physical 
safety of any individual.
    (h) Contained in or related to examinations, operating, or condition 
reports prepared by, on behalf of, or for the use of the Commission or 
any other agency responsible for the regulation or supervision of 
financial institutions, including, but not limited to the following 
reports and statements that are also set forth in paragraph (d)(1)(viii) 
of this section, except as specified in 17 CFR 1.10(g)(2), 17 CFR 
5.12(h) or 17 CFR 31.13(m): Forms 1-FR required to be filed pursuant to 
17 CFR 1.10 or 17 CFR 5.12; FOCUS reports that are filed in lieu of 
Forms 1-FR pursuant to 17 CFR 1.10(h); Forms 2-FR required to be filed 
pursuant to 17 CFR 31.13; the accountant's report on material 
inadequacies filed in accordance with 17 CFR 1.16(c)(5); and all reports 
and statements required to be filed pursuant to 17 CFR 1.17(c)(6); and

[[Page 578]]

    (i) Geological and geophysical information and data, including maps, 
concerning wells.

(5 U.S.C. 552, 5 U.S.C. 552b, and secs. 2(a)(11), 4b, 4f, 4g, 5a, 8a, 
and 17 of the Commodity Exchange Act, 7 U.S.C. 2, 4a(j), 6b, 6f, 6g, 7a, 
12a, and 21, as amended, 92 Stat. 865 et seq.; secs. 2(a)(1), 4c(a)-(d), 
4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, Commodity Exchange Act (7 U.S.C. 
2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 12a, 19 and 21; 5 U.S.C. 552 and 
552b); secs. 2(a)(11) and 8 of the Commodity Exchange Act, 7 U.S.C. 4(j) 
and 12 (1983); secs. 8a(5) and 19 of the Commodity Exchange Act, as 
amended, 7 U.S.C. 12a(5) and 23 (1982); 5 U.S.C. 552 and 552b)

[41 FR 16290, Apr. 16, 1976, as amended at 44 FR 13458, Mar. 12, 1979; 
45 FR 2023, Jan. 10, 1980; 46 FR 24943, May 4, 1981; 46 FR 54534, Nov. 
3, 1981; 48 FR 35303, Aug. 3, 1983; 49 FR 4464, Feb. 7, 1984; 49 FR 
5541, Feb. 13, 1984; 51 FR 26870, July 28, 1986; 53 FR 4613, Feb. 17, 
1988; 54 FR 41084, Oct. 5, 1989; 62 FR 4642, Jan. 31, 1997; 64 FR 25, 
Jan. 4, 1999; 71 FR 5595, Feb. 2, 2006; 75 FR 55449, Sept. 10, 2010]



Sec. 145.6  Commission offices to contact for assistance; registration records available.

    (a) Whenever this part directs that a request be directed to the 
Assistant Secretary of the Commission for FOI, Privacy and Sunshine Acts 
Compliance, the request shall be made in writing and shall be addressed 
or otherwise directed to the Office of the Secretariat, Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, 
NW., Washington, DC 20581. Requests for public records directed to a 
regional office of the Commission pursuant to Sec. 145.2 should be sent 
to:

Commodity Futures Trading Commission, 140 Broadway, New York, New York 
10005, Telephone: (646) 746-9700.
Commodity Futures Trading Commission, 525 West Monroe Street, Suite 1100 
North, Chicago, Illinois 60661, Telephone: (312) 596-0700.
Commodity Futures Trading Commission, Two Emanuel Cleaver II Blvd., 
Suite 300, Kansas City, Missouri 64112, Telephone: (816) 960-7700.

    (b)(1) The publicly available portions of Form 7-R (application for 
registration as a futures commission merchant, introducing broker, 
commodity trading advisor, commodity pool operator or leverage 
transaction merchant), Form 8-R (application for registration as an 
associated person, floor broker, floor trader and biographical 
supplement to application on Form 7-R), Form 3-R (changes and 
corrections; multiple associations) Form 8-S (certificate of special 
registration), Form 8-T (notice of termination), Form 7-W (withdrawal 
from firm registration) and Form 8-W (withdrawal from floor broker or 
floor trader registration) will be available for public inspection and 
copying. Such registration forms will be available in the offices of the 
National Futures Association, 200 West Madison Street, Chicago, Illinois 
60606. Telephone: (312) 781-1300.
    (2) The fingerprint card and any supplementary attachments filed in 
response to:
    (i) Items 6-9, 14-21, the ``Personal Information,'' or the 
``Disciplinary Information'' sections on Form 8-R;
    (ii) Item 3 on Form 8-S;
    (iii) Items 3-5, 9-11, the ``Withdrawal Reasons,'' the 
``Disciplinary Information,'' or the ``Matter Information'' sections on 
Form 8-T;
    (iv) Items 9-10 on Form 7-R;
    (v) Item 7 and the ``Additional Customer Information'' section on 
Form 7-W; and
    (vi) Item 7 on Form 8-W generally will not be available for public 
inspection and copying unless such disclosure is required under the 
Freedom of Information Act. Changes or corrections to those items 
reported on Form 3-R will be treated similarly. When such fingerprint 
cards or supplementary attachments are on file, the FOI, Privacy and 
Sunshine Acts compliance staff will decide any request for access in 
accordance with the procedures set forth in Sec. Sec. 145.7 and 145.9.

(7 U.S.C. 2, 4, 6, and 12; secs. 2(a)(1), 4c, 4d, 4e, 4f, 4k, 4m, 4n, 
4p, 8, 8a and 19 of the Commodity Exchange Act (7 U.S.C. 2 and 4, 6c, 
6d, 6e, 6f, 6k, 6m, 6n, 6p, 12, 12a and 23 (1982)); 5 U.S.C. 552 and 
552b)

[49 FR 39534, Oct. 9, 1984, and 51 FR 26870, July 28, 1986, as amended 
at 53 FR 8435, Mar. 15, 1988; 54 FR 19886, May 9, 1989; 57 FR 29203, 
July 1, 1992; 58 FR 19597, Apr. 15, 1993; 60 FR 49335, Sept. 25, 1995; 
64 FR 26, Jan. 4, 1999; 67 FR 62353, Oct. 7, 2002; 67 FR 63539, Oct. 15, 
2002; 69 FR 41426, July 9, 2004; 72 FR 16269, Apr. 4, 2007]

[[Page 579]]



Sec. 145.7  Requests for Commission records and copies thereof.

    Requests for Commission records and copies thereof shall specify the 
preferred form or format (including electronic formats) of the response. 
The Commission will accommodate requesters as to form or format if the 
record is readily available in that form or format. When requesters do 
not specify the form or format of the response, the Commission will 
respond in the form or format in which the document is most accessible 
to the Commission.
    (a) Public inquiries and inspection of public records. Information 
concerning the nature and extent of available public records may be 
obtained in person, by telephone, via Internet (http://www.cftc.gov), or 
by writing to the Commission offices designated in Sec. Sec. 145.2 and 
145.6.
    (b) Requests for nonpublic records. Except as provided in paragraph 
(a) of this section with respect to public records, all requests for 
records maintained by the Commission shall be in writing, shall be 
addressed to the Assistant Secretary of the Commission for FOI, Privacy 
and Sunshine Acts Compliance, and shall be clearly marked ``Freedom of 
Information Act Request''.
    (c) Misdirected written requests/oral requests. (1) The Commission 
cannot assure that a timely or satisfactory response will be given to 
requests for records that are directed to the Commission other than in 
the manner prescribed in paragraph (b) of this section. Any misdirected 
written request for nonpublic records should be promptly forwarded to 
the Assistant Secretary of the Commission for FOI, Privacy and Sunshine 
Acts Compliance. Misdirected requests for nonpublic records will be 
considered to have been received for purposes of this section only when 
they actually have been received by the Assistant Secretary. The 
Commission will not entertain an appeal under paragraph (h) of this 
section from an alleged denial or failure to comply with a misdirected 
request, unless the request was in fact received by the Assistant 
Secretary for FOI, Privacy and Sunshine Acts Compliance.
    (2) While the Commission will attempt to comply with oral requests 
for copies of records designated by the Commission as public records, 
the Commission cannot assure a timely or satisfactory response to such 
requests. The Commission will not consider an oral request for nonpublic 
records. An appeal under paragraph (h) of this section from an alleged 
denial or failure to comply with an oral request will not be considered. 
Any person who has orally requested a copy of a record and who believes 
that the request was denied improperly should resubmit the request in 
writing in accordance with paragraph (b) of this section.
    (d) Description of requested records. Each written request for 
Commission records made under paragraph (b) of this section shall 
reasonably describe the records sought with sufficient specificity to 
permit the records to be located among the records maintained by or for 
the Commission. The Commission staff may communicate with the requester 
(by telephone when practicable) in an effort to reduce the 
administrative burden of processing a broad request and to minimize fees 
for copying and search services.
    (e) Description of requester and intended use of requested records. 
In each request for records, requesters shall reasonable identify 
themselves as a commercial user, educational institution, noncommercial 
scientific institution, or representative of the news media if one of 
these categories is applicable. The requester shall describe the use to 
which the records will be put.
    (f) Request for existing records. The Commission's response to a 
request for nonpublic records will encompass all nonpublic records 
identifiable as responsive to the request that are in existence on the 
date that the written request is received by the Assistant Secretary for 
FOI, Privacy and Sunshine Acts Compliance. The Commission need not 
create a new record in response to a FOIA request.
    (g) Fee agreement. A request for copies of records pursuant to 
paragraph (b) of this section must indicate the requester's agreement to 
pay all fees that are associated with the processing of the request, in 
accordance with the rates

[[Page 580]]

set forth in appendix B to part 145, or the requester's intention to 
limit the fees incurred to a stated amount. If the requester states a 
fee limitation, no work will be done that will result in fees beyond the 
stated amount. A requester who seeks a waiver or reduction of fees 
pursuant to paragraph (a)(8) of appendix B of this part must show that 
such a waiver or reduction would be in the public interest. If the 
Assistant Secretary receives a request for records under paragraph (b) 
of this section from a requester who has not paid fees from a previous 
request in accordance with appendix B of this part, the staff will 
decline to process the request until such fees have been paid.
    (h) Initial determination, denials. (1) With respect to any request 
for nonpublic records as defined in Sec. 145.0(d), the Assistant 
Secretary of the Commission for FOI, Privacy and Sunshine Acts 
Compliance, or his or her designee, will forward the request to the 
Commission divisions or offices likely to maintain records that are 
responsive to the request. If a responsive record is located, the 
Assistant Secretary, or designee, will, in consultation with the 
Commission office in which the record was located, determine whether to 
comply with such request. The Assistant Secretary may, in his or her 
discretion, determine whether to comply with any portion of a request 
for nonpublic records before considering the remainder of the request.
    (2) Where it is determined to deny, in whole or in part, a request 
for nonpublic records, the Assistant Secretary, or designee, will notify 
the requester of the denial, citing applicable exemptions of the Freedom 
of Information Act or other provisions of law that require or allow the 
records to be withheld. The Assistant Secretary's response to the FOIA 
request should describe in general terms what categories of documents 
are being withheld under which applicable FOIA exemption or exemptions. 
The Assistant Secretary, in denying an initial request for records, is 
not required to provide the requester with an inventory of those 
documents determined to be exempt from disclosure.
    (3) The Assistant Secretary, or his or her designee, will issue an 
initial determination with respect to a FOIA request within twenty 
business days after receipt by the Assistant Secretary. In unusual 
circumstances, as defined in this paragraph, the prescribed time limit 
may be extended by written notice to the person making a request for a 
record or a copy. The notice shall set forth the reasons for the 
extension and the date on which a determination is expected to be 
dispatched. No such notice shall specify a date that would result in an 
extension for more than ten business days. As used in this paragraph, 
``unusual circumstances'' means, but only to the extent reasonably 
necessary to the proper processing of a particular request:
    (i) The need to search for and collect the requested records from 
field facilities or other establishments that are separate from the 
office processing the request;
    (ii) The need to search for, collect, and appropriately examine a 
voluminous amount of separate and distinct records which are demanded in 
a single request;
    (iii) The need for consultation, which shall be conducted with all 
practicable speed, with another agency having a substantial interest in 
the determination of the request or among two or more components in the 
Commission having substantial subject matter interest therein;
    (iv) The need to coordinate a response with several Commission 
offices;
    (v) The need to obtain records currently being used by members of 
the Commission, the Commission staff, or the public;
    (vi) The need to respond to a large number of previously-filed FOIA 
requests.
    (i) Administrative review. (1) Any person who has been notified 
pursuant to paragraph (g) of this section that his request for records 
has been denied in whole or in part may file an application for review 
as set forth below.
    (2) An application for review must be received by the Office of 
General Counsel within 30 days of the date of the denial by the 
Assistant Secretary. This 30-day period shall not begin to run until the 
Assistant Secretary has

[[Page 581]]

issued an initial determination with respect to all portions of the 
request for nonpublic records. An application for review shall be in 
writing and shall be marked ``Freedom of Information Act Appeal.'' The 
original shall be sent to the Commission's Office of General Counsel. If 
the appeal involves information as to which the FOIA requester has 
received a detailed written justification of a request for confidential 
treatment pursuant to Sec. 145.9(e), the requester must also serve a 
copy of the appeal on the submitter of the information.
    (3) The applicant must attach to the application for review a copy 
of all correspondence relevant to the request, i.e., the initial 
request, any correspondence amending or modifying the request, and all 
correspondence from the staff responding to the request.
    (4) The application for review shall state such facts and cite such 
legal or other authorities as the applicant may consider appropriate. 
The application may, in addition, include a description of the general 
benefit to the public from disclosure of that information.
    (5) If the appeal involves information that is subject to a petition 
for confidential treatment filed under Sec. 145.9, the submitter of the 
information shall have an opportunity to respond in writing to the 
appeal within 10 business days of the date of filing of the appeal. Any 
response shall be sent to the Commission's Office of General Counsel. 
Copies shall be sent to the Assistant Secretary of the Commission for 
FOI, Privacy and Sunshine Acts Compliance and to the person requesting 
the information.
    (6) The General Counsel, or his or her designee, shall have the 
authority to consider all appeals under this section from initial 
determinations of the Assistant Secretary of the Commission for FOI, 
Privacy and Sunshine Acts Compliance. The General Counsel may:
    (i) Determine either to affirm or to reverse the initial 
determination in whole or in part;
    (ii) Determine to disclose a record, even if exempt, if good cause 
for doing so either is shown by the application or otherwise appears;
    (iii) Remand the matter to the Assistant Secretary (A) to correct a 
deficiency in the initial processing of the request, or (B) when an 
investigation as to which the staff originally claimed exemption from 
mandatory disclosure on the basis of 5 U.S.C. 555(b)(7)(A) or 7 U.S.C. 
12(a) is subsequently closed; or;
    (iv) Refer the matter to the Commission for a decision.
    (7) If the initial denial of the request for nonpublic records is 
reversed, the Office of General Counsel shall, in writing, advise the 
requester that the records will be available on or after a specified 
date. If, on appeal, the denial of access to a record is affirmed in 
whole or in part, the person who requested the information shall be 
notified in writing of (1) the reasons for the denial and (2) the 
provisions of 5 U.S.C. 552(a)(4) providing for judicial review of a 
determination to withhold records.
    (j) Expedited processing. A request may be given expedited 
processing if the requester demonstrates a compelling need for the 
requested records. For purposes of this provision, the term ``compelling 
need'' means: That a failure to obtain requested records on an expedited 
basis could reasonably be expected to pose an imminent threat to the 
life or physical safety of an individual; or with respect to a request 
made by a person primarily engaged in disseminating information, urgency 
to inform the public concerning actual or alleged federal government 
activity. A requester who seeks expedited processing must demonstrate a 
compelling need by submitting a statement that is certified by the 
requester to be true and correct to the best of that person's knowledge 
and belief. The Assistant Secretary, or his or her designee, will 
determine whether to provide expedited processing, and notice of the 
determination will be provided to the requester, within ten days after 
the date of the request. If the request for expedited processing is 
denied, the requester may file an appeal with the Office of General 
Counsel within ten days of the date of the denial by the Assistant 
Secretary. The Office of General Counsel will respond to the appeal 
within ten days after the date of the appeal.

[51 FR 26870, July 28, 1986, as amended at 52 FR 19307, May 22, 1987; 62 
FR 17069, Apr. 9, 1997; 69 FR 67507, Nov. 18, 2004]

[[Page 582]]



Sec. 145.8  Fees for records services.

    A schedule of fees for record services, including locating, and 
making records available, and copying, appears in appendix B to this 
part 145. Copies of the schedule of fees may also be obtained upon 
request made in person, by telephone or by mail from the FOI, Privacy 
and Sunshine Acts compliance staff, Office of the Secretariat or at any 
regional office of the Commission.

(7 U.S.C. 4a(j) and 16a as amended by Pub. L. 97-444, 96 Stat. 2294 
(1983), and 5 U.S.C. 552, 552a and 552b)

[41 FR 16290, Apr. 16, 1976, as amended at 49 FR 12684, Mar. 30, 1984]



Sec. 145.9  Petition for confidential treatment of information submitted to the Commission.

    (a) Purpose. This section provides a procedure by which persons 
submitting information in any form to the Commission can request that 
the information not be disclosed pursuant to a request under the Freedom 
of Information Act, 5 U.S.C. 552. This section does not affect the 
Commission's right, authority, or obligation to disclose information in 
any other context.
    (b) Scope. The provisions of this section shall apply only where the 
Commission has not specified that an alternative procedure be utilized 
in connection with a particular study, report, investigation, or other 
matter. See 40.8 for procedures to be utilized in connection with filing 
information required to be filed pursuant to 17 CFR parts 40 and 41.
    (c) Definitions. The following definitions apply to this section:
    (1) Submitter. A ``submitter'' is any person who submits any 
information or material to the Commission or who permits any information 
or material to be submitted to the Commission. For purposes of paragraph 
(d)(1)(ii) of this section only, ``submitter'' includes any person whose 
information has been submitted to a designated contract market or 
registered futures association that in turn has submitted the 
information to the Commission.
    (2) FOIA requester. A ``FOIA requester'' is any person who files 
with the Commission a request to inspect or copy Commission records or 
documents pursuant to the Freedom of Information Act, 5 U.S.C. 552.
    (d) Written request for confidential treatment. (1) Any submitter 
may request in writing that the Commission afford confidential treatment 
under the Freedom of Information Act to any information that he or she 
submits to the Commission. Except as provided in paragraph (d)(4) of 
this section, no oral requests for confidential treatment will be 
accepted by the Commission. The submitter shall specify the grounds on 
which confidential treatment is being requested but need not provide a 
detailed written justification of the request unless requird to do so 
under paragraph (e) of this section. Confidential treatment may be 
requested only on the grounds that disclosure:
    (i) Is specifically exempted by a statute that either requires that 
the matters be withheld from the public in such manner as to leave no 
discretion on the issue or establishes particular criteria for 
withholding or refers to particular types of matters to be withheld.
    (ii) Would reveal the submitter's trade secrets or confidential 
commercial or financial information.
    (iii) Would constitute a clearly unwarranted invasion of the 
submitter's personal privacy.
    (iv) Would reveal investigatory records compiled for law enforcement 
purposes whose disclosure would deprive the submitter of a right to a 
fair trial or an impartial adjudication.
    (v) Would reveal investigatory records compiled for law enforcement 
purposes whose disclosure would constitute an unwarranted invasion of 
the personal privacy of the submitter.
    (vi) Would reveal investigatory records compiled for law enforcement 
purposes when disclosure would interfere with enforcement proceedings or 
disclose investigative techniques and procedures, provided that the 
claim may be made only by a designated contract market or registered 
futures association with regard to its own investigatory records.
    (2) The original of any written request for confidential treatment 
must be sent to the Assistant Secretary of the Commission for FOI, 
Privacy and

[[Page 583]]

Sunshine Acts Compliance. A copy of any request for confidential 
treatment shall be sent to the Commission division or office receiving 
the original of any material for which confidential treatment is being 
sought.
    (3) A request for confidential treatment shall be clearly marked 
``FOIA Confidential Treatment Request'' and shall contain the name, 
address, and telephone number of the submitter. The submitter is 
responsible for informing the Assistant Secretary of the Commission for 
FOI, Privacy and Sunshine Acts Compliance of any changes in his or her 
name, address, and telephone number.
    (4) A request for confidential treatment should accompany the 
material for which confidential treatment is being sought. If a request 
for confidential treatment is filed after the filing of such material, 
the submitter shall have the burden of showing that it was not possible 
to request confidential treatment for that material at the time the 
material was filed. A request for confidential treatment of a future 
submission will not be processed. All records which contain information 
for which a request for confidential treatment is made or the 
appropriate segregable portions thereof should be marked by the person 
submitting the records with a prominent stamp, typed legend, or other 
suitable form of notice on each page or segregable portion of each page 
stating ``Confidential Treatment Requested by [name].'' If such marking 
is impractical under the circumstances, a cover sheet prominently marked 
``Confidential Treatment Requested by [name]'' should be securely 
attached to each group of records submitted for which confidential 
treatment is requested. Each of the records transmitted in this matter 
should be individually marked with an identifying number and code so 
that they are separately identifiable. In some circumstances, such as 
when a person is testifying in the course of a Commission investigation 
or providing documents requested in the course of a Commission 
inspection, it may be impractical to submit a written request for 
confidential treatment at the time the information is first provided to 
the Commission. In no circumstances can the need to comply with the 
requirements of this section justify or excuse any delay in submitting 
information to the Commission. Rather, in such circumstances, the person 
testifying or otherwise submitting information should inform the 
Commission employee receiving the information, at the time the 
information is submitted or as soon thereafter as practicable, that the 
person is requesting confidential treatment for the information. The 
person shall then submit a written request for confidential treatment 
within 30 days of the submission of the information. If access is 
requested under the Freedom of Information Act with respect to material 
for which no timely request for confidential treatment has been made, it 
may be presumed that the submitter of the information has waived any 
interest in asserting that the material is confidential.
    (5) A request for confidential treatment shall state the length of 
time for which confidential treatment is being sought.
    (6) A request for confidential treatment (as distinguishing from the 
material that is the subject of the request) shall be considered a 
public document. When a submitter deems it necessary to include, in its 
request for confidential treatment, information for which it seeks 
confidential treatment, the submitter shall place that information in an 
appendix to the request.
    (7) On 10 business days notice from the Assistant Secretary, a 
submitter shall submit a detailed written justification of a request for 
confidential treatment, as specified in paragraph (e) of this section. 
Upon request and for good cause shown, the Assistant Secretary may grant 
an extension of such time. The Assistant Secretary will notify the 
submitter that failure to provide timely a detailed written 
justification will be deemed a waiver of the submitter's opportunity to 
appeal an adverse determination.
    (8)(i) Requests for confidential treatment for any reasonably 
segregable material that is not exempt from public disclosure under the 
Freedom of Information Act, as implemented in Sec. 145.5, shall be 
summarily rejected

[[Page 584]]

under Sec. 145.9(d)(9). Requests for confidential treatment of public 
information contained in financial reports as specified in Sec. 1.10 
shall not be processed. A submitter has the burden of specifying clearly 
and precisely the material that is the subject of the confidential 
treatment request. A submitter may be able to meet this burden in 
various ways, including:
    (A) Segregating material for which confidential treatment is being 
sought;
    (B) Submitting two copies of the submission: a copy from which 
material for which confidential treatment is being sought has been 
obliterated, deleted, or clearly marked and an unmarked copy; and
    (C) Clearly describing the material within a submission for which 
confidential treatment is being sought.
    (ii) A submitter shall not employ a method of specifying the 
material for which confidential treatment is being sought if that method 
makes it unduly difficult for the Commission to read the full 
submission, including all portion claimed to be confidential, in its 
entirely.
    (9) If a submitter fails to follow the procedures set forth in 
paragraphs (d)(1) through (d)(8) of this section, the Assistant 
Secretary of the Commission for FOI, Privacy and Sunshine Acts 
Compliance or his or her designee may summarily reject the submitter's 
request for confidential treatment with leave to the submitter to refile 
a proper petition. Failure of the Assistant Secretary or his or her 
designee summarily to reject a confidential treatment request pursuant 
to this paragraph shall not be construed to indicate that the submitter 
has complied with the procedures set forth in paragraphs (d)(1) through 
(d)(8) of this section.
    (10) Except as provided in paragraph (d)(9) of this section, no 
determination with respect to any request for confidential treatment 
will be made until the Commission receives a Freedom of Information Act 
request for the material for which confidential treatment is being 
sought.
    (e) Detailed written justification of request for confidential 
treatment. (1) If the Assistant Secretary or his or her designee 
determines that a FOIA request seeks material for which confidential 
treatment has been requested pursuant to Sec. 145.9, the Assistant 
Secretary or his or her designee shall require the submitter to file a 
detailed written justification of the confidential request within ten 
business days (unless under Sec. 145.9(d)(7) an extension of time has 
been granted) of that determination unless, pursuant to an earlier FOIA 
request, a prior determination to release or withhold the material has 
been made, the submitter has already provided sufficient information to 
grant the request for confidential treatment; or the material is 
otherwise in the public domain. The detailed written justification shall 
be filed with the Assistant Secretary of the Commission for FOI, Privacy 
and Sunshine Acts Compliance. It shall be clearly marked ``Detailed 
Written Justification of FOIA Confidential Treatment Request'' and shall 
contain the request number supplied by the Commission. The submitter 
shall also send a copy of the detailed written justification to the FOIA 
requester at the address specified by the Commission.
    (2) The period for filing a detailed written justification may be 
extended upon request and for good cause shown.
    (3) The detailed written justification of the confidential treatment 
request shall contain:
    (i) The reasons, referring to the specific exemptive provisions of 
the Freedom of Information Act listed in paragraph (d)(1) of this 
section, why the information that is the subject of the FOIA request 
should be withheld from access under the Freedom of Information Act;
    (ii) The applicability of any specific statutory or regulatory 
provisions that govern or may govern the treatment of the information;
    (iii) The existence and applicability of prior determinations by the 
Commission, other federal agencies, or courts concerning the specific 
exemptive provisions of the Freedom of Information Act pursuant to which 
confidential treatment is being requested. Submitters shall satisfy any 
evidentiary burdens imposed upon them by applicable Freedom of 
Information Act case law.

[[Page 585]]

    (iv) Such additional facts and authorities as the submitter may 
consider appropriate.
    (4) The detailed written justification of a confidential treatment 
request shall be accompanied by affidavits to the extent necessary to 
establish the facts necessary to satisfy the submitter's evidentiary 
burden.
    (5) The detailed written justification of a confidential treatment 
request (as distinguished from the material that is the subject of the 
request) shall be considered a public document. However, a submitter 
will be permitted to submit to the Commission supplementary confidential 
affidavits with his or her detailed written justification if that is the 
only way in which he or she can convincingly demonstrate that the 
material that is the subject of the confidential treatment request 
should not be disclosed to the FOIA requester.
    (f) Initial determination with respect to petition for confidential 
treatment. (1) The Assistant Secretary for FOI, Privacy and Sunshine 
Acts Compliance or his or her designee, in consultation with the Office 
in which the record was located, shall issue an initial determination 
with respect to a confidential treatment request for material that is 
responsive to the FOIA request. This determination shall be issued at 
the same time as the initial determination with respect to the FOIA 
request. See Sec. 145.7(g). To the extent that the initial 
determination grants a confidential treatment request in full or in 
part, it should specify the FOIA exemptions upon which this 
determination is based and briefly describe the material to which each 
exemption applies. See Sec. 145.7(g)(2). To the extent that the initial 
determination denies confidential treatment to any material for which 
confidential treatment was requested, it should briefly describe the 
material for which confidential treatment is denied.
    (2) If the Assistant Secretary or his or her designee determines 
that a confidential treatment request shall be denied in full or in 
part, the submitter shall be informed of his or her right to appeal to 
the Commission's General Counsel in accordance with the procedures set 
forth in paragraph (g) of this section. The material for which 
confidential treatment was denied shall be released to the FOIA 
requester if the submitter does not file an appeal within 10 business 
days of the date on which his or her request was denied.
    (3) If the Assistant Secretary or his or her designee determines 
that a confidential treatment request shall be granted in full or in 
part, the FOIA requester shall be informed of his or her right to appeal 
to the Commission's General Counsel in accordance with the procedures 
set forth in Sec. 145.7(h).
    (g) Appeal from initial determination that confidential treatment is 
not warranted. (1) An appeal from an initial determination to deny a 
confidential treatment request in full or in part shall be filed with 
the General Counsel of the Commission. No disclosure of the material 
that is the subject of the appeal shall be made until the appeal is 
resolved. If both a submitter and a FOIA requester appeal to the General 
Counsel from a partial grant and partial denial of a confidential 
treatment request, those appeals shall be consolidated.
    (2) Any appeal of a denial of a request for confidential treatment 
shall be in writing, and shall be clearly marked ``FOIA Confidential 
Treatment Appeal.'' The appeal shall include a copy of the initial 
determination and shall clearly indicate the portions of the initial 
determination from which an appeal is being taken.
    (3) The appeal shall be sent to the Commission's Office of General 
Counsel. A copy of the appeal shall be sent to the FOIA requester. The 
General Counsel or his or her designee shall have the authority to 
consider all appeals from initial determinations of the Assistant 
Secretary of the Commission for FOI, Privacy and Sunshine Acts 
compliance. The General Counsel may, in his sole and unfettered 
discretion, refer such appeals and questions concerning stays under 
paragraph (g)(10) of this section to the Commission for decision.
    (4) In the appeal, the submitter may supply additional 
substantiation for his or her request for confidential treatment, 
including additional affidavits and additional legal argument. Such 
submissions shall be governed by paragraph (e)(5) of this section.

[[Page 586]]

    (5) The FOIA requester shall have an opportunity to respond in 
writing to the appeal within 10 business days of the date of filing of 
the FOIA Confidential Treatment Appeal. The FOIA requester need not 
respond, however. Any response shall be sent to the Commission's Office 
of General Counsel. A copy shall be sent to the submitter.
    (6) All FOIA Confidential Treatment Appeals and all responses 
thereto shall be considered public documents.
    (7) The General Counsel will make a determination with respect to 
any appeal within twenty business days after receipt by the Office of 
General Counsel of such appeal or within such extended period as may be 
permitted in accordance with the standards set forth in Sec. 
145.7(g)(3). Although other procedures may be employed, to the extent 
possible the General Counsel will decide the appeal on the basis of the 
affidavits and other documentary evidence submitted by the submitter and 
the FOIA requests.
    (8) The General Counsel or his or her designee shall have the 
authority to remand any matter to the Assistant Secretary of the 
Commission for FOI, Privacy and Sunshine Acts Compliance to correct 
deficiencies in the initial processing of the confidential treatment 
request.
    (9) If the General Counsel or his or her designee denies a 
confidential treatment appeal in full or in part, the information for 
which confidential treatment is denied shall be disclosed to the FOIA 
requester 10 business days later, subject to any stay entered pursuant 
to paragraph (g)(10) of this section.
    (10) The General Counsel or his or here designee shall have the 
authority to enter and vacate stays as set forth below. If, within 10 
business days of the date of issuance of a determination by the General 
Counsel or his or her designee to disclose information for which a 
submitter sought confidential treatment, the submitter commences an 
action in federal court concerning that determination, the General 
Counsel will stay the public disclosure of the information pending final 
judicial resolution of the matter. The General Counsel or his or her 
designee may vacate a stay entered under this section, either on his or 
her own motion or at the request of the FOIA requester. If such a stay 
is vacated, the information will be released to the requester 10 
business days after the submitter is notified of this action, unless a 
court orders otherwise.
    (h) Extensions of time limits. Any time limit under this section may 
be extended for good cause shown, in the discretion of the Commission, 
the Commission's General Counsel, or the Assistant Secretary of the 
Commission for FOI, Privacy and Sunshine Acts Compliance.
    (i) A submitter whose confidential treatment request has been upheld 
by the Commission shall, upon request of the General Counsel, aid the 
Commission in defending a court action to compel the Commission to 
disclose the information subject to the confidential treatment request. 
If the submitter is unwilling to aid the Commission in this regard, the 
General Counsel may, in appropriate cases, make the information 
available to the public.

[51 FR 26871, July 28, 1986, as amended at 64 FR 26, Jan. 4, 1999; 69 FR 
67507, Nov. 18, 2004; 74 FR 17395, Apr. 15, 2009]



Sec. Appendix A to Part 145--Compilation of Commission Records Available 
                              to the Public

    The following documents are available, upon request, directly from 
the office indicated. Unless otherwise noted, the mailing address for 
the Commission offices listed below is Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.
    (a) Office of External Affairs. (1) Commitments of Traders Reports.
    (2) Weekly Advisory (solely available on the Commission's Web site 
at http://www.cftc.gov/cftc/cftcpressoffice.htm).
    (3) Studies Prepared by Commission staff.
    (4) Educational material (e.g., newsletters, brochures, annual 
reports, conference or advisory meetings, technical information about 
specific markets or contracts).
    (5) Press releases.
    (6) Rule enforcement and finanical reviews (public version).
    (7) CFTC litigation documents (e.g. administrative and civil 
complaints, injunctions, initial decisions, opinions and orders).
    (8) Commission rules and regulations, Federal Register notices, 
interpretative letters.
    (9) Speeches, Commissioner biographies and photographs.

[[Page 587]]

    (10) Statistical data concerning the Commission's budget.
    (11) Statistical data concerning specific contracts and markets.
    (b) Office of the Secretariat (Public reading area with copying 
facilities available). (1) Comment letters and CFTC summaries of comment 
letters.
    (2) Terms and conditions of proposed contracts.
    (3) Registered entity filings relating to rules as defined in Sec. 
40.1 of this chapter, unless covered by a request for confidential 
treatment.
    (4) National Futures Association (NFA) rule amendments.
    (5) Exchange and NFA disciplinary action notifications.
    (6) Open Commission meeting minutes.
    (7) Sunshine certificates for closed Commission meetings.
    (8) CFTC Advisory Committee final reports.
    (9) Opinions and orders of the Commission.
    (10) Reparations orders and enforcement orders index.
    (11) Rulemaking index.
    (12) Exchange membership notification.
    (13) Publicly available portions of applications to become a 
registered entity including the transmittal letter, proposed rules, 
proposed bylaws, corporate documents, any overview or similar summary 
provided by the applicant, any documents pertaining to the applicant's 
legal status and governance structure, including governance fitness 
information, and any other part of the application not covered by a 
request for confidential treatment.
    (c) Office of Proceedings. (1) Documents contained in reparations 
and enforcement cases, unless subject to protective order.
    (2) Complaint packages, which contain the Reparation Rules, Brochure 
``Questions and Answers About How You Can Resolve a Commodity-Market 
Related Dispute,'' and the complaint form.
    (3) Rules of Practice concerning administrative enforcement 
proceedings.
    (d) Executive Director, Administrative Services Section. Information 
Collection requests submitted to the Office of Management and Budget 
relating to requirements under the Paperwork Reduction Act of 1980, Pub. 
L. 96-511.
    (e) Division of Market Oversight. (1) Weekly stocks of grain 
reports.
    (2) Weekly cotton or call reports.
    (f) Division of Enforcement. Complaint package containing Division 
of Enforcement Questionnaire and list of federal, state and local 
enforcement authorities.
    (g) Division of Clearing and Intermediary Oversight. Publicly 
available portions of registration documents are available from the 
National Futures Association, 200 West Madison Street, Chicago, Illinois 
60606. See Commission Rule 145.6.

[51 FR 26874, July 28, 1986, as amended at 57 FR 29203, July 1, 1992; 59 
FR 5528, Feb. 7, 1994; 60 FR 49335, Sept. 25, 1995; 64 FR 27, Jan. 4, 
1999; 67 FR 62353, Oct. 7, 2002; 67 FR 63539, Oct. 15, 2002; 69 FR 
67507, Nov. 18, 2004]



              Sec. Appendix B to Part 145--Schedule of Fees

    (a) Charges for requests. The following charges may be made where 
applicable for responding to requests for records.
    (1) $4.75 for each quarter hour spent by clerical personnel in 
searching for or reviewing records.
    (2) When a search or review cannot be performed by clerical 
personnel, $10.25 for each quarter hour spent by professional personnel 
in searching or reviewing records.
    (3) When searches require the expertise of a computer specialist, 
staff time for programming and performing searches will be charged at 
$10.25 per quarter hour. For searches of records stored on personal 
computers used as workstations by Commission staff and shared access 
network servers, the computer processing time is included in the search 
time for the staff member using the workstation as set forth in 
paragraph (a) of this appendix.
    (4) Document duplication, including computer printouts, will be 
charged at $0.15 per page.
    (5) For copies of materials other than paper records, the requester 
will be charged the actual cost of materials and reproduction, including 
the time of clerical personnel at a rate of $4.75 per quarter hour.
    (6) When a request has been made and granted to examine Commission 
records at an office of the Commission other than the office in which 
the records are routinely maintained, the requester:
    (i) Will reimburse the Commission for the actual cost of 
transporting the records; and
    (ii) Will be charged at a rate of $4.75 for each quarter hour spent 
by clerical personnel in preparing the records for transit.
    (7) For certifying that requested records are true copies, the 
charge will be $3.00 per certification.
    (8) Upon request, records will be mailed by means of overnight or 
express mail at the fee of $10.00 per package mailed.
    (b) Waiver or reduction of fees. Fees will be waived or reduced by 
the Commission if:
    (1) The fee is less than or equal to $10.00, the approximate cost to 
the Commission of collecting the fee; or,
    (2) If the Commission determines that the disclosure of the 
information is likely to contribute significantly to public 
understanding of the operations or activities of the government and is 
not primarily in the commercial interest of the requester.

[[Page 588]]

    (c) Applicability of fees. Fees shall be charged even if no records 
are ultimately furnished to the requester. Fees apply to various types 
of requests as follows.
    (1) Commercial use request. Fees for search time, review time and 
duplication of records will be charged to requests from or on behalf of 
one who seeks information for a user or purpose that furthers the 
commercial, trade or profit interests of the requester or the person on 
whose behalf the request is made.
    (2) Educational institution or noncommercial scientific institution. 
Only duplication fees will be charged to schools or to organizations 
which operate solely for the purpose of scientific research, the results 
of which are not intended to promote any particular product or industry. 
No charge will be made for the first 100 pages duplicated or for search 
or review time.
    (3) Representative of the news media. Only duplication fees will be 
charged to any person actively gathering news for an entity that is 
organized and operated to publish or broadcast news to the public. No 
charge will be made for the first 100 pages duplicated or for search or 
review time.
    (4) Other requesters. Fees for search time and duplication will be 
charged to requesters who are not covered by one of the categories 
above. No charge will be made for the first two hours of search time, 
the first 100 pages of duplication, or for review time. If the search is 
for records stored in a computer format, a combination of computer 
operation charges and search time charges will be waived up to the 
equivalent of two hours of professional search time.
    (d) Aggregation of requests. For purposes of determining fees, the 
Commission may aggregate reasonably related requests if multiple 
requests are made within a 30-day period or if there is a solid basis 
for believing that multiple requests were made solely to avoid fees.
    (e) Notification of fees. A request for Commission records may state 
that the party is willing to pay fees up to a stated limit for services 
to be provided in searching, reviewing and duplicating requested 
records. If such a statement is made, no work will be done that will 
result in fees beyond the stated limit without written authorization. If 
no limit is stated, no work will be done that will result in fees in 
excess of $25.00 without written authorization from the requester.
    (f) Advance payment of fees. The Commission may request advance 
payment of all or part of the fee (i) when fees are expected to exceed 
$250; or (ii) when a requester has previously failed to pay fees in a 
timely fashion.
    (g) Payment of fees. Payment should be made by check or money order 
payable to the Commodity Futures Trading Commission.
    (h) Interest on fees. The Commission will begin charging interest on 
unpaid bills starting on the 31th day following the day on which the 
bill was sent. Interest will be at the rate prescribed in 31 U.S.C. 
3717.
    (i) Collection of fees. If fees not paid, the Commission may 
disclose debts to appropriate authorities for collection or to consumer 
reporting agencies.

[52 FR 19308, May 22, 1987, as amended at 64 FR 27, Jan. 4, 1999; 69 FR 
67507, Nov. 18, 2004]



                 Sec. Appendix C to Part 145 [Reserved]



PART 146_RECORDS MAINTAINED ON INDIVIDUALS--Table of Contents



Sec.
146.1 Purpose and scope.
146.2 Definitions.
146.3 Requests by an individual for information or access.
146.4 Procedures for identifying the individual making the request.
146.5 Disclosure of requested information to individuals; fees for 
          copies of records.
146.6 Disclosure to third parties.
146.7 Content of systems of records.
146.8 Amendment of a record.
146.9 Appeals to the Commission.
146.10 Information supplied by the Commission when collecting 
          information from an individual.
146.11 Public notice of records systems.
146.12 Exemptions.
146.13 Inspector General exemptions.

Appendix A to Part 146--Fees for Copies of Records Requested Under the 
          Privacy Act of 1974

    Authority: 88 Stat. 1896 (5 U.S.C. 552a), as amended; 88 Stat. 1389 
(7 U.S.C. 4a(j)).

    Source: 41 FR 3212, Jan. 21, 1976, unless otherwise noted.



Sec. 146.1  Purpose and scope.

    (a) This part contains the rules of the Commodity Futures Trading 
Commission implementing the Privacy Act of 1974 (Pub. L. 93-579, 5 
U.S.C. 552a). These rules apply to all records maintained by this 
Commission which are not excepted or exempted as set forth in Sec. 
146.12, insofar as they contain personal information concerning an 
individual, identify that individual by name or other symbol and are 
contained in a system of records from which information is retrieved by 
the individual's name or identifying symbol. Among the primary purposes 
of these rules are to permit individuals to determine whether 
information about them is contained in Commission files

[[Page 589]]

and, if so, to obtain access to that information; to establish 
procedures whereby individuals may have inaccurate and incomplete 
information corrected; and, to restrict access by unauthorized persons 
to that information.
    (b) In this part the Commission is also exempting certain Commission 
systems of records from some of the provisions of the Privacy Act of 
1974 that would otherwise be applicable to those systems. These 
exemptions are authorized under the Privacy Act, 5 U.S.C. 552a(k).



Sec. 146.2  Definitions.

    For purposes of this part 146:
    (a) The term Commission means the Commodity Futures Trading 
Commission;
    (b) The term Executive Director refers to the executive level staff 
official appointed pursuant to section 2(a)(5) of the Commodity Exchange 
Act.
    (c) The term FOI, Privacy and Sunshine Acts compliance staff refers 
to the staff in the Office of the Secretariat in the Commission's 
principal office in Washington, DC who are assigned to respond to 
requests and handle various other matters under the Freedom of 
Information Act, the Privacy Act of 1974 and the Government in the 
Sunshine Act;
    (d) The term individual means a citizen of the United States or an 
alien lawfully admitted for permanent residence;
    (e) The term maintain includes maintain, collect, use, or 
disseminate;
    (f) The term record means any item, collection, or grouping of 
information about an individual that is maintained by the Commission, 
including but not limited to, his education, financial transactions, and 
criminal or employment history and that contains his name, or the 
identifying number, symbol, or other identifying particular assigned to 
the individual;
    (g) The term system of records means a group of any records under 
the control of the Commission from which information is retrieved by the 
name of the individual or by some identifying number, symbol, or other 
identifying particular assigned to the individual;
    (h) The term system notice means a notice of the existence and 
character of the Commission's system of records published in the Federal 
Register pursuant to Sec. 146.11(a) of these rules;
    (i) The term routine use means, with respect to the disclosure of a 
record, the use of that record for a purpose which is compatible with 
the purpose for which it was collected;
    (j) The term Freedom of Information Act encompasses both the Freedom 
of Information Act, as amended, 5 U.S.C. 552, and the Commission's rules 
contained in part 145 of this title.
    (k) The term agency means any executive department, military 
department, Government corporation, Government controlled corporation or 
other establishment in the Executive branch of the Government or any 
independent regulatory agency.

[41 FR 3212, Jan. 21, 1976, as amended at 45 FR 26954, Apr. 22, 1980]



Sec. 146.3  Requests by an individual for information or access.

    (a) Any individual may request information on whether a system of 
records maintained by the Commission contains any information pertaining 
to him, or may request access to his record or to any information 
pertaining to him which is contained in a system of records. All 
requests shall be directed to the FOI, Privacy and Sunshine Acts 
compliance staff, Office of the Secretariat, Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581.
    (b) A request for information or for access to records under this 
part may be made by mail or in person. The request shall:
    (1) Be in writing and signed by the individual making the request;
    (2) Include the full name (including the middle name) of the 
individual seeking the information or record, his home address and 
telephone number, his business address and telephone number; and
    (3) If he is or ever has been registered with the Commission or its 
predecessor agency, or associated with a firm so registered as a 
partner, officer or director or 10% shareholder, state in what capacity 
he is or was registered.

[[Page 590]]

    (c) For each system of records from which information is sought, the 
request shall:
    (1) Specify the title and identifying number for that system as it 
appears in the system notice published by the Commission;
    (2) Provide additional identifying information, if any, specified in 
the system notice;
    (3) Describe the specific information or kind of information sought 
within that system of records; and
    (4) Set forth any special arrangements sought concerning the time, 
place, or form of access. A description of the information contained in 
a system notice and instructions on how to obtain copies of the 
Commission's system notices appear in Sec. 146.11(b).
    (d) The Commission will respond in writing to a request made under 
this section within ten days (excluding Saturdays, Sundays and legal 
public holidays) after receipt of the request. If a definitive reply 
cannot be given within ten days, the request will be acknowledged and an 
explanation will be given of the status of the request.
    (e) When an individual has requested access to records, available to 
him under these rules, he will either be notified in writing of where 
and when he may obtain access to the records requested or be given the 
name, address and telephone number of the member of the Commission staff 
with whom he should communicate to make further arrangements for access.

[41 FR 3212, Jan. 21, 1976, as amended at 41 FR 28260, July 9, 1976; 60 
FR 49335, Sept. 25, 1995]



Sec. 146.4  Procedures for identifying the individual making the request.

    When a request for information or for access to records has been 
made pursuant to Sec. 146.3, before information is given or access is 
granted pursuant to Sec. 146.5 of these rules the Commission shall 
require reasonable identification of the person making the request to 
insure that information is given and records are disclosed only to the 
proper person.
    (a) An individual may establish his identity by:
    (1) Submitting with his request for information or for access a 
photocopy of two pieces of identification bearing his name and 
signature, one of which shall bear his current home or business address; 
or
    (2) Appearing at any office of the Commission (located at the 
addresses set forth in Sec. 145.6 of these rules) during the regular 
working hours for that office and presenting either:
    (i) One piece of identification containing a photograph and 
signature, such as a drivers license or passport or
    (ii) Two pieces of identification bearing his name and signature, 
one of which shall bear his current home or business address; or
    (3) Providing such other proof of identity as the Commission deems 
satisfactory in the circumstances of a particular request.
    (b) If the Executive Director or other designated Commission 
official determines that the data in a requested record is so sensitive 
that unauthorized access could cause harm or embarrassment to the person 
whose record is involved, or if the person making the request is unable 
to produce satisfactory evidence of identity under paragraph (a) of this 
section, the individual making the request may be required to submit a 
notarized statement attesting to his identity and that he is familiar 
with and understands the criminal penalties provided under section 1001 
of title 18 of the U.S. Code for making false statements to a Government 
agency and under the Privacy Act, section 552a(i)(3) of title 5 of the 
U.S. Code, for obtaining records under false pretenses. Copies of these 
statutory provisions and forms for such notarized statements may be 
attained upon request from the FOI, Privacy and Sunshine Acts compliance 
staff, Office of the Secretariat, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.
    (c) The parent or guardian of a minor or a person judicially 
determined to be incompetent, in addition to establishing the identity 
of the person he represents as described in the previous paragraphs of 
this section, shall establish his own identity and his parentage or 
guardianship by furnishing a copy of a birth certificate showing 
parentage

[[Page 591]]

or a court order establishing the guardianship.
    (d) Nothing in this section shall preclude the Commission from 
requiring additional identification before granting access to the 
records if there is reason to believe that the person making the request 
may not be the individual to whom the record pertains, or where the 
sensitivity of the data warrants it.
    (e) The requirements of this section shall not apply if the records 
involved would be available to any person pursuant to the Commission's 
rules under the Freedom of Information Act as set forth in part 145 of 
this chapter.

[41 FR 3212, Jan. 21, 1976, as amended at 41 FR 28260, July 9, 1976; 60 
FR 49335, Sept. 25, 1995]



Sec. 146.5  Disclosure of requested information to individuals; fee for copies of records.

    (a) Any individual who has requested access to his record or to any 
information pertaining to him in the manner prescribed in Sec. 146.3, 
and has identified himself as prescribed in Sec. 146.4, shall be 
permitted to review the record and have a copy made of all or any 
portion thereof in a form comprehensible to him, subject to fees for 
copying services set forth in appendix A to this part. Upon his request 
persons of his own choosing may accompany him, but the individual shall 
first furnish a written statement authorizing discussion of that 
individual's record in the accompany persons' presence.
    (b) Access will generally be granted in the office of the Commission 
where the records are maintained during normal business hours, but for 
good cause shown the Commission may grant access at another office of 
the Commission or at different times for the convenience of the 
individual making the request.
    (c) Where a document containing information about an individual also 
contains information not pertaining to him, the portion not pertaining 
to the individual shall not be disclosed to him except to the extent the 
information is available to any person under the Freedom of Information 
Act. If the records sought cannot be provided for review and copying in 
a meaningful form, the Commission shall provide to the individual a 
report of the information concerning the individual contained in the 
record or records which shall be complete and accurate in all material 
aspects.
    (d) Where the disclosure involves medical records, the records may 
be provided only to a physician designated in writing by the individual.
    (e) Requests for copies of documents may be directed to the FOI, 
Privacy and Sunshine Acts compliance staff, Office of the Secretariat, 
or to the member of the Commission's staff through whom arrangements for 
access were made.
    (f) Fees for copies of records shall be charged as set forth in the 
schedule of fees contained in appendix A to this part. Copies of the 
schedule may be obtained upon request from the FOI, Privacy and Sunshine 
Acts compliance staff, Office of the Secretariat, Commodity Futures 
Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., 
Washington, DC 20581. Payment should be made by check or money order 
payable to the Commodity Futures Trading Commission. Advance payment of 
all or part of the fee may be required at the discretion of the 
Commission, but generally this will not be required for requests where 
the anticipated fee is less than $25.
    (g) Nothing in this section or in Sec. 146.3 shall:
    (1) Require the disclosure of investigative records exempted under 
Sec. 146.12 of these rules;
    (2) Allow an individual access to any information compiled in 
reasonable anticipation of a civil action, administrative proceeding or 
a criminal proceeding;
    (3) Require the furnishing of information or records which cannot be 
retrieved by the name or other identifier of the individual making the 
request.

[41 FR 3212, Jan. 21, 1976, as amended at 41 FR 28261, July 9, 1976; 45 
FR 26954, Apr. 22, 1980; 60 FR 49335, Sept. 25, 1995]



Sec. 146.6  Disclosure to third parties.

    (a) The Commission shall not disclose to any agency or to any person 
by any means of communication a record pertaining to an individual which 
is

[[Page 592]]

contained in a system of records, except under the following 
circumstances:
    (1) The individual to whom the record pertains has given his written 
consent to the disclosure;
    (2) The disclosure is to officers and employees of the Commission 
who need it in the performance of their duties;
    (3) Disclosure is required under the Freedom of Information Act (5 
U.S.C. 552);
    (4) Disclosure is for a routine use as defined in Sec. 146.2(i) and 
described in the system notice for that system of records;
    (5) The disclosure is made to the Bureau of the Census for purposes 
of planning or carrying out a census or survey or related activity;
    (6) The disclosure is made to a recipient who has provided the 
agency with advance adequate written assurance that the record will be 
used solely as a statistical research or reporting record, and the 
record is to be transferred in a form that is not individually 
identifiable;
    (7) The disclosure is made to another agency or to an 
instrumentality of any Governmental jurisdiction within or under the 
control of the United States for a civil or criminal law enforcement 
activity if the activity is authorized by law and if the head of the 
agency or instrumentality has made a written request to the Commission 
specifying the particular portion desired and the law enforcement 
activity for which the record is sought;
    (8) The disclosure is made to a person pursuant to a showing of 
compelling circumstances affecting the health or safety of an individual 
if upon such disclosure notification is transmitted to the last known 
address of such individual;
    (9) The disclosure is made to either House of Congress, or, to the 
extent of matter within its jurisdiction, any committee or subcommittee 
thereof, any joint committee of Congress or subcommittee of any such 
joint committee;
    (10) The disclosure is made to the Comptroller General, or any of 
his authorized representatives, in the course of the performance of the 
duties of the General Accounting Office; or
    (11) The disclosure is pursuant to the order of a court of competent 
jurisdiction.
    (12) The disclosure is made, upon request, to a department or agency 
of any state or political subdivision thereof acting within the scope of 
its jurisdiction as permitted by section 8(e) of the Act and subject to 
the limitations of further dissemination as contained in section 8(e). 
Information disclosed pursuant to this paragraph may also include 
registration information maintained by the Commission on any registrant 
as authorized to be disclosed by section 8(g) of the Act. Registration 
information may be furnished to a department or agency of any state or 
political subdivision thereof upon reasonable request made by the 
department or agency or without request whenever the Commission or an 
employee designated by Sec. 140.75 of this chapter determines that such 
information may be appropriate for use by the department or agency.
    (13) The disclosure is made, upon request, to a department or agency 
of any foreign government or any political subdivision thereof, acting 
within the scope of its jurisdiction, provided that, prior to 
disclosure, the Commission or an employee delegated authority by Sec. 
140.73 of this chapter to disclose information pursuant to section 8(e) 
of the Act is satisfied that the information will not be disclosed by 
such department or agency except in connection with an adjudicatory 
action or proceeding brought under the laws of such foreign government 
or political subdivision to which such foreign government or political 
subdivision or any department or agency thereof is a party.
    (b) The Commission will make reasonable efforts to serve notice on 
an individual when any record on such individual is made available to 
any person under compulsory legal process when such process becomes a 
matter of public record. In any instance where a record on an 
individual, which has been submitted to the Commission by such 
individual, is sought pursuant to a summons or subpoena, notice will be 
given in accordance with the provisions of section 8(f) of the Commodity 
Exchange Act, and Sec. 140.80 of this chapter,

[[Page 593]]

at least fourteen days prior to disclosure. Notice will not, however, be 
given with regard to any information as to which the submitter has 
waived the notice requirements of Sec. 140.80.
    (c) The Commission, with respect to each system of records under its 
control, shall keep an accurate accounting of certain disclosures.
    (1) A record shall be kept of all disclosures made under paragraph 
(a) of Sec. 146.6, except disclosures made with the consent of the 
individual to whom the record pertains (paragraph (a)(1) of this 
section), disclosures to authorized employees (paragraph (a)(2) of this 
section) and disclosures required under the Freedom of Information Act 
(paragraph (a)(3) of this section).
    (2) The record shall include:
    (i) The date, nature, and purpose of each disclosure of a record 
made to any person or to another agency;
    (ii) The name and address of the person or agency to whom the 
disclosure was made.
    (3) The accounting will be retained for at least five years or the 
life of the record, whichever is longer, after the disclosure for which 
the accounting is made.
    (d) The accounting described in paragraph (c) of this section will 
be made available to the individual named in the record upon his written 
request, directed to the FOI, Privacy and Sunshine Acts compliance 
staff, Office of the Secretariat, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581, 
except that the accounting will not be revealed with respect to 
disclosures made under paragraph (a)(7) of this section pertaining to 
law enforcement activity, and to disclosures involving systems of 
investigative records exempted under Sec. 146.12 of these rules.
    (e) Whenever an amendment or correction of a record or a notation of 
dispute concerning the accuracy of records is made by the Commission in 
accordance with Sec. Sec. 146.8 and 146.9 of these rules, the 
Commission will inform any person or other agency to whom the record was 
previously disclosed, if an accounting of the disclosure was made 
pursuant to the requirements of paragraph (c) of this section.

(Secs. 2(a)(11), 8 and 8a of the Commodity Exchange Act, 7 U.S.C. 4a(j), 
12 and 12a, as amended by Pub. L. 97-444)

[41 FR 3212, Jan. 21, 1976, as amended at 41 FR 28261, July 9, 1976; 48 
FR 22136, May 17, 1983; 49 FR 4465, Feb. 7, 1984; 60 FR 49335, Sept. 25, 
1995]



Sec. 146.7  Content of systems of records.

    (a) The Commission will maintain in its records only such 
information about an individual as is relevant and necessary to 
accomplish the purposes of the Commodity Exchange Act and other purposes 
required to be accomplished by statute or by executive order of the 
President.
    (b) The Commission will maintain no record describing how any 
individual exercises rights guaranteed by the First Amendment unless 
expressly authorized by statute or by the individual about whom the 
record is maintained or unless pertinent to and within the scope of an 
authorized law enforcement activity.
    (c) The Commission will collect information to the greatest extent 
practicable directly from the subject individual when the information 
may result in adverse determinations about an individual's rights, 
benefits, and privileges under Federal programs.
    (d) The Commission will maintain all records which are used by the 
Commission in making any determination about any individual with such 
accuracy, relevance, timeliness, and completeness as is reasonably 
necessary to assure fairness to the individual in the determination.



Sec. 146.8  Amendment of a record.

    (a) Any individual may request amendment of information pertaining 
to him which is contained in a system of records maintained by the 
Commission and which is filed under his name or other individual 
identifier if he believes the information is not accurate, relevant, 
timely or complete. A request for amendment shall be directed to the 
FOI, Privacy and Sunshine Acts compliance staff, Office of the 
Secretariat, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581.

[[Page 594]]

    (b) A request for amendment may be made by mail or in person and 
shall: (1) Be in writing and signed by the person making the request; 
(2) describe the particular record to be amended with sufficient 
specificity to permit the record to be located among those maintained by 
the Commission; and (3) specify the nature of the amendment sought and 
the justification for the requested change. The person making the 
request may be required to provide the information specified in 
Sec. Sec. 146.3 and 146.4 of these rules in order to simplify 
identification of the record and permit verification of the identity of 
the person making the request for amendment.
    (c) Receipt of a request for amendment will be acknowledged in 
writing within ten days (excluding Saturdays, Sundays, and legal public 
holidays) except that, if the individual is given notice within the ten 
day period that his request will or will not be complied with, no 
acknowledgement is required.
    (d) Assistance in preparing a request to amend a record may be 
obtained from the FOI, Privacy and Sunshine Acts compliance staff, 
Office of the Secretariat, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.
    (e) Upon receipt of a request for amendment the Executive Director 
of the Commission or a person designated by the Executive Director shall 
promptly determine whether the record is materially inaccurate, 
incomplete, misleading, or is irrelevant or not timely, as claimed by 
the individual, and, if so, shall cause the record to be amended in 
accordance with the individual's request.
    (f) If the Executive Director or designee grants the request to 
amend the record, the individual shall promptly be advised of the 
decision and of the action taken, and notice shall be given of the 
correction and its substance to each person or agency to whom the record 
had previously been disclosed, as shown on the record of disclosures 
maintained in accordance with Sec. 146.6(c).
    (g) If the Executive Director or designee disagrees in whole or in 
part with a request for amendment of a record, the individual shall 
promptly be notified of the complete or partial denial of his request 
and the reasons for the refusal. The individual shall also be notified 
of the procedures for administrative review by the Commission of any 
complete or partial denial of a request for amendment, which are set 
forth in Sec. 146.9.
    (h) If a request is received for amendment of a record prepared by 
another agency which is in the possession or control of the Commission, 
the request for amendment will be forwarded to that agency. If that 
agency determines that the correction should be made, the Commission 
will amend its records accordingly and notify the individual making the 
request for amendment of the change. If the other agency declines to 
make the amendment, the Executive Director or designee will 
independently determine whether the amendment will be made to the record 
in the Commission's possession or control, considering any explanation 
given by the other agency for its decision.

[41 FR 3211, Jan. 21, 1976, as amended at 41 FR 28261, July 9, 1976; 60 
FR 49335, Sept. 25, 1995]



Sec. 146.9  Appeals to the Commission.

    (a) Any individual may petition the Commission:
    (1) To review a refusal to comply with an individual request for 
access to records pursuant to the Privacy Act, 5 U.S.C. 552a(d)(1), and 
Sec. Sec. 146.3 and 146.5 of the rules in this part;
    (2) To review denial of a request for amendment made pursuant to 
Sec. 146.8;
    (3) To correct any determination that may have been made adverse to 
the individual based in whole or in part upon inaccurate, irrelevant, 
untimely or incomplete information;
    (4) To correct a failure to comply with any other provision of the 
Privacy Act, 5 U.S.C. 552a, and the rules of this part 146, which has 
had an adverse effect on the individual.
    (b) The petition to the Commission shall be in writing and shall (1) 
state in what manner it is claimed the Commission or any Commission 
employee has failed or refused to comply with provisions of the Privacy 
Act or of the rules contained in this part 146, and (2) set

[[Page 595]]

forth the corrective action the petitioner wishes the Commission to 
take. The petitioner may, if he wishes, state such facts and cite such 
legal or other authorities as he considers appropriate.
    (c) The petition shall be directed to the FOI, Privacy and Sunshine 
Acts compliance staff, Office of the Secretariat, Commodity Futures 
Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., 
Washington, DC 20581.
    (d) The Commission will make a determination of any petition filed 
pursuant to this Sec. 146.9 within thirty days (excluding Saturdays, 
Sundays and legal public holidays) after receipt by the FOI, Privacy and 
Sunshine Acts compliance staff, Office of the Secretariat of the 
petition, unless for good cause shown, the Commission extends the 30-day 
period. If a petition is denied, the Commission will notify the 
petitioner in writing and state the reasons therefor.
    (e) Where the petition is made for review of a denial of a request 
for amendment made pursuant to Sec. 146.8, the following additional 
procedures shall apply:
    (1) If upon review the Commission grants the petition to amend the 
record, notice of the correction and its substance shall be given to 
each person or agency to whom the record had previously been disclosed, 
as shown on the record of disclosures maintained in accordance with 
Sec. 146.6(c) of these rules.
    (2) If upon review the initial denial of the request for amendment 
is upheld in whole or in part, the individual shall be notified of the 
provisions for judicial review of that determination which are set forth 
in section 552a(g)(1)(A) and (2)(A), of title 5 of the U.S. Code and the 
provisions for disputed records set forth in paragraph (e)(3) of this 
section.
    (3) If after review the Commission has declined to amend the records 
as the individual has requested, the individual may file with the FOI, 
Privacy and Sunshine Acts compliance staff, Office of the Secretariat a 
concise statement setting forth why he disagrees with the Commission's 
denial of his request. Any subsequent disclosure containing information 
about which a statement of disagreement has been filed shall clearly 
note the portion which is disputed, and include a copy of the 
individual's statement. The Commission may also include a copy of a 
concise statement explaining its reasons for not making the amendments 
requested.
    (f) The General Counsel or his or her designee is hereby delegated 
the authority to act for the Commission in deciding appeals under this 
section. The General Counsel may, in his or her sole and unfettered 
discretion, refer such appeals to the Commission for decision.

[41 FR 3211, Jan. 21, 1976, as amended at 41 FR 28261, July 9, 1976; 45 
FR 26954, Apr. 22, 1980; 51 FR 26874, July 28, 1986; 60 FR 49336, Sept. 
25, 1995]



Sec. 146.10  Information supplied by the Commission when collecting information from an individual.

    The Commission will inform each individual whom it asks to supply 
information, on the form which it uses to collect the information or on 
a separate form that can be retained by the individual of:
    (a) The authority (whether granted by statute, or by executive order 
of the President) which authorizes the solicitation of the information 
and whether disclosure of such information is mandatory or voluntary;
    (b) The principal purpose or purposes for which the information is 
intended to be used;
    (c) The routine uses which may be made of the information, as 
published in the Federal Register; and
    (d) The effects on him, if any, of not providing all or any part of 
the requested information.



Sec. 146.11  Public notice of records systems.

    (a) The Commission will publish in the Federal Register at least 
biennially a notice of the existence and character of each of its 
systems of records, which notice shall include--
    (1) The name and location of the system;
    (2) The categories of individuals on whom records are maintained in 
the system;
    (3) The categories of records maintained in the system;

[[Page 596]]

    (4) Each routine use of the records contained in the system, 
including the categories of users and the purpose of such use;
    (5) The policies and practices of the Commission regarding storage, 
retrievability, access controls, retention, and disposal of the records;
    (6) The title and business address of the Commission official who is 
responsible for the system of records;
    (7) The procedures whereby an individual can be notified at his 
request if the system of records contains a record pertaining to him;
    (8) The procedures whereby an individual can be notified at his 
request how he can gain access to any record pertaining to him contained 
in the system of records, and how he can contest its contents; and
    (9) The categories of sources of records in the system.
    (b) Copies of the notices as printed in the Federal Register will be 
available in each office of the Commission. Locations of Commission 
offices are listed in Sec. 145.6. Mail requests shall be directed to 
the FOI, Privacy and Sunshine Acts compliance staff, Office of the 
Secretariat, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581. The first copy will 
be furnished free of charge. A charge will be made for each additional 
copy.

[41 FR 3212, Jan. 21, 1976, as amended at 41 FR 28261, July 9, 1976; 45 
FR 26955, Apr. 22, 1980; 60 FR 49336, Sept. 25, 1995; 65 FR 53560, Sept. 
5, 2000]



Sec. 146.12  Exemptions.

    (a) Investigatory materials compiled for law enforcement purposes 
are exempt from portions of the Privacy Act of 1974 and of these rules 
as set forth in paragraph (c) of this section, on the basis and to the 
extent that individual access to these files could impair the 
effectiveness and orderly conduct of the Commission's regulatory and 
enforcement program. Materials exempted under this paragraph are 
contained in the system of records entitled ``Exempted Investigatory 
Records'' and/or in the system of records entitled ``Exempted Closed 
Commission Meetings.'' Notwithstanding the foregoing, however, no record 
which has served as a basis for denying an individual a right, 
privilege, or benefit to which he would otherwise be eligible, shall be 
maintained in this system, unless the disclosure of such material would 
reveal the identity of a source who furnished information to the 
Government under an express promise that the identity of the source 
would be held in confidence, or, prior to the effective date of this 
section, under an implied promise that the identity of the source would 
be held in confidence. For records of this type, if practicable, 
material identifying the confidential source shall be extracted or 
summarized in a manner which protects the source and the summary or 
extract shall be maintained in a comparable nonexempted system of 
records.
    (b) Investigatory material compiled solely for the purpose of 
determining suitability, eligibility, or qualifications for employment 
with the Commission are exempt from portions of the Privacy Act of 1974 
and of these rules as set forth in paragraph (c) of this section, to the 
extent that it identifies a confidential source. This is done in order 
to encourage persons from whom information is sought to provide 
information to the Commission which, absent assurances of 
confidentiality, they would be unwilling to give. However, if 
practicable, material identifying a confidential source shall be 
extracted or summarized in a manner which protects the source and the 
summary or extract shall be maintained in a non-exempt system containing 
the same category of record. Materials exempted under this paragraph are 
included in the system of records entitled ``Exempted Employee 
Background Investigation Material'' and/or in the system of records 
entitled ``Exempted Closed Commission Meetings.''
    (c) The systems set forth in paragraphs (a) and (b) of this section 
are hereby exempted from the provisions of sections 552a(c), (3)(d), 
(e)(1), (e)(4)(G), (e)(4)(H), (e)(4)(I) and (f) of title 5 of the U.S. 
Code (the Privacy Act of 1974), and are also exempted from the following 
sections of these rules: Sec. 146.3 (requests for information and for 
access); Sec. 146.5 (access to records); Sec. 146.6(d) (accounting of 
disclosures to be made available

[[Page 597]]

to the individual); Sec. 146.11(a) (7), (8), (9) (content of the system 
notice); and Sec. 146.7(a) (relevancy of records).

[41 FR 3212, Jan. 21, 1976, as amended at 53 FR 35198, Sept. 12, 1988]



Sec. 146.13  Inspector General exemptions.

    (a) Pursuant to section (j) of the Privacy Act of 1974, the 
Commission has deemed it necessary to adopt the following exemptions to 
specified provisions of the Privacy Act:
    (1) Pursuant to, and limited by 5 U.S.C. 552a(j)(2), the system of 
records maintained by the Office of the Inspector General of the 
Commission entitled ``Office of the Inspector General Investigative 
Files,'' shall be exempted from the provisions of 5 U.S.C. 552a (except 
subsections (b), (c)(1) and (2), (e)(4)(A) through (F), (e)(6), (7), 
(9), (10), and (11), and (i)) and from 17 CFR 146.3, 146.4, 146.5, 146.6 
(b), (d) and (e), 146.7 (a), (c) and (d), 146.8, 146.9, 146.10, 
146.11(a) (7), (8) and (9), insofar as the system contains information 
pertaining to criminal law enforcement investigations.
    (2) [Reserved]
    (b) Pursuant to section (k) of the Privacy Act of 1974, the 
Commission has deemed it necessary to adopt the following exemptions to 
specified provisions of the Privacy Act:
    (1) Pursuant to, and limited by 5 U.S.C. 552(k)(2), the system of 
records maintained by the Office of the Inspector General of the 
Commission entitled ``Office of the Inspector General Investigative 
Files,'' shall be exempted from 5 U.S.C. 552a(c)(3), (d), (e)(1), 
(e)(4)(G), (H) and (I), and (f) and from 17 CFR 146.3, 146.4, 146.5, 
146.6(d), 146.7(a), 146.8, 146.9, 146.11(a) (7), (8) and (9), insofar as 
it contains investigatory materials compiled for law enforcement 
purposes.
    (2) [Reserved]

[57 FR 4364, Feb. 5, 1992]



Sec. Appendix A to Part 146--Fees for Copies of Records Requested Under 
                         the Privacy Act of 1974

    a. The following schedule of fees shall apply to copies of records 
requested pursuant to the Privacy Act of 1974, 5 U.S.C. 552a and Sec. 
146.5(f).
    (1) For requests for copies of documents, the charge will be 15 
cents per page.
    (2) For materials other than paper records, including computer and 
cassette tapes, the direct cost of the materials and, if required, time 
spent by clerical personnel copying the materials shall be charged. 
Persons making the request shall be notified of the amount of the charge 
and shall give specific approval before the request is processed.
    (3) For certifying that requested records are true copies, the fee 
will be $3.00 per certification in addition to other fees, if any.
    (4) Upon request, records will be mailed by means of an overnight/
express service at the fee of $10.00 per unit mailed.
    (5) The Commission may, upon application by the individual, furnish 
any records without charge or at a reduced rate, if it determines that 
such wavier or reduction of fee is in the public interest.
    b. Requests for copies of documents shall be addressed to FOI, 
Privacy and Sunshine Acts compliance staff, Office of Secretariat, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.
    c. Payment should be made by check or money order payable to the 
Commodity Futures Trading Commission.
    d. Advance payment of all or part of the fee may be required at the 
discretion of the Commission. Generally, advance payment will not be 
required where the anticipated fee is less than $25.

(7 U.S.C. 4a(j) and 16a as amended by Pub. L. 97-444, 96 Stat. 2294 
(1983) and 5 U.S.C. 552. 662a and 552b)

[41 FR 3212, Jan. 21, 1976, as amended at 45 FR 26955, Apr. 22, 1980; 48 
FR 46011, Oct. 11, 1983; 48 FR 55280, Dec. 12, 1983; 49 FR 12684, Mar. 
30, 1984; 60 FR 49336, Sept. 25, 1995]



PART 147_OPEN COMMISSION MEETINGS--Table of Contents



Sec.
147.1 General policy considerations, purpose and scope of rules relating 
          to open Commission meetings.
147.2 Definitions.
147.3 General requirement of open meetings; grounds upon which meetings 
          may be closed.
147.4 Procedure for announcing meetings.
147.5 General procedure for closing meetings.
147.6 Special procedure for closing certain meetings.
147.7 Maintenance of transcripts, recordings and minutes of closed 
          meetings.
147.8 Public availability of transcripts, recordings and minutes of 
          closed meetings.
147.9 Requests for copies of transcripts, recordings or minutes of 
          closed meetings.
147.10 Interpretation of this part with other provisions.


[[Page 598]]


    Authority: Sec. 3(a), Pub. L. 94-409, 90 Stat. 1241 (5 U.S.C. 552b); 
sec. 101(a)(11), Pub. L. 93-463, 88 Stat. 1391 (7 U.S.C. 4a(j) (Supp. V, 
1975)), unless otherwise noted.

    Source: 42 FR 13704, Mar. 11, 1977, unless otherwise noted.



Sec. 147.1  General policy considerations, purpose and scope of rules

relating to open Commission meetings.

    (a) This part contains the rules of the Commodity Futures Trading 
Commission implementing the open meeting requirements of the Government 
in the Sunshine Act (Pub. L. 94-409, 90 Stat. 1241, 5 U.S.C. 552b). 
These rules apply to all deliberations of a quorum of the Commission 
which determine or result in the conduct or disposition of official 
Commission business, with the exception of deliberations required or 
permitted by Sec. 147.4, Sec. 147.5 or Sec. 147.6.
    (b) Among the primary purposes of these rules is the Commission's 
desire to inform the public to the fullest extent possible of its 
activities as an aid to its properly carrying out its responsibility for 
administrating and enforcing the Commodity Exchange Act, as amended, 7 
U.S.C. 1 et seq., and the Commission's belief that, in order to 
guarantee public confidence in the integrity of its decision-making, it 
must, to the fullest possible extent, conduct its business in an open 
manner.



Sec. 147.2  Definitions.

    For purposes of this part:
    (a) Agency includes the Commodity Futures Trading Commission;
    (b) Commission means the Commodity Futures Trading Commission;
    (c) Commissioner means a member of the Commodity Futures Trading 
Commission duly appointed as a Commissioner in accordance with section 
2(a)(2) of the Commodity Exchange Act, as amended, 7 U.S.C. 4a(a);
    (d) Meeting means the deliberations of a quorum of Commissioners 
that determine or result in the joint conduct or disposition of official 
Commission business, but does not include deliberations required or 
permitted by Sec. 147.4, Sec. 147.5 or Sec. 147.6;
    (e) Person includes an individual, partnership, corporation, 
association, exchange or other entity or organization;
    (f) Quorum means at least the minimum number of Commissioners 
required to take action on behalf of the Commission;
    (g) The term FOI, Privacy and Sunshine Acts compliance staff refers 
to the staff in the Office of the Secretariat in the Commission's 
principal office in Washington, DC who are assigned to respond to 
requests and handle various other matters under the Freedom of 
Information Act, the Privacy Act of 1974 and the Government in the 
Sunshine Act.

[42 FR 13704, Mar. 11, 1977, as amended at 45 FR 26955, Apr. 22, 1980]



Sec. 147.3  General requirement of open meetings; grounds upon which meetings may be closed.

    (a) Commissioners shall not jointly conduct or dispose of agency 
business other than in accordance with the rules of this part, and 
meetings shall not be held in places which restrict membership or 
attendance or otherwise discriminate on the basis of race, color, creed, 
national origin, ancestry, religion or sex. Except as provided in 
paragraph (b) of this section, every portion of every meeting of the 
Commission shall be open to public observation.
    (b) Except where the Commission finds that the public interest 
requires otherwise, meetings or portions of meetings shall not be open 
to public observation, and the requirements of Sec. Sec. 147.4, 147.5 
and 147.6 shall not apply to any information pertaining to such meetings 
or portions of meetings otherwise required by the rules of this part to 
be publicly disclosed, where the Commission determines that such 
meetings or portions of meetings or the disclosure of such information 
is likely to:
    (1) Disclose matters that (i) are specifically authorized under 
criteria established by an Executive order to be kept secret in the 
interests of national defense or foreign policy, and (ii) are in fact 
properly classified pursuant to such Executive order;
    (2) Relate solely to the internal personnel rules and personnel 
practices of the Commission or any other agency of the Government of the 
United States, including, but not limited to, operational rules, 
guidelines, and manuals

[[Page 599]]

of procedure for investigators, auditors, and other employees (other 
than those rules and practices which establish legal requirements to 
which members of the public are expected to conform);
    (3) Disclose matters specifically exempted from disclosure by 
statute (other than the Freedom of Information Act, as amended, 5 U.S.C. 
552), provided that such statute (i) requires that the matters be 
withheld from the public in such a manner as to leave no discretion on 
the issue, or (ii) establishes particular criteria for withholding or 
refers to particular types of matters to be withheld. This includes, but 
is not limited to, data and information which would separately disclose 
the business transactions or market positions of any person and trade 
secrets or names of customers and data and information concerning or 
obtained in connection with any pending investigation of any person;
    (4)(i) Disclose trade secrets and commercial or financial 
information obtained from a person and privileged or confidential 
including, but not limited to:
    (A) Reports of stocks of grain, such as Forms 38, 38C, 38M and 38T, 
required to be filed pursuant to 17 CFR 1.44;
    (B) Statements of reporting traders on Form 40 required to be filed 
pursuant to 17 CFR 18.04;
    (C) Statements concerning special calls on positions required to be 
filed pursuant to 17 CFR part 21;
    (D) Statements concerning identification of special accounts on Form 
102 required to be filed pursuant to 17 CFR 17.01;
    (E) Reports required to be filed pursuant to parts 15 through 21 of 
this chapter;
    (F) Reports concerning option positions of large traders required to 
be filed pursuant to part 16 of this chapter;
    (G) Form 188; and
    (H) The following reports and statements that are also set forth in 
paragraph (b)(8) of this section, except as specified in 17 CFR 
1.10(g)(2), 17 CFR 5.12, or 17 CFR 31.13(m): Forms 1-FR required to be 
filed pursuant to 17 CFR 1.10, 17 CFR 5.12(h)(2), or 17 CFR 31.13(m); 
FOCUS reports that are filed in lieu of Forms 1-FR pursuant to 17 CFR 
1.10(h); Forms 2-FR required to be filed pursuant to 17 CFR 31.13; the 
accountant's report on material inadequacies filed in accordance with 17 
CFR 1.16(c)(5); and all reports and statements required to be filed 
pursuant to 17 CFR 1.17(c)(6);
    (ii) Information contained in reports, summaries, analyses, 
transcripts, letters or memoranda arising out of, in anticipation of or 
in connection with an examination or inspection of the books and records 
of any person or any other formal or informal inquiry or investigation; 
and
    (iii) Information for which confidential treatment has been 
requested and granted in accordance with 17 CFR 145.9;
    (5) Involve accusing any person of a crime, or formally censuring 
any person, including but not limited to:
    (i) Requests by the Commission that the Attorney General of the 
United States institute a criminal action against any person believed to 
have violated any provision of the Commodity Exchange Act, as amended, 7 
U.S.C. 1, et seq., or any rule, regulation or order thereunder;
    (ii) The consideration of any administrative proceeding instituted 
or to be instituted by the Commission against any person for a violation 
of the Commodity Exchange Act, as amended, 7 U.S.C. 1, et seq., or any 
rule, regulation or order thereunder;
    (6) Disclose information of a personal nature where disclosure would 
constitute a clearly unwarranted invasion of personal privacy, 
including, but not limited to, information of that character contained 
in:
    (i) Files concerning employees of the Commission;
    (ii) Files concerning persons subject to regulation by the 
Commission, including files with respect to applications for 
registration and biographical supplements submitted with such 
applications. Examples of the information on the applications and 
biographical supplements which may be protected are an individual's home 
address and telephone number, social security

[[Page 600]]

number, date and place of birth, fingerprints and, in appropriate cases, 
the information concerning prior arrests, indictments, criminal 
convictions or other judgments or sanctions imposed by State or Federal 
courts or regulatory authorities; and
    (iii) Files containing information for which confidential treatment 
has been requested and granted in accordance with 17 CFR 145.9;
    (7) Disclose investigatory records compiled for law enforcement 
purposes, or information which if written would be contained in such 
records, to the extent that production of such records or information 
would (i) interfere with enforcement proceedings, (ii) deprive a person 
of a right to a fair trial or an impartial adjudication, (iii) 
constitute an unwarranted invasion of personal privacy, (iv) disclose 
the identity of a confidential source, (v) disclose investigative 
techniques and procedures, or (vi) endanger the life or physical safety 
of law enforcement personnel. Investigatory records and information 
include all documents, records, transcripts, correspondence and related 
memoranda and work-product concerning examinations and other inquiries 
or investigations and related litigation as authorized by law, which 
pertain to or may disclose the possible violations by any person of any 
provision of law, including the Commodity Exchange Act, as amended, or 
of any rule or regulation adopted by the Commission or which pertain to 
the qualifications of any person registered or seeking registration 
under that Act or of any person affiliated with such person; and all 
written communications from or to any person who has confidentially 
complained or otherwise furnished information respecting such possible 
violations, as well as all correspondence and memoranda in connection 
with such confidential complaints or information;
    (8) Disclose information contained in or related to examination, 
operating, or condition reports prepared by, on behalf of, or for the 
use of the Commission or any other agency responsible for the regulation 
or supervision of financial institutions, including, but not limited to 
the following reports and statements that are also set forth in 
paragraph (b)(4)(i)(H) of this section, except as specified in 17 CFR 
1.10(g)(2), 17 CFR 5.12, or 17 CFR 31.13(m): Forms 1-FR required to be 
filed pursuant to 17 CFR 1.10, 17 CFR 5.12(h)(2), or 17 CFR 31.12(m); 
FOCUS reports that are filed in lieu of Forms 1-FR pursuant to 17 CFR 
1.10(h); Forms 2-FR required to be filed pursuant to 17 CFR 31.13; the 
accountant's report on material inadequacies filed in accordance with 17 
CFR 1.16(c)(5); and all reports and statements required to be filed 
pursuant to 17 CFR 1.17(c)(6);
    (9) Disclose information the premature disclosure of which would be 
likely to (i) lead to significant financial speculation in currencies, 
securities, or commodities, (ii) significantly endanger the stability of 
any financial institution, or (iii) frustrate significantly the 
implementation of a proposed Commission action, except where the 
Commission has already disclosed to the public the content or nature of 
its proposed action, or where the Commission is required by law to make 
such disclosure on its own initiative prior to taking final Commission 
action on such proposal; or
    (10) Specifically concern the Commission's issuance of a subpena, or 
the Commission's participation in a civil action or proceeding, an 
action in a foreign court or international tribunal, or an arbitration, 
or the initiation, conduct, or disposition by the Commission of a 
particular case of formal agency ajudication pursuant to the procedures 
in 5 U.S.C. 554 or otherwise

[[Page 601]]

involving a determination on the record after opportunity for a hearing.

(5 U.S.C. 552, 5 U.S.C. 552b, and secs. 2(a)(11), 4b, 4f, 4g, 5a, 8a, 
and 17 of the Commodity Exchange Act, 7 U.S.C. 2, 4a(j), 6b, 6f, 6g, 7a, 
12a, and 21, as amended, 92 Stat. 865 et seq.; secs. 2(a)(1), 4c(a)-(d), 
4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, Commodity Exchange Act (7 U.S.C. 
2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 12a, 19 and 21; 5 U.S.C. 552 and 
552b); secs. 2(a)(11) and 8, 7 U.S.C. 4a(j) and 12 (1983); secs. 8a(5) 
and 19 of the Commodity Exchange Act, as amended, 7 U.S.C. 12a(5) and 23 
(1982); 5 U.S.C. 552 and 552b)

[42 FR 13704, Mar. 11, 1977, as amended at 42 FR 42851, Aug. 25, 1977; 
44 FR 13458, Mar. 12, 1979; 45 FR 2023, Jan. 10, 1980; 46 FR 24943, May 
4, 1981; 46 FR 54534, Nov. 3, 1981; 48 FR 35303, Aug. 3, 1983; 49 FR 
4465, Feb. 7, 1984; 49 FR 5541, Feb. 13, 1984; 53 FR 4613, Feb. 17, 
1988; 54 FR 41084, Oct. 5, 1989; 62 FR 4642, Jan. 31, 1997; 64 FR 27, 
Jan. 4, 1999; 71 FR 5595, Feb. 2, 2006; 75 FR 55450, Sept. 10, 2010]



Sec. 147.4  Procedure for announcing meetings.

    (a) Advance notice of all meetings of the Commission shall be 
provided to the public. In the case of each meeting, except as provided 
in paragraph (b) of this section and in Sec. 147.6, the Commission 
shall, except to the extent that such information is exempt from 
disclosure under the provisions of Sec. 147.3(b), make a public 
announcement, at least one week before the date of the meeting of the 
time, place and subject matter of the meeting and which portions of the 
meeting shall be open or closed to the public, and shall indicate an 
official of the Commission who may be contacted at a designated 
telephone number for information about the meeting.
    (b) When a majority of Commissioners determines by a recorded vote 
that Commission business requires a meeting be held upon public notice 
of less than one week as required by paragraph (a) of this section, the 
Commission shall, except to the extent that such information is exempt 
from disclosure under the provisions of Sec. 147.3(b), make a public 
announcement, at the earliest practicable time, of the time, place and 
subject matter of the meeting and which portions of the meeting shall be 
open or closed to the public, and indicate an official of the Commission 
who may be contacted at a designated telephone number for information 
about the meeting.
    (c)(1) When it becomes necessary to change the time or place of a 
meeting for which a public announcement has been made pursuant to 
paragraphs (a) or (b) of this section, the Commission shall publicly 
announce such change at the earliest practicable time.
    (2) When it becomes necessary with respect to a meeting for which a 
public announcement has already been made pursuant to paragraphs (a), 
(b) or (c)(1) of this section to change the subject matter of a meeting, 
or change the Commission's determination as to which portions of a 
meeting shall be open or closed to the public, a majority of all 
Commissioners shall determine by a recorded vote that Commission 
business requires such a change and that no earlier announcement of the 
charge was possible, and the Commission shall publicly announce such 
change and the vote of each Commissioner upon such change at the 
earliest practicable time.
    (d) Public announcement of meetings, as required by this section, 
shall be provided as follows:
    (1) A public calendar shall be printed and distributed by the 
Commission on a regular basis to interested persons to provide advance 
public notice of meetings as required by paragraph (a) of this section, 
and, to the extent practicable, as required by paragraphs (b) and (c) of 
this section. Upon request in writing to the Office of Public Affairs, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581, any person or organization will be 
sent the public calendar on a regular basis free of charge. Copies of 
the public calendar also will be publicly available in the Commission's 
Office of Public Affairs.
    (2) Interested persons may contact the Commission's Office of the 
Secretariat during normal business hours to obtain information 
concerning future meetings.
    (e) Immediately following each public announcement required by this 
section, the Commission shall submit for publication in the Federal 
Register, except to the extent that such information is exempt from 
disclosure under the provisions of Sec. 147.3(b), notice of the

[[Page 602]]

time, place, and subject matter of a meeting, which portions of the 
meeting shall be open or closed to the public, any change in one of the 
preceding, and the name and telephone number of an official of the 
Commission who may be contacted for information about the meeting.

[42 FR 13704, Mar. 11, 1977, as amended at 60 FR 49336, Sept. 25, 1995]



Sec. 147.5  General procedure for closing meetings.

    (a) The Commission shall determine that a meeting or portion of a 
meeting will be closed to public observation pursuant to Sec. 147.3(b) 
only upon the majority vote of all Commissioners. The vote of each 
Commissioner shall be recorded, and the use of proxies shall be 
prohibited.
    (b) A separate vote of Commissioners shall be taken with respect to 
each meeting a portion or portions of which are proposed to be closed to 
the public pursuant to Sec. 147.3(b), or with respect to any 
information which is proposed to be withheld under Sec. 147.3(b).
    (c) A single vote of Commissioners may be taken with respect to a 
series of meetings, a portion or portions of which are proposed to be 
closed to the public, or with respect to any information concerning such 
series of meetings, when each meeting in such series involves the same 
particular matters and is scheduled to be held no more than thirty days 
after the initial meeting in such series.
    (d) Whenever any person whose interests may be directly affected by 
a portion of a meeting requests in writing to the Commission that the 
Commission close such portion to the public for any of the reasons set 
forth in Sec. 147.3(b) (5), (6) or (7), the Commission, upon the 
request of any Commissioner, shall vote by recorded vote whether to 
close that portion of the meeting.
    (e) Whenever any Commission employee whose appointment, employment 
or dismissal is to be the subject of a meeting or portion of meeting 
closed to the public pursuant to Sec. 147.3(b) requests in writing to 
the Commission that the Commission open that meeting or portion of 
meeting, the Commission shall open that meeting or portion of meeting to 
the public.
    (f) Within one day of any vote taken pursuant to paragraphs (b), (c) 
or (d) of this section, the Commission shall make publicly available a 
written copy of that vote reflecting the vote of each Commissioner on 
the question. If the Commission determines by a vote taken pursuant to 
paragraphs (b), (c) or (d) of this section that a portion of a meeting 
is to be closed to the public, the Commission shall, within one day of 
such vote, make publicly available a full written explanation of its 
action closing the portion of the meeting together with a list of all 
persons expected to attend the meeting and their affiliations, except to 
the extent that such information is exempt from disclosure under the 
provisions of Sec. 147.3(b).
    (g) Before any meeting or portion of a meeting may be closed 
pursuant to Sec. 147.3(b), the Commission's General Counsel shall 
publicly certify that, in his or her opinion, the meeting or portion of 
meeting may be closed to the public, and shall state each relevant 
exemptive provision.
    (h) Written copies of votes to close meetings and written 
explanations of Commission actions closing portions of meetings to the 
public required to be made publicly available by paragraph (f) of this 
section shall be available for public inspection in the offices of the 
FOI, Privacy and Sunshine Acts compliance staff, Office of the 
Secretariat, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581.
    (i) A copy of the certification of the Commission's General Counsel 
required by paragraph (g) of this section, together with a statement 
from the presiding officer at any meeting closed, in whole or in part, 
pursuant to Sec. 147.3(b), setting forth the time and place of the 
meeting, and the persons present, shall be retained by the Commission 
and, except to the extent that such information is exempt from 
disclosure under the provisions of Sec. 147.3(b), shall be available 
for public inspection in the offices of the FOI, Privacy and Sunshine 
Acts compliance staff, Office of the Secretariat, Commodity Futures 
Trading Commission, Three Lafayette

[[Page 603]]

Centre, 1155 21st Street, NW., Washington, DC 20581.

[42 FR 13704, Mar. 11, 1977, as amended at 45 FR 26955, Apr. 22, 1980; 
60 FR 49336, Sept. 25, 1995]



Sec. 147.6  Special procedure for closing certain meetings.

    (a) Any meeting or portion of meeting that may properly be closed to 
the public pursuant to Sec. 147.3(b) (4), (8), (9)(i), (9)(ii) or (10), 
or any combination thereof, may be closed if a majority of Commissioners 
votes by recorded vote at the beginning of such meeting, or portion 
thereof, to close the exempt portion or portions of the meeting.
    (b) The provisions of Sec. 147.4, and of Sec. 147.5 (a), (b), (c), 
(d), (e), (f) and (h) shall not apply to any portion of a meeting to 
which paragraph (a) of this section is applied. The provisions of Sec. 
147.5(g) and (i) shall apply to any such portions of meetings.
    (c) A written copy of all votes taken pursuant to paragraph (a) of 
this section reflecting the vote of each Commissioner on the question 
shall be made available for public inspection in the offices of the FOI, 
Privacy and Sunshine Acts compliance staff, Office of the Secretariat, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.
    (d) The Commission shall, except to the extent that such information 
is exempt from disclosure under the provisions of Sec. 147.3(b), make 
public announcement at the earliest practicable time of the time, place, 
and subject matter of any portion of a meeting to which paragraph (a) of 
this section is applied. Such public announcement shall be provided, to 
the extent practicable, through the Commission's public calendar as 
described in Sec. 147.4(d)(1), and by the Commission's Office of the 
Secretariat as set forth in Sec. 147.4(d)(2).

[42 FR 13704, Mar. 11, 1977, as amended at 45 FR 26955, Apr. 22, 1980; 
60 FR 49336, Sept. 25, 1995]



Sec. 147.7  Maintenance of transcripts, recordings and minutes of closed meetings.

    (a) The Commission shall make and maintain a complete transcript or 
electronic recording adequate to record fully the proceedings of each 
meeting or portion of meeting closed to the public, except as provided 
in paragraph (b) of this section.
    (b)(1) In the case of each meeting or portion of meeting closed to 
the public pursuant to Sec. 147.3(b) (8), (9)(i), (9)(ii) or (b)(10), 
or any combination thereof, the Commission shall make and maintain 
either a complete transcript or recording as described in paragraph (a) 
of this section, or a set of minutes.
    (2) When the Commission elects to keep minutes under paragraph 
(b)(1) of this section, the minutes shall fully and clearly describe all 
matters discussed at the closed meeting or closed portion thereof, and 
shall provide a full and accurate summary of any actions taken, and the 
reasons therefor, including a description of each of the views expressed 
on any item, and a record of any roll call vote taken which reflects the 
vote of each Commissioner on the question. All documents considered in 
connection with any actions taken shall be identified in such minutes.



Sec. 147.8  Public availability of transcripts, recordings and minutes of closed meetings.

    (a) The Commission shall make promptly available to the public, in 
the offices of the FOI, Privacy and Sunshine Acts compliance staff, 
Office of the Secretariat, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581, the 
transcript, electronic recording or set of minutes of the discussion of 
any item on the agenda of any closed meeting or closed portion thereof 
(as required by Sec. 147.7), or of any item of the testimony of any 
witness received at such meeting or portion thereof, except for such 
item or items of such discussion or testimony that are determined, in 
accordance with the procedure set forth in paragraph (b) of this 
section, to contain information which may be withheld under Sec. 
147.3(b).
    (b)(1) All determinations made pursuant to paragraph (a) of this 
section that items of discussion or testimony reflected in transcripts, 
recordings or sets of minutes of closed meetings or closed portions 
thereof are exempt from disclosure pursuant to Sec. 147.3(b),

[[Page 604]]

shall be made by the Assistant Secretary of the Commission for FOI, 
Privacy and Sunshine Acts compliance after due consultation with the 
Office of the Commission's General Counsel and the Director of any 
affected staff division.
    (2) Any person who objects to any determination made pursuant to 
paragraph (b)(1) of this section may seek Commission review of that 
determination by filing with the Commission's Office of the Secretariat 
a brief written statement that review is sought which contains a concise 
statement of the reasons why the determination should be set aside.
    (c) The Commission shall maintain a complete verbatim copy of the 
transcript, a complete electronic recording or a complete copy of the 
minutes of each meeting or portion of a meeting closed to the public, 
which are made in accordance with Sec. 147.7(a) or Sec. 147.7(b), for 
a period of at least two years after such meeting or portion of meeting, 
or until one year after the conclusion of any Commission proceeding with 
respect to which the meeting or portion thereof was held, whichever 
occurs later.

[42 FR 13704, Mar. 11, 1977, as amended at 45 FR 26955, Apr. 22, 1980; 
60 FR 49336, Sept. 25, 1995]



Sec. 147.9  Requests for copies of transcripts, recordings or minutes of closed meetings.

    (a) Copies of a transcript transcription of an electronic recording 
or set of minutes disclosing the identity of each speaker, which are 
publicly available pursuant to Sec. 147.8(a), shall be furnished to any 
person at the actual cost of duplication or transcription pursuant to 
the schedule of fees set forth in 17 CFR part 145, appendix B (a)(4), 
(a)(5), (a)(7), (a)(8), (a)(9), (d) and (e).
    (b) Requests for copies of transcripts, transcriptions of electronic 
recordings or sets of minutes as described in paragraph (a) of this 
section shall be made either in person, by telephone, or by mail 
addressed to the FOI, Privacy and Sunshine Acts compliance staff, Office 
of the Secretariat, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.

(7 U.S.C. 4a(j) and 16a as amended by Pub. L. 97-444, 96 Stat. 2294 
(1983) and 5 U.S.C. 552, 552a, and 552b)

[42 FR 13704, Mar. 11, 1977, as amended at 45 FR 26955, Apr. 22, 1980; 
48 FR 46012, Oct. 11, 1983; 49 FR 12684, Mar. 30, 1984; 60 FR 49336, 
Sept. 25, 1995]



Sec. 147.10  Interpretation of this part with other provisions.

    (a) Nothing in this part shall be interpreted as:
    (1) Expanding or limiting the present rights of any person under 
part 145 of this title (implementing the provisions of the Freedom of 
Information Act, 5 U.S.C. 552), except that the exemptions set forth in 
Sec. 147.3(b) of this part shall govern in the case of any request made 
pursuant to part 145 to copy or inspect the transcripts, recordings or 
sets of minutes described in this part; or
    (2) Authorizing the Commission to withhold from any person any 
record, including transcripts, recordings or sets of minutes required by 
this part, which is otherwise accessible to such individual under part 
146 of this title (implementing the provisions of the Privacy Act, 5 
U.S.C. 552a).
    (b) The requirements of chapter 33 of title 44, U.S. Code (with 
respect to the disposal of records), shall not apply to the transcripts, 
recordings and minutes described in this part.



PART 148_IMPLEMENTATION OF THE EQUAL ACCESS TO JUSTICE

ACT IN COVERED ADJUDICATORY PROCEEDINGS BEFORE THE COMMISSION--Table of Contents



                      Subpart A_General Provisions

Sec.
148.1 Purpose of these rules.
148.2 When the Act applies.
148.3 Proceedings covered.
148.4 Eligibility of applicants.
148.5 Standards for awards.
148.6 Allowable fees and expenses.
148.7 Rulemaking on maximum rates for attorney fees.
148.8 Awards against other agencies.

             Subpart B_Information Required from Applicants

148.11 Contents of application.

[[Page 605]]

148.12 Net worth exhibit.
148.13 Documentation of fees and expenses.
148.14 When an application may be filed.

            Subpart C_Procedures for Considering Applications

148.21 Filing and service of documents.
148.22 Answer to application.
148.23 Reply.
148.24 Comments by other parties.
148.25 Settlement.
148.26 Further proceedings.
148.27 Decision.
148.28 Appeal to the Commission.
148.29 Judicial review.
148.30 Payment of award.

    Authority: Equal Access to Justice Act, 5 U.S.C. 504(c)(1) and secs. 
2(a)(11) and 8a(5) of the Commodity Exchange Act, 7 U.S.C. 4a(j) and 
12a(5), unless otherwise noted.

    Source: 46 FR 57671, Nov. 25, 1981, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 148.1  Purpose of these rules.

    The Equal Access to Justice Act, 5 U.S.C. 504 (called ``the Act'' in 
this part), provides for the award of attorney fees and other expenses 
to eligible individuals and entities who are prevailing private parties 
in adjudicatory proceedings before the Commission. An eligible party may 
receive an award when it prevails over the Commission, unless the 
Commission's position was substantially justified or special 
circumstances make an award unjust. The rules in this part describe the 
parties eligible for awards and the proceedings that are covered. They 
also explain how to apply for awards, and the procedures and standards 
that the Commission will use to make them.

[51 FR 18880, May 23, 1986]



Sec. 148.2  When the Act applies.

    The Act applies to any covered adjudicatory proceeding pending 
before the Commission on or after October 1, 1981. This includes 
proceedings begun before October 1, 1981, if final Commission action has 
not been taken before that date. Awards may be sought for fees and other 
expenses incurred before October 1, 1981, in any such covered 
proceeding.

[51 FR 18880, May 23, 1986]



Sec. 148.3  Proceedings covered.

    (a) The Act applies to adjudicatory proceedings conducted by the 
Commission. These are adjudications under 5 U.S.C. 554 in which the 
position of the Commission or any other agency of the United States, or 
any component of an agency, is presented by an attorney or other 
representative who enters an appearance and participates in the 
proceeding. Reparation proceedings under section 14 of the Commodity 
Exchange Act, 7 U.S.C. 18, Commission review of exchange disciplinary 
and access denial actions under section 8c of the Commodity Exchange 
Act, 7 U.S.C. 12c, and registered futures association disciplinary and 
membership denial actions under section 17 of the Commodity Exchange 
Act, 7 U.S.C. 21, are not covered by the Act. Proceedings brought to 
determine whether or not to grant or renew registrations pursuant to 
sections 8a or 17(o), of the Commodity Exchange Act, 7 U.S.C. 8, 12a and 
21(o), or contract market designations pursuant to section 6(a) of the 
Commodity Exchange Act, 7 U.S.C. 8 (a), are excluded, but proceedings 
brought to suspend or revoke registrations or contract market 
designations are covered if they are otherwise adjudicatory proceedings. 
For the Commission, the types of proceedings generally covered are 
adjudicatory proceedings as defined in Sec. 10.2(b) of this chapter; 
part 14 proceedings, if they involve a hearing, are also covered.
    (b) The Commission's decision not to identify a type of proceeding 
as an adversary adjudication shall not preclude the filing of an 
application by a party who believes the proceeding is covered by the 
Act; whether the proceeding is covered will then be an issue for 
resolution in the proceedings on the application.
    (c) If a proceeding includes both matters covered by the Act and 
matters specifically excluded from coverage, any award made will include 
only fees and expenses related to covered issues.

[46 FR 57671, Nov. 25, 1981, as amended at 51 FR 18880, May 23, 1986; 59 
FR 5528, Feb. 7, 1994]

[[Page 606]]



Sec. 148.4  Eligibility of applicants.

    (a) To be eligible for an award of attorney fees and other expenses 
under the Act, the applicant must be a party to the adjudicatory 
proceeding for which it seeks an award. The term ``party'' is defined in 
5 U.S.C. 551(3). The applicant must show that it meets all conditions of 
eligibility set out in this subpart and in subpart B.
    (b) The types of eligible applicants are as follows:
    (1) An individual with a net worth of not more than $2 million;
    (2) The sole owner of an unincorporated business who has a net worth 
of not more than $7 million, including both personal and business 
interests, and not more that 500 employees;
    (3) A charitable or other tax-exempt organization described in 
section 501(c)(3) of the Internal Revenue Code (26 U.S.C. 501(c)(3)) 
with not more than 500 employees;
    (4) A cooperative association as defined in section 15(a) of the 
Agricultural Marketing Act (12 U.S.C. 1141j(a)) with not more than 500 
employees; and
    (5) Any other partnership, corporation, association, unit of local 
government, or public or private organization with a net worth of not 
more than $7 million and not more than 500 employees.
    (c) For the purpose of eligibility, the net worth and number of 
employees of an applicant shall be determined as of the date the 
adjudicatory proceeding was initiated.
    (d) An applicant who owns an unincorporated business will be 
considered as an ``individual'' rather than a ``sole owner of an 
unincorporated business'' if the issues on which the applicant prevails 
are related primarily to personal interests rather than to business 
interests.
    (e) The employees of an applicant include all persons who regularly 
perform services for compensation for the applicant, under the 
applicant's direction and control. The term ``employee'' also embraces 
all the agents of an applicant, by whatever title or label they may be 
known, for whose acts or omissions the applicant may be held liable 
under the Commodity Exchange Act. See 7 U.S.C. 4. Part-time employees 
shall be included on a proportional basis.
    (f) The net worth and number of employees of the applicant and all 
of its affiliates shall be aggregated to determine eligibility. Any 
individual, corporation or other entity that directly or indirectly 
controls or owns a majority of the voting shares or other interest of 
the applicant, or any corporation or other entity of which the applicant 
directly or indirectly owns or controls a majority of the voting shares 
or other interest, will be considered an affiliate for purposes of this 
part, unless the Presiding Officer determines that such treatment would 
be unjust and contrary to the purposes of the Act in light of the actual 
relationship between the affiliated entities. In addition, the Presiding 
Officer may determine that financial relationships of the applicant 
other than those described in this paragraph constitute special 
circumstances that would make an award unjust.
    (g) An applicant that participates in a proceeding on behalf of one 
or more other persons or entitles that would be ineligible is not itself 
eligible for an award.

[46 FR 57671, Nov. 25, 1981, as amended at 51 FR 18880, May 23, 1986]



Sec. 148.5  Standards for awards.

    (a) A prevailing applicant may receive an award for fees and 
expenses incurred in connection with an adjudicatory proceeding, or in a 
significant and discrete substantive portion of the proceeding, unless 
the position of the Commission was substantially justified. The position 
of the Commission includes, in addition to the position taken by the 
Commission in the adversary adjudication, the action or failure to act 
by the Commission upon which the adversary adjudication is based. The 
burden of proof that an award should not be made to an eligible 
prevailing applicant is on the Commission.
    (b) An award will be reduced or denied if the applicant has unduly 
or unreasonably protracted the adjudicatory

[[Page 607]]

proceeding or if special circumstances make the award sought unjust.

[46 FR 57671, Nov. 25, 1981, as amended at 51 FR 18880, May 23, 1986]



Sec. 148.6  Allowable fees and expenses.

    (a) Awards will be based on rates customarily charged by persons 
engaged in the business of acting as attorneys, agents and expert 
witnesses, even if the services were made available without charge or at 
a reduced rate to the applicant.
    (b) No award for the fee of an attorney or agent under these rules 
may exceed $75 per hour. No award to compensate an expert witness may 
exceed the maximum daily rate prescribed for GS-18 under section 5332 of 
title 5 of the U.S. Code. However, an award may also include the 
reasonable expenses of the attorney, agent, or witnesss as a separate 
item, if the attorney, agent or witness ordinarily charges clients 
separately for such expenses.
    (c) In determining the reasonableness of the fee sought for an 
attorney, agent or expert witness, the Presiding Officer shall consider 
the following:
    (1) If the attorney, agent or witness is in private practice, his or 
her customary fee for similar services, or, if an employee of the 
applicant, the fully allocated cost of the services;
    (2) The prevailing rate for similar services in the community in 
which the attorney, agent or witness ordinarily performs services;
    (3) The time actually spent in the representation of the applicant;
    (4) The time reasonably spent in light of the difficulty or 
complexity of the issues in the adjudicatory proceeding; and
    (5) Such other factors as may bear on the value of the services 
provided.
    (d) The reasonable cost of any study, analysis, test, project or 
similar matter prepared on behalf of a party may be awarded, to the 
extent that the charge for the service does not exceed the prevailing 
rate for similar services, and the study or other matter was necessary 
for preparation of the applicant's case.



Sec. 148.7  Rulemaking on maximum rates for attorney fees.

    (a) If warranted by an increase in the cost of living or by special 
circumstances (such as limited availability of attorneys qualified to 
handle certain types of proceedings), the Commission may adopt 
regulations providing that attorney fees may be awarded at a rate higher 
than $75 per hour in some or all of the types of proceedings covered by 
this part. The Commission will conduct any rulemaking proceedings for 
this purpose under the informal rulemaking procedures of the 
Administrative Procedure Act, 5 U.S.C. 553.
    (b) Any person may file with the Commission a petition for 
rulemaking to increase the maximum rate for attorney fees, in accordance 
with Sec. 13.2 of this chapter.



Sec. 148.8  Awards against other agencies.

    If an applicant is entitled to an award because it prevails over 
another agency of the United States that participates in an adjudicatory 
proceeding before the Commission and takes a postion that is not 
substantially justified, the award or an appropriate portion of the 
award shall be made against that agency.



             Subpart B_Information Required from Applicants



Sec. 148.11  Contents of application.

    (a) An application for an award of fees and expenses under the Act 
shall identify the applicant and the adjudicatory proceeding for which 
an award is sought. The application shall show that the applicant has 
prevailed and identify the position of the Commission or other agency 
that the applicant alleges was not substantially justified. Unless the 
applicant is an individual, the application shall also state the number 
of employees of the applicant and describe briefly the type and purpose 
of its organization or business.
    (b) The application shall also include a statement that the 
applicant's net worth does not exceed $2 million (if an individual) or 
$7 million (for all other applicants, including their affiliates).

[[Page 608]]

However, an applicant may omit this statement if:
    (1) It attaches a copy of a ruling by the Internal Revenue Service 
that it qualifies as an organization described in section 501(c)(3) of 
the Internal Revenue Code (26 U.S.C. 501(c)(3)) or, in the case of a 
tax-exempt organization not required to obtain a ruling from the 
Internal Revenue Service on its exempt status, a statement that 
describes the basis for the applicant's belief that it qualifies under 
such section; or
    (2) It states that it is a cooperative association as defined in 
section 15(a) of the Agricultural Marketing Act (12 U.S.C. 1141j(a)).
    (c) The application shall state the amount of fees and expenses for 
which an award is sought.
    (d) The application may also include any other matters that the 
applicant wishes the Commission to consider in determining whether and 
in what amount an award should be made.
    (e) The application shall be signed by the applicant or an 
authorized officer or attorney of the applicant. It shall also contain 
or be accompanied by a written verification under oath or under penalty 
of perjury that the information provided in the application is true and 
correct.

[46 FR 57671, Nov. 25, 1981, as amended at 51 FR 18880, May 23, 1986]



Sec. 148.12  Net worth exhibit.

    (a) Each applicant except a qualified tax-exempt organization or 
cooperative association must provide with its application a detailed 
exhibit showing the net worth of the applicant and any affiliates (as 
defined in Sec. 148.4(f) of this part) when the adjudicatory proceeding 
was initiated. The exhibit may be in any form convenient to the 
applicant that provides full disclosure of the applicant's and its 
affiliates' assets and liabilities and is sufficient to determine 
whether the applicant qualifies under the standards in this part. The 
Presiding Officer may require an applicant to file additional 
information to determine its eligibility for an award.
    (b) Ordinarily, the net worth exhibit will be included in the public 
record of the adjudicatory proceeding. However, an applicant that 
objects to public disclosure of information in any portion of the 
exhibit and believes there are legal grounds for withholding it from 
disclosure may submit that portion of the exhibit directly to the 
Presiding Officer in a sealed envelope labeled ``Confidential Financial 
Information,'' accompanied by a motion to withhold the information from 
public disclosure. The motion shall describe the information sought to 
be withheld and explain, in detail, why it falls within one or more of 
the specific exemptions from mandatory disclosure under the Freedom of 
Information Act, 5 U.S.C. 552(b)(1)-(9), why public disclosure of the 
information would adversely affect the applicant, and why disclosure is 
not required in the public interest. The material in question shall be 
served on counsel representing the Commission or other agency against 
which the applicant seeks an award, but need not be served on any other 
party to the adjudicatory proceeding. If the Presiding Officer finds 
that the information should not be withheld from disclosure, it shall be 
placed in the public record of the adjudicatory proceeding. Otherwise, 
any request to inspect or copy the exhibit shall be disposed of in 
accordance with the Commission's established procedures under the 
Freedom of Information Act as provided in part 145 of this chapter. For 
that purpose, the applicant shall file a copy of its motion with the 
Commission's Freedom of Information Act Compliance Staff in the Office 
of the Secretariat, Washington, DC.



Sec. 148.13  Documentation of fees and expenses.

    The application shall be accompanied by full documentation of the 
fees and expenses, including the cost of any study, analysis, test, 
project or similar matter, for which an award is sought. A separate 
itemized statement shall be submitted for each professional firm or 
individual whose services are covered by the application, showing the 
hours spent in connection with the proceeding by each individual, a 
description of the specific services performed, the rate at which each 
fee has been computed, any expenses for which reimbursement is sought, 
the total amount claimed, and the total amount paid or payable by the 
applicant or by

[[Page 609]]

any other person or entity for the services provided. The Presiding 
Officer may require the applicant to provide vouchers, receipts, or 
other substantiation for any expenses claimed.



Sec. 148.14  When an application may be filed.

    (a) An application may be filed whenever the applicant has prevailed 
in the adjudicatory proceeding or in a significant and discrete 
substantive portion of the proceeding, subject to the separate hearing 
procedure pursuant to Sec. 10.63(b) of this chapter, but in no case 
later than 30 days after the Commission's final disposition of the 
adjudicatory proceeding.
    (b) If review or reconsideration is sought or taken of a decision as 
to which an applicant believes it has prevailed, proceedings for the 
award of fees shall be stayed pending final disposition of the 
underlying controversy.
    (c) For purposes of this rule, final disposition means the later of
    (1) The date on which an initial decision by the Presiding Officer 
becomes final pursuant to Sec. 10.84 of this chapter;
    (2) Issuance of an order disposing of any petitions for 
reconsideration of the Commission's final order in the proceeding 
pursuant to Sec. 10.106 of the Rules of Practice;
    (3) If no petition for reconsideration is filed, the last date on 
which such a petition could have been filed pursuant to Sec. 10.106 of 
the Rules of Practice; or
    (4) Issuance of a final Commission order or any other final 
resolution of a proceeding, such as a settlement or voluntary dismissal, 
which is not subject to a petition for reconsideration.



            Subpart C_Procedures for Considering Applications



Sec. 148.21  Filing and service of documents.

    Any application for an award or other pleading or document related 
to an application shall be filed and served on all parties to the 
adjudicatory proceeding, except as provided in Sec. 148.12(b) for 
confidential financial information.



Sec. 148.22  Answer to application.

    (a) Within 30 days after service of an application, counsel 
representing the Commission or other agency against which an award is 
sought may file an answer to the application. Unless counsel for the 
Commission or for another relevant agency requests an extension of time 
for filing or files a statement of intent to negotiate under paragraph 
(b) of this section, failure to file an answer within the 30-day period 
may be treated as a consent to the award requested.
    (b) If counsel for the Commission or for another relevant agency and 
the applicant believe that the issues in the fee application can be 
settled, they may jointly file a statement of their intent to negotiate 
a settlement. The filing of this statement shall extend the time for 
filing an answer for an additional 30 days, and further extensions may 
be granted by the Presiding Officer upon request by counsel for the 
Commission or for another relevant agency and the applicant.
    (c) Any answer shall explain in detail any objections to the award 
requested and identify the facts relied on in support of the position of 
counsel for the Commission or for another relevant agency. If the answer 
is based on any alleged facts not already in the record of the 
adjudicatory proceeding, counsel for the Commission or for another 
relevant agency shall include with the answer either supporting 
affidavits or a request for further proceedings under Sec. 148.26 of 
this part.



Sec. 148.23  Reply.

    Within 15 days after service of an answer, the applicant may file a 
reply. If the reply is based on any alleged facts not already in the 
record of the adjudicatory proceeding, the applicant shall include with 
the reply either supporting affidavits or a request for further 
proceedings under Sec. 148.26 of this part.



Sec. 148.24  Comments by other parties.

    Any party to an adjudicatory proceeding other than the applicant and 
counsel for the Commission or for another relevant agency may file 
comments on an application within 30 days after it is served or on an 
answer within 15 days after it is served. A commenting party may not 
participate further in proceedings on the application unless the 
Presiding Officer determines

[[Page 610]]

that the public interest requires such participation in order to permit 
full exploration of matters raised in the comments.



Sec. 148.25  Settlement.

    The applicant may propose settlement of the award to the Commission 
before final action on the application, either in connection with a 
settlement of the adjudicatory proceeding, or after the adjudicatory 
proceeding has been concluded, in either case in accordance with Sec. 
10.108 of this chapter. If a prevailing party offers a proposed 
settlement of an award before an application has been filed, the 
application shall be filed with the proposed settlement.



Sec. 148.26  Further proceedings.

    (a) Ordinarily, the determination of an award will be made on the 
basis of the written record. However, on request of either the applicant 
or counsel for the Commission or for another relevant agency, or on his 
or her own initiative, the Presiding Officer may order further 
proceedings, such as an informal conference, oral argument, additional 
written submissions or an evidentiary hearing. Such further proceedings 
shall be held only when necessary for full and fair resolution of the 
issues arising from the application, and shall be conducted as promptly 
as possible. Whether or not the position of the Commission was 
substantially justified shall be determined on the basis of the 
administrative record, as a whole, which is made in the adversary 
adjudication for which fees and other expenses are sought. No discovery 
and/or evidentiary proceedings shall be permitted into the question of 
whether the agency's position was substantially justified.
    (b) A request that the Presiding Officer order further proceedings 
under this section shall specifically identify the information sought or 
the disputed issues and shall explain why additional proceedings are 
necessary to resolve the issues.

[46 FR 57671, Nov. 25, 1981, as amended at 51 FR 18881, May 23, 1986]



Sec. 148.27  Decision.

    The Presiding Officer shall issue an initial decision on the 
application in accordance with the provisions of Sec. 10.84 of this 
chapter. The decision shall include written findings and conclusions on 
the applicant's eligibility and status as a prevailing party, and an 
explanation of the reasons for any difference between the amount 
requested and the amount awarded. The decision shall also include, if at 
issue, findings on whether the Commission's position was substantially 
justified, whether the applicant unduly or unreasonably protracted the 
adjudicatory proceedings, or whether special circumstances make an award 
unjust. If the applicant has sought an award against more than one 
agency, the decision shall allocate responsibility for payment of any 
award made among the agencies, and shall explain the reasons for the 
allocation made.



Sec. 148.28  Appeal to the Commission.

    (a) Either the applicant or counsel for the Commission or for 
another relevant agency may appeal the initial decision on the fee 
application by complying with the requirements of this section. An 
appealing party shall serve upon opposing parties and shall file with 
the Proceedings Clerk a notice of appeal within fifteen (15) days after 
service of the initial decision. The notice need consist only of a brief 
statement indicating the filing party's intent to appeal the initial 
decision, and shall include the date upon which the initial decision was 
rendered, the name of the proceeding, and the docket number of the 
proceeding. The failure of a party timely to file and serve a notice of 
appeal in accordance with this paragraph, or to perfect the appeal in 
accordance with paragraph (b) of this section, shall constitute a 
voluntary waiver of any objection to the initial decision, and of all 
further administrative or judicial review under these rules and the 
Equal Access to Justice Act.
    (b) An appeal shall be perfected by the appealing party by timely 
filing with the Proceedings Clerk an appeal brief which meets the 
requirements of paragraphs (b) and (d) of this section. An original and 
one copy of the appeal brief shall be filed within thirty (30) days 
after filing of the notice of appeal. By motion of the appealing party, 
the Commission may, for good cause

[[Page 611]]

shown, extend the time for filing the appeal brief. If the appeal brief 
is not filed within the time prescribed in this subparagraph, the 
Commission may, upon its own motion or upon motion by a party, dismiss 
the appeal, in which event the initial decision shall become the final 
decision and order of the Commission, effective upon service of the 
order of dismissal.
    (c) The opposing party may, within thirty (30) days after service of 
the appeal brief, file an original and one copy of an answering brief, 
and serve one copy thereof, unless the time limit is extended by the 
Commission upon motion of the party and for good cause shown.
    (d) Parties filing an appeal brief or answering brief shall meet the 
requirements of Sec. 10.12 of this chapter as to form. The content of 
briefs shall satisfy the requirements of Sec. 10.102(d) of this 
chapter, except that any party, with leave of the Commission, may file 
an informal document in lieu of a brief. No brief shall exceed thirty-
five (35) pages in length without advance leave of the Commission.
    (e) On review, the Commission may, in its discretion, consider sua 
sponte any issues arising from the record and may base its determination 
thereon, or limit the issues to those presented in the statement of 
issues in the briefs, treating those issues not raised as waived.

[51 FR 18881, May 23, 1986]



Sec. 148.29  Judicial review.

    Judicial review of final Commission decisions on awards may be 
sought as provided in 5 U.S.C. 504(c)(2).



Sec. 148.30  Payment of award.

    An applicant seeking payment of an award from the Commission shall 
submit to the Executive Director of the Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581, a copy of the 
Commission's final decision granting the award, accompanied by a 
statement that the applicant will not seek review of the decision in the 
United States courts. At the same time, the applicant shall provide a 
copy of his submissions to counsel for the Commission. The Commission 
will, within 60 days of receipt of the applicant's submissions, forward 
to the United States Department of the Treasury a Standard Form 1166, 
``Voucher and Schedule of Payments,'' so as to have the Treasury 
Department issue a check in the amount awarded in the Commission's 
decision, unless judicial review of the award or of the underlying 
decision in the adjudicatory proceeding has been sought by the applicant 
or any other party to the adjudicatory proceeding.

[46 FR 57671, Nov. 25, 1981, as amended at 60 FR 49336, Sept. 25, 1995]



PART 149_ENFORCEMENT OF NONDISCRIMINATION ON THE BASIS OF HANDICAP IN PROGRAMS OR 

ACTIVITIES CONDUCTED BY THE COMMODITY FUTURES TRADING COMMISSION--Table of Contents



Sec.
149.101 Purpose.
149.102 Application.
149.103 Definitions.
149.104-149.110 [Reserved]
149.111 Notice.
149.112-149.129 [Reserved]
149.130 General prohibitions against discrimination.
149.131-149.139 [Reserved]
149.140 Employment.
149.141-149.148 [Reserved]
149.149 Program accessibility: Discrimination prohibited.
149.150 Program accessibility: Existing facilities.
149.151 Program accessibility: New construction and alterations.
149.152-149.159 [Reserved]
149.160 Communications.
149.161-149.169 [Reserved]
149.170 Compliance procedures.

    Authority: 29 U.S.C 794, unless otherwise noted.

    Source: 51 FR 22889, 22896, June 23, 1986, unless otherwise noted.



Sec. 149.101  Purpose.

    This part effectuates section 119 of the Rehabilitation, 
Comprehensive Services, and Developmental Disabilities Amendments of 
1978, which amended section 504 of the Rehabilitation Act of 1973 to 
prohibit discrimination on the basis of handicap in programs or 
activities conducted by Executive agencies or the U.S. Postal Service.

[[Page 612]]



Sec. 149.102  Application.

    This part applies to all programs or activities conducted by the 
agency.



Sec. 149.103  Definitions.

    For purposes of this part, the term--
    Assistant Attorney General means the Assistant Attorney General, 
Civil Rights Division, U.S. Department of Justice.
    Auxiliary aids means services or devices that enable persons with 
impaired sensory, manual, or speaking skills to have an equal 
opportunity to participate in, and enjoy the benefits of, programs or 
activities conducted by the agency. For example, auxiliary aids useful 
for persons with impaired vision include readers, brailled materials, 
audio recordings, telecommunications devices and other similar services 
and devices. Auxiliary aids useful for persons with impaired hearing 
include telephone handset amplifiers, telephones compatible with hearing 
aids, telecommunication devices for deaf persons (TDD's), interpreters, 
notetakers, written materials, and other similar services and devices.
    Complete complaint means a written statement that contains the 
complainant's name and address and describes the agency's alleged 
discriminatory action in sufficient detail to inform the agency of the 
nature and date of the alleged violation of section 504. It shall be 
signed by the complainant or by someone authorized to do so on his or 
her behalf. Complaints filed on behalf of classes or third parties shall 
describe or identify (by name, if possible) the alleged victims of 
discrimination.
    Facility means all or any portion of buildings, structures, 
equipment, roads, walks, parking lots, rolling stock or other 
conveyances, or other real or personal property.
    Handicapped person means any person who has a physical or mental 
impairment that substantially limits one or more major life activities, 
has a record of such an impairment, or is regarded as having such an 
impairment.
    As used in this definition, the phrase:
    (1) Physical or mental impairment includes--
    (i) Any physiological disorder or condition, cosmetic disfigurement, 
or anatomical loss affecting one or more of the following body systems: 
Neurological; musculoskeletal; special sense organs; respiratory, 
including speech organs; cardiovascular; reproductive; digestive; 
genitourinary; hemic and lymphatic; skin; and endocrine; or
    (ii) Any mental or psychological disorder, such as mental 
retardation, organic brain syndrome, emotional or mental illness, and 
specific learning disabilities. The term ``physical or mental 
impairment'' includes, but is not limited to, such diseases and 
conditions as orthopedic, visual, speech, and hearing impairments, 
cerebral palsy, epilepsy, muscular dystrophy, multiple sclerosis, 
cancer, heart disease, diabetes, mental retardation, emotional illness, 
and drug addiction and alocoholism.
    (2) Major life activities includes functions such as caring for 
one's self, performing manual tasks, walking, seeing, hearing, speaking, 
breathing, learning, and working.
    (3) Has a record of such an impairment means has a history of, or 
has been misclassified as having, a mental or physical impairment that 
substantially limits one or more major life activities.
    (4) Is regarded as having an impairment means--
    (i) Has a physical or mental impairment that does not substantially 
limit major life activities but is treated by the agency as constituting 
such a limitation;
    (ii) Has a physical or mental impairment that substantially limits 
major life activities only as a result of the attitudes of others toward 
such impairment; or
    (iii) Has none of the impairments defined in paragraph (1) of this 
definition but is treated by the agency as having such an impairment.
    Historic preservation programs means programs conducted by the 
agency that have preservation of historic properties as a primary 
purpose.
    Historic properties means those properties that are listed or 
eligible for listing in the National Register of Historic Places or 
properties designated as historic under a statute of the appropriate 
State or local government body.
    Qualified handicapped person means--

[[Page 613]]

    (1) With respect to preschool, elementary, or secondary education 
services provided by the agency, a handicapped person who is a member of 
a class of persons otherwise entitled by statute, regulation, or agency 
policy to receive education services from the agency.
    (2) With respect to any other agency program or activity under which 
a person is required to perform services or to achieve a level of 
accomplishment, a handicapped person who meets the essential eligibility 
requirements and who can acheive the purpose of the program or activity 
without modifications in the program or activity that the agency can 
demonstrate would result in a fundamental alteration in its nature;
    (3) With respect to any other program or activity, a handicapped 
person who meets the essential eligibility requirements for 
participation in, or receipt of benefits from, that program or activity; 
and
    (4) Qualified handicapped person is defined for purposes of 
employment in 29 CFR 1613.702(f), which is made applicable to this part 
by Sec. 149.140.
    Section 504 means section 504 of the Rehabilitation Act of 1973 
(Pub. L. 93-112, 87 Stat. 394 (29 U.S.C. 794)), as amended by the 
Rehabilitation Act Amendments of 1974 (Pub. L. 93-516, 88 Stat. 1617), 
and the Rehabilitation, Comprehensive Services, and Developmental 
Disabilities Amendments of 1978 (Pub. L. 95-602, 92 Stat. 2955). As used 
in this part, section 504 applies only to programs or activities 
conducted by Executive agencies and not to federally assisted programs.
    Substantial impairment means a significant loss of the integrity of 
finished materials, design quality, or special character resulting from 
a permanent alteration.



Sec. Sec. 149.104-149.110  [Reserved]



Sec. 149.111  Notice.

    The agency shall make available to employees, applicants, 
participants, beneficiaries, and other interested persons such 
information regarding the provisions of this part and its applicability 
to the programs or activities conducted by the agency, and make such 
information available to them in such manner as the head of the agency 
finds necessary to apprise such persons of the protections against 
discrimination assured them by section 504 and this regulation.



Sec. Sec. 149.112-149.129  [Reserved]



Sec. 149.130  General prohibitions against discrimination.

    (a) No qualified handicapped person shall, on the basis of handicap, 
be excluded from participation in, be denied the benefits of, or 
otherwise be subjected to discrimination under any program or activity 
conducted by the agency.
    (b)(1) The agency, in providing any aid, benefit, or service, may 
not, directly or through contractual, licensing, or other arrangements, 
on the basis of handicap--
    (i) Deny a qualified handicapped person the opportunity to 
participate in or benefit from the aid, benefit, or service;
    (ii) Afford a qualified handicapped person an opportunity to 
participate in or benefit from the aid, benefit, or service that is not 
equal to that afforded others;
    (iii) Provide a qualified handicapped person with an aid, benefit, 
or service that is not as effective in affording equal opportunity to 
obtain the same result, to gain the same benefit, or to reach the same 
level of achievement as that provided to others;
    (iv) Provide different or separate aid, benefits, or services to 
handicapped persons or to any class of handicapped persons than is 
provided to others unless such action is necessary to provide qualified 
handicapped persons with aid, benefits, or services that are as 
effective as those provided to others;
    (v) Deny a qualified handicapped person the opportunity to 
participate as a member of planning or advisory boards; or
    (vi) Otherwise limit a qualified handicapped person in the enjoyment 
of any right, privilege, advantage, or opportunity enjoyed by others 
receiving the aid, benefit, or service.
    (2) The agency may not deny a qualified handicapped person the 
opportunity to participate in programs or

[[Page 614]]

activities that are not separate or different, despite the existence of 
permissibly separate or different programs or activities.
    (3) The agency may not, directly or through contractual or other 
arrangments, utilize criteria or methods of administration the purpose 
or effect of which would--
    (i) Subject qualified handicapped persons to discrimination on the 
basis of handicap; or
    (ii) Defeat or substantially impair accomplishment of the objectives 
of a program activity with respect to handicapped persons.
    (4) The agency may not, in determining the site or location of a 
facility, make selections the purpose or effect of which would--
    (i) Exclude handicapped persons from, deny them the benefits of, or 
otherwise subject them to discrimination under any program or activity 
conducted by the agency; or
    (ii) Defeat or substantially impair the accomplishment of the 
objectives of a program or activity with respect to handicapped persons.
    (5) The agency, in the selection of procurement contractors, may not 
use criteria that subject qualified handicapped persons to 
discrimination on the basis of handicap.
    (6) The agency may not administer a licensing or certification 
program in a manner that subjects qualified handicapped persons to 
discrimination on the basis of handicap, nor may the agency establish 
requirements for the programs or activities of licensees or certified 
entities that subject qualified handicapped persons to discrimination on 
the basis of handicap. However, the programs or activities of entities 
that are licensed or certified by the agency are not, themselves, 
covered by this part.
    (c) The exclusion of nonhandicapped persons from the benefits of a 
program limited by Federal statute or Executive order to handicapped 
persons or the exclusion of a specific class of handicapped persons from 
a program limited by Federal statute or Executive order to a different 
class of handicapped persons is not prohibited by this part.
    (d) The agency shall administer programs and activities in the most 
integrated setting appropriate to the needs of qualified handicapped 
persons.



Sec. Sec. 149.131-149.139  [Reserved]



Sec. 149.140  Employment.

    No qualified handicapped person shall, on the basis of handicap, be 
subjected to discrimination in employment under any program or activity 
conducted by the agency. The definitions, requirements, and procedures 
of section 501 of the Rehabilitation Act of 1973 (29 U.S.C. 791), as 
established by the Equal Employment Opportunity Commission in 29 CFR 
part 1613, shall apply to employment in federally conducted programs or 
activities.



Sec. Sec. 149.141-149.148  [Reserved]



Sec. 149.149  Program accessibility: Discrimination prohibited.

    Except as otherwise provided in Sec. 149.150, no qualified 
handicapped person shall, because the agency's facilities are 
inaccessible to or unusable by handicapped persons, be denied the 
benefits of, be excluded from participation in, or otherwise be 
subjected to discrimination under any program or activity conducted by 
the agency.



Sec. 149.150  Program accessibility: Existing facilities.

    (a) General. The agency shall operate each program or activity so 
that the program or activity, when viewed in its entirety, is readily 
accessible to and usable by handicapped persons. This paragraph does 
not--
    (1) Necessarily require the agency to make each of its existing 
facilities accessible to and usable by handicapped persons;
    (2) In the case of historic preservation programs, require the 
agency to take any action that would result in a substantial impairment 
of significant historic features of an historic property; or
    (3) Require the agency to take any action that it can demonstrate 
would result in a fundamental alteration in the nature of a program or 
activity or in undue financial and administrative burdens. In those 
circumstances where

[[Page 615]]

agency personnel believe that the proposed action would fundamentally 
alter the program or activity or would result in undue financial and 
administrative burdens, the agency has the burden of proving that 
compliance with Sec. 149.150(a) would result in such alteration or 
burdens. The decision that compliance would result in such alteration or 
burdens must be made by the agency head or his or her designee after 
considering all agency resources available for use in the funding and 
operation of the conducted program or activity, and must be accompanied 
by a written statement of the reasons for reaching that conclusion. If 
an action would result in such an alteration or such burdens, the agency 
shall take any other action that would not result in such an alteration 
or such burdens but would nevertheless ensure that handicapped persons 
receive the benefits and services of the program or activity.
    (b) Methods--(1) General. The agency may comply with the 
requirements of this section through such means as redesign of 
equipment, reassignment of services to accessible buildings, assignment 
of aides to beneficiaries, home visits, delivery of services at 
alternate accessible sites, alteration of existing facilities and 
construction of new facilities, use of accessible rolling stock, or any 
other methods that result in making its programs or activities readily 
accessible to and usable by handicapped persons. The agency is not 
required to make structural changes in existing facilities where other 
methods are effective in achieving compliance with this section. The 
agency, in making alterations to existing buildings, shall meet 
accessibility requirements to the extent compelled by the Architectural 
Barriers Act of 1968, as amended (42 U.S.C. 4151-4157), and any 
regulations implementing it. In choosing among available methods for 
meeting the requirements of this section, the agency shall give priority 
to those methods that offer programs and activities to qualified 
handicapped persons in the most integrated setting appropriate.
    (2) Historic preservation programs. In meeting the requirements of 
Sec. 149.150(a) in historic preservation programs, the agency shall 
give priority to methods that provide physical access to handicapped 
persons. In cases where a physical alteration to an historic property is 
not required because of Sec. 149.150(a)(2) or (a)(3), alternative 
methods of achieving program accessibility include--
    (i) Using audio-visual materials and devices to depict those 
portions of an historic property that cannot otherwise be made 
accessible;
    (ii) Assigning persons to guide handicapped persons into or through 
portions of historic properties that cannot otherwise be made 
accessible; or
    (iii) Adopting other innovative methods.
    (c) Time period for compliance. The agency shall comply with the 
obligations established under this section by October 21, 1986, except 
that where structural changes in facilities are undertaken, such changes 
shall be made by August 22, 1989, but in any event as expeditiously as 
possible.
    (d) Transition plan. In the event that structural changes to 
facilities will be undertaken to achieve program accessibility, the 
agency shall develop, by February 23, 1987, a transition plan setting 
forth the steps necessary to complete such changes. The agency shall 
provide an opportunity to interested persons, including handicapped 
persons or organizations representing handicapped persons, to 
participate in the development of the transition plan by submitting 
comments (both oral and written). A copy of the transition plan shall be 
made available for public inspection. The plan shall, at a minimum--
    (1) Identify physical obstacles in the agency's facilities that 
limit the accessibility of its programs or activities to handicapped 
persons;
    (2) Describe in detail the methods that will be used to make the 
facilities accessible;
    (3) Specify the schedule for taking the steps necessary to achieve 
compliance with this section and, if the time period of the transition 
plan is longer than one year, identify steps that will be taken during 
each year of the transition period; and
    (4) Indicate the official responsible for implementation of the 
plan.

[[Page 616]]



Sec. 149.151  Program accessibility: New construction and alterations.

    Each building or part of a building that is constructed or altered 
by, on behalf of, or for the use of the agency shall be designed, 
constructed, or altered so as to be readily accessible to and usable by 
handicapped persons. The definitions, requirements, and standards of the 
Architectural Barriers Act (42 U.S.C. 4151-4157), as established in 41 
CFR 101-19.600 to 101-19.607, apply to buildings covered by this 
section.



Sec. Sec. 149.152-149.159  [Reserved]



Sec. 149.160  Communications.

    (a) The agency shall take appropriate steps to ensure effective 
communication with applicants, participants, personnel of other Federal 
entities, and members of the public.
    (1) The agency shall furnish appropriate auxiliary aids where 
necessary to afford a handicapped person an equal opportunity to 
participate in, and enjoy the benefits of, a program or activity 
conducted by the agency.
    (i) In determining what type of auxiliary aid is necessary, the 
agency shall give primary consideration to the requests of the 
handicapped person.
    (ii) The agency need not provide individually prescribed devices, 
readers for personal use or study, or other devices of a personal 
nature.
    (2) Where the agency communicates with applicants and beneficiaries 
by telephone, telecommunication devices for deaf person (TDD's) or 
equally effective telecommunication systems shall be used.
    (b) The agency shall ensure that interested persons, including 
persons with impaired vision or hearing, can obtain information as to 
the existence and location of accessible services, activities, and 
facilities.
    (c) The agency shall provide signage at a primary entrance to each 
of its inaccessible facilities, directing users to a location at which 
they can obtain information about accessible facilities. The 
international symbol for accessibility shall be used at each primary 
entrance of an accessible facility.
    (d) This section does not require the agency to take any action that 
it can demonstrate would result in a fundamental alteration in the 
nature of a program or activity or in undue financial and adminstrative 
burdens. In those circumstances where agency personnel believe that the 
proposed action would fundamentally alter the program or activity or 
would result in undue financial and administrative burdens, the agency 
has the burden of proving that compliance with Sec. 149.160 would 
result in such alteration or burdens. The decision that compliance would 
result in such alteration or burdens must be made by the agency head or 
his or her designee after considering all agency resources available for 
use in the funding and operation of the conducted program or activity, 
and must be accompanied by a written statement of the reasons for 
reaching that conclusion. If an action required to comply with this 
section would result in such an alteration or such burdens, the agency 
shall take any other action that would not result in such an alteration 
or such burdens but would nevertheless ensure that, to the maximum 
extent possible, handicapped persons receive the benefits and services 
of the program or activity.



Sec. Sec. 149.161-149.169  [Reserved]



Sec. 149.170  Compliance procedures.

    (a) Except as provided in paragraph (b) of this section, this 
section applies to all allegations of discrimination on the basis of 
handicap in programs or activities conducted by the agency.
    (b) The agency shall process complaints alleging violations of 
section 504 with respect to employment according to the procedures 
established by the Equal Employment Opportunity Commission in 29 CFR 
part 1613 pursuant to section 501 of the Rehabilitation Act of 1973 (29 
U.S.C. 791).
    (c) The Executive Director of the Commission shall be responsible 
for coordinating implementation of this section. Complaints may be sent 
to the Equal Employment Opportunity Officer, Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581.
    (d) The agency shall accept and investigate all complete complaints 
for which it has jurisdiction. All complete complaints must be filed 
within 180

[[Page 617]]

days of the alleged act of discrimination. The agency may extend this 
time period for good cause.
    (e) If the agency receives a complaint over which it does not have 
jurisdiction, it shall promptly notify the complainant and shall make 
reasonable efforts to refer the complaint to the appropriate government 
entity.
    (f) The agency shall notify the Architectural and Transportation 
Barriers Compliance Board upon receipt of any complaint alleging that a 
building or facility that is subject to the Architectural Barriers Act 
of 1968, as amended (42 U.S.C. 4151-4157), or section 502 of the 
Rehabilitation Act of 1973, as amended (29 U.S.C. 792), is not readily 
accessible to and usable by handicapped persons.
    (g) Within 180 days of the receipt of a complete complaint for which 
it has jurisdiction, the agency shall notify the complainant of the 
results of the investigation in a letter containing--
    (1) Findings of fact and conclusions of law;
    (2) A description of a remedy for each violation found; and
    (3) A notice of the right to appeal.
    (h) Appeals of the findings of fact and conclusions of law or 
remedies must be filed by the complainant within 90 days of receipt from 
the agency of the letter required by Sec. 149.170(g). The agency may 
extend this time for good cause.
    (i) Timely appeals shall be accepted and processed by the head of 
the agency.
    (j) The head of the agency shall notify the complainant of the 
results of the appeal within 60 days of the receipt of the request. If 
the head of the agency determines that additional information is needed 
from the complainant, he or she shall have 60 days from the date of 
receipt of the additional information to make his or her determination 
on the appeal.
    (k) The time limits cited in paragraphs (g) and (j) of this section 
may be extended with the permission of the Assistant Attorney General.
    (l) The agency may delegate its authority for conducting complaint 
investigations to other Federal agencies, except that the authority for 
making the final determination may not be delegated to another agency.

[51 FR 22889, 22896, June 23, 1986, as amended at 51 FR 22889, June 23, 
1986; 60 FR 49336, Sept. 25, 1995]



PART 150_LIMITS ON POSITIONS--Table of Contents



Sec.
150.1 Definitions.
150.2 Position limits.
150.3 Exemptions.
150.4 Aggregation of positions.
150.5 Exchange-set speculative position limits.
150.6 Responsibility of contract markets.

    Authority: 7 U.S.C. 6a, 6c, and 12a(5), as amended by the Commodity 
Futures Modernization Act of 2000, appendix E of Pub. L. 106-554, 114 
Stat. 2763 (2000).

    Source: 52 FR 38923, Oct. 20, 1987, unless otherwise noted.



Sec. 150.1  Definitions.

    As used in this part--
    (a) Spot month means the futures contract next to expire during that 
period of time beginning at the close of trading on the trading day 
preceding the first day on which delivery notices can be issued to the 
clearing organization of a contract market.
    (b) Single month means each separate futures trading month, other 
than the spot month future.
    (c) All-months means the sum of all futures trading months including 
the spot month future.
    (d) Eligible entity means--
    A commodity pool operator, the operator of a trading vehicle which 
is excluded or who itself has qualified for exclusion from the 
definition of the term ``pool'' or commodity pool operator,'' 
respectively, under Sec. 4.5 of this chapter; the limited partner or 
shareholder in a commodity pool the operator of which is exempt from 
registration under Sec. 4.13 of this chapter; a commodity trading 
advisor; a bank or trust company; a savings association; an insurance 
company; or the separately organized affiliates of any of the above 
entities:
    (1) Which authorizes an independent account controller independently 
to control all trading decisions for positions it holds directly or 
indirectly, or

[[Page 618]]

on its behalf, but without its day-to-day direction; and
    (2) Which maintains:
    (i) Only such minimum control over the independent account 
controller as is consistent with its fiduciary responsibilities and 
necessary to fulfill its duty to supervise diligently the trading done 
on its behalf; or
    (ii) If a limited partner or shareholder of a commodity pool the 
operator of which is exempt from registration under Sec. 4.13 of this 
chapter, only such limited control as is consistent with its status.
    (e) Independent account controller means a person--
    (1) Who specifically is authorized by an eligible entity, as defined 
in paragraph (d) of this section, independently to control trading 
decisions on behalf of, but without the day-to-day direction of, the 
eligible entity;
    (2) Over whose trading the eligible entity maintains only such 
minimum control as is consistent with its fiduciary responsibilities to 
fulfill its duty to supervise diligently the trading done on its behalf 
or as is consistent with such other legal rights or obligations which 
may be incumbent upon the eligible entity to fulfill;
    (3) Who trades independently of the eligible entity and of any other 
independent account controller trading for the eligible entity;
    (4) Who has no knowledge of trading decisions by any other 
independent account controller; and
    (5) Who is registered as a futures commission merchant, an 
introducing broker, a commodity trading advisor, an associated person or 
any such registrant, or is a general partner of a commodity pool the 
operator of which is exempt from registration under Sec. 4.13 of this 
chapter.
    (f) Futures-equivalent means an option contract which has been 
adjusted by the previous day's risk factor, or delta coefficient, for 
that option which has been calculated at the close of trading and 
published by the applicable exchange under Sec. 16.01 of this chapter.
    (g) Long position means a long call option, a short put option or a 
long underlying futures contract.
    (h) Short position means a short call option, a long put option or a 
short underlying futures contract.
    (i) For the following commodities, the first delivery month of the 
``crop year'' is as follows:

------------------------------------------------------------------------
                 Commodity                    Beginning delivery month
------------------------------------------------------------------------
corn......................................  December.
cotton....................................  October.
oats......................................  July.
soybeans..................................  September.
soybean meal..............................  October.
soybean oil...............................  October.
wheat (spring)............................  September.
wheat (winter)............................  July.
------------------------------------------------------------------------


[52 FR 38923, Oct. 20, 1987, as amended at 53 FR 41571, Oct. 24, 1988; 
56 FR 14315, Apr. 9, 1991; 57 FR 44492, Sept. 28, 1992; 58 FR 17981, 
Apr. 7, 1993; 64 FR 24046, May 5, 1999]



Sec. 150.2  Position limits.

    No person may hold or control positions, separately or in 
combination, net long or net short, for the purchase or sale of a 
commodity for future delivery or, on a futures-equivalent basis, options 
thereon, in excess of the following:

                       Speculative Position Limits
                           [In contract units]
------------------------------------------------------------------------
                                                   Single
             Contract               Spot month     month      All months
------------------------------------------------------------------------
                         Chicago Board of Trade
------------------------------------------------------------------------
Corn and Mini-Corn \1\...........          600       13,500       22,000
Oats.............................          600        1,400        2,000
Soybeans and Mini-Soybeans \1\...          600        6,500       10,000
Wheat and Mini-Wheat \1\.........          600        5,000        6,500
Soybean Oil......................          540        5,000        6,500
Soybean Meal.....................          720        5,000        6,500
------------------------------------------------------------------------
                       Minneapolis Grain Exchange
------------------------------------------------------------------------
Hard Red Spring Wheat............          600        5,000        6,500
------------------------------------------------------------------------

[[Page 619]]

 
                         New York Board of Trade
------------------------------------------------------------------------
Cotton No. 2.....................          300        3,500        5,000
------------------------------------------------------------------------
                       Kansas City Board of Trade
------------------------------------------------------------------------
Hard Winter Wheat................          600        5,000       6,500
------------------------------------------------------------------------
\1\ For purposes of compliance with these limits, positions in the
  regular sized and mini-sized contracts shall be aggregated.


[70 FR 24706, May 11, 2005]



Sec. 150.3  Exemptions.

    (a) Positions which may exceed limits. The position limits set forth 
in Sec. 150.2 of this part may be exceeded to the extent such position 
are:
    (1) Bona fide hedging transactions as defined in Sec. 1.3(z) of 
this chapter;
    (2) [Reserved]
    (3) Spread or arbitrage positions between single months of a futures 
contract and/or, on a futures-equivalent basis, options thereon, outside 
of the spot month, in the same crop year; provided however, That such 
spread or arbitrage positions, when combined with any other net 
positions in the single month, do not exceed the all-months limit set 
forth in Sec. 150.2; or
    (4) Carried for an eligible entity as defined in Sec. 150.1(d), in 
the separate account or accounts of an independent account controller, 
as defined in Sec. 150.1(e), and not in the spot month if there is a 
position limit which applies to individual trading months during their 
expiration; Provided, however, That the overall positions held or 
controlled by each such independent account controller may not exceed 
the limits specified in Sec. 150.2.
    (i) Additional Requirements for Exemption of Affiliated Entities. If 
the independent account controller is affiliated with the eligible 
entity or another independent account controller, each of the affiliated 
entities must:
    (A) Have, and enforce, written procedures to preclude the affiliated 
entities from having knowledge of, gaining access to, or receiving data 
about, trades of the other. Such procedures must include document 
routing and other procedures or security arrangements, including 
separate physical locations, which would maintain the independence of 
their activities; provided, however, That such procedures may provide 
for the disclosure of information which is reasonably necessary for an 
eligible entity to maintain the level of control consistent with its 
fiduciary responsibilities and necessary to fulfill its duty to 
supervise diligently the trading done on its behalf;
    (B) Trade such accounts pursuant to separately-developed and 
independent trading systems;
    (C) Market such trading systems separately; and
    (D) Solicit funds for such trading by separate Disclosure Documents 
that meet the standards of Sec. 4.24 or Sec. 4.34 of this chapter, as 
applicable, where such Disclosure Documents are required under part 4 of 
this chapter.
    (ii) [Reserved]
    (b) Call for information. Upon call by the Commission, the Director 
of the Division of Market Oversight or the Director's delegee, any 
person claiming an exemption from speculative position limits under this 
section must provide to the Commission such information as specified in 
the call relating to the positions owned or controlled by that person; 
trading done pursuant to the claimed exemption; the futures, options or 
cash market positions which support the claim of exemption; and the 
relevant business relationships supporting a claim of exemption.

[53 FR 41571, Oct. 24, 1988, as amended at 56 FR 14315, Apr. 9, 1991; 57 
FR 44492, Sept. 28, 1992; 58 FR 17982, Apr. 7, 1993; 60 FR 38193, July 
25, 1995; 67 FR 62353, Oct. 7, 2002]



Sec. 150.4  Aggregation of positions.

    (a) Positions to be aggregated. The position limits set forth in 
Sec. 510.2 of this

[[Page 620]]

part shall apply to all positions in accounts for which any person by 
power of attorney or otherwise directly or indirectly holds positions or 
controls trading or to positions held by two or more persons acting 
pursuant to an expressed or implied agreement or understanding the same 
as if the positions were held by, or the trading of the position were 
done by, a single individual.
    (b) Ownership of accounts. For the purpose of applying the position 
limits set forth in Sec. 510.2, except for the ownership interest of 
limited partners, shareholders, members of a limited liability company, 
beneficiaries of a trust or similar type of pool participant in a 
commodity pool subject to the provisos set forth in paragraph (c) of 
this section, any trader holding positions in more than one account, or 
holding accounts or positions in which the trader by power of attorney 
or otherwise directly or indirectly has a 10% or greater ownership or 
equity interest, must aggregate all such accounts or positions.
    (c) Ownership by limited partners, shareholders or other pool 
participants. For the purpose of applying the position limits set forth 
in Sec. 150.2:
    (1) A commodity pool operator having ownership or equity interest of 
10% or greater in an account or positions as a limited partner, 
shareholder or other similar type of pool participant must aggregate 
those accounts or positions with all other accounts or positions owned 
or controlled by the commodity pool operator;
    (2) A trader that is a limited partner, shareholder or other similar 
type of pool participant with an ownership or equity interest of 10% or 
greater in a pooled account or positions who is also a principal or 
affiliate of the operator of the pooled account must aggregate the 
pooled account or positions with all other accounts or positions owned 
or controlled by that trader, provided, however, that the trader need 
not aggregate such pooled positions or accounts if:
    (i) The pool operator has, and enforces, written procedures to 
preclude the trader from having knowledge of, gaining access to, or 
receiving data about the trading or positions of the pool;
    (ii) The trader does not have direct, day-to-day supervisory 
authority or control over the pool's trading decisions; and
    (iii) The trader, if a principal of the commodity pool operator, 
maintains only such minimum control over the commodity pool operator as 
is consistent with its responsibilities as a principal and necessary to 
fulfill its duty to supervise the trading activities of the commodity 
pool;
    (3) Each limited partner, shareholder, or other similar type of pool 
participant having an ownership or equity interest of 25% or greater in 
a commodity pool the operator of which is exempt from registration under 
Sec. 4.13 of this chapter must aggregate the pooled account or 
positions with all other accounts or positions owned or controlled by 
that trader.
    (d) Trading control by futures commission merchants. The position 
limits set forth in Sec. 150.2 of this part shall be construed to apply 
to all positions held by a futures commission merchant or its separately 
organized affiliates in a discretionary account, or in an account which 
is part of, or participates in, or receives trading advice from a 
customer trading program of a futures commission merchant or any of the 
officers, partners, or employees of such futures commission merchant or 
its separately organized affiliates, unless:
    (1) A trader other than the futures commission merchant or the 
afffilate directs trading in such an account;
    (2) The futures commission merchant or the affiliate maintains only 
such minimum control over the trading in such an account as is necessary 
to fulfill its duty to supervise diligently trading in the account; and
    (3) Each trading decision of the discretionary account or the 
customer trading program is determined independently of all trading 
decisions in other accounts which the futures commission merchant or the 
affiliate holds, has a financial interest of 10% or more in, or 
controls.
    (e) Call for information. Upon call by the Commission, the Director 
of the Division of Market Oversight or the Director's delegatee, any 
person claiming an exemption under paragraphs (c) or (d) of this section 
must provide to the

[[Page 621]]

Commission such information as specified in the call relating to the 
positions owned or controlled by that person, trading done pursuant to 
the claimed exemption, or the relevant business relationships supporting 
a claim of exemption.

[64 FR 24047, May 5, 1999, as amended at 67 FR 62353, Oct. 7, 2002]



Sec. 150.5  Exchange-set speculative position limits.

    (a) Exchange limits. Each contract market as a condition of 
designation under part 5, appendix A, of this chapter shall be bylaw, 
rule, regulation, or resolution limit the maximum number of contracts a 
person may hold or control, separately or in combination, net long or 
net short, for the purchase or sale of a commodity for future delivery 
or, on a futures-equivalent basis, options thereon. This section shall 
not apply to a contract market for which position limits are set forth 
in Sec. 150.2 of this part or for a futures or option contract market 
on a major foreign currency, for which there is no legal impediment to 
delivery and for which there exists a highly liquid cash market. Nothing 
in this section shall be construed to prohibit a contract market from 
fixing different and separate position limits for different types of 
futures contracts based on the same commodity, or from fixing different 
position limits for different futures or for different delivery months, 
or from exempting positions which are normally known in the trade as 
``spreads, straddles, or arbitrage,'' of from fixing limits which apply 
to such positions which are different from limits fixed for other 
positions.
    (b) Levels at designation. At the time of its initial designation, a 
contract market must provide for speculative position limit levels as 
follows:
    (1) For physical delivery contracts, the spot month limit level must 
be no greater than one-quarter of the estimated spot month deliverable 
supply, calculated separately for each month to be listed, and for cash 
settled contracts, the spot month limit level must be no greater than 
necessary to minimize the potential for manipulation or distortion of 
the contract's or the underlying commodity's price;
    (2) Individual nonspot or all-months-combined levels must be no 
greater than 1,000 contracts for tangible commodities other than energy 
products;
    (3) Individual nonspot or all-months-combined levels must be no 
greater than 5,000 contracts for energy products and nontangible 
commodities, including contracts on financial products.
    (c) Adjustments to levels. Contract markets may adjust their 
speculative limit levels as follows:
    (1) For physical delivery contracts, the spot month limit level must 
be no greater than one-quarter of the estimated spot month deliverable 
supply, calculated separately for each month to be listed, and for cash 
settled contracts, the spot month limit level must be no greater than 
necessary to minimize the potential for manipulation or distortion of 
the contract's or the underlying commodity's price; and
    (2) Individual nonspot or all-months-combined levels must be no 
greater than 10% of the average combined futures and delta-adjusted 
option month-end open interest for the most recent calendar year up to 
25,000 contracts with a marginal increase of 2.5% thereafter or be based 
on position sizes customarily held by speculative traders on the 
contract market, which shall not be extraordinarily large relative to 
total open positions in the contract, the breadth and liquidity of the 
cash market underlying each delivery month and the opportunity for 
arbitrage between the futures market and the cash market in the 
commodity underlying the futures contract.
    (d) Hedge exemption. (1) No exchange bylaw, rule, regulation, or 
resolution adopted pursuant to this section shall apply to bona fide 
hedging positions as defined by a contract market in accordance with 
Sec. 1.3(z)(1) of this chapter. Provided, however, that the contract 
market may limit bona fide hedging positions or any other positions 
which have been exempted pursuant to paragraph (e) of this section which 
it determines are not in accord with sound commercial practices or 
exceed an amount which may be established and liquidated in an orderly 
fashion.
    (2) Traders must apply to the contract market for exemption from its

[[Page 622]]

speculative position limit rules. In considering whether to grant such 
an application for exemption, contract markets must take into account 
the factors contained in paragraph (d)(1) of this section.
    (e) Trader accountability exemption. Twelve months after a contract 
market's initial listing for trading or at any time thereafter, contract 
markets may submit for Commission approval under section 5a(a)(12) of 
the Act and Sec. 1.41(b) of this chapter a bylaw, rule, regulation, or 
resolution, substituting for the position limits required under 
paragraphs (a), (b) and (c) of this section an exchange rule requiring 
traders to be accountable for large positions as follows:
    (1) For futures and option contracts on a financial instrument or 
product having an average open interest of 50,000 contracts and an 
average daily trading volume of 100,000 contracts and a very highly 
liquid cash market, an exchange bylaw, regulation or resolution 
requiring traders to provide information about their position upon 
request by the exchange;
    (2) For futures and option contracts on a financial instrument or 
product or on an intangible commodity having an average moth-end open 
interest of 50,000 and an average daily volume of 25,000 contracts and a 
highly liquid cash market, an exchange bylaw, regulation or resolution 
requiring traders to provide information about their position upon 
request by the exchange and to consent to halt increasing further a 
trader's positions if so ordered by the exchange;
    (3) For futures and option contracts on a tangible commodity, 
including but not limited to metals, energy products, or international 
soft agricultural products, having an average month-end open interest of 
50,000 contracts and an average daily volume of 5,000 contracts and a 
liquid cash market, an exchange bylaw, regulation or resolution 
requiring traders to provide information about their position upon 
request by the exchange and to consent to halt increasing further a 
trader's positions if so ordered by the exchange, provided, however, 
such contract markets are not exempt from the requirement of paragraphs 
(b) or (c) that they adopt an exchange bylaw, regulation or resolution 
setting a spot month speculative position limit with a level no grater 
than one quarter of the estimated spot month deliverable supply;
    (4) For purposes of this paragraph, trading volume and open interest 
shall be calculated by combining the month-end futures and its related 
option contract, on a delta-adjusted basis, for all months listed during 
the most recent calendar year.
    (f) Other exemptions. Exchange speculative position limits adopted 
pursuant to this section shall not apply to any position acquired in 
good faith prior to the effective date of any bylaw, rule, regulation, 
or resolution which specifies such limit or to a person that is 
registered as a futures commission merchant or as a floor broker under 
authority of the Act except to the extent that transactions made by such 
person are made on behalf of or for the account or benefit of such 
person. In addition to the express exemptions specified in this section, 
a contract market may propose such other exemptions from the 
requirements of this section consistent with the purposes of this 
section and shall submit such rules Commission review under section 
5a(1)(12) of the Act and Sec. 1.41(b) of this chapter.
    (g) Aggregation. In determining whether any person has exceeded the 
limits established under this section, all positions in accounts for 
which such person by power of attorney or otherwise directly or 
indirectly controls trading shall be included with the positions held by 
such person; such limits upon positions shall apply to positions held by 
two or more person acting pursuant to an express or implied agreement or 
understanding, the same as if the positions were held by a single 
person.

[64 FR 24048, May 5, 1999]



Sec. 150.6  Responsibility of contract markets.

    Nothing in this part shall be construed to affect any provisions of 
the

[[Page 623]]

Act relating to manipulation or corners nor to relieve any contract 
market or its governing board from responsibility under section 5(4) of 
the Act to prevent manipulation and corners.

[52 FR 38923, Oct. 20, 1987, as amended at 59 FR 5528, Feb. 7, 1993]



PART 155_TRADING STANDARDS--Table of Contents



Sec.
155.1 Definitions.
155.2 Trading standards for floor brokers.
155.3 Trading standards for futures commission merchants.
155.4 Trading standards for introducing brokers.
155.5 [Reserved]
155.6 Trading standards for the transaction of business on registered 
          derivatives transaction execution facilities.
155.10 Exemptions.

    Authority: 7 U.S.C. 6b, 6c, 6g, 6j and 12a, unless otherwise noted.



Sec. 155.1  Definitions.

    For purposes of this part, the term affiliated person of a futures 
commission merchant or of an introducing broker means any general 
partner, officer, director, owner of more than ten percent of the equity 
interest, associated person or employee of the futures commission 
merchant or of the introducing broker, and any relative or spouse of any 
of the foregoing persons, or any relative of such spouse, who shares the 
same home as any of the foregoing persons.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0022)

[46 FR 63036, Dec. 30, 1981, and 48 FR 35304, Aug. 3, 1983]



Sec. 155.2  Trading standards for floor brokers.

    Each contract market shall adopt and submit to the Commission for 
approval pursuant to section 5a(a)(12)(A) of the Act and Sec. 1.41 of 
this chapter, a set of rules which shall, at a minimum, with respect to 
each member of the contract market acting as a floor broker:
    (a) Prohibit such member from purchasing any commodity for future 
delivery, purchasing any call option, or selling any put option, for his 
own account or for any account in which he has an interest, while 
holding an order of another person for the (1) purchase of any future, 
(2) purchase of any call option, or (3) sale of any put option, in the 
same commodity which is executable at the market price or at the price 
at which such purchase or sale can be made for the member's own account 
or any account in which he has an interest.
    (b) Prohibit such member from selling any commodity for future 
delivery, selling any call option, or purchasing any put option, for his 
own account or for any account in which he has an interest, while 
holding an order of another person for the (1) sale of any future, (2) 
sale of any call option, or (3) purchase of any put option, in the same 
commodity which is executable at the market price or at the price at 
which such sale or purchase can be made for the member's own account or 
any account in which he has an interest.
    (c) Prohibit such member from executing any transaction for any 
account of another person for which buying and/or selling orders can be 
placed or originated, or for which transactions can be executed, by such 
member without the prior specific consent of the account owner, 
regardless of whether the general authorization for such orders or 
transactions is pursuant to a written agreement, except that orders for 
such an account may be placed with another member for execution.
    (d) Prohibit such member from disclosing at any time that he is 
holding an order of another person or from divulging any order revealed 
to him by reason of his relationship to such other person, except 
pursuant to paragraph (c) of this section or at the request of an 
authorized representative of the Commission or the contract market.
    (e) Prohibit such member from taking, directly or indirectly, the 
other side of any order of another person revealed to him by reason of 
his relationship to such other person, except with such other person's 
prior consent and in conformity with contract market rules approved by 
the Commission.
    (f) Prohibit such member from making any purchase or sale which has 
been directly or indirectly prearranged.

[[Page 624]]

    (g) Prohibit such member from allocating trades among accounts 
except in accordance with rules of the contract market which have been 
approved by the Commission.
    (h) Prohibit such member from withholding or withdrawing from the 
market any order or part of an order of another person for the 
convenience of another member.
    (i) Require that every execution of a transaction on the floor by 
such member be confirmed promptly with the opposite floor broker or 
floor trader; such confirmation shall identify price or premium, 
quantity, future or commodity option and respective clearing members. In 
the event a contract market cannot require prompt identification of 
respective clearing members without seriously disrupting the functions 
of its marketplace, the contract market may petition the Commission for 
exemption from this requirement. Such petition shall include:
    (1) An explanation of why the contract market cannot require the 
prompt identification of respective clearing members without seriously 
disrupting the functions of its marketplace, and
    (2) A proposed contract market rule which will insure that the 
opposite sides of every trade executed on the contract market can be 
effectively matched and will be accepted by a clearing member for 
clearance or will be otherwise sufficiently guaranteed.

The Commission may, in its discretion and upon such terms and conditions 
as it deems appropriate, grant such petition for exemption upon finding 
that the functions of the contract market may be seriously disrupted by 
requiring the prompt identification of respective clearing members and 
that the contract market appears to have adequately insured that every 
trade executed thereon can be effectively matched and will be accepted 
by a clearing member for clearance or will be otherwise sufficiently 
guaranteed.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0022)

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, 
Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 
12a, 19 and 21; 5 U.S.C. 552 and 552b))

[41 FR 56142, Dec. 23, 1976, as amended at 46 FR 54534, Nov. 3, 1981; 46 
FR 63036, Dec. 30, 1981; 47 FR 57020, Dec. 22, 1982; 59 FR 5528, Feb. 7, 
1994]



Sec. 155.3  Trading standards for futures commission merchants.

    (a) Each futures commission merchant shall, at a minimum, establish 
and enforce internal rules, procedures and controls to:
    (1) Insure, to the extent possible, that each order received from a 
customer or from an option customer which is executable at or near the 
market price is transmitted to the floor of the appropriate contract 
market before any order in any future or in any commodity option in the 
same commodity for any proprietary account, any other account in whch an 
affiliated person has an interest, or any account for which an 
affiliated person may originate orders without the prior specific 
consent of the account owner, if the affiliated person has gained 
knowledge of the customer's or option customer's order prior to the 
transmission to the floor of the appropriate contract market of the 
order for a proprietary account, an account in which the affiliated 
person has an interest, or an account in which the affiliated person may 
originate orders without the prior specific consent of the account 
owner; and
    (2) Prevent affiliated persons from placing orders, directly or 
indirectly, with another futures commission merchant in a manner 
designed to circumvent the provisions of paragraph (a)(1) of this 
section.
    (b) No futures commission merchant or any of its affiliated persons 
shall:
    (1) Disclose that an order of another person is being held by the 
futures commission merchant or any of its affiliated persons, unless 
such disclosure is necessary to the effective execution of such order or 
is made at the request

[[Page 625]]

of an authorized representative of the Commission, the contract market 
on which such order is to be executed, or a futures association 
registered with the Commission pursuant to section 17 of the Act; or
    (2)(i) Knowingly take, directly or indirectly, the other side of any 
order of another person revealed to the futures commission merchant or 
any of its affiliated persons by reason of their relationship to such 
other person, except with such other person's prior consent and in 
conformity with contract market rules approved by or certified to the 
Commission.
    (ii) In the case of a customer who does not qualify as an 
``institutional customer'' as defined in Sec. 1.3(g) of this chapter, a 
futures commission merchant must obtain the customer's prior consent 
through a signed acknowledgment, which may be accomplished in accordance 
with Sec. 1.55(d) of this chapter.
    (c) No futures commission merchant shall knowingly handle the 
account of any affiliated person of another futures commission merchant 
or of an introducing broker unless the futures commission merchant:
    (1) Receives written authorization from a person designated by such 
other futures commission merchant or introducing broker with 
responsibility for the surveillance over such account pursuant to 
paragraph (a)(2) of this section or Sec. 155.4 (a)(2), respectively;
    (2) Prepares immediately upon receipt of an order for such account a 
written record of such order, including the account identification and 
order number, and records thereon, by time-stamp or other timing device, 
the date and time, to the nearest minute, the order is received; and
    (3) Transmits on a regular basis to such other futures commission 
merchant or introducing broker copies of all statements for such account 
and of all written records prepared upon the receipt of orders for such 
account pursuant to paragraph (c)(2) of this section.
    (d) No affiliated person of a futures commission merchant shall have 
an account, directly or indirectly, with another futures commission 
merchant unless:
    (1) Such affiliated person receives written authorization to 
maintain such an account from a person designated by the futures 
commission merchant with which such person is affiliated with 
responsibility for the surveillance over such account pursuant to 
paragraph (a)(2) of this section; and
    (2) Copies of all statements for such account and of all written 
records prepared by such other futures commission merchant upon receipt 
of orders for such account pursuant to paragraph (c)(2) of this section 
are transmitted on a regular basis to the future commission merchant 
with which such person is affiliated.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0022)

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, 
Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)-(d), 6f, 6g, 6k, 6m, 6n, 
12a, 19 and 21; 5 U.S.C. 552 and 552b))

[41 FR 56142, Dec. 23, 1976, as amended at 44 FR 71821, Dec. 12, 1979; 
46 FR 54535, Nov. 3, 1981; 46 FR 63036, Dec. 30, 1981; 47 FR 57020, Dec. 
22, 1982; 48 FR 35304, Aug. 3, 1983; 66 FR 53523, Oct. 23, 2001; 70 FR 
5924, Feb. 4, 2005]



Sec. 155.4  Trading standards for introducing brokers.

    (a) Each introducing broker shall, at a minimum, establish and 
enforce internal rules, procedures and controls to:
    (1) Insure, to the extent possible, that each order received from a 
customer or from an option customer which is executable at or near the 
market price is transmitted to the futures commission merchant carrying 
the account of the customer or option customer before any order in any 
future or in any commodity option in the same commodity for any 
proprietary account, any other account in which an affiliated person has 
an interest, or any account for which an affiliated person may originate 
orders without the prior specific consent of the account owner, if the 
affiliated person has gained knowledge of the customer's or option 
customer's order prior to the transmission to the floor of the 
appropriate contract market of the order for a proprietary account, an 
account in which the affiliated person has an interest, or

[[Page 626]]

an account in which the affiliated person may originate orders without 
the prior specific consent of the account owner; and
    (2) Prevent affiliated persons from placing orders, directly or 
indirectly, with any futures commission merchant in a manner designed to 
circumvent the provisions of paragraph (a)(1) of this section.
    (b) No introducing broker or any of its affiliated persons shall:
    (1) Disclose that an order of another person is being held by the 
introducing broker or any of its affiliated persons, unless such 
disclosure is necessary to the effective execution of such order or is 
made at the request of an authorized representative of the Commission, 
the contract market on which such order is to be executed, or a futures 
association registered with the Commission pursuant to section 17 of the 
Act; or
    (2)(i) Knowingly take, directly or indirectly, the other side of any 
order of another person revealed to the introducing broker or any of its 
affiliated persons by reason of their relationship to such other person, 
except with such other persons's prior consent and in conformity with 
contract market rules approved by or certified to the Commission.
    (ii) In the case of a customer who does not qualify as an 
``institutional customer'' as defined in Sec. 1.3(g) of this chapter, 
an introducing broker must obtain the customer's prior consent through a 
signed acknowledgment, which may be accomplished in accordance with 
Sec. 1.55(d) of this chapter.
    (c) No affiliated person of an introducing broker shall have an 
account, directly or indirectly, with any futures commission merchant 
unless:
    (1) Such affiliated person receives written authorization to 
maintain such an account from a person designated by the introducing 
broker with which such person is affiliated with responsibility for the 
surveillance over such account pursuant to paragraph (a)(2) of this 
section; and
    (2) Copies of all statements for such account and of all written 
records prepared by such futures commission merchant upon receipt of 
orders for such account pursuant to Sec. 155.3(c)(2) are transmitted on 
a regular basis to the introducing broker with which such person is 
affiliated.

[48 FR 35304, Aug. 3, 1983, as amended at 66 FR 53523, Oct. 23, 2001; 70 
FR 5924, Feb. 4, 2005]



Sec. 155.5  [Reserved]



Sec. 155.6  Trading standards for the transaction of business on 

registered derivatives transaction execution facilities.

    (a) A futures commission merchant, or affiliated person thereof, 
transacting business on behalf of a customer who does not qualify as an 
``institutional customer'' as defined in Sec. 1.3(g) of this chapter on 
a registered derivatives transaction execution facility shall comply 
with the provisions of Sec. 155.3.
    (b) No futures commission merchant, introducing broker or affiliated 
person thereof shall misuse knowledge of any institutional customer's 
order for execution on a registered derivatives transaction execution 
facility.

[66 FR 53523, Oct. 23, 2001]



Sec. 155.10  Exemptions.

    Except as otherwise provided in this part, the Commission may, in 
its discretion and upon such terms and conditions as it deems 
appropriate, exempt any contract market or other person from any of the 
provisions of this part.

(Approved by the Office of Management and Budget under control numbers 
3038-0007 and 3038-0022)

[41 FR 56142, Dec. 23, 1976, as amended at 46 FR 63036, Dec. 30, 1981]



PART 156_BROKER ASSOCIATIONS--Table of Contents



Sec.
156.1 Definition.
156.2 Registration of broker association.
156.3 Contract market program for enforcement.
156.4 Disclosure of Broker Association Membership.

    Authority: 7 U.S.C. 6b, 6c, 6j(d), 7a(b), and 12a.

    Source: 58 FR 31171, June 1, 1993, unless otherwise noted.

[[Page 627]]



Sec. 156.1  Definition.

    For the purposes of this part, the term broker association as 
applied to each board of trade shall include two or more contract market 
members with floor trading privileges, of whom at least one is acting as 
a floor broker, who: (1) Engage in floor brokerage activity on behalf of 
the same employer, (2) have an employer and employee relationship which 
relates to floor brokerage activity, (3) share profits and losses 
associated with their brokerage or trading activity, or (4) regularly 
share a deck of orders.



Sec. 156.2  Registration of broker association.

    (a) Registration required. It shall be unlawful for any member of a 
broker association to receive or to execute an order unless the broker 
association is registered with the appropriate contract market in 
accordance with part (b) of this section.
    (b) Contract market rules required. Each contract market must adopt 
and maintain in effect rules, which have been submitted to the 
Commission pursuant to section 5a(a)(12)(A) of the Act and Commission 
Regulation 1.41, that, at a minimum, (1) define the term ``broker 
association'' to include the relationships set forth in Sec. 156.1 of 
this part, (2) prohibit conduct described in paragraph (a) of this 
section, and (3) require registration of each relationship defined by 
its rules as a broker association no later than 10 days after 
establishment of such relationship. Contract market records of 
registration shall include the following information with respect to 
each broker association, if applicable:
    (i) Name;
    (ii) Form of organization, e.g., partnership, corporation, trust, 
etc.;
    (iii) Name of each person who is a member or otherwise has a direct 
beneficial interest in the association;
    (iv) Badge symbols and numbers for all members;
    (v) Account numbers for all accounts of any member, accounts in 
which any member(s) has an interest, and any proprietary or customer 
accounts controlled by any member(s);
    (vi) Identification of all other broker associations with which each 
member is associated; and
    (vii) Individual(s) authorized to represent the association in 
connection with its registration obligations.
    Any registration information provided to the contract market which 
becomes deficient or inaccurate must be updated or corrected promptly.
    (c) Other contract market rules. (1) Each contract market may submit 
rules pursuant to section 5a(a)(12)(A) of the Act and Commission 
Regulation 1.41 that interpret when contract market members would be 
deemed to ``regularly share a deck of orders.'' In the absence of such 
rules, a contract market must make such a determination on a case-by-
case basis. The basis for a determination whether brokers ``regularly 
share a deck of orders'' must be documented.
    (2) Each contract market may adopt rules, which must be submitted to 
the Commission pursuant to section 5a(a)(12)(A) of the Act and 
Commission Regulation 1.41, which set forth the basis and procedures for 
granting exemptions from the registration requirement contained in 
paragraph (b) of this section for de minimis activity.



Sec. 156.3  Contract market program for enforcement.

    A contract market must, as part of its responsibilities pursuant to 
the Act and Sec. 1.51, demonstrate effective use of broker association 
registration information to monitor the trading activity of broker 
associations and their members for potential abuse and to secure 
compliance with all other contract market bylaws, rules, regulations and 
resolutions which may pertain to such associations or their members.



Sec. 156.4  Disclosure of Broker Association Membership.

    Each contract market shall make available to the public generally 
and upon request a list of all registered broker associations which 
identifies for each such association the name of each person who is a 
member or otherwise has a direct beneficial interest in the association. 
This list shall be updated at least semi-annually.

[61 FR 41498, Aug. 9, 1996]

[[Page 628]]



PART 160_PRIVACY OF CONSUMER FINANCIAL INFORMATION--Table of Contents



Sec.
160.1 Purpose and scope.
160.2 Rule of construction.
160.3 Definitions.

                  Subpart A_Privacy and Opt Out Notices

160.4 Initial privacy notice to consumers required.
160.5 Annual privacy notice to customers required.
160.6 Information to be included in privacy notices.
160.7 Form of opt out notice to consumers; opt out methods.
160.8 Revised privacy notices.
160.9 Delivering privacy and opt out notices.

                     Subpart B_Limits on Disclosures

160.10 Limits on disclosure of nonpublic personal information to 
          nonaffiliated third parties.
160.11 Limits on redisclosure and re-use of information.
160.12 Limits on sharing account number information for marketing 
          purposes.

                          Subpart C_Exceptions

160.13 Exception to opt out requirements for service providers and joint 
          marketing.
160.14 Exceptions to notice and opt out requirements for processing and 
          servicing transactions.
160.15 Other exceptions to notice and opt out requirements.

            Subpart D_Relation to Other Laws; Effective Date

160.16 Protection of Fair Credit Reporting Act.
160.17 Relation to state laws.
160.18 Effective date; transition rule.
160.19-160.29 [Reserved]
160.30 Procedures to safeguard customer records and information.

Appendix A to Part 160--Model Privacy Form
Appendix B to Part 160--Sample Clauses

    Authority: 7 U.S.C. 7b-2 and 12a(5); 15 U.S.C. 6801 et seq.

    Source: 66 FR 21252, Apr. 27, 2001, unless otherwise noted.



Sec. 160.1  Purpose and scope.

    (a) Purpose. This part governs the treatment of nonpublic personal 
information about consumers by the financial institutions listed in 
paragraph (b) of this section. This part:
    (1) Requires a financial institution to provide notice to customers 
about its privacy policies and practices;
    (2) Describes the conditions under which a financial institution may 
disclose nonpublic personal information about consumers to nonaffiliated 
third parties; and
    (3) Provides a method for consumers to prevent a financial 
institution from disclosing nonpublic personal information to most 
nonaffiliated third parties by ``opting out'' of that disclosure, 
subject to the exceptions in Sec. Sec. 160.13, 160.14, and 160.15.
    (b) Scope. This part applies only to nonpublic personal information 
about individuals who obtain financial products or services primarily 
for personal, family, or household purposes from the institutions listed 
below. This part does not apply to information about companies or about 
individuals who obtain financial products or services primarily for 
business, commercial, or agricultural purposes. This part applies to all 
futures commission merchants, commodity trading advisors, commodity pool 
operators and introducing brokers that are subject to the jurisdiction 
of the Commission, regardless whether they are required to register with 
the Commission. These entities are hereinafter referred to in this part 
as ``you.'' This part does not apply to foreign (non-resident) futures 
commission merchants, commodity trading advisors, commodity pool 
operators and introducing brokers that are not registered with the 
Commission. Nothing in this part modifies, limits or supercedes the 
standards governing individually identifiable health information 
promulgated by the Secretary of Health and Human Services under the 
authority of sections 262 and 264 of the Health Insurance Portability 
and Accountability Act of 1996, 42 U.S.C. 1320d-1320d-8.

[66 FR 21252, Apr. 27, 2001, as amended at 75 FR 55450, Sept. 10, 2010]



Sec. 160.2  Model privacy form and examples.

    (a) Model privacy form. Use of the model privacy form in appendix A 
of

[[Page 629]]

this part, consistent with the instructions in appendix A, constitutes 
compliance with the notice content requirements of Sec. Sec. 160.6 and 
160.7 of this part, although use of the model privacy form is not 
required.
    (b) Examples. The examples in this part are not exclusive. 
Compliance with an example, to the extent applicable, constitutes 
compliance with this part.

[74 FR 62974, Dec. 1, 2009]



Sec. 160.3  Definitions.

    For purposes of this part, unless the context requires otherwise:
    (a) Affiliate of a futures commission merchant, retail foreign 
exchange dealer, commodity trading advisor, commodity pool operator or 
introducing broker means any company that controls, is controlled by, or 
is under common control with a futures commission merchant, retail 
foreign exchange dealer, commodity trading advisor, commodity pool 
operator or introducing broker that is subject to the jurisdiction of 
the Commission. In addition, a futures commission merchant, retail 
foreign exchange dealer, commodity trading advisor, commodity pool 
operator or introducing broker subject to the jurisdiction of the 
Commission will be deemed an affiliate of a company for purposes of this 
part if:
    (1) That company is regulated under Title V of the GLB Act by the 
Federal Trade Commission or by a federal functional regulator other than 
the Commission; and
    (2) Rules adopted by the Federal Trade Commission or another federal 
functional regulator under Title V of the GLB Act treat the futures 
commission merchant, retail foreign exchange dealer, commodity trading 
advisor, commodity pool operator or introducing broker as an affiliate 
of that company.
    (b)(1) Clear and conspicuous means that a notice is reasonably 
understandable and designed to call attention to the nature and 
significance of the information in the notice.
    (2) Examples--(i) Reasonably understandable. Your notice will be 
reasonably understandable if you:
    (A) Present the information in the notice in clear, concise 
sentences, paragraphs and sections;
    (B) Use short explanatory sentences or bullet lists whenever 
possible;
    (C) Use definite, concrete, everyday words and active voice whenever 
possible;
    (D) Avoid multiple negatives;
    (E) Avoid legal and highly technical business terminology whenever 
possible; and
    (F) Avoid explanations that are imprecise and readily subject to 
different interpretations.
    (ii) Designed to call attention. Your notice is designed to call 
attention to the nature and significance of the information in it if 
you:
    (A) Use a plain-language heading to call attention to the notice;
    (B) Use a typeface and type size that are easy to read;
    (C) Provide wide margins and ample line spacing;
    (D) Use boldface or italics for key words; and
    (E) Use distinctive type size, style and graphic devices, such as 
shading or sidebars when you combine your notice with other information.
    (iii) Notices on web sites. If you provide notice on a web page, you 
design your notice to call attention to the nature and significance of 
the information in it if you use text or visual cues to encourage 
scrolling down the page, if necessary to view the entire notice, and 
ensure that other elements on the web site, such as text, graphics, 
hyperlinks or sound, do not distract from the notice, and you either:
    (A) Place the notice on a screen that consumers frequently access, 
such as a page on which transactions are conducted; or
    (B) Place a link on a screen that consumers frequently access, such 
as a page on which transactions are conducted, that connects directly to 
the notice and is labeled appropriately to convey the importance, nature 
and relevance of the notice.
    (c) Collect means to obtain information that you organize or can 
retrieve by the name of an individual or by identifying number, symbol 
or other identifying particular assigned to the

[[Page 630]]

individual, irrespective of the source of the underlying information.
    (d) Commission means the Commodity Futures Trading Commission.
    (e) Commodity pool operator has the same meaning as in section 1a(5) 
of the Commodity Exchange Act, as amended, and includes anyone 
registered as such under the Act.
    (f) Commodity trading advisor has the same meaning as in section 
1a(6) of the Commodity Exchange Act, as amended, and includes anyone 
registered as such under the Act.
    (g) Company means any corporation, limited liability company, 
business trust, general or limited partnership, association or similar 
organization.
    (h)(1) Consumer means an individual who obtains or has obtained a 
financial product or service from you that is to be used primarily for 
personal, family or household purposes, or that individual's legal 
representative.
    (2) Examples. (i) An individual is your consumer if he or she 
provides nonpublic personal information to you in connection with 
obtaining or seeking to obtain brokerage or advisory services, whether 
or not you provide services to the individual or establish a continuing 
relationship with the individual.
    (ii) An individual is not your consumer if he or she provides you 
only with his or her name, address and general areas of investment 
interest in connection with a request for a brochure or other 
information about financial products or services.
    (iii) An individual is not your consumer if he or she has an account 
with another futures commission merchant (originating futures commission 
merchant) for which you provide clearing services for an account in the 
name of the originating futures commission merchant.
    (iv) An individual who is a consumer of another financial 
institution is not your consumer solely because you act as agent for, or 
provide processing or other services to, that financial institution.
    (v) An individual is not your consumer solely because he or she has 
designated you as trustee for a trust.
    (vi) An individual is not your consumer solely because he or she is 
a beneficiary of a trust for which you are a trustee.
    (vii) An individual is not your consumer solely because he or she is 
a participant or a beneficiary of an employee benefit plan that you 
sponsor or for which you act as a trustee or fiduciary.
    (i) Consumer reporting agency has the same meaning as in section 
603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f)).
    (j) Control of a company means the power to exercise a controlling 
influence over the management or policies of a company whether through 
ownership of securities, by contract, or otherwise. Any person who owns 
beneficially, either directly or through one or more controlled 
companies, more than 25 percent of the voting securities of any company 
is presumed to control the company. Any person who does not own more 
than 25 percent of the voting securities of a company will be presumed 
not to control the company.
    (k) Customer means a consumer who has a customer relationship with 
you.
    (l)(1) Customer relationship means a continuing relationship between 
a consumer and you under which you provide one or more financial 
products or services to the consumer that are to be used primarily for 
personal, family or household purposes.
    (2) Examples--(i) Continuing relationship. A consumer has a 
continuing relationship with you if:
    (A) You are a futures commission merchant through whom a consumer 
has opened an account, or that carries the consumer's account on a 
fully-disclosed basis, or that effects or engages in commodity interest 
transactions with or for a consumer, even if you do not hold any assets 
of the consumer.
    (B) You are a retail foreign exchange dealer with whom a consumer 
has opened an account, or that effects or engages in retail forex 
transactions with or for a consumer, even if you do not hold any assets 
of the consumer;
    (C) You are an introducing broker that solicits or accepts specific 
orders for trades;
    (D) You are a commodity trading advisor with whom a consumer has a 
contract or subscription, either written or oral, regardless of whether 
the advice

[[Page 631]]

is standardized, or is based on, or tailored to, the commodity interest 
or cash market positions or other circumstances or characteristics of 
the particular consumer;
    (E) You are a commodity pool operator, and you accept or receive 
from the consumer, funds, securities, or property for the purpose of 
purchasing an interest in a commodity pool;
    (F) You hold securities or other assets as collateral for a loan 
made to the consumer, even if you did not make the loan or do not effect 
any transactions on behalf of the consumer; or
    (G) You regularly effect or engage in commodity interest 
transactions with or for a consumer even if you do not hold any assets 
of the consumer.
    (ii) No continuing relationship. A consumer does not have a 
continuing relationship with you if:
    (A) You have acted solely as a ``finder'' for a futures commission 
merchant, and you do not solicit or accept specific orders for trades; 
or
    (B) You have solicited the consumer to participate in a pool or to 
direct his or her account and he or she has not provided you with funds 
to participate in a pool or entered into any agreement for you to direct 
his or her account.
    (m) Federal functional regulator means:
    (1) The Board of Governors of the Federal Reserve System;
    (2) The Office of the Comptroller of the Currency;
    (3) The Board of Directors of the Federal Deposit Insurance 
Corporation;
    (4) The Director of the Office of Thrift Supervision;
    (5) The National Credit Union Administration Board;
    (6) The Securities and Exchange Commission; and
    (7) The Commodity Futures Trading Commission.
    (n)(1) Financial institution means:
    (i) Any futures commission merchant, retail foreign exchange dealer, 
commodity trading advisor, commodity pool operator or introducing broker 
that is registered with the Commission as such or is otherwise subject 
to the Commission's jurisdiction; and
    (ii) Any other institution the business of which is engaging in 
financial activities as described in section 4(k) of the Bank Holding 
Company Act of 1956, 12 U.S.C. 1843(k).
    (2) Financial institution does not include:
    (i) Any person or entity, other than a futures commission merchant, 
retail foreign exchange dealer, commodity trading advisor, commodity 
pool operator or introducing broker that, with respect to any financial 
activity, is subject to the jurisdiction of the Commission under the 
Act.
    (ii) The Federal Agricultural Mortgage Corporation or any entity 
chartered and operating under the Farm Credit Act of 1971 (12 U.S.C. 
2001 et seq.); or
    (iii) Institutions chartered by Congress specifically to engage in 
securitizations, secondary market sales (including sales of servicing 
rights) or similar transactions related to a transaction of a consumer, 
as long as such institutions do not sell or transfer nonpublic personal 
information to a nonaffiliated third party.
    (o)(1) Financial product or service means:
    (i) Any product or service that a futures commission merchant, 
retail foreign exchange dealer, commodity trading advisor, commodity 
pool operator, or introducing broker could offer that is subject to the 
Commission's jurisdiction; and
    (ii) Any product or service that any other financial institution 
could offer by engaging in an activity that is financial in nature or 
incidental to such a financial activity under section 4(k) of the Bank 
Holding Company Act of 1956, 12 U.S.C. 1843(k).
    (2) Financial service includes your evaluation or brokerage of 
information that you collect in connection with a request or an 
application from a consumer for a financial product or service.
    (p) Futures commission merchant has the same meaning as in section 
1a(20) of the Commodity Exchange Act, as amended, and includes any 
person registered as such under the Act.
    (q) GLB Act means the Gramm-Leach-Bliley Act (Pub. L. No. 106-102, 
113 Stat. 1338 (1999)).
    (r) Introducing broker has the same meaning as in section 1a(23) of 
the Commodity Exchange Act, as amended,

[[Page 632]]

and includes any person registered as such under the Act.
    (s)(1) Nonaffiliated third party means any person except:
    (i) Your affiliate; or
    (ii) A person employed jointly by you and any company that is not 
your affiliate, but nonaffiliated third party includes the other company 
that jointly employs the person.
    (2) Nonaffiliated third party includes any company that is an 
affiliate solely by virtue of your or your affiliate's direct or 
indirect ownership or control of the company in conducting merchant 
banking or investment banking activities of the type described in 
section 4(k)(4)(H) or insurance company investment activities of the 
type described in section 4(k)(4)(I) of the Bank Holding Company Act of 
1956, 12 U.S.C. 1843(k)(4)(H) and (I).
    (t)(1) Nonpublic personal information means:
    (i) Personally identifiable financial information; and
    (ii) Any list, description or other grouping of consumers, and 
publicly available information pertaining to them, that is derived using 
any personally identifiable financial information that is not publicly 
available information.
    (2) Nonpublic personal information does not include:
    (i) Publicly available information, except as included on a list 
described in paragraph (t)(1)(ii) of this section or when the publicly 
available information is disclosed in a manner that indicates the 
individual is or has been your consumer; or
    (ii) Any list, description or other grouping of consumers, and 
publicly available information pertaining to them, that is derived 
without using any personally identifiable financial information that is 
not publicly available information.
    (3) Examples of lists. (i) Nonpublic personal information includes 
any list of individuals' names and street addresses that is derived in 
whole or in part using personally identifiable financial information 
that is not publicly available information, such as account numbers.
    (ii) Nonpublic personal information does not include any list of 
individuals' names and addresses that contains only publicly available 
information, is not derived in whole or in part using personally 
identifiable financial information that is not publicly available 
information, and is not disclosed in a manner that indicates that any of 
the individuals on the list is a consumer of a financial institution.
    (u)(1) Personally identifiable financial information means any 
information:
    (i) A consumer provides to you to obtain a financial product or 
service from you;
    (ii) About a consumer resulting from any transaction involving a 
financial product or service between you and a consumer; or
    (iii) You otherwise obtain about a consumer in connection with 
providing a financial product or service to that consumer.
    (2) Examples--(i) Information included. Personally identifiable 
financial information includes:
    (A) Information a consumer provides to you on an application to open 
a commodity interest trading account, to invest in a commodity pool, or 
to obtain another financial product or service;
    (B) Account balance information, payment history, overdraft history, 
margin call history, trading history, and credit or debit card purchase 
information;
    (C) The fact that an individual is or has been one of your customers 
or has obtained a financial product or service from you;
    (D) Any information about your consumer if it is disclosed in a 
manner that indicates that the individual is or has been your consumer;
    (E) Any information you collect through an Internet ``cookie'' (an 
information-collecting device from a web server); and
    (F) Information from a consumer report.
    (ii) Information not included. Personally identifiable financial 
information does not include:
    (A) A list of names and addresses of customers of an entity that is 
not a financial institution; or
    (B) Information that does not identify a consumer, such as aggregate 
information or blind data that does not

[[Page 633]]

contain personal identifiers such as account numbers, names or 
addresses.
    (v)(1) Publicly available information means any information that you 
reasonably believe is lawfully made available to the general public 
from:
    (i) Federal, state or local government records;
    (ii) Widely distributed media; or
    (iii) Disclosures to the general public that are required to be made 
by federal, state or local law.
    (2) Examples--(i) Reasonable belief. (A) You have a reasonable 
belief that information about your consumer is made available to the 
general public if you have confirmed, or your consumer has represented 
to you, that the information is publicly available from a source 
described in paragraphs (v)(1)(i)-(iii) of this section.
    (B) You have a reasonable belief that information about your 
consumer is made available to the general public if you have taken steps 
to submit the information, in accordance with your internal procedures 
and policies and with applicable law, to a keeper of federal, state or 
local government records that is required by law to make the information 
publicly available.
    (C) You have a reasonable belief that an individual's telephone 
number is lawfully made available to the general public if you have 
located the telephone number in the telephone book or on an internet 
listing service, or the consumer has informed you that the telephone 
number is not unlisted.
    (D) You do not have a reasonable belief that information about a 
consumer is publicly available solely because that information would 
normally be recorded with a keeper of federal, state or local government 
records that is required by law to make the information publicly 
available, if the consumer has the ability in accordance with applicable 
law to keep that information nonpublic, such as where a consumer may 
record a deed in the name of a blind trust.
    (ii) Government records. Publicly available information in 
government records includes information in government real estate 
records and security interest filings.
    (iii) Widely distributed media. Publicly available information from 
widely distributed media includes information from a telephone book, a 
television or radio program, a newspaper, or a web site that is 
available to the general public on an unrestricted basis. A web site is 
not restricted merely because an Internet service provider or a site 
operator requires a fee or password, so long as access is available to 
the general public.
    (w) You means:
    (1) Any futures commission merchant;
    (2) Any retail foreign exchange dealer;
    (3) Any commodity trading advisor;
    (4) Any commodity pool operator; and
    (5) Any introducing broker subject to the jurisdiction of the 
Commission.
    (x) Retail foreign exchange dealer has the same meaning as in Sec. 
5.3(i)(1) of this chapter.

[66 FR 21252, Apr. 27, 2001, as amended at 75 FR 55450, Sept. 10, 2010]



                  Subpart A_Privacy and Opt Out Notices



Sec. 160.4  Initial privacy notice to consumers required.

    (a) Initial notice requirement. You must provide a clear and 
conspicuous notice that accurately reflects your privacy policies and 
practices to:
    (1) Customer. An individual who becomes your customer, not later 
than when you establish a customer relationship, except as provided in 
paragraph (e) of this section; and
    (2) Consumer. A consumer, before you disclose any nonpublic personal 
information about the consumer to any nonaffiliated third party, if you 
make such a disclosure other than as authorized by Sec. Sec. 160.14 and 
160.15.
    (b) When initial notice to a consumer is not required. You are not 
required to provide an initial notice to a consumer under paragraph (a) 
of this section if:
    (1) You do not disclose any nonpublic personal information about the 
consumer to any nonaffiliated third party other than as authorized by 
Sec. Sec. 160.14 and 160.15; and
    (2) You do not have a customer relationship with the consumer.
    (c) When you establish a customer relationship--(1) General rule. 
You establish

[[Page 634]]

a customer relationship when you and the consumer enter into a 
continuing relationship.
    (2) Examples of establishing customer relationship. You establish a 
customer relationship when the consumer:
    (i) Instructs you to execute a commodity interest transaction for 
the consumer;
    (ii) Opens a retail forex account, or opens a commodity interest 
account through an introducing broker or with a futures commission 
merchant that clears transactions for its customers through you on a 
fully-disclosed basis;
    (iii) Transmits specific orders for commodity interest transactions 
to you that you pass on to a futures commission merchant for execution, 
if you are an introducing broker;
    (iv) Enters into an advisory contract or subscription with you, 
whether in writing or orally, and whether you provide standardized, or 
individually tailored commodity trading advice based on the customer's 
commodity interest or cash market positions or other circumstances or 
characteristics, if you are a commodity trading adviser; or
    (v) Provides to you funds, securities, or property for an interest 
in a commodity pool, if you are a commodity pool operator.
    (d) Existing customers. When an existing customer obtains a new 
financial product or service from you that is to be used primarily for 
personal, family or household purposes, you satisfy the initial notice 
requirements of paragraph (a) of this section as follows:
    (1) You may provide a revised privacy notice under Sec. 160.8 that 
covers the customer's new financial product or service; or
    (2) If the initial, revised or annual notice that you most recently 
provided to that customer was accurate with respect to the new financial 
product or service, you do not need to provide a new privacy notice 
under paragraph (a) of this section.
    (e) Exceptions to allow subsequent delivery of notice. (1) You may 
provide the initial notice required by paragraph (a)(1) of this section 
within a reasonable time after you establish a customer relationship if:
    (i) Establishing the customer relationship is not at the customer's 
election;
    (ii) Providing notice not later than when you establish a customer 
relationship would substantially delay the customer's transaction and 
the customer agrees to receive the notice at a later time;
    (iii) A nonaffiliated financial institution establishes a customer 
relationship between you and a consumer without your prior knowledge; or
    (iv) You have established a customer relationship with a customer in 
a bulk transfer in accordance with Sec. 1.65, if you are a transferee 
futures commission merchant, retail foreign exchange dealer or 
introducing broker.
    (2) Examples of exceptions--(i) Not at customer's election. 
Establishing a customer relationship is not at the customer's election 
if you acquire the customer's commodity interest account from another 
financial institution and the customer does not have a choice about your 
acquisition.
    (ii) Substantial delay of customer's transaction. Providing notice 
not later than when you establish a customer relationship would 
substantially delay the customer's transaction when you and the 
individual agree over the telephone to enter into a customer 
relationship involving prompt delivery of the financial product or 
service.
    (iii) No substantial delay of customer's transaction. Providing 
notice not later than when you establish a customer relationship would 
not substantially delay the customer's transaction when the relationship 
is initiated in person at your office or through other means by which 
the customer may view the notice, such as on a web site.
    (f) Delivery of notice. When you are required by this section to 
deliver an initial privacy notice, you must deliver it according to the 
provisions of Sec. 160.9. If you use a short-form initial notice for 
non-customers according to Sec. 160.6(d), you may deliver your privacy 
notice as provided in section Sec. 160.6(d)(3).

[66 FR 21252, Apr. 27, 2001, as amended at 75 FR 55451, Sept. 10, 2010]

[[Page 635]]



Sec. 160.5  Annual privacy notice to customers required.

    (a)(1) General rule. You must provide a clear and conspicuous notice 
to customers that accurately reflects your privacy policies and 
practices not less than annually during the life of the customer 
relationship. Annually means at least once in any period of 12 
consecutive months during which that relationship exists. You may define 
the 12-consecutive-month period, but you must apply it to the customer 
on a consistent basis.
    (2) Example. You provide notice annually if you define the 12-
consecutive-month period as a calendar year and provide the annual 
notice to the customer once in each calendar year following the calendar 
year in which you provided the initial notice. For example, if a 
customer opens an account on any day of year 1, you must provide an 
annual notice to that customer by December 31 of year 2.
    (b)(1) Termination of customer relationship. You are not required to 
provide an annual notice to a former customer.
    (2) Examples. Your customer becomes a former customer when:
    (i) The individual's commodity interest account is closed;
    (ii) The individual's advisory contract or subscription is 
terminated or expires; or
    (iii) The individual has redeemed all of his or her units in your 
pool.
    (c) Delivery of notice. When you are required by this section to 
deliver an annual privacy notice, you must deliver it in the manner 
provided by Sec. 160.9.



Sec. 160.6  Information to be included in privacy notices.

    (a) General rule. The initial, annual, and revised privacy notices 
that you provide under Sec. Sec. 160.4, 160.5 and 160.8 must include 
each of the following items of information that applies to you or to the 
consumers to whom you send your privacy notice, in addition to any other 
information you wish to provide:
    (1) The categories of nonpublic personal information that you 
collect;
    (2) The categories of nonpublic personal information that you 
disclose;
    (3) The categories of affiliates and nonaffiliated third parties to 
whom you disclose nonpublic personal information, other than those 
parties to whom you disclose information under Sec. Sec. 160.14 and 
160.15;
    (4) The categories of nonpublic personal information about your 
former customers that you disclose and the categories of affiliates and 
nonaffiliated third parties to whom you disclose nonpublic personal 
information about your former customers, other than those parties to 
whom you disclose information under Sec. Sec. 160.14 and 160.15;
    (5) If you disclose nonpublic personal information to a 
nonaffiliated third party under Sec. 160.13 (and no other exception 
applies to that disclosure), a separate statement of the categories of 
information you disclose and the categories of third parties with whom 
you have contracted;
    (6) An explanation of the consumer's rights under Sec. 160.10(a) to 
opt out of the disclosure of nonpublic personal information to 
nonaffiliated third parties, including the method(s) by which the 
consumer may exercise that right at that time;
    (7) Any disclosures that you make under Sec. 603(d)(2)(A)(iii) of 
the Fair Credit Reporting Act (15 U.S.C. 1681a(d)(2)(A)(iii)) (that is, 
notices regarding the ability to opt out of disclosures of information 
among affiliates);
    (8) Your policies and practices with respect to protecting the 
confidentiality and security of nonpublic personal information; and
    (9) Any disclosure that you make under paragraph (b) of this 
section.
    (b) Description of nonaffiliated third parties subject to 
exceptions. If you disclose nonpublic personal information to third 
parties as authorized under Sec. Sec. 160.14 and 160.15, you are not 
required to list those exceptions in the initial or annual privacy 
notices required by Sec. Sec. 160.4 and 160.5. When describing the 
categories with respect to those parties, it is sufficient to state that 
you make disclosures to other nonaffiliated companies:
    (1) For your everyday business purposes, such as [include all that 
apply] to process transactions, maintain account(s), respond to court 
orders and

[[Page 636]]

legal investigations, or report to credit bureaus; or
    (2) As permitted by law.
    (c) Examples--(1) Categories of nonpublic personal information that 
you collect. You satisfy the requirement to categorize the nonpublic 
personal information that you collect if you list the following 
categories, as applicable:
    (i) Information from the consumer;
    (ii) Information about the consumer's transactions with you or your 
affiliates;
    (iii) Information about the consumer's transactions with 
nonaffiliated third parties; and
    (iv) Information from a consumer reporting agency.
    (2) Categories of nonpublic personal information you disclose. (i) 
You satisfy the requirement to categorize the nonpublic personal 
information you disclose if you list the categories described in 
paragraph (e)(1) of this section, as applicable, and a few examples to 
illustrate the types of information in each category.
    (ii) If you reserve the right to disclose all of the nonpublic 
personal information about consumers that you collect, you may simply 
state that fact without describing the categories or examples of the 
nonpublic personal information you disclose.
    (3) Categories of affiliates and nonaffiliated third parties to whom 
you disclose. You satisfy the requirement to categorize the affiliates 
and nonaffiliated third parties to whom you disclose nonpublic personal 
information if you list the following categories, as applicable, and a 
few examples to illustrate the types of third parties in each category:
    (i) Financial service providers;
    (ii) Non-financial companies; and
    (iii) Others.
    (4) Disclosures under exception for service providers and joint 
marketers. If you disclose nonpublic personal information under the 
exception in Sec. 160.13 to a nonaffiliated third party to market 
products or services that you offer alone or jointly with another 
financial institution, you satisfy the disclosure requirement of 
paragraph (a)(5) of this section if you:
    (i) List the categories of nonpublic personal information you 
disclose, using the same categories and examples you used to meet the 
requirements of paragraph (a)(2) of this section, as applicable; and
    (ii) State whether the third party is:
    (A) A service provider that performs marketing services on your 
behalf or on behalf of you and another financial institution; or
    (B) A financial institution with which you have a joint marketing 
agreement.
    (5) Simplified notices. If you do not disclose, and do not wish to 
reserve the right to disclose, nonpublic personal information to 
affiliates or nonaffiliated third parties except as authorized under 
Sec. Sec. 160.14 and 160.15, you may simply state that fact, in 
addition to information you must provide under paragraphs (a)(1), 
(a)(8), (a)(9) and (b) of this section.
    (6) Confidentiality and security. You describe your policies and 
practices with respect to protecting the confidentiality and security of 
nonpublic personal information if you do both of the following:
    (i) Describe in general terms who is authorized to have access to 
the information; and
    (ii) State whether you have security practices and procedures in 
place to ensure the confidentiality of the information in accordance 
with your policy. You are not required to describe technical information 
about the safeguards you use.
    (d) Short-form initial notice with opt out notice for non-customers. 
(1) You may satisfy the initial notice requirements in Sec. Sec. 
160.4(a)(2), 160.7(b) and 160.7(c) for a consumer who is not a customer 
by providing a short-form initial notice at the same time as you deliver 
an opt out notice as required in 160.7.
    (2) A short-form initial notice must:
    (i) Be clear and conspicuous;
    (ii) State that your privacy notice is available upon request; and
    (iii) Explain a reasonable means by which the consumer may obtain 
your privacy notice.
    (3) You must deliver your short-form initial notice according to 
Sec. 160.9. You are not required to deliver your privacy notice with 
your short-form initial notice. You instead may simply

[[Page 637]]

provide the consumer a reasonable means to obtain your privacy notice. 
If a consumer who receives your short-form notice requests your privacy 
notice, you must deliver your privacy notice according to Sec. 160.9.
    (4) Examples of obtaining privacy notice. You provide a reasonable 
means by which a consumer may obtain a copy of your privacy notice if 
you:
    (i) Provide a toll-free telephone number that the consumer may call 
to request the notice; or
    (ii) For a consumer who conducts business in person at your office, 
maintain copies of the notice on hand that you provide to the consumer 
immediately upon request.
    (e) Future disclosures. Your notice may include:
    (1) Categories of nonpublic personal information that you reserve 
the right to disclose in the future, but do not currently disclose; and
    (2) Categories of affiliates and nonaffiliated third parties to whom 
you reserve the right in the future to disclose, but to whom you do not 
currently disclose, nonpublic personal information.
    (f) Model privacy form. Pursuant to Sec. 160.2(a) of this part, a 
model privacy form that meets the notice content requirements of this 
section is included in appendix A of this part.
    (g) Sample clauses. Sample clauses illustrating some of the notice 
content required by this section are included in appendix B of this 
part. Use of a sample clause in a privacy notice provided on or before 
December 31, 2010, to the extent applicable, constitutes compliance with 
this part.

[66 FR 21252, Apr. 27, 2001, as amended at 74 FR 62974, December 1, 
2009]

    Effective Date Note: At 74 FR 62974, December 1, 2009, Sec. 160.6 
was amended by removing (g), effective January 1, 2012.



Sec. 160.7  Form of opt out notice to consumers; opt out methods.

    (a)(1) Form of opt out notice. If you are required to provide an opt 
out notice under Sec. 160.10(a), you must provide a clear and 
conspicuous notice to each of your consumers that accurately explains 
the right to opt out under that section. The notice must state:
    (i) That you disclose or reserve the right to disclose nonpublic 
personal information about your consumer to a nonaffiliated third party;
    (ii) That the consumer has the right to opt out of that disclosure; 
and
    (iii) A reasonable means by which the consumer may exercise the opt 
out right.
    (2) Examples--(i) Adequate opt out notice. You provide adequate 
notice that the consumer can opt out of the disclosure of nonpublic 
personal information to a nonaffiliated third party if you:
    (A) Identify all of the categories of nonpublic personal information 
that you disclose or reserve the right to disclose, and all of the 
categories of nonaffiliated third parties to which you disclose the 
information, as described in Sec. 160.6(a)(2) and (3), and state that 
the consumer can opt out of the disclosure of that information; and
    (B) Identify the financial products or services that the consumer 
obtains from you, either singly or jointly, to which the opt out 
direction would apply.
    (ii) Reasonable means to opt out. You provide a reasonable means to 
exercise an opt out right if you:
    (A) Designate check-off boxes in a prominent position on the 
relevant forms with the opt out notice;
    (B) Include a reply form together with the opt out notice;
    (C) Provide an electronic means to opt out, such as a form that can 
be sent via electronic mail or a process at your web site, if the 
consumer agrees to the electronic delivery of information; or
    (D) Provide a toll-free telephone number that consumers may call to 
opt out.
    (iii) Unreasonable opt out means. You do not provide a reasonable 
means of opting out if:
    (A) The only means of opting out is for the consumer to write his or 
her own letter to exercise that opt out right; or
    (B) The only means of opting out as described in any notice 
subsequent to the initial notice is to use a check-off box that you 
provided with the initial notice but did not include with the subsequent 
notice.
    (iv) Specific opt out means. You may require each consumer to opt 
out

[[Page 638]]

through a specific means, as long as that means is reasonable for the 
consumer.
    (b) Same form as initial notice permitted. You may provide the opt 
out notice together with or on the same written or electronic form, as 
the initial notice you provide in accordance with Sec. 160.4.
    (c) Initial notice required when opt out notice delivered subsequent 
to initial notice. If you provide the opt out notice after the initial 
notice in accordance with Sec. 160.4, you must also include a copy of 
the initial notice with the opt out notice in writing, or, if the 
consumer agrees, electronically.
    (d) Joint relationships. (1) If two or more consumers jointly obtain 
a financial product or service from you, you may provide a single opt 
out notice; however, you must honor a request from one or more joint 
account holders for a separate opt out notice. Your opt out notice must 
explain how you will treat an opt out direction by a joint consumer.
    (2) Any of the joint consumers may exercise the right to opt out. 
You may either:
    (i) Treat an opt out direction by a joint consumer as applying to 
all of the associated joint consumers; or
    (ii) Permit each joint consumer to opt out separately.
    (3) If you permit each joint consumer to opt out separately, you 
must permit one of the joint consumers to opt out on behalf of all of 
the joint consumers.
    (4) You may not require all joint consumers to opt out before you 
implement any opt out direction.
    (5) Example. If John and Mary have a joint trading account with you 
and arrange for you to send statements to John's address, you may do any 
of the following, but you must explain in your opt out notice which opt 
out policy you will follow:
    (i) Send a single opt out notice to John's address, but you must 
accept an opt out direction from either John or Mary;
    (ii) Treat an opt out direction by either John or Mary as applying 
to the entire account. If you do so, and John opts out, you may not 
require Mary to opt out as well before implementing John's opt out 
direction; or
    (iii) Permit John and Mary to make different opt out directions. If 
you do so:
    (A) You must permit John and Mary to opt out for each other.
    (B) If both opt out, you must permit both to notify you in a single 
response (such as on a form or through a telephone call).
    (C) If John opts out and Mary does not, you may only disclose 
nonpublic personal information about Mary, but not about John, and not 
about John and Mary jointly.
    (e) Time to comply with opt out. You must comply with a consumer's 
opt out direction as soon as reasonably practicable after you receive 
it.
    (f) Continuing right to opt out. A consumer may exercise the right 
to opt out at any time.
    (g) Duration of consumer's opt out direction. (1) A consumer's 
direction to opt out under this section is effective until the consumer 
revokes it in writing, either by hard copy or, if the consumer agrees, 
electronically.
    (2) When a customer relationship terminates, the customer's opt out 
direction continues to apply to the nonpublic personal information that 
you collected during or related to that relationship. If the individual 
subsequently establishes a new customer relationship with you, the opt 
out direction that applied to the former relationship does not apply to 
the new relationship.
    (h) Delivery. When you are required by this section to deliver an 
opt out notice, you must deliver it according to Sec. 160.9.
    (i) Model privacy form. Pursuant to Sec. 160.2(a) of this part, a 
model privacy form that meets the notice content requirements of this 
section is included in appendix A of this part.

[66 FR 21252, Apr. 27, 2001, as amended at 74 FR 62974, December 1, 
2009]



Sec. 160.8  Revised privacy notices.

    (a) General rule. Except as otherwise authorized in this part, you 
must not, directly or through any affiliate, disclose any nonpublic 
personal information about a consumer to a nonaffiliated third party 
other than as described in the initial notice that you provided to that 
consumer under Sec. 160.4, unless:

[[Page 639]]

    (1) You have provided to the consumer a clear and conspicuous 
revised notice that accurately describes your policies and practices;
    (2) You have provided to the consumer a new opt out notice;
    (3) You have given the consumer a reasonable opportunity, before you 
disclose the information to the nonaffiliated third party, to opt out of 
the disclosure; and
    (4) The consumer does not opt out.
    (b) Examples. (1) Except as otherwise permitted by Sec. Sec. 
160.13, 160.14, and 160.15, you must provide a revised notice before 
you:
    (i) Disclose a new category of nonpublic personal information to any 
nonaffiliated third party;
    (ii) Disclose nonpublic personal information to a new category of 
nonaffiliated third party; or
    (iii) Disclose nonpublic personal information about a former 
customer to a nonaffiliated third party, if that former customer has not 
had the opportunity to exercise an opt out right regarding that 
disclosure.
    (2) A revised notice is not required if you disclose nonpublic 
personal information to a new nonaffiliated third party that you 
adequately described in your prior notice.
    (c) Delivery. When you are required to deliver a revised privacy 
notice by this section, you must deliver it according to Sec. 160.9.



Sec. 160.9  Delivering privacy and opt out notices.

    (a) How to provide notices. You must provide any privacy notices and 
opt out notices, including short-form initial notices that this part 
requires so that each consumer can reasonably be expected to receive 
actual notice in writing either in hard copy or, if the consumer agrees, 
electronically.
    (b)(1) Examples of reasonable expectation of actual notice. You may 
reasonably expect that a consumer will receive actual notice if you:
    (i) Hand-deliver a printed copy of the notice to the consumer;
    (ii) Mail a printed copy of the notice to the last known address of 
the consumer; or
    (iii) For the consumer who conducts transactions electronically, 
post the notice on the electronic site and require the consumer to 
acknowledge receipt of the notice as a necessary step to obtaining a 
particular financial service or product.
    (2) Examples of unreasonable expectation of actual notice. You may 
not, however, reasonably expect that a consumer will receive actual 
notice of your privacy policies and practices if you:
    (i) Only post a sign in your branch or office or generally publish 
advertisements of your privacy policies and practices; or
    (ii) Send the notice via electronic mail to a consumer who does not 
obtain a financial product or service from you electronically.
    (c) Annual notices only. You may reasonably expect that a consumer 
will receive actual notice of your annual privacy notice if:
    (1) The customer uses your web site to access financial products and 
services electronically and agrees to receive notices at the web site 
and you post your current privacy notice continuously in a clear and 
conspicuous manner on the web site; or
    (2) The customer has requested that you refrain from sending any 
information regarding the customer relationship, and your current 
privacy notice remains available to the customer upon request.
    (d) Oral description of notice insufficient. You may not provide any 
notice required by this part solely by orally explaining the notice, 
either in person or over the telephone.
    (e) Retention or accessibility of notices for customers. (1) For 
customers only, you must provide the initial notice required by Sec. 
160.4(a)(1), the annual notice required by Sec. 160.5(a), and the 
revised notice required by Sec. 160.8, so that the customer can retain 
them or obtain them later in writing or, if the customer agrees, 
electronically.
    (2) Examples of retention or accessibility. You provide a privacy 
notice to the customer so that the customer can retain it or obtain it 
later if you:
    (i) Hand-deliver a printed copy of the notice to the customer;
    (ii) Mail a printed copy of the notice to the last known address of 
the customer; or

[[Page 640]]

    (iii) Make your current privacy notice available on a web site (or a 
link to another web site) for the customer who obtains a financial 
product or service electronically and agrees to receive the notice at 
the web site.
    (f) Joint notice with other financial institutions. You may provide 
a joint notice from you and one or more of your affiliates or other 
financial institutions, as identified in the notice, as long as the 
notice is accurate with respect to you and the other institutions.
    (g) Joint relationships. If two or more customers jointly obtain a 
financial product or service from you, you may satisfy the initial, 
annual, and revised notice requirements of paragraph (a) of this section 
by providing one notice to those customers jointly; however, you must 
honor a request by one or more joint account holders for a separate 
notice.



                     Subpart B_Limits on Disclosures



Sec. 160.10  Limits on disclosure of nonpublic personal information to nonaffiliated third parties.

    (a)(1) Conditions for disclosure. Except as otherwise authorized in 
this part, you may not, directly or through any affiliate, disclose any 
nonpublic personal information about a consumer to a nonaffiliated third 
party unless:
    (i) You have provided to the consumer an initial notice as required 
under Sec. 160.4;
    (ii) You have provided to the consumer an opt out notice as required 
in Sec. 160.7;
    (iii) You have given the consumer a reasonable opportunity, before 
you disclose the information to the nonaffiliated third party, to opt of 
the disclosure; and
    (iv) The consumer does not opt out.
    (2) Opt out definition. Opt out means a direction by the consumer 
that you not disclose nonpublic personal information about that consumer 
to a nonaffiliated third party, other than as permitted by Sec. Sec. 
160.13, 160.14 and 160.15.
    (3) Examples of reasonable opportunity to opt out. You provide a 
consumer with a reasonable opportunity to opt out if:
    (i) By mail. You mail the notices required in paragraph (a)(1) of 
this section to the consumer and allow the consumer to opt out by 
mailing a form, calling a toll-free telephone number, or any other 
reasonable means within 30 days after the date you mailed the notices.
    (ii) By electronic means. A customer opens an on-line account with 
you and agrees to receive the notices required in paragraph (a)(1) of 
this section electronically, and you allow the customer to opt out by 
any reasonable means within 30 days after the date that the customer 
acknowledges receipt of the notices in conjunction with opening the 
account.
    (iii) Isolated transaction with consumer. For an isolated 
transaction with a consumer, you provide the consumer with a reasonable 
opportunity to opt out if you provide the notices required in paragraph 
(a)(1) of this section at the time of the transaction and request that 
the consumer decide, as a necessary part of the transaction, whether to 
opt out before completing the transaction.
    (b) Application of opt out to all consumers and all nonpublic 
personal information. (1) You must comply with this section, regardless 
of whether you and the consumer have established a customer 
relationship.
    (2) Unless you comply with this section, you may not, directly or 
through any affiliate, disclose any nonpublic personal information about 
a consumer that you have collected, regardless of whether you have 
collected it before or after receiving the direction to opt out from the 
consumer.
    (c) Partial opt out. You may allow a consumer to select certain 
nonpublic personal information or certain nonaffiliated third parties 
with respect to which the consumer wishes to opt out.



Sec. 160.11  Limits on redisclosure and reuse of information.

    (a) (1) Information you receive under an exception. If you receive 
nonpublic personal information from a nonaffiliated financial 
institution under an exception in Sec. Sec. 160.14 or 160.15, your 
disclosure and use of that information is limited as follows:
    (i) You may disclose the information to the affiliate of the 
financial institution from which you received the information;

[[Page 641]]

    (ii) You may disclose the information to your affiliates, but your 
affiliates may, in turn, disclose and use the information only to the 
extent that you may disclose and use the information; and
    (iii) You may disclose and use the information pursuant to an 
exception in Sec. 160.14 or 160.15 in the ordinary course of business 
to carry out the activity covered by the exception under which you 
received the information.
    (2) Example. If you receive a customer list from a nonaffiliated 
financial institution in order to provide account-processing services 
under the exception in Sec. 160.14(a), you may disclose that 
information under any exception in Sec. Sec. 160.14 or 160.15 in the 
ordinary course of business in order to provide those services. For 
example, you could disclose that information in response to a properly 
authorized subpoena or in the ordinary course of business to your 
attorneys, accountants, and auditors. You could not disclose that 
information to a third party for marketing purposes or use that 
information for your own marketing purposes.
    (b)(1) Information you receive outside of an exception. If you 
receive nonpublic personal information from a nonaffiliated financial 
institution other than under an exception in Sec. Sec. 160.14 or 
160.15, you may disclose the information only:
    (i) To the affiliates of the financial institution from which you 
received the information;
    (ii) To your affiliates, but your affiliates may, in turn, disclose 
the information only to the extent that you can disclose the 
information; and
    (iii) To any other person, if the disclosure would be lawful if made 
directly to that person by the financial institution from which you 
received the information.
    (2) Example. If you obtain a customer list from a nonaffiliated 
financial institution outside of the exceptions in Sec. Sec. 160.14 and 
160.15:
    (i) You may use that list for your own purposes;
    (ii) You may disclose that list to another nonaffiliated third party 
only if the financial institution from which you purchased the list 
could have lawfully disclosed that list to that third party. That is, 
you may disclose the list in accordance with the privacy policy of the 
financial institution from which you received the list as limited by the 
opt out direction of each consumer whose nonpublic personal information 
you intend to disclose, and you may disclose the list in accordance with 
an exception in Sec. Sec. 160.14 and 160.15, such as in the ordinary 
course of business to your attorneys, accountants, or auditors.
    (c) Information you disclose under an exception. If you disclose 
nonpublic personal information to a nonaffiliated third party under an 
exception in Sec. Sec. 160.14 or 160.15, the third party may disclose 
and use that information only as follows:
    (1) The third party may disclose the information to your affiliates;
    (2) The third party may disclose the information to its affiliates, 
but its affiliates may, in turn, disclose and use the information only 
to the extent that the third party may disclose and use the information; 
and
    (3) The third party may disclose and use the information pursuant to 
an exception in Sec. Sec. 160.14 or 160.15 in the ordinary course of 
business to carry out the activity covered by the exception under which 
it received the information.
    (d) Information you disclose outside of an exception. If you 
disclose nonpublic personal information to a nonaffiliated third party 
other than under an exception in Sec. Sec. 160.14 or 160.15, the third 
party may disclose the information only:
    (1) To your affiliates;
    (2) To its affiliates, but its affiliates, in turn, may disclose the 
information only to the extent the third party can disclose the 
information; and
    (3) To any other person, if the disclosure would be lawful if you 
made it directly to that person.



Sec. 160.12  Limits on sharing account number information for marketing purposes.

    (a) General prohibition on disclosure of account numbers. You must 
not, directly or through an affiliate, disclose, other than to a 
consumer reporting agency, an account number or similar form of access 
number or access code

[[Page 642]]

for a consumer's credit card account, deposit account or transaction 
account to any nonaffiliated third party for use in telemarketing, 
direct mail marketing or other marketing through electronic mail to the 
consumer.
    (b) Exceptions. Paragraph (a) of this section does not apply if you 
disclose an account number or similar form of access number or access 
code:
    (1) To your agent or service provider solely in order to perform 
marketing for your own services or products, as long as the agent or 
service provider is not authorized to directly initiate charges to the 
account; or
    (2) To a participant in a private-label credit card program or an 
affinity or similar program where the participants in the program are 
identified to the customer when the customer enters into the program.
    (c) Example. An account number, or similar form of access number or 
access code, does not include a number or code in an encrypted form, as 
long as you do not provide the recipient with a means to decode the 
number or code.



                          Subpart C_Exceptions



Sec. 160.13  Exception to opt out requirements for service providers and joint marketing.

    (a) General rule. (1) The opt out requirements in Sec. Sec. 160.7 
and 160.10 do not apply when you provide nonpublic personal information 
to a nonaffiliated third party to perform services for you or functions 
on your behalf if you:
    (i) Provide the initial notice in accordance with Sec. 160.4; and
    (ii) Enter into a contractual agreement with the third party that 
prohibits the third party from disclosing or using the information other 
than to carry out the purposes for which you disclosed the information, 
including use under an exception in Sec. Sec. 160.14 or 160.15 in the 
ordinary course of business to carry out those purposes.
    (2) Example. If you disclose nonpublic personal information under 
this section to a financial institution with which you perform joint 
marketing, your contractual agreement with that institution meets the 
requirements of paragraph (a)(1)(ii) of this section if it prohibits the 
institution from disclosing or using the nonpublic personal information 
except as necessary to carry out the joint marketing or under an 
exception in Sec. Sec. 160.14 or 160.15 in the ordinary course of 
business to carry out that joint marketing.
    (b) Service may include joint marketing. The services a 
nonaffiliated third party performs for you under paragraph (a) of this 
section may include marketing of your own products or services or 
marketing of financial products or services offered pursuant to joint 
agreements between you and one or more financial institutions.
    (c) Definition of joint agreement. For purposes of this section, 
joint agreement means a written contract pursuant to which you and one 
or more financial institutions jointly offer, endorse or sponsor a 
financial product or service.



Sec. 160.14  Exceptions to notice and opt out requirements for processing and servicing transactions.

    (a) Exceptions for processing and servicing transactions at 
consumer's request. The requirements for initial notice in Sec. 
160.4(a)(2), for the opt out in Sec. Sec. 160.7 and 160.10, and for 
initial notice in Sec. 160.13 in connection with service providers and 
joint marketing, do not apply if you disclose nonpublic personal 
information as necessary to effect, administer, or enforce a transaction 
that a consumer requests or authorizes, or in connection with:
    (1) Processing or servicing a financial product or service that a 
consumer requests or authorizes;
    (2) Maintaining or servicing the consumer's account with you, or 
with another entity as part of an extension of credit on behalf of such 
entity as part of a private label credit card program or other extension 
of credit on behalf of such entity; or
    (3) A proposed or actual securitization, secondary market sale or 
similar transaction related to a transaction of the consumer.
    (b) Necessary to effect, administer or enforce a transaction means 
that the disclosure is:
    (1) Required, or is one of the lawful or appropriate methods, to 
enforce

[[Page 643]]

your rights or the rights of other persons engaged in carrying out the 
financial transaction or providing the product or service; or
    (2) Required, or is a usual, appropriate or acceptable method:
    (i) To carry out the transaction or the product or service business 
of which the transaction is a part, and record, service or maintain the 
consumer's account in the ordinary course of providing the financial 
service or financial product;
    (ii) To administer or service benefits or claims relating to the 
transaction or the product or service business of which it is a part;
    (iii) To provide a confirmation, statement or other record of the 
transaction, or information on the status or value of the financial 
service or financial product to the consumer or the consumer's agent or 
broker;
    (iv) To accrue or recognize incentives or bonuses associated with 
the transaction that are provided by you or any other party;
    (v) In connection with:
    (A) The authorization, settlement, billing, processing, clearing, 
transferring, reconciling or collection of amounts charged, debited or 
otherwise paid using a debit, credit or other payment card, check or 
account number, or by other payment means;
    (B) The transfer of receivables, accounts or interests therein; or
    (C) The audit of debit, credit or other payment information.



Sec. 160.15  Other exceptions to notice and opt out requirements.

    (a) Exceptions to notice and opt out requirements. The requirements 
for initial notice in Sec. 160.4(a)(2), for the opt out in Sec. Sec. 
160.7 and 160.10, and for initial notice in Sec. 160.13 in connection 
with service providers and joint marketing do not apply when you 
disclose nonpublic personal information:
    (1) With the consent or at the direction of the consumer, provided 
that the consumer has not revoked the consent or direction;
    (2)(i) To protect the confidentiality or security or your records 
pertaining to the consumer, service, product or transaction;
    (ii) To protect against or prevent actual or potential fraud, 
unauthorized transactions, claims or other liability;
    (iii) For required institutional risk control or for resolving 
consumer disputes or inquiries;
    (iv) To persons holding a legal or beneficial interest relating to 
the consumer; or
    (v) To persons acting in a fiduciary or representative capacity on 
behalf of the consumer;
    (3) To provide information to insurance rate advisory organizations, 
guaranty funds or agencies, agencies that are rating you, persons that 
are assessing your compliance with industry standards, and your 
attorneys, accountants and auditors;
    (4) To the extent specifically permitted or required under other 
provisions of law and in accordance with the Right to Financial Privacy 
Act of 1978, 12 U.S.C. 3401 et seq., to law enforcement agencies 
(including a federal functional regulator, the Secretary of the 
Treasury, with respect to 31 U.S.C. Chapter 53, Subchapter II (Records 
and Reports on Monetary Instruments and Transactions) and 12 U.S.C. 
Chapter 21 (Financial Recordkeeping), a State insurance authority, with 
respect to any person domiciled in that insurance authority's state that 
is engaged in providing insurance, and the Federal Trade Commission), 
self-regulatory organizations, or for an investigation on a matter 
related to public safety;
    (5)(i) To a consumer reporting agency in accordance with the Fair 
Credit Reporting Act, 15 U.S.C. 1681 et seq.; or
    (ii) From a consumer report reported by a consumer reporting agency;
    (6) In connection with a proposed or actual sale, merger, transfer 
or exchange of all or a portion of a business or operating unit if the 
disclosure of nonpublic personal information concerns solely consumers 
of such business or unit; or
    (7)(i) To comply with federal, state or local laws, rules and other 
applicable legal requirements;
    (ii) To comply with a properly authorized civil, criminal or 
regulatory investigation, or subpoena or summons by federal, state or 
local authorities; or
    (iii) To respond to judicial process or government regulatory 
authorities

[[Page 644]]

having jurisdiction over you for examination, compliance or other 
purposes as authorized by law.
    (b) Examples of consent and revocation of consent. (1) A consumer 
may specifically consent to your disclosure to a nonaffiliated mortgage 
lender of the value of the assets in the customer's account so that the 
lender can evaluate the consumer's application for a mortgage loan.
    (2) A consumer may revoke consent by subsequently exercising the 
right to opt out of future disclosures of nonpublic personal information 
as permitted under Sec. 160.7(f).



            Subpart D_Relation to Other Laws; Effective Date



Sec. 160.16  Protection of Fair Credit Reporting Act.

    Nothing in this part shall be construed to modify, limit or 
supersede the operation of the Fair Credit Reporting Act, 15 U.S.C. 1681 
et seq., and no inference shall be drawn on the basis of the provisions 
of this part regarding whether information is transaction or experience 
information under section 603 of that Act.



Sec. 160.17  Relation to state laws.

    (a) In general. This part shall not be construed as superseding, 
altering or affecting any statute, regulation, order or interpretation 
in effect in any state, except to the extent that such state statute, 
regulation, order or interpretation is inconsistent with the provisions 
of this part, and then only to the extent of the inconsistency.
    (b) Greater protection under state law. For purposes of this 
section, a state statute, regulation, order or interpretation is not 
inconsistent with the provisions of this part if the protection such 
statute, regulation, order or interpretation affords any consumer is 
greater than the protection provided under this part, as determined by 
the Federal Trade Commission, after consultation with the Commission, on 
the Federal Trade Commission's own motion, or upon the petition of any 
interested party.



Sec. 160.18  Effective date; compliance date; transition rule.

    (a) Effective date. This part is effective on June 21, 2001. In 
order to provide sufficient time for you to establish policies and 
systems to comply with the requirements for this part, the compliance 
date for this part is March 31, 2002.
    (b)(1) Notice requirement for consumers who are your customers on 
the effective date. By March 31, 2002, you must have provided an initial 
notice, as required by Sec. 160.4, to consumers who are your customers 
on March 31, 2002.
    (2) Example. You provide an initial notice to consumers who are your 
customers on March 31, 2002 if, by that date, you have established a 
system for providing an initial notice to all new customers and have 
mailed the initial notice to all your existing customers.
    (c) One-year grandfathering of service agreements. Until March 31, 
2003, a contract that you have entered into with a nonaffiliated third 
party to perform services for you or functions on your behalf satisfies 
the provisions of Sec. 160.13(a)(1)(ii) even if the contract does not 
include a requirement that the third party maintain the confidentiality 
of nonpublic personal information, as long as you entered into the 
agreement on or before March 31, 2002.

[66 FR 21252, Apr. 27, 2001, as amended at 66 FR 24061, 24183, May 11, 
2001; 67 FR 6790, Feb. 13, 2002]



Sec. Sec. 160.19-160.29  [Reserved]



Sec. 160.30  Procedures to safeguard customer records and information.

    Every futures commission merchant, retail foreign exchange dealer, 
commodity trading advisor, commodity pool operator and introducing 
broker subject to the jurisdiction of the Commission must adopt policies 
and procedures that address administrative, technical and physical 
safeguards for the protection of customer records and information. These 
policies and procedures must be reasonably designed to:
    (a) Insure the security and confidentiality of customer records and 
information;
    (b) Protect against any anticipated threats or hazards to the 
security or

[[Page 645]]

integrity of customer records and information; and
    (c) Protect against unauthorized access to or use of customer 
records or information that could result in substantial harm or 
inconvenience to any customer.

[66 FR 21252, Apr. 27, 2001, as amended at 75 FR 55451, Sept. 10, 2010]



             Sec. Appendix A to Part 160--Model Privacy Form

                        A. The Model Privacy Form
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                         B. General Instructions

                  1. How the Model Privacy Form Is Used

    (a) The model form may be used, at the option of a financial 
institution, including a group of financial institutions that use a 
common privacy notice, to meet the content requirements of the privacy 
notice and opt-out notice set forth in Sec. Sec. 160.6 and 160.7 of 
this part.
    (b) The model form is a standardized form, including page layout, 
content, format, style, pagination, and shading. Institutions seeking to 
obtain the safe harbor through use of the model form may modify it only 
as described in these Instructions.
    (c) Note that disclosure of certain information, such as assets, 
income, and information from a consumer reporting agency, may give rise 
to obligations under the Fair Credit Reporting Act [15 U.S.C. 1681-
1681x] (FCRA), such as a requirement to permit a consumer to opt out of 
disclosures to affiliates or designation as a consumer reporting agency 
if disclosures are made to nonaffiliated third parties.
    (d) The word ``customer'' may be replaced by the word ``member'' 
whenever it appears in the model form, as appropriate.

                2. The Contents of the Model Privacy Form

    The model form consists of two pages, which may be printed on both 
sides of a single sheet of paper, or may appear on two separate pages. 
Where an institution provides a long list of institutions at the end of 
the model form in accordance with Instruction C.3(a)(1), or provides 
additional information in accordance with Instruction C.3(c), and such 
list or additional information exceeds the space available on page two 
of the model form, such list or additional information may extend to a 
third page.
    (a) Page One. The first page consists of the following components:
    (1) Date last revised (upper right-hand corner).
    (2) Title.
    (3) Key frame (Why?, What?, How?).
    (4) Disclosure table (``Reasons we can share your personal 
information'').
    (5) ``To limit our sharing'' box, as needed, for the financial 
institution's opt-out information.
    (6) ``Questions'' box, for customer service contact information.
    (7) Mail-in opt-out form, as needed.
    (b) Page Two. The second page consists of the following components:
    (1) Heading (Page 2).
    (2) Frequently Asked Questions (``Who we are'' and ``What we do'').
    (3) Definitions.
    (4) ``Other important information'' box, as needed.

                 3. The Format of the Model Privacy Form

    The format of the model form may be modified only as described 
below.
    (a) Easily readable type font. Financial institutions that use the 
model form must use an easily readable type font. While a number of 
factors together produce easily readable type font, institutions are 
required to use a minimum of 10-point font (unless otherwise expressly 
permitted in these Instructions) and sufficient spacing between the 
lines of type.
    (b) Logo. A financial institution may include a corporate logo on 
any page of the notice, so long as it does not interfere with the

[[Page 652]]

readability of the model form or the space constraints of each page.
    (c) Page size and orientation. Each page of the model form must be 
printed on paper in portrait orientation, the size of which must be 
sufficient to meet the layout and minimum font size requirements, with 
sufficient white space on the top, bottom, and sides of the content.
    (d) Color. The model form must be printed on white or light color 
paper (such as cream) with black or other contrasting ink color. Spot 
color may be used to achieve visual interest, so long as the color 
contrast is distinctive and the color does not detract from the 
readability of the model form. Logos may also be printed in color.
    (e) Languages. The model form may be translated into languages other 
than English.

            C. Information Required in the Model Privacy Form

    The information in the model form may be modified only as described 
below:

1. Name of the Institution or Group of Affiliated Institutions Providing 
                               the Notice

    Insert the name of the financial institution providing the notice or 
a common identity of affiliated institutions jointly providing the 
notice on the form wherever [name of financial institution] appears.

                               2. Page One

    (a) Last revised date. The financial institution must insert in the 
upper right-hand corner the date on which the notice was last revised. 
The information shall appear in minimum 8-point font as ``rev. [month/
year]'' using either the name or number of the month, such as ``rev. 
July 2009'' or ``rev. 7/09''.
    (b) General instructions for the ``What?'' box.
    (1) The bulleted list identifies the types of personal information 
that the institution collects and shares. All institutions must use the 
term ``Social Security number'' in the first bullet.
    (2) Institutions must use five (5) of the following terms to 
complete the bulleted list: income; account balances; payment history; 
transaction history; transaction or loss history; credit history; credit 
scores; assets; investment experience; credit-based insurance scores; 
insurance claim history; medical information; overdraft history; 
purchase history; account transactions; risk tolerance; medical-related 
debts; credit card or other debt; mortgage rates and payments; 
retirement assets; checking account information; employment information; 
wire transfer instructions.
    (c) General instructions for the disclosure table. The left column 
lists reasons for sharing or using personal information. Each reason 
correlates to a specific legal provision described in paragraph C.2(d) 
of this Instruction. In the middle column, each institution must provide 
a ``Yes'' or ``No'' response that accurately reflects its information 
sharing policies and practices with respect to the reason listed on the 
left. In the right column, each institution must provide in each box one 
of the following three (3) responses, as applicable, that reflects 
whether a consumer can limit such sharing: ``Yes'' if it is required to 
or voluntarily provides an opt-out; ``No'' if it does not provide an 
opt-out; or ``We don't share'' if it answers ``No'' in the middle 
column. Only the sixth row (``For our affiliates to market to you'') may 
be omitted at the option of the institution. See paragraph C.2(d)(6) of 
this Instruction.
    (d) Specific disclosures and corresponding legal provisions.
    (1) For our everyday business purposes. This reason incorporates 
sharing information under Sec. Sec. 160.14 and 160.15 and with service 
providers pursuant to Sec. 160.13 of this part other than the purposes 
specified in paragraphs C.2(d)(2) or C.2(d)(3) of these Instructions.
    (2) For our marketing purposes. This reason incorporates sharing 
information with service providers by an institution for its own 
marketing pursuant to Sec. 160.13 of this part. An institution that 
shares for this reason may choose to provide an opt-out.
    (3) For joint marketing with other financial companies. This reason 
incorporates sharing information under joint marketing agreements 
between two or more financial institutions and with any service provider 
used in connection with such agreements pursuant to Sec. 160.13 of this 
part. An institution that shares for this reason may choose to provide 
an opt-out.
    (4) For our affiliates' everyday business purposes--information 
about transactions and experiences. This reason incorporates sharing 
information specified in sections 603(d)(2)(A)(i) and (ii) of the FCRA. 
An institution that shares for this reason may choose to provide an opt-
out.
    (5) For our affiliates' everyday business purposes--information 
about creditworthiness. This reason incorporates sharing information 
pursuant to section 603(d)(2)(A)(iii) of the FCRA. An institution that 
shares for this reason must provide an opt-out.
    (6) For our affiliates to market to you. This reason incorporates 
sharing information specified in section 624 of the FCRA. This reason 
may be omitted from the disclosure table when: the institution does not 
have affiliates (or does not disclose personal information to its 
affiliates); the institution's affiliates do not use personal 
information in a manner that requires an opt-out; or the institution 
provides the affiliate marketing notice separately. Institutions that 
include

[[Page 653]]

this reason must provide an opt-out of indefinite duration. An 
institution not required to provide an opt-out under this subparagraph 
may elect to include this reason in the model form. Note: The CFTC's 
Regulations do not address the affiliate marketing rule.
    (7) For nonaffiliates to market to you. This reason incorporates 
sharing described in Sec. Sec. 160.7 and 160.10(a) of this part. An 
institution that shares personal information for this reason must 
provide an opt-out.
    (e) To limit our sharing: A financial institution must include this 
section of the model form only if it provides an opt-out. The word 
``choice'' may be written in either the singular or plural, as 
appropriate. Institutions must select one or more of the applicable opt-
out methods described: telephone, such as by a toll-free number; a 
Website; or use of a mail-in opt-out form. Institutions may include the 
words ``toll-free'' before telephone, as appropriate. An institution 
that allows consumers to opt out online must provide either a specific 
Web address that takes consumers directly to the opt-out page or a 
general Web address that provides a clear and conspicuous direct link to 
the opt-out page. The opt-out choices made available to the consumer who 
contacts the institution through these methods must correspond 
accurately to the ``Yes'' responses in the third column of the 
disclosure table. In the part titled ``Please note'' institutions may 
insert a number that is 30 or greater in the space marked ``[30].'' 
Instructions on voluntary or state privacy law opt-out information are 
in paragraph C.2(g)(5) of these Instructions.
    (f) Questions box. Customer service contact information must be 
inserted as appropriate, where [phone number] or [website] appear. 
Institutions may elect to provide either a phone number, such as a toll-
free number, or a Web address, or both. Institutions may include the 
words ``toll-free'' before the telephone number, as appropriate.
    (g) Mail-in opt-out form. Financial institutions must include this 
mail-in form only if they state in the ``To limit our sharing'' box that 
consumers can opt out by mail. The mail-in form must provide opt-out 
options that correspond accurately to the ``Yes'' responses in the third 
column in the disclosure table. Institutions that require customers to 
provide only name and address may omit the section identified as 
``[account ].'' Institutions that require additional or 
different information, such as a random opt-out number or a truncated 
account number, to implement an opt-out election should modify the 
``[account ]'' reference accordingly. This includes 
institutions that require customers with multiple accounts to identify 
each account to which the opt-out should apply. An institution must 
enter its opt-out mailing address: in the far right of this form (see 
version 3); or below the form (see version 4). The reverse side of the 
mail-in opt-out form must not include any content of the model form.
    (1) Joint accountholder. Only institutions that provide their joint 
accountholders the choice to opt out for only one accountholder, in 
accordance with paragraph C.3(a)(5) of these Instructions, must include 
in the far left column of the mail-in form the following statement: ``If 
you have a joint account, your choice(s) will apply to everyone on your 
account unless you mark below. [squ] Apply my choice(s) only 
to me.'' The word ``choice'' may be written in either the singular or 
plural, as appropriate. Financial institutions that provide insurance 
products or services, provide this option, and elect to use the model 
form may substitute the word ``policy'' for ``account'' in this 
statement. Institutions that do not provide this option may eliminate 
this left column from the mail-in form.
    (2) FCRA Section 603(d)(2)(A)(iii) opt-out. If the institution 
shares personal information pursuant to section 603(d)(2)(A)(iii) of the 
FCRA, it must include in the mail-in opt-out form the following 
statement: ``[squ] Do not share information about my 
creditworthiness with your affiliates for their everyday business 
purposes.''
    (3) FCRA Section 624 opt-out. If the institution incorporates 
section 624 of the FCRA in accord with paragraph C.2(d)(6) of these 
Instructions, it must include in the mail-in opt-out form the following 
statement: ``[squ] Do not allow your affiliates to use my 
personal information to market to me.''
    (4) Nonaffiliate opt-out. If the financial institution shares 
personal information pursuant to Sec. 160.10(a) of this part, it must 
include in the mail-in opt-out form the following statement: 
``[squ] Do not share my personal information with 
nonaffiliates to market their products and services to me.''
    (5) Additional opt-outs. Financial institutions that use the 
disclosure table to provide opt-out options beyond those required by 
Federal law must provide those opt-outs in this section of the model 
form. A financial institution that chooses to offer an opt-out for its 
own marketing in the mail-in opt-out form must include one of the two 
following statements: ``[squ] Do not share my personal 
information to market to me.'' or ``[squ] Do not use my 
personal information to market to me.'' A financial institution that 
chooses to offer an opt-out for joint marketing must include the 
following statement: ``[squ] Do not share my personal 
information with other financial institutions to jointly market to me.''
    (h) Barcodes. A financial institution may elect to include a barcode 
and/or ``tagline'' (an internal identifier) in 6-point font at the 
bottom of page one, as needed for information internal to the 
institution, so long as these do not interfere with the clarity or text 
of the form.

[[Page 654]]

                               3. Page Two

    (a) General Instructions for the Questions. Certain of the Questions 
may be customized as follows:
    (1) ``Who is providing this notice?'' This question may be omitted 
where only one financial institution provides the model form and that 
institution is clearly identified in the title on page one. Two or more 
financial institutions that jointly provide the model form must use this 
question to identify themselves as required by Sec. 160.9(f) of this 
part. Where the list of institutions exceeds four (4) lines, the 
institution must describe in the response to this question the general 
types of institutions jointly providing the notice and must separately 
identify those institutions, in minimum 8-point font, directly following 
the ``Other important information'' box, or, if that box is not included 
in the institution's form, directly following the ``Definitions.'' The 
list may appear in a multi-column format.
    (2) ``How does [name of financial institution] protect my personal 
information?'' The financial institution may only provide additional 
information pertaining to its safeguards practices following the 
designated response to this question. Such information may include 
information about the institution's use of cookies or other measures it 
uses to safeguard personal information. Institutions are limited to a 
maximum of 30 additional words.
    (3) ``How does [name of financial institution] collect my personal 
information?'' Institutions must use five (5) of the following terms to 
complete the bulleted list for this question: Open an account; deposit 
money; pay your bills; apply for a loan; use your credit or debit card; 
seek financial or tax advice; apply for insurance; pay insurance 
premiums; file an insurance claim; seek advice about your investments; 
buy securities from us; sell securities to us; direct us to buy 
securities; direct us to sell your securities; make deposits or 
withdrawals from your account; enter into an investment advisory 
contract; give us your income information; provide employment 
information; give us your employment history; tell us about your 
investment or retirement portfolio; tell us about your investment or 
retirement earnings; apply for financing; apply for a lease; provide 
account information; give us your contact information; pay us by check; 
give us your wage statements; provide your mortgage information; make a 
wire transfer; tell us who receives the money; tell us where to send the 
money; show your government-issued ID; show your driver's license; order 
a commodity futures or option trade. Institutions that collect personal 
information from their affiliates and/or credit bureaus must include 
after the bulleted list the following statement: ``We also collect your 
personal information from others, such as credit bureaus, affiliates, or 
other companies.'' Institutions that do not collect personal information 
from their affiliates or credit bureaus but do collect information from 
other companies must include the following statement instead: ``We also 
collect your personal information from other companies.'' Only 
institutions that do not collect any personal information from 
affiliates, credit bureaus, or other companies can omit both statements.
    (4) ``Why can't I limit all sharing?'' Institutions that describe 
state privacy law provisions in the ``Other important information'' box 
must use the bracketed sentence: ``See below for more on your rights 
under state law.'' Other institutions must omit this sentence.
    (5) ``What happens when I limit sharing for an account I hold 
jointly with someone else?'' Only financial institutions that provide 
opt-out options must use this question. Other institutions must omit 
this question. Institutions must choose one of the following two 
statements to respond to this question: ``Your choices will apply to 
everyone on your account.'' or ``Your choices will apply to everyone on 
your account--unless you tell us otherwise.'' Financial institutions 
that provide insurance products or services and elect to use the model 
form may substitute the word ``policy'' for ``account'' in these 
statements.
    (b) General Instructions for the Definitions.
    The financial institution must customize the space below the 
responses to the three definitions in this section. This specific 
information must be in italicized lettering to set off the information 
from the standardized definitions.
    (1) Affiliates. As required by Sec. 160.6(a)(3) of this part, where 
[affiliate information] appears, the financial institution must:
    (i) If it has no affiliates, state: ``[name of financial 
institution] has no affiliates'';
    (ii) If it has affiliates but does not share personal information, 
state: ``[name of financial institution] does not share with our 
affiliates''; or
    (iii) If it shares with its affiliates, state, as applicable: ``Our 
affiliates include companies with a [common corporate identity of 
financial institution] name; financial companies such as [insert 
illustrative list of companies]; nonfinancial companies, such as [insert 
illustrative list of companies]; and others, such as [insert 
illustrative list].''
    (2) Nonaffiliates. As required by Sec. 160.6(c)(3) of this part, 
where [nonaffiliate information] appears, the financial institution 
must:
    (i) If it does not share with nonaffiliated third parties, state: 
``[name of financial institution] does not share with nonaffiliates so 
they can market to you''; or
    (ii) If it shares with nonaffiliated third parties, state, as 
applicable: ``Nonaffiliates we share with can include [list categories 
of companies such as mortgage companies, insurance

[[Page 655]]

companies, direct marketing companies, and nonprofit organizations].''
    (3) Joint Marketing. As required by Sec. 160.13 of this part, where 
[joint marketing] appears, the financial institution must:
    (i) If it does not engage in joint marketing, state: ``[name of 
financial institution] doesn't jointly market''; or
    (ii) If it shares personal information for joint marketing, state, 
as applicable: ``Our joint marketing partners include [list categories 
of companies such as credit card companies].''
    (c) General instructions for the ``Other important information'' 
box. This box is optional. The space provided for information in this 
box is not limited. Only the following types of information can appear 
in this box.
    (1) State and/or international privacy law information; and/or
    (2) Acknowledgment of receipt form.

[74 FR 62975, Dec. 1, 2009]



               Sec. Appendix B to Part 160--Sample Clauses

    This appendix only applies to privacy notices provided before 
January 1, 2011. Financial institutions, including a group of financial 
holding company affiliates that use a common privacy notice, may use the 
following sample clauses, if the clause is accurate for each institution 
that uses the notice. Note that disclosure of certain information, such 
as assets, income and information from a consumer reporting agency, may 
give rise to obligations under the Fair Credit Reporting Act, such as a 
requirement to permit a consumer to opt out of disclosures to affiliates 
or designation as a consumer reporting agency if disclosures are made to 
nonaffiliated third parties.

      A-1--Categories of Information You Collect (All Institutions)

    You may use this clause, as applicable, to meet the requirement of 
Sec. 160.6(a)(1) to describe the categories of nonpublic personal 
information you collect.

                            Sample Clause A-1

    We collect nonpublic personal information about you from the 
following sources:
     Information we receive from you on applications 
or other forms;
     Information about your transactions with us, our 
affiliates or others; and
     Information we receive from a consumer reporting 
agency.

A-2--Categories of Information You Disclose (Institutions That Disclose 
                       Outside of the Exceptions)

    You may use one of these clauses, as applicable, to meet the 
requirement of Sec. 160.6(a)(2) to describe the categories of nonpublic 
personal information you disclose. You may use these clauses if you 
disclose nonpublic personal information other than as permitted by the 
exceptions in Sec. Sec. 160.13, 160.14 and 160.15.

                    Sample Clause A-2, Alternative 1

    We may disclose the following kinds of nonpublic personal 
information about you:
     Information we receive from you on applications 
or other forms, such as [provide illustrative examples, such as ``your 
name, address, social security number, assets and income''];
     Information about your transactions with us, our 
affiliates or others, such as [provide illustrative examples, such as 
``your account balance, payment history, parties to transactions and 
credit card usage'']; and
     Information we receive from a consumer reporting 
agency, such as [provide illustrative examples, such as ``your 
creditworthiness and credit history''].

                    Sample Clause A-2, Alternative 2

    We may disclose all of the information that we collect, as described 
[describe location in the notice, such as ``above'' or ``below''].

  A-3--Categories of Information You Disclose and Parties to Whom You 
 Disclose (Institutions That Do Not Disclose Outside of the Exceptions)

    You may use this clause, as applicable, to meet the requirements of 
Sec. Sec. 160.6(a)(2), (3) and (4) to describe the categories of 
nonpublic personal information about customers and former customers that 
you disclose and the categories of affiliates and nonaffiliated third 
parties to whom you disclose. You may use this clause if you do not 
disclose nonpublic personal information to any party, other than as is 
permitted by the exceptions in Sec. Sec. 160.14 and 160.15.

                            Sample Clause A-3

    We do not disclose any nonpublic personal information about our 
customers or former customers to anyone, except as permitted by law.

   A-4--Categories of Parties to Whom You Disclose (Institutions That 
                   Disclose Outside of the Exceptions)

    You may use this clause, as applicable, to meet the requirement of 
Sec. 160.6(a)(3) to describe the categories of affiliates and 
nonaffiliated third parties to whom you disclose nonpublic personal 
information. You may use this clause if you disclose nonpublic personal 
information other than as permitted by the exceptions in Sec. Sec. 
160.13, 160.14 and 160.15, as well as when permitted by the exceptions 
in Sec. Sec. 160.14 and 160.15.

[[Page 656]]

                            Sample Clause A-4

    We may disclose nonpublic personal information about you to the 
following types of third parties:
     Financial service providers, such as [provide 
illustrative examples, such as ``mortgage bankers''];
     Non-financial companies, such as [provide 
illustrative examples, such as ``retailers, direct marketers, airlines 
and publishers'']; and
     Others, such as [provide illustrative examples, 
such as ``non-profit organizations''].
    We may also disclose nonpublic personal information about you to 
nonaffiliated third parties as permitted by law.

             A-5--Service Provider/Joint Marketing Exception

    You may use one of these clauses, as applicable, to meet the 
requirements of Sec. 160.6(a)(5) related to the exception for service 
providers and joint marketers in Sec. 160.13. If you disclose nonpublic 
personal information under this exception, you must describe the 
categories of nonpublic personal information you disclose and the 
categories of third parties with whom you have contracted.

                    Sample Clause A-5, Alternative 1

    We may disclose the following information to companies that perform 
marketing services on our behalf or to other financial institutions with 
which we have joint marketing agreements:
     Information we receive from you on applications 
or other forms, such as [provide illustrative examples, such as ``your 
name, address, social security number, assets and income''];
     Information about your transactions with us, our 
affiliates, or others, such as [provide illustrative examples, such as 
``your account balance, payment history, parties to transactions and 
credit card usage'']; and
     Information we receive from a consumer reporting 
agency, such as [provide illustrative examples, such as ``your 
creditworthiness and credit history''].

                    Sample Clause A-5, Alternative 2

    We may disclose all of the information we collect, as described 
[describe location in the notice, such as ``above'' or ``below''] to 
companies that perform marketing services on our behalf or to other 
financial institutions with which we have joint marketing agreements.

A-6--Explanation of Opt Out Right (Institutions That Disclose Outside of 
                             the Exceptions)

    You may use this clause, as applicable, to meet the requirement of 
Sec. 160.6(a)(6) to provide an explanation of the consumer's right to 
opt out of the disclosure of nonpublic personal information to 
nonaffiliated third parties, including the method(s) by which the 
consumer may exercise that right. You may use this clause if you 
disclose nonpublic personal information other than as permitted by the 
exceptions in Sec. Sec. 160.13, 160.14 and 160.15.

                            Sample Clause A-6

    If you prefer that we not disclose nonpublic personal information 
about you to nonaffiliated third parties you may opt out of those 
disclosures; that is, you may direct us not to make those disclosures 
(other than disclosures permitted or required by law). If you wish to 
opt out of disclosures to nonaffiliated third parties, you may [describe 
a reasonable means of opting out, such as ``call the following toll-free 
number: (insert number)''].

          A-7--Confidentiality and Security (All Institutions)

    You may use this clause, as applicable, to meet the requirement of 
Sec. 160.6(a)(8) to describe your policies and practices with respect 
to protecting the confidentiality and security of nonpublic personal 
information.

                            Sample Clause A-7

    We restrict access to nonpublic personal information about you to 
[provide an appropriate description, such as ``those employees who need 
to know that information to provide products or services to you'']. We 
maintain physical, electronic and procedural safeguards that comply with 
federal standards to safeguard your nonpublic personal information.

[66 FR 21252, Apr. 27, 2001, as amended at 74 FR 62984, December 1, 
2009]



PART 166_CUSTOMER PROTECTION RULES--Table of Contents



Sec.
166.1 Definitions.
166.2 Authorization to trade.
166.3 Supervision.
166.4 Branch offices.
166.5 Dispute settlement procedures.

    Authority: 7 U.S.C. 1a, 2, 6b, 6c, 6d, 6g, 6h, 6k, 6l, 6o, 7, 12a, 
21, and 23, as amended by the Commodity Futures Modernization Act of 
2000, appendix E of Pub. L. 106-554, 114 Stat. 2763 (2000).



Sec. 166.1  Definitions.

    (a) The term Commission registrant as used in this part means any 
person who is registered or required to be registered with the 
Commission pursuant to the Act or any rule, regulation, or order 
thereunder.

[[Page 657]]

    (b) [Reserved]
    (c) The term customer as used in this part means any person trading, 
intending to trade, or receiving or seeking advice concerning any 
commodity interest, including any existing or prospective client or 
subscriber of a commodity trading advisor or existing or prospective 
participant in a commodity pool, but the term does not include a person 
who is acting in the capacity of a Commission registrant with respect to 
the trade.
    (d) The term commodity account as used in this part means the 
account of a customer in which any commodity interest is, or is intended 
to be, traded.

[43 FR 31886, July 24, 1978, as amended at 46 FR 54535, Nov. 3, 1981; 52 
FR 29003, Aug. 5, 1987; 72 FR 63979, Nov. 14, 2007]



Sec. 166.2  Authorization to trade.

    No futures commission merchant, retail foreign exchange dealer, 
introducing broker or any of their associated persons may directly or 
indirectly effect a transaction in a commodity interest for the account 
of any customer unless before the transaction the customer, or person 
designated by the customer to control the account:
    (a) With respect to any commodity interest as defined in Sec. 
1.3(yy)(1) through (3) of this chapter, specifically authorized the 
futures commission merchant, retail foreign exchange dealer, introducing 
broker or any of their associated persons to effect the transaction (a 
transaction is ``specifically authorized'' if the customer or person 
designated by the customer to control the account specifies--
    (1) The precise commodity interest to be purchased or sold; and
    (2) The exact amount of the commodity interest to be purchased or 
sold); or
    (b) With respect to any commodity interest as defined in Sec. 
1.3(yy)(1) or (2) of this chapter, authorized in writing the futures 
commission merchant, introducing broker or any of their associated 
persons to effect transactions in commodity interests for the account 
without the customer's specific authorization; Provided, however, That 
if any such futures commission merchant, introducing broker or any of 
their associated persons is also authorized to effect transactions in 
foreign futures or foreign options without the customer's specific 
authorization, such authorization must be expressly documented.

[75 FR 55451, Sept. 10, 2010]



Sec. 166.3  Supervision.

    Each Commission registrant, except an associated person who has no 
supervisory duties, must diligently supervise the handling by its 
partners, officers, employees and agents (or persons occupying a similar 
status or performing a similar function) of all commodity interest 
accounts carried, operated, advised or introduced by the registrant and 
all other activities of its partners, officers, employees and agents (or 
persons occupying a similar status or performing a similar function) 
relating to its business as a Commission registrant.

[48 FR 35304, Aug. 3, 1983]



Sec. 166.4  Branch offices.

    Each branch office of each Commission registrant must use the name 
of the firm of which it is a branch for all purposes, and must hold 
itself out to the public under such name. The act, omission or failure 
of any person acting for the branch office, within the scope of his 
employment or office, shall be deemed the act, omission or failure of 
the Commission registrant as well as of such person.

[48 FR 35304, Aug. 3, 1983]



Sec. 166.5  Dispute settlement procedures.

    (a) Definitions. (1) The term claim or grievance as used in this 
section shall mean any dispute that:
    (A) Arises out of any transaction executed on or subject to the 
rules of a designated contract market,
    (B) Is executed or effected through a member of such facility, a 
participant transacting on or through such facility or an employee of 
such facility, and
    (C) Does not require for adjudication the presence of essential 
witnesses or third parties over whom the facility does not have 
jurisdiction and who are not otherwise available.
    (ii) Arises out of any retail forex transaction (as defined in Sec. 
5.1(m) of this chapter).

[[Page 658]]

    (2) The term customer as used in this section includes an option 
customer (as defined in Sec. 1.3(jj) of this chapter), a retail forex 
customer (as defined in Sec. 5.1(k) of this chapter) and any person for 
or on behalf of whom a member of a designated contract market, or a 
participant transacting on or through such designated contract market, 
effects a transaction on such contract market, except another member of 
or participant in such designated contract market; Provided, however, a 
person who is an ``eligible contract participant'' as defined in section 
1a(12) of the Act shall not be deemed to be a customer within the 
meaning of this section.
    (3) The term Commission registrant as used in this section means a 
person registered under the Act as a futures commission merchant, retail 
foreign exchange dealer, introducing broker, floor broker, commodity 
pool operator, commodity trading advisor, or associated person.
    (b) Voluntariness. The use by customers of dispute settlement 
procedures shall be voluntary as provided in paragraphs (c) and (g) of 
this section.
    (c) Customers. No Commission registrant shall enter into any 
agreement or understanding with a customer in which the customer agrees, 
prior to the time a claim or grievance arises, to submit such claim or 
grievance to any settlement procedure except as follows:
    (1) Signing the agreement must not be made a condition for the 
customer to utilize the services offered by the Commission registrant.
    (2) If the agreement is contained as a clause or clauses of a 
broader agreement, the customer must separately endorse the clause or 
clauses containing the cautionary language and provisions specified in 
this section. A futures commission merchant or introducing broker may 
obtain such endorsement as provided in Sec. 1.55(d) of this chapter for 
the following classes of customers only:
    (i) A plan defined as a government plan or church plan in section 
3(32) or section 3(33) of title I of the Employee Retirement Income 
Security Act of 1974 or a foreign person performing a similar role or 
function subject as such to comparable foreign regulation; and
    (ii) A person who is a ``qualified eligible participant'' or a 
``qualified eligible client'' as defined in Sec. 4.7 of this chapter.
    (3) The agreement may not require any customer to waive the right to 
seek reparations under section 14 of the Act and part 12 of this 
chapter. Accordingly, such customer must be advised in writing that he 
or she may seek reparations under section 14 of the Act by an election 
made within 45 days after the Commission registrant notifies the 
customer that arbitration will be demanded under the agreement. This 
notice must be given at the time when the Commission registrant notifies 
the customer of an intention to arbitrate. The customer must also be 
advised that if he or she seeks reparations under section 14 of the Act 
and the Commission declines to institute reparations proceedings, the 
claim or grievance will be subject to the pre-existing arbitration 
agreement and must also be advised that aspects of the claim or 
grievance that are not subject to the reparations procedure (i.e., do 
not constitute a violation of the Act or rules thereunder) may be 
required to be submitted to the arbitration or other dispute settlement 
procedure set forth in the pre-existing arbitration agreement.
    (4) The agreement must advise the customer that, at such time as he 
or she may notify the Commission registrant that he or she intends to 
submit a claim to arbitration, or at such time as such person notifies 
the customer of its intent to submit a claim to arbitration, the 
customer will have the opportunity to elect a qualified forum for 
conducting the proceeding.
    (5) Election of forum. (i) Within ten business days after receipt of 
notice from the customer that he or she intends to submit a claim to 
arbitration, or at the time a Commission registrant notifies the 
customer of its intent to submit a claim to arbitration, the Commission 
registrant must provide the customer with a list of organizations whose 
procedures meet Acceptable Practices established by the Commission for 
dispute resolution, together with a copy of the rules of each forum 
listed. The list must include:

[[Page 659]]

    (A) The designated contract market, if applicable and if available, 
upon which the transaction giving rise to the dispute was executed or 
could have been executed;
    (B) A registered futures association; and
    (C) At least one other organization that will provide the customer 
with the opportunity to select the location of the arbitration 
proceeding from among several major cities in diverse geographic regions 
and that will provide the customer with the choice of a panel or other 
decision-maker composed of at least one or more persons, of which at 
least a majority are not members or associated with a member of the 
designated contract market, if applicable, or employee thereof, and that 
are not otherwise associated with the designated contract market (mixed 
panel), if applicable: Provided, however, that the list of qualified 
organizations provided by a Commission registrant that is a floor broker 
need not include a registered futures association unless a registered 
futures association has been authorized to act as a decision-maker in 
such matters.
    (ii) The customer shall, within forty-five days after receipt of 
such list, notify the opposing party of the organization selected. A 
customer's failure to provide such notice shall give the opposing party 
the right to select an organization from the list.
    (6) Fees. The agreement must acknowledge that the Commission 
registrant will pay any incremental fees that may be assessed by a 
qualified forum for provision of a mixed panel, unless the arbitrators 
in a particular proceeding determine that the customer has acted in bad 
faith in initiating or conducting that proceeding.
    (7) Cautionary Language. The agreement must include the following 
language printed in large boldface type:

    Three Forums Exist for the Resolution of Commodity Disputes: Civil 
Court litigation, reparations at the Commodity Futures Trading 
Commission (CFTC) and arbitration conducted by a self-regulatory or 
other private organization.
    The CFTC recognizes that the opportunity to settle disputes by 
arbitration may in some cases provide many benefits to customers, 
including the ability to obtain an expeditious and final resolution of 
disputes without incurring substantial costs. The CFTC requires, 
however, that each customer individually examine the relative merits of 
arbitration and that your consent to this arbitration agreement be 
voluntary.
    By signing this agreement, you: (1) May be waiving your right to sue 
in a court of law; and (2) are agreeing to be bound by arbitration of 
any claims or counterclaims which you or [name] may submit to 
arbitration under this agreement. You are not, however, waiving your 
right to elect instead to petition the CFTC to institute reparations 
proceedings under Section 14 of the Commodity Exchange Act with respect 
to any dispute that may be arbitrated pursuant to this agreement. In the 
event a dispute arises, you will be notified if [name] intends to submit 
the dispute to arbitration. If you believe a violation of the Commodity 
Exchange Act is involved and if you prefer to request a section 14 
``Reparations'' proceeding before the CFTC, you will have 45 days from 
the date of such notice in which to make that election.
    You need not sign this agreement to open or maintain an account with 
[name]. See 17 CFR 166.5.

    (d) Enforceability. A dispute settlement procedure may require 
parties utilizing such procedure to agree, under applicable state law, 
submission agreement or otherwise, to be bound by an award rendered in 
the procedure, provided that the agreement to submit the claim or 
grievance to the procedure was made in accordance with paragraph (c) or 
(g) of this section or that the agreement to submit the claim or 
grievance was made after the claim or grievance arose. Any award so 
rendered shall be enforceable in accordance with applicable law.
    (e) Time limits for submission of claims. The dispute settlement 
procedure established by a designated contract market shall not include 
any unreasonably short limitation period foreclosing submission of 
customers' claims or grievances or counterclaims.
    (f) Counterclaims. A procedure established by a designated contract 
market under the Act for the settlement of customers' claims or 
grievances against a member or employee thereof may permit the 
submission of a counterclaim in the procedure by a person against whom a 
claim or grievance is brought. The designated contract market may permit 
such a counterclaim where the counterclaim arises out of the transaction 
or occurrence that is the subject of the customer's claim or

[[Page 660]]

grievance and does not require for adjudication the presence of 
essential witnesses, parties, or third persons over whom the designated 
contract market does not have jurisdiction. Other counterclaims arising 
out of a transaction subject to the Act and rules promulgated thereunder 
for which the customer utilizes the services of the registrant may be 
permissible where the customer and the registrant have agreed in advance 
to require that all such submissions be included in the proceeding, and 
if the aggregate monetary value of the counterclaims is capable of 
calculation.
    (g) Eligible contract participants. A person who is an ``eligible 
contract participant'' as defined in section 1a(12) of the Act may 
negotiate any term of an agreement or understanding with a Commission 
registrant in which the eligible contract participant agrees, prior to 
the time a claim or grievance arises, to submit such claim or grievance 
to any settlement procedure provided for in the agreement.

[66 FR 42287, Aug. 10, 2001, as amended at 75 FR 55451, Sept. 10, 2010]



PART 170_REGISTERED FUTURES ASSOCIATIONS--Table of Contents



  Subpart A_Standards Governing Commission Review of Applications for 
    Registration as a Futures Association Under Section 17 of the Act

Sec.
170.1 Demonstration of purposes (section 17(b)(1) of the Act).
170.2 Membership restrictions (section 17(b)(2) of the Act).
170.3 Fair and equitable representation of members (section 17(b)(5) of 
          the Act).
170.4 Allocation of dues (section 17(b)(6) of the Act).
170.5 Prevention of fraudulent and manipulative practices (section 
          17(b)(7) of the Act).
170.6 Disciplinary proceedings (sections 17(b)(8) and (b)(9) of the 
          Act).
170.7 Membership denial (section 17(b)(9) of the Act).
170.8 Settlement of customer disputes (section 17(b)(10) of the Act).
170.9 General standard.
170.10 Proficiency examinations (sections 4p and 17(p) of the Act).

Subpart B_Registration Statement of Futures Associations to be Submitted 
                            to the Commission

170.11 Form of registration statement; review of registration statement.
170.12 Delegation of authority to Director of the Division of Clearing 
          and Intermediary Oversight.

        Subpart C_Membership in a Registered Futures Association

170.15 Futures commission merchants.

    Authority: 7 U.S.C. 6p, 12a, and 21, as amended by the Commodity 
Futures Modernization Act of 2000, appendix E of Pub. L. 106-554, 114 
Stat. 2763 (2000).

    Source: 44 FR 20651, Apr. 6, 1979, unless otherwise noted.



  Subpart A_Standards Governing Commission Review of Applications for 
    Registration as a Futures Association Under Section 17 of the Act



Sec. 170.1  Demonstration of purposes (section 17(b)(1) of the Act).

    A futures association must demonstrate that it will be able to carry 
out the purposes of section 17 of the Act. Since a basic purpose of a 
futures association is to regulate the practices of its members, an 
association should demonstrate that it will require its members to 
adhere to regulatory requirements governing their business practices at 
least as stringent as those imposed by the Commission. For example, the 
association should be prepared to establish and maintain in accordance 
with Sec. 1.52 of this chapter, a financial compliance program for 
those members of the association who are futures commission merchants.



Sec. 170.2  Membership restrictions (section 17(b)(2) of the Act).

    If it appears to the Commission to be necessary or appropriate in 
the public interest and to carry out the purposes of section 17 of the 
Act, a futures association may restrict its membership to individuals 
registered by the Commission in a particular capacity or to individuals 
doing business in a particular

[[Page 661]]

geographical region or to firms having a particular level of capital 
assets or which engage in a specified amount of business per year.

[48 FR 35305, Aug, 3, 1983]



Sec. 170.3  Fair and equitable representation of members (section 17(b)(5) of the Act).

    A futures association must assure fair and equitable representation 
of the views and interests of all association members in the procedures 
providing for the adoption, amendment or repeal of any association rule, 
in an association's procedure for the selection of association officers 
and directors and in all other phases of the association's affairs and 
activities, including disciplinary and membership hearings. No single 
group or class of association members shall dominate or otherwise 
exercise disproportionate influence on any governing board of an 
association or on any disciplinary or membership panel of such an 
association. Non-members of the association shall be represented 
wherever practicable on any board or hearing panel of the association.



Sec. 170.4  Allocation of dues (section 17(b)(6) of the Act).

    Dues imposed on members of a futures association must be allocated 
equitably among members and may not be structured in a manner 
constituting a barrier to entry of any person seeking to engage in 
commodity-related business activities.



Sec. 170.5  Prevention of fraudulent and manipulative practices (section 17(b)(7) of the Act).

    A futures association must establish and maintain a program for the 
protection of customers and option customers, including the adoption of 
rules to protect customers and option customers and customer funds and 
to promote fair dealing with the public. These rules shall set forth the 
ethical standards for members of the association in their business 
dealings with the public. An applicant association must also demonstrate 
its capability to foster a professional atmosphere among its members, 
including an acceptance of an adherence to the ethical standards, and to 
monitor and enforce compliance with the customer and option customer 
protection program and rules.

(Secs. 2(a)(1), 4c(a)-(d), 4d, 4f, 4g, 4k, 4m, 4n, 8a, 15 and 17, 
Commodity Exchange Act (7 U.S.C. 2, 4, 6c(a)-(d), 6d, 6f, 6g, 6k, 6m, 
6n, 12a, 19 and 21; 5 U.S.C. 552 and 552b))

[47 FR 57020, Dec. 22, 1982]



Sec. 170.6  Disciplinary proceedings (sections 17(b)(8) and (b)(9) of the Act).

    A futures association must provide a fair and orderly procedure with 
respect to disciplinary actions brought against association members or 
persons associated with members. These rules governing such disciplinary 
actions shall contain, at a minimum, the procedural safeguards contained 
in section 17(b)(9) of the Act. In addition, an association, in 
disciplining its members should demonstrate that it will:
    (a) Take vigorous action against those who engage in activities in 
violation of association rules;
    (b) Conduct proceedings in a manner consistent with the fundamental 
elements of due process; and
    (c) Impose discipline which is fair and has a reasonable basis in 
fact.

(Approved by the Office of Management and Budget under control number 
3038-0022)

[44 FR 20651, Apr. 6, 1979, as amended at 46 FR 63036, Dec. 30, 1981]



Sec. 170.7  Membership denial (section 17(b)(9) of the Act).

    A futures association must provide a fair and orderly procedure for 
processing membership applications and for affording any person to be 
denied membership an opportunity to submit evidence in response to the 
grounds for denial stated by the association. The procedures governing 
denials of membership in the association shall contain, at a minimum, 
the procedural safeguards contained in section 17(b)(9) of the Act.

(Approved by the Office of Management and Budget under control number 
3038-0022)

[44 FR 20651, Apr. 6, 1979, as amended at 46 FR 63036, Dec. 30, 1981]



Sec. 170.8  Settlement of customer disputes (section 17(b)(10) of the Act).

    A futures association must be able to demonstrate its capacity to 
promulgate rules and to conduct proceedings

[[Page 662]]

that provide a fair, equitable and expeditious procedure, through 
arbitration or otherwise, for the voluntary settlement of a customer's 
claim or grievance brought against any member of the association or any 
employee of a member of the association. Such rules shall conform to and 
be consistent with section 17(b)(10) of the Act and be consistent with 
the guidelines and acceptable practices for dispute resolution found 
within appendix A and appendix B to part 38 of this chapter.

[66 FR 42288, Aug. 10, 2001]



Sec. 170.9  General standard.

    An applicant seeking registration as a futures association by the 
Commission must demonstrate the association's ability to comply with 
standards and requirements set forth in this part. The applicant must 
also demonstrate its ability to satisfy the provisions of section 17 of 
the Act as well as other applicable legal considerations, including that 
the association will promote fair and open competition among its members 
and will conduct its affairs consistent with the public interest to be 
protected by the antitrust laws. The Commission shall not register an 
applicant association unless the Commission finds that the applicant has 
satisfied the conditions and requirements of section 17 of the Act and 
of this part and that registration will be in the public interest.



Sec. 170.10  Proficiency examinations (sections 4p and 17(p) of the Act).

    A futures association may prescribe different training standards and 
proficiency examinations for persons registered in more than one 
capacity: Provided, That nothing contained in the Act or these 
regulations, including any exemption from registration for persons 
registered in another capacity, shall be deemed to preclude the 
establishment of training standards and a proficiency examination 
requirement for functions performed in such other capacity.

[48 FR 35305, Aug. 3, 1983]



Subpart B_Registration Statement of Futures Associations to be Submitted 
                            to the Commission



Sec. 170.11  Form of registration statement; review of registration statement.

    (a) Any association seeking registration by the Commission as a 
futures association must file with the Commission a letter requesting 
that the association be registered by the Commission as a futures 
association and accompany the letter with the following: (1) The 
constitution, charter or articles of incorporation of the association, 
(2) the bylaws of the association, (3) any other rules, resolutions or 
regulations of the association corresponding to the foregoing, (4) a 
detailed description of the association's organization, membership and 
rules of procedure and (5) a detailed statement of the association's 
capability to comply with the provisions of section 17 of the Act and 
this part. This letter and the accompanying information shall be 
considered as the registration statement of the association. This letter 
and the accompanying information shall be filed with the Secretariat of 
the Commission at Three Lafayette Centre, 1155 21st Street, NW., 
Washington, DC 20581.
    (b) At any time after an applicant's registration statement has been 
filed, the applicant association shall submit to the Commission any 
supporting or additional information concerning the application of the 
association as the Commission may request.
    (c) If it appears to the Commission, after reviewing any 
registration statement filed by an applicant association, that the 
applicant has not satisfied the requirements for registration set forth 
in section 17 of the Act or of this part, the Commission may, in its 
discretion, notify the applicant in writing to that effect. Such notice 
shall specify those requirements of section 17 or of this part which do 
not appear to have been satisfied and shall afford the applicant a 
period of at least 60 days in which to respond to the Commission's 
notice by demonstrating or achieving compliance with the requirements 
specified by the Commission or otherwise. An applicant

[[Page 663]]

may withdraw its registration statement from Commission consideration at 
any time within such 60 day period.

(Approved by the Office of Management and Budget under control number 
3038-0022)

[44 FR 20651, Apr. 6, 1979, as amended at 46 FR 63036, Dec. 30, 1981; 60 
FR 49336, Sept. 25, 1995]



Sec. 170.12  Delegation of authority to Director of the Division of Clearing and Intermediary Oversight.

    The Commission hereby delegates, until the Commission orders 
otherwise, to the Director of the Division of Clearing and Intermediary 
Oversight the authority to take any of the actions enumerated in 
Sec. Sec. 170.11 (b) and (c). Notwithstanding the provisions of this 
section, if the Director believes it appropriate, he may submit the 
matter to the Commission for its consideration.

[44 FR 20651, Apr. 6, 1979, as amended at 67 FR 62353, Oct. 7, 2002]



        Subpart C_Membership in a Registered Futures Association



Sec. 170.15  Futures commission merchants.

    (a) Except as provided in paragraph (b) of this section, each person 
registered as a futures commission merchant must become and remain a 
member of at least one futures association that is registered under 
section 17 of the Act and that provides for the membership therein of 
such futures commission merchant, unless no such futures association is 
so registered.
    (b) The requirements of paragraph (a) of this section shall not 
apply to a futures commission merchant registered in accordance with 
Sec. 3.10(a)(3) of this chapter.

[66 FR 43083, Aug. 17, 2001, as amended at 72 FR 2615, Jan. 22, 2007]



PART 171_RULES RELATING TO REVIEW OF NATIONAL FUTURES ASSOCIATION DECISIONS IN DISCIPLINARY, 

MEMBERSHIP DENIAL, REGISTRATION AND MEMBER RESPONSIBILITY ACTIONS--Table of Contents



                      Subpart A_General Provisions

Sec.
171.1 Scope of rules.
171.2 Definitions.
171.3 Business address; hours.
171.4 Computation of time.
171.5 Extension of time.
171.6 Ex parte communications.
171.7 [Reserved]
171.8 Filing with the Proceedings Clerk.
171.9 Service.
171.10 Motions.
171.11 Sanctions.
171.12 Settlement.
171.13 Practice before the Commission.
171.14 Waiver of rules.

Subpart B_Notice and Effective Date of Final Decisions in Disciplinary, 
               Membership Denial and Registration Actions

171.20 [Reserved]
171.21 Notice of final decision.
171.22 Effective date of final decisions in disciplinary, membership 
          denial and registration actions.
171.23 Notice of appeal.
171.24 Submission of the record.
171.25 Appeal brief.
171.26 Answering brief.
171.27 Limited participation by interested persons.
171.28 Participation by Commission staff.

    Subpart C_Commission Review of Final Decisions in Disciplinary, 
               Membership Denial and Registration Actions

171.30 Scope of review.
171.31 Commission review in the absence of an appeal.
171.32 Oral argument.
171.33 Final decision by the Commission.
171.34 Standards of review.

    Subpart D_Commission Review of Decisions by the National Futures 
              Association In Member Responsibility Actions

171.40 Notice of the commencement of a member responsibility action.
171.41 Petition for a stay of effective date of a member responsibility 
          action pending a hearing by the National Futures Association.

[[Page 664]]

171.42 Notice of a final decision of the National Futures Association in 
          a member responsibility action.
171.43 Petition for a stay of the effective date of a final decision of 
          the National Futures Association in a member responsibility 
          action.
171.44 Notice of appeal.
171.45 General procedures.
171.46 Standards of review.

                    Subpart E_Delegation of Functions

171.50 Delegation to the General Counsel.

    Authority: 7 U.S.C. 4a, 12a and 21, unless otherwise noted.

    Source: 55 FR 41068, Oct. 9, 1990, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 171.1  Scope of rules.

    (a) Matters included. Unless specifically excluded by subsection 
(b), this part governs review by the Commission, pursuant to sections 
17(h), (i) and (o) of the Commodity Exchange Act (``Act''), as amended, 
of any disciplinary action, membership denial action, registration 
action or member responsibility action taken by the National Futures 
Association or any registered futures association. Unless specifically 
indicated, references in this part to the National Futures Association 
shall also include any other registered futures association.
    (b) Matters excluded. The Commission will not review under these 
rules the following decisions by the National Futures Association:
    (1) A decision in a disciplinary action if the party aggrieved by 
the decision knowingly failed to pursue the right to appeal an adverse 
decision to the Appeals Committee of the National Futures Association 
and there are no extraordinary circumstances that otherwise warrant 
Commission consideration of the aggrieved party's appeal;
    (2) A decision in an arbitration action brought pursuant to section 
17(b)(10) of the Act or any rule of the National Futures Association;
    (3) Suspension of a member based solely on that member's failure to 
pay National Futures Association dues;
    (4) A decision to disqualify any member for service on the National 
Futures Association Board of Directors, Business Conduct Committees, 
Hearing Committee or arbitration panels pursuant to the standards for 
service adopted by the National Futures Association to implement 
Commission rule 1.63;
    (5) Suspension of a member or a person associated with a member 
based solely on that person's failure to pay an arbitration award or a 
settlement agreement resulting from an arbitration action brought 
pursuant to section 17(b)(10) of the Act or rules and regulations of the 
National Futures Association, or a settlement agreement resulting from a 
mediation proceeding sponsored by the National Futures Association, 
unless there are extraordinary circumstances that involve something more 
than the ministerial application of a predetermined sanction, or raise a 
colorable claim that the National Futures Assocaition has acted 
arbitrarily.
    (c) Appeals from excluded decisions. If the Deputy General Counsel 
for Opinions or his delegee determines that a notice of appeal submitted 
to the Commission is from a decision that is excluded from review under 
this part, he may strike it and order it returned to the aggrieved party 
who submitted it.
    (d) Applicability of these part 171 rules. Unless otherwise ordered, 
these rules will apply in their entirety to all appeals and matters 
relating thereto filed on or after October 31, 1990. Any part 171 
proceeding commenced prior to October 31, 1990 continues to be governed 
by the procedures established in former subpart F of part 3 of the 
Commission's regulations, if applicable, or by the procedures 
established for that proceeding by Commission order. Parties to any 
proceeding pending on October 31, 1990 may, within 30 days after October 
31, 1990 by written stipulation executed by all parties, and filed with 
the Proceedings Clerk before the Commission's final decision is 
rendered, elect to have the matter governed by the provisions of these 
part 171 rules.

[55 FR 41068, Oct. 9, 1990, as amended at 70 FR 2352, Jan. 13, 2005]



Sec. 171.2  Definitions.

    For purposes of this part:
    (a) Commission decisional employee includes any member of the 
Commission staff who participates in, or may be

[[Page 665]]

reasonably expected to participate in, the decisionmaking process in any 
proceeding under this part. It does not include Commissioners or members 
of their personal staff.
    (b) Disciplinary action includes any proceeding brought by the 
National Futures Association to enforce its rules that may result in 
expulsion, suspension, censure, bar from association with a member, fine 
in excess of $100 or any comparable sanction being imposed on a member 
or a person associated with a member.
    (c) Ex parte communication shall include any communication, whether 
written or oral, which is both (1) not preceded by reasonable notice to 
all parties to a proceeding, and (2) not made on the public record. It 
shall not include requests made to the Commission's Opinions Section or 
Office of Proceedings for status reports or for an interpretation of 
these rules.
    (d) Final Decision means the decision that terminates the proceeding 
before the National Futures Association on the action that is the 
subject of the notice of appeal filed with the Commission.
    (e) To mail means to place in the United States mail (or to deliver 
to an overnight delivery service of established reliability) a properly 
addressed and post-paid document. Unless otherwise provided, documents 
filed and served by mail must be sent by no less expeditious means than 
first class United States mail.
    (f) Member includes any person admitted to membership by the 
National Futures Association.
    (g) Member Responsibility Action includes any action in which, based 
on a finding by the National Futures Association that there is reason to 
believe that summary action is necessary to protect the commodity 
futures markets, customers or other members of the association, a member 
or person associated with a member may be summarily suspended from 
membership or association with a member, required to restrict operations 
or otherwise directed to take remedial action.
    (h) Membership denial action includes any proceeding brought by the 
National Futures Association to (1) determine whether an applicant 
should be admitted to membership or be permitted to be associated with a 
member, (2) determine whether an applicant should be admitted to 
membership or be permitted to be associated with a member on a 
conditional basis, or (3) determine whether to revoke or restrict the 
membership or association status of any person who is a member or is 
associated with a member.
    (i) Party includes any person who has been the subject of a 
disciplinary action, membership denial action, or registration action by 
the National Futures Association; the National Futures Association 
itself; any person granted permission to participate as a party pursuant 
to Sec. 171.27 of these rules; and any Division of the Commission that 
files a Notice of Appearance pursuant to Sec. 171.28 of these rules.
    (j) Person associated with a member includes any person permitted to 
register as an associate of a member by the National Futures 
Association.
    (k) Record of the proceeding shall include the order appealed from, 
the findings or report on which the order is based, the pleadings, 
evidence and proceedings before the National Futures Association 
decisonmaker and a copy of any rule of the National Futures Association 
that is material to the order.
    (l) Registration action includes any proceeding brought by the 
National Futures Association, pursuant to authority delegated by the 
Commission, to grant, condition, deny, suspend, restrict, or revoke the 
registration of any person.
    (m) Rule of the National Futures Association includes any article of 
incorporation, bylaw, rule, regulation, resolution or written 
interpretation of stated policy of the National Futures Association.



Sec. 171.3  Business address; hours.

    The principal office of the Commission is located at Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581. It is open each 
day, except Saturdays, Sundays, and legal public holidays, from 8:15 
a.m. until 4:45 p.m., eastern standard time or eastern daylight savings 
time, whichever is currently in effect in Washington, DC.

[55 FR 41068, Oct. 9, 1990, as amended at 60 FR 49336, Sept. 25, 1995]

[[Page 666]]



Sec. 171.4  Computation of time.

    (a) In general. In computing any period of time prescribed by these 
rules or allowed by the Commission, the day of the act, event, or 
default from which the designated period of time begins to run is not to 
be included. The last day of the period so computed is to be included 
unless it is a Saturday, a Sunday, or a legal holiday. In the latter 
circumstances, the period runs until the end of the next day which is 
not a Saturday, a Sunday, or a legal holiday. Intermediate Saturdays, 
Sundays, and legal holidays shall be included in the computation unless 
the period of time prescribed or allowed is less than seven (7) days.
    (b) Date of service of orders. In computing any period of time 
involving the date of service of an order, the date of service shall be 
the date the order is mailed or hand delivered by the Proceedings Clerk, 
which, unless otherwise indicated, shall be the date stamped on the 
order by the Proceedings Clerk.



Sec. 171.5  Extension of time.

    (a) In general. Except as otherwise provided by these rules, for 
good cause shown, on its own motion or the motion of a party, the 
Commission may at any time extend or shorten the time prescribed by the 
rules for filing any document. In any instance in which a specific time 
period is not prescribed in this part for an action to be taken 
concerning any matter, the Commission may establish a time for that 
action.
    (b) Filing of motion. Absent extraordinary circumstances, when the 
time period that has been prescribed for an action to be taken 
concerning any matter exceeds seven days, requests for extension of that 
time period shall be filed at least five days prior to the expiration of 
the time period provided and shall include an explanation of the facts 
and circumstances that justify the extension.



Sec. 171.6  Ex parte communications.

    (a) Prohibition of ex parte communications. (1) No party to a 
proceeding before the Commission under these rules and no person outside 
the Commission who has a direct or indirect interest (pecuniary or 
otherwise) in the outcome of the proceeding or might be aggrieved by the 
outcome of the proceeding shall make or knowingly cause to be made an ex 
parte communication relevant to the merits of the proceeding subject to 
these rules to a Commissioner, member of the personal staff of a 
Commissioner or Commission decisional employee.
    (2) No Commissioner, member of the personal staff of a Commissioner 
or Commission decisional employee shall make or knowingly cause to be 
made to a party to a proceeding subject to these rules or to any person 
outside the Commission who has a direct or indirect interest (pecuniary 
or otherwise) in the outcome of the proceeding or might be aggrieved by 
the outcome of the proceeding, an ex parte communication relevant to the 
merits of the proceeding subject to these rules.
    (b) Procedure for handling. Any Commissioner, member of a 
Commissioner's personal staff or Commission decisional employee who 
receives, or who makes or knowingly causes to be made, an ex parte 
communication prohibited by paragraph (a) of this section shall:
    (1) Place on the public record of the proceeding:
    (i) All such written communications;
    (ii) Memoranda stating the substance of all such oral 
communications; and
    (iii) All written responses, and memoranda stating the substance of 
all oral responses, to the materials described in paragraphs (b)(1)(i) 
and (b)(1)(ii) of this section; and
    (2) Promptly give written notice of such communications and 
responses thereto to all parties to the proceedings to which the 
communication or responses relate.
    (c) Sanctions. (1) Upon receipt of an ex parte communication 
knowingly made or knowingly caused to be made by a party in violation of 
the prohibition contained in paragraph (a)(1) of this section, the 
Commission may, to the extent consistent with the interests of justice 
and the policies of the Act, require the party to show cause why his 
claim or interest in the proceeding should not be dismissed, denied, 
disregarded, or otherwise adversely affected on account of such 
violation.

[[Page 667]]

    (2) Any Commissioner, member of a Commissioner's personal staff or 
Commission decisional employee who knowingly makes or knowingly causes 
to be made, or who knowingly solicits or knowingly causes the 
solicitation of, an ex parte communication which violates the 
prohibitions contained in paragraph (a)(2) of this section may be deemed 
to have engaged in conduct of the type proscribed by 17 CFR 140.735-
3(b)(3).
    (d) Applicability of prohibitions and sanctions against ex parte 
communications. (1)(i) The prohibitions of this section shall begin to 
apply at the time that a copy of a notice of appeal has been filed with 
the Proceedings Clerk in accordance with Sec. 171.23 or Sec. 171.44 of 
this part; or a petition for stay or for an emergency effective date has 
been filed in accordance with Sec. 171.22, Sec. 171.41 or Sec. 171.43 
of this part. The prohibitions of this section shall remain in effect 
until a final order has been entered in the proceeding which is no 
longer subject to review by the Commission or to review by any court.
    (ii) The Commission may, by specific order entered in a particular 
proceeding, determine that these prohibitions shall commence from some 
date prior, or shall continue until a date subsequent, to the times 
specified in paragraph (d)(1)(i) of this section.
    (2) The sanctions in paragraph (c)(1) of this section shall not 
apply to a person making a prohibited communication (or causing it to be 
made) absent evidence that the person acted with actual or constructive 
knowledge that the person receiving the communication was a 
Commissioner, member of the personal staff of a Commissioner or a 
Commission decisional employee.



Sec. 171.7  [Reserved]



Sec. 171.8  Filing with the Proceedings Clerk.

    (a) How to file. Any document that is required by this part to be 
filed with the Proceedings Clerk shall be filed by delivering it in 
person or by mail to: Proceedings Clerk, Office of Proceedings, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581. To be timely filed under this part, a 
document must be delivered or mailed to the Proceedings Clerk within the 
time prescribed for filing.
    (b) Proof of filing. Proof of filing shall be made by attaching to 
the document for filing an affidavit of filing executed by any person 18 
years of age or older or a proof of filing executed by an attorney-at-
law qualified for practice before the Commission. The proof of filing 
shall certify that the attached document was delivered by hand to the 
Proceedings Clerk or deposited in the United States mail, with first-
class postage prepaid (or delivered to an overnight delivery service of 
established reliability), addressed to the Proceedings Clerk, Office of 
Proceedings, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581, on the date specified in the affidavit.
    (c) Formalities of filing--(1) Number of copies. Unless otherwise 
provided, any person filing a document with the Proceedings Clerk shall 
provide two conformed copies in addition to the original.
    (2) Title page. All documents filed with the Proceedings Clerk shall 
include, at the head thereof, or on a title page, the name of the 
Commission, the title of the proceeding, the docket number (if one has 
been assigned by the Proceedings Clerk), the subject of the particular 
document and the name of the person on whose behalf the document is 
being filed.
    (3) Paper, spacing, type. All documents filed with the Proceedings 
Clerk shall be typewritten, must be on one grade of good white paper no 
less than 8 or more than 8\1/2\ inches wide and no less than 10\1/2\ or 
more than 11\1/2\ inches long, and must be bound on the top only. They 
must be double-spaced, except for long quotations (3 or more lines) and 
footnotes which should be single-spaced.
    (4) Signature--(i) By whom. All documents filed with the Proceedings 
Clerk shall be signed personally in ink:
    (A) By the person or persons on whose behalf they are tendered for 
filing;
    (B) By a general partner, officer or director of a partnership, 
corporation, association, or other legal entity; or

[[Page 668]]

    (C) By an attorney-at-law having authority with respect thereto. The 
Proceedings Clerk may require appropriate evidence of the authority of a 
person subscribing a document on behalf of another person.
    (ii) Effect. The signature on any document of any person acting 
either for himself or as attorney or agent for another constitutes 
certification by him that:
    (A) He has read the document subscribed and knows the contents 
thereof;
    (B) If executed in any representative capacity, it was done with 
full power and authority to do so;
    (C) To the best of his knowledge, information, and belief, every 
statement contained in the document is true and not misleading; and
    (D) The document is not being interposed for delay.

[55 FR 41068, Oct. 9, 1990, as amended at 60 FR 49336, Sept. 25, 1995]



Sec. 171.9  Service.

    (a) General requirements. Unless otherwise provided, all documents 
filed with the Proceedings Clerk must be served upon all parties on the 
same day.
    (b) Manner of service. Service may be made by personal delivery 
(effective upon receipt), mail (effective upon deposit), facsimile 
(effective upon receipt) or electronic mail (effective upon receipt). 
When service is effected by mail, the time within which the person 
served may respond thereto shall be increased by five days. Parties who 
consent to accepting service of documents by electronic means in the 
underlying NFA action also consent to accepting service by the same 
means in proceedings under this part 171.
    (c) Proof of service. Proof of service shall be made by filing with 
the Proceedings Clerk, at the same time as the relevant document is 
filed, an affidavit of service executed by a person 18 years of age or 
older or a certificate of service executed by an attorney qualified to 
practice before the Commission. The proof of service shall state that 
service has been made and identify the person served, the date of 
service and the manner of service.
    (d) Designation of person to receive service. The first document 
filed in a proceeding by or on behalf of any party must state on the 
first page the name, postal address and telephone number of the person 
authorized to receive service for the party of all documents filed in 
the proceeding. Thereafter, service of documents shall be made upon the 
person authorized unless service on a different authorized person or on 
the party himself is authorized by the Commission, or unless pursuant to 
Sec. 171.8 the person authorized is changed by the party upon due 
notice to all other parties. Parties shall file and serve notification 
of any changes in the information provided pursuant to this subparagraph 
as soon as practicable after the change occurs.
    (e) Service of orders and decisions. A copy of all notices, rulings, 
opinions and orders of the Commission shall be served on each of the 
parties by the Proceedings Clerk. Service will be deemed complete upon 
deposit in the mail.

[55 FR 41068, Oct. 9, 1990, as amended at 72 FR 42277, Aug. 2, 2007]



Sec. 171.10  Motions.

    (a) In general. An application for a form of relief not otherwise 
specifically provided for in this part shall be made by a written 
motion, filed with the Proceedings Clerk. The motion shall state the 
relief sought, basis for the relief and the authority relied upon.
    (b) Answers to motions. Unless otherwise provided, a party may file 
a written response to a motion within five days after service of the 
motion.
    (c) Motions for procedural orders. Motions for procedural orders, 
including motions for extensions of time, may be acted on at any time, 
without awaiting a response thereto. Any party adversely affected by 
such action may request reconsideration, vacation or modification of the 
action.
    (d) Dilatory motions. Frivolous or repetitive motions dealing with 
the same subject matter shall not be permitted.



Sec. 171.11  Sanctions.

    In the event a party fails to fulfill his obligations under these 
Rules, the Commission may impose appropriate sanctions including 
dismissal of the appeal or summary reversal of the decision under 
appeal. Sanctions may be

[[Page 669]]

imposed on the motion of a party or on the Commission's own motion.



Sec. 171.12  Settlement.

    At any time before the Commission has reached a final determination 
in a proceeding, the parties may request dismissal of the appeal based 
on a settlement agreement. If, in its view, the settlement is consistent 
with the public interest, the Commission will dismiss the proceeding.



Sec. 171.13  Practice before the Commission.

    (a) Practice--(1) By non-attorneys. An individual may appear pro se 
(on his own behalf); a general partner may represent the partnership; a 
bona fide officer of a corporation, trust or association may represent 
the corporation, trust or association.
    (2) By attorneys. An attorney-at-law who is admitted to practice 
before the highest court in any State or territory, or of the District 
of Columbia, who has not been suspended or disbarred from appearance and 
practice before the Commission in accordance with the provisions of part 
14 of this chapter may represent parties as an attorney in proceedings 
before the Commission.
    (b) Debarment of counsel or representative during the course of a 
proceeding. Whenever, while a proceeding is pending before the 
Commission, the Commission finds that a person acting as counsel or 
representative for any party to the proceeding is guilty of contemptuous 
conduct, the Commission may order that such person be precluded from 
further acting as counsel or representative in a proceeding subject to 
these rules. The Commission may suspend the proceedings for a reasonable 
time for the purpose of enabling the party to obtain other counsel or 
representative.
    (c) Withdrawal from representation. Withdrawal from representation 
of a party will be only by leave of the Commission. Such leave to 
withdraw may be subject to conditions including submission of an 
affidavit averring that the party represented has actual knowledge of 
the withdrawal and providing the name and address of a successor counsel 
(or representative) or a statement that the represented party has 
determined to proceed pro se. If the party proceeds pro se, the 
statement shall include the address where the party can thereafter be 
served.



Sec. 171.14  Waiver of rules.

    To prevent undue hardship on any party or for other good cause 
shown, the Commission may waive any rule in this part in a particular 
case and may order proceedings in accordance with its direction. Such an 
order shall be based upon a determination that no party will be 
prejudiced thereby and that the ends of justice will be served. 
Reasonable notice will be given to all parties of any action taken 
pursuant to this paragraph.



Subpart B_Notice and Effective Date of Final Decisions in Disciplinary, 
               Membership Denial and Registration Actions



Sec. 171.20  [Reserved]



Sec. 171.21  Notice of final decision.

    (a) When required. The National Futures Association shall promptly 
serve all parties, as well as the Proceedings Clerk and the Secretary of 
the Commission, with a written notice of any final decision in a 
disciplinary action, membership denial action or registration action 
subject to these rules. The notice may be contained in the written 
decision issued by the National Futures Association.
    (b) Content of the notice. At a minimum, the notice shall provide 
the following information:
    (1) The names of the parties to the proceeding;
    (2) The date the notice was served and the effective date of the 
decision;
    (3) A statement informing the parties of their right to appeal the 
decision to the Commission pursuant to Sec. 171.28 as well as their 
right to seek a stay of the effective date of the decision pursuant to 
Sec. 171.27.
    (4) For a disciplinary action:
    (i) A statement setting forth the relevant acts of practices engaged 
in or omitted by the parties to the proceeding;
    (ii) A statement setting forth the specific rule or rules of the 
association

[[Page 670]]

violated by the relevant acts or practices or omissions to act of the 
parties to the proceeding;
    (iii) A statement setting forth the penalty imposed and the basis 
for its imposition.
    (5) For a membership action:
    (i) The specific grounds for the denial, bar, expulsion, or 
restriction;
    (ii) The findings made concerning those grounds;
    (iii) An explanation of the result reached in light of the grounds 
for ineligibility found and the findings made.
    (6) For a registration action:
    (i) The statutory disqualification at issue;
    (ii) The findings made concerning the statutory disqualification;
    (iii) An explanation of the result reached in light of the statutory 
disqualification shown and the findings made.
    (c) Effect of inadequate notice. (1) If the National Futures 
Association issues a notice of a final decision subject to these rules 
that is not substantially consistent with the requirements of this 
section, and the record does not establish that the errors therein are 
harmless, the notice may be stricken. The Commission may act on its own 
motion or on the motion of a party.
    (2) When a notice is struck, the final decision of the National 
Futures Association shall not be effective until a proper notice is 
served.



Sec. 171.22  Effective date of final decisions in disciplinary, membership 

denial and registration actions.

    (a) General rule. A final decision of the National Futures 
Association in a disciplinary action, membership denial action or 
registration action shall be effective thirty days after service of the 
notice described in Sec. 171.21.
    (b) Petitions for stay pending review or for an emergency effective 
date--(1) Stay pending review. Within ten days of service of the notice 
described in Sec. 171.21, any aggrieved party may seek from the 
Commission a stay pending consideration of the merits of an appeal by 
filing and serving an appropriate petition. The mere filing of such a 
petition shall not stay the effective date of the decision. The burden 
of persuasion shall rest with the party seeking the stay. If the 
Commission does not grant the petition prior to the effective date of 
the decision under review, it shall be deemed denied. All petitions for 
stay must be accompanied by a notice of appeal.
    (2) Emergency effective date. Within ten days of service of the 
notice described in Sec. 171.21, the National Futures Association may 
seek from the Commission an order establishing an emergency effective 
date for the decision by filing and serving an appropriate petition. The 
mere filing of such a petition shall not alter the effective date of the 
decision. The burden of persuasion rests with the National Futures 
Association. If the Commission does not grant the petition by the date 
specified as the emergency effective date, it shall be deemed denied.
    (3) Contents of petition for stay and petition for an emergency 
effective date. A petition for stay or for an emergency effective date 
shall be in writing. Material factual allegations shall be supported by 
an affidavit or other sworn statement unless the parties stipulate that 
the material facts are not in dispute.
    (4) Response. Within five days of the service of the petition, a 
party may file in opposition to the petition. Material factual 
allegations shall be supported by an affidavit or other sworn statement 
unless the parties stipulate that the material facts are not in dispute.
    (c) Standards for determining petitions for a stay or an emergency 
effective date petition. In reviewing petitions filed under this 
seciton, the Comission shall consider:
    (1) The likelihood that a challenge to the merits of the decision 
will be successful; and
    (2) The likelihood that the denial of the petition would result in 
irreparable harm to the petitioner; and
    (3) The effect a grant of the petition would have on the opposing 
party; and
    (4) The effect a grant or denial of the petition would have on the 
public interest.
    (d) Expedited consideration. If, in its view, it is necessary to 
protect the petitioner's right to a meaningful determination of the 
issues raised in the petition, the Commission may act upon a petition 
for a stay or for an emergency

[[Page 671]]

effective date prior to its receipt of an opposing party's response. Any 
party aggrieved by such expedited consideration may seek reconsideration 
within seven days of service of the decision.



Sec. 171.23  Notice of appeal.

    (a) Time to file. Any party aggrieved by the final decision of the 
National Futures Association in a disciplinary, membership denial or 
registration action may, within thirty days of the National Futures 
Association's service of the notice described in Sec. 171.21, file a 
notice of appeal with the Proceedings Clerk. The filing of such a notice 
shall not stay the effective date of the decision.
    (b) Contents. The notice of appeal shall consist of a brief 
statement indicating that the party is requesting Commission review of 
an action of the National Futures Association. It should identify:
    (1) The name and address of the person appealing and, if 
represented, the name and address of his representative;
    (2) The case name and docket number of the National Futures 
Association proceeding; and
    (3) The date of the decision.
    (c) Filing fee. Each notice of appeal must be accompanied by a 
nonrefundable filing fee of $100. This amount may be paid by check, bank 
draft or money order, payable to the Commodity Futures Trading 
Commission.
    (d) Defective notices of appeal. Notices of appeal that are untimely 
or not accompanied by the filing fee shall not be accepted by the 
Proceedings Clerk absent a showing, by motion, of excusable neglect.



Sec. 171.24  Submission of the record.

    Within thirty days after service of a notice of appeal, the National 
Futures Association shall file with the Proceedings Clerk two copies of 
the record of the proceeding (as defined by Sec. 171.2(k)). The record 
shall be bound as a unit, chronologically indexed and tabbed, and 
certified as correct by a duly authorized official, agent or employee of 
the National Futures Asssociation. The National Futures Association 
shall serve on the party appealing, in lieu of the record, a copy of the 
index of the record and a copy of any document in the record not 
previously served on the party appealing. If the party appealing objects 
to the materials included or excluded in preparing the record, he shall 
file his objections with his brief on appeal. The Commission may, at any 
time, direct that an omission or misstatement be corrected and, if 
necessary, that a supplemental record be prepared and filed.



Sec. 171.25  Appeal brief.

    (a) Time to file. Any person who has filed a notice of appeal in 
accordance with the provisions of Sec. 171.23, shall perfect the appeal 
by filing an appeal brief with the Proceedings Clerk within thirty days 
after service of the record by the National Futures Association. The 
Commission may dismiss any appeal for which an appeal brief is not 
timely filed.
    (b) Contents. Each appeal brief submitted to the Commission pursuant 
to this section shall include, in the order indicated:
    (1) A statement of the issues presented for review;
    (2) A statement of the case. The statement shall indicate briefly 
the nature of the case and include a full description of the action 
being challenged. There shall follow a clear and concise statement of 
all facts relevant to the consideration of the appeal with appropriate 
citations to the record;
    (3) An argument. The argument shall contain the contentions of the 
appellant with respect to the issues presented and the reasons 
supporting those contentions. It shall cite specifically to the relevant 
authorities and to those parts of the record that support appellant's 
contentions; and
    (4) A conclusion stating the precise relief sought.
    (c) Length of appeal brief. Without prior leave of the Commission, 
the appeal brief may not exceed thirty five pages, exclusive of any 
table of contents, table of cases, index and appendix containing 
transcripts of testimony, exhibits, rules, regulations or similar 
materials.



Sec. 171.26  Answering brief.

    (a) Time for filing answering brief. Within thirty days after 
service of the

[[Page 672]]

apeal brief, the National Futures Association shall file with the 
Proceedings Clerk an answering brief.
    (b) Contents of answering brief. The contents of the answering brief 
generally shall be consistent with those set forth in Sec. 171.25(b) 
but may omit a statement of the issues and a statement of the case if 
the National Futures Association does not dispute the issues or the 
statement of the case contained in the appeal brief.
    (c) Length of the answering brief. Without prior leave of the 
Commission, the answering brief may not exceed thirty five pages, 
exclusive of any table of contents, table of cases, index and appendix 
containing transcripts of testimony, exhibits, statutes, rules, 
regulations or similar materials.



Sec. 171.27  Limited participation by interested persons.

    (a) Upon motion of any interested person or, on its own motion, the 
Commission may permit, or solicit, limited participation in the 
proceeding by such interested person. A motion for leave to participate 
in the proceeding shall be filed promptly, shall identify the interest 
of that person and shall show why participation in the proceeding by 
that person would serve the public interest. If the Commission 
determines that participation would serve the public interest, it shall 
by order establish a supplementary briefing schedule for the interested 
person and the parties to the proceeding.
    (b) For purposes of this subsection, interested person shall include 
parties and any other persons who might be adversely affected or 
aggrieved by the outcome of a proceeding; their officers, agents, 
employees, associates, affiliates, attorneys, accountants or other 
representatives; and any other person having a direct or indirect 
pecuniary or other interest in the outcome of a proceeding.



Sec. 171.28  Participation by Commission staff.

    The Division of Enforcement, the Division of Clearing and 
Intermediary Oversight or the Division of Market Oversight may 
participate in any proceeding by filing a notice of appearance. Such a 
notice shall be filed and served on or before the twentieth day 
following the date of service of its brief by the National Futures 
Association. The Commission shall by order establish a supplementary 
briefing schedule for the Commission staff and other parties to the 
proceeding. If it concludes that participation of the Commission staff 
will not serve the public interest, the Commission shall prohibit 
further participation.

[55 FR 41068, Oct. 9, 1990, as amended at 67 FR 62353, Oct. 7, 2002]



    Subpart C_Commission Review of Final Decisions in Disciplinary, 
               Membership Denial and Registration Actions



Sec. 171.30  Scope of review.

    On review, the Commission may, in its discretion and after 
appropriate consideration of the notice given to the parties, consider 
sua sponte any issues arising from the record before it and may base its 
determination thereon. The Commission may also limit its consideration 
to those issues specifically raised in the parties' briefs, treating all 
other issues as waived.



Sec. 171.31  Commission review in the absence of an appeal.

    (a) Request by Commission staff. At any time prior to the effective 
date of a final decision of the National Futures Association in a 
disciplinary, membership denial or registration action, the Division of 
Enforcement, the Division of Clearing and Intermediary Oversight or the 
Division of Market Oversight may file and serve a memorandum requesting 
the Commission to institute review of the National Futures Association 
proceeding. The filing of such a memorandum shall stay the effective 
date of the decision at issue for twenty days.
    (b) Response by the National Futures Association. The National 
Futures Association may file a response to the memorandum of the 
Commission staff within fifteen days of the service of the memorandum.
    (c) Commission determination of staff request. To preserve the 
status quo while it determines whether review is

[[Page 673]]

apropriate, the Commission may extend the stay of the effective date of 
the decision at issue for an additional 30 days. If the Commission 
decides to take review, the effective date of the decision at issue 
shall be stayed pending the decision of the Commission, unless otherwise 
ordered. The Commission shall by order establish the procedure for 
submission of both the record of the proceeding and the briefs of the 
parties to the proceeding.
    (d) Commission review on its own motion. At any time prior to the 
effective date of a final decision of the National Futures Association 
in a disciplinary, membership denial or registration action, the 
Commission may take review of a decision by issuing an appropriate 
order. If the Commission determines that it is appropriate to take 
review on its own motion, it shall by order establish the procedure for 
submission of both the record of the proceeding and the briefs of the 
parties.

[55 FR 41068, Oct. 9, 1990, as amended at 67 FR 62353, Oct. 7, 2002]



Sec. 171.32  Oral argument.

    (a) On motion of Commission. On its own motion, the Commission may, 
in its discretion, hear oral argument in a proceeding.
    (b) On request of party. Any party may file with the Proceedings 
Clerk a request in writing for the opportunity to present oral argument 
before the Commission, which the Commission may, in its discretion, 
grant or deny. A request under this paragraph must be filed concurrently 
with the party's brief.
    (c) Reporting and transcription. Oral argument before the Commission 
will be recorded and transcribed unless the Commission directs 
otherwise. In the event the Commission affords the parties the 
opportunity to present oral argument before the Commission, the oral 
argument will proceed in accordance with the provisions of Sec. 
10.103(b) of this chapter.



Sec. 171.33  Final decision by the Commission.

    (a) Opinion and order. Upon review, the Commission may affirm, 
modify, set aside, or remand for further proceedings, in whole or in 
part, the decision of the National Futures Association. The Commission's 
decision will be contained in its opinion and order which will be based 
upon the record before it, including the record of the registered 
futures association proceeding, briefs submitted to the Commission by 
the parties and any oral argument made in accordance with Sec. 171.32. 
Except as provided in paragraph (b) of this section, the opinion and 
order will constitute the final decision of the Commission, effective 
upon service on the parties. In the event the Commission is equally 
divided as to its decision, the decision of the National Futures 
Association shall be affirmed without a Commission opinion.
    (b) Order of summary affirmance. If the Commission finds that the 
result reached in the decision of the National Futures Association is 
substantially correct and that none of the arguments on appeal made by 
the appellant raise important questions of law or policy, the Commission 
may, by appropriate order, summarily affirm the decision without 
opinion. The decision of the National Futures Association shall 
constitute the Commission's final decision, effective upon service. 
Unless the Commission expressly indicates otherwise in its order, an 
order of summary affirmance does not reflect a Commission determination 
to adopt the rationale of the National Futures Association, and neither 
the order of summary affirmance nor the underlying order shall serve as 
Commission precedent in other proceedings.



Sec. 171.34  Standards of review.

    (a) Disciplinary actions. In reviewing a final decision of the 
National Futures Association in a disciplinary action, the Commission 
shall affirm the order of the National Futures Association, unless the 
Commission finds that:
    (1) The proceedings were not conducted in a manner consistent with 
fundamental fairness;
    (2) The proceedings were not conducted in a manner consistent with 
the rules of the National Futures Association;
    (3) The weight of the evidence does not support the findings of the 
National Futures Association concerning

[[Page 674]]

the relevant acts or practices engaged in or omitted;
    (4) The determination that the acts or practices engaged in or 
omitted violated rules of the National Futures Association does not rest 
on a reasonable interpretation of the rules at issue;
    (5) The National Futures Association's application of its rules is 
not consistent with the purposes of the Act;
    (6) The National Futures Association's choice of sanction is 
excessive or oppressive in light of the violations found having due 
regard for the public interest.
    (b) Membership denial actions. In reviewing a final decision of the 
National Futures Association in a membership denial action, the 
Commission shall affirm the order of the National Futures Association, 
unless the Commission finds that:
    (1) The proceedings were not conducted in a manner consistent with 
fundamental fairness;
    (2) The proceedings were not conducted in a manner consistent with 
the rules of the National Futures Association;
    (3) The weight of the evidence does not support the findings made or 
adopted in the final decision;
    (4) The conclusion of the National Futures Association is not 
consistent with the purposes of the Act.
    (c) Registration actions. In reviewing a decision of the National 
Futures Association in a registration action, the Commission shall 
affirm the order of the National Futures Association unless the 
Commission finds that:
    (1) The proceedings were not conducted in a manner consistent with 
fundamental fairness;
    (2) The proceedings were not conducted in a manner consistent with 
the rules of the National Futures Association;
    (3) The weight of the evidence does not support the findings made or 
adopted in the final decision;
    (4) The conclusion of the National Futures Association is not 
consistent with the purposes of the Act.



    Subpart D_Commission Review of Decisions by the National Futures 
              Association In Member Responsibility Actions



Sec. 171.40  Notice of the commencement of a member responsibility action.

    The notice of a Member Responsibility Action provided by the 
National Futures Association pursuant to its rules shall advise the 
affected parties of their right to petition the Commission pursuant to 
Sec. 171.41 to stay the effective date of the action pending a hearing 
before the National Futures Association on the factual issues relevant 
to the suspension, restriction or remedial action ordered.



Sec. 171.41  Petition for a stay of effective date of a member 

responsibility action pending a hearing by the National Futures Association.

    (a) Time to file. Within ten days after the National Futures 
Association serves the notice required by Sec. 171.40, any party 
aggrieved by the National Futures Association's determination that the 
member responsibility action should be effective prior to the 
opportunity for a hearing on the factual issues relevant to the 
suspension, restriction or remedial action imposed may petition the 
Commission to stay its effectiveness pending completion of further 
proceedings by the National Futures Association. The burden of 
persuasion shall rest with the party seeking the stay.
    (b) Content. A petition for stay shall meet the content requirements 
set forth in Sec. 171.22(b)(3).
    (c) Response. A response may be filed by the National Futures 
Association in accordance with Sec. 171.22(b)(4).
    (d) Standards for granting petition for stay. In reviewing petitions 
to stay the effectiveness of the member responsibility action pending 
completion of further proceedings, the Commission shall consider:
    (1) Whether, in the circumstances presented, the notice and 
opportunity for a hearing provided by the National Futures Association 
are consistent with principles of fundamental fairness; and

[[Page 675]]

    (2) The likelihood that the denial of the petition would result in 
irreparable harm to petitioner; and
    (3) The effect a grant of the petition would have on the interests 
of the National Futures Association; and
    (4) The effect a grant or denial of the petition would have on the 
public interest.
    (e) If the suspension, restriction or remedial action imposed by the 
National Futures Assocation in a member responsibility action is 
effective at the time a petition for a stay is filed with the 
Commission, the Commission shall not delay its decision on the petition 
to await the receipt of the National Futures Association's response. If 
the action is not effective at the time the petition is filed, the 
Commission will not act upon the petition prior to the receipt of a 
response from the National Futures Association unless, in its view, 
expedited action on the petition is necessary to protect petitioner's 
right to a meaningful determination of the right to a stay. If the 
Commission grants the petition prior to the receipt of the response of 
the National Futures Association, the association may seek 
reconsideration of the Commission's action within seven days of service 
of the decision.
    (f) Proceedings following Commission disposition. If the petition 
for a stay is denied, the National Futures Association shall continue 
its action in accordance with the applicable rules of the association. 
If the petition for a stay is granted, the action shall be remanded to 
the National Futures Association for further proceedings as provided in 
the Commission's decision. Unless otherwise ordered by the Commission, a 
stay issued pursuant to this section shall not deprive the National 
Futures Association of the authority, after conducting a hearing under 
the appropriate rules of the association, to make the suspension, 
restriction or remedial action ordered in the member responsibility 
action immediately effective at the time a final decision is issued.



Sec. 171.42  Notice of a final decision of the National Futures Association 

in a member responsibility action.

    (a) When required. The National Futures Association shall promptly 
serve all parties, as well as the Proceeding Clerk and Secretary of the 
Commission, with a written notice of any final decision in a member 
responsibility action. The notice may be contained in the written 
decision issued by the National Futures Association. If the National 
Futures Association determines that the decision shall be effective upon 
issuance, in addition to serving a written notice, it shall also contact 
the parties and the Proceedings Clerk by telephone to inform them of its 
determination.
    (b) Contents of the written notice. At a minimum, the notice shall 
provide the following information:
    (1) The name of the parties to the proceeding;
    (2) The date the notice was served and the effective date of the 
decision;
    (3) A statement informing the parties of their right to appeal the 
decision to the Commission pursuant to Sec. 171.44 as well as their 
right to seek a stay of the decision pending Commission consideration of 
their appeal pursuant to Sec. 171.43;
    (4) A description of the action taken and the reasons for the 
action;
    (5) Findings of fact and conclusions of law on all issues relevant 
to its decision;
    (6) A determination of the appropriate relief based on the findings 
and conclusions.



Sec. 171.43  Petition for a stay of the effective date of a final 

decision of the National Futures Association in a member responsibility action.

    (a) Filing the petition. Within ten days of the service of the 
notice described in Sec. 171.42, any aggrived party may seek from the 
Commission a stay of the effective date of the decision of the National 
Futures Association pending consideration of the merits of an appeal by 
filing and serving an appropriate petition. The mere filing of such a 
petition shall not stay the effective date of the decision. The burden 
of persuasion shall rest with the party seeking the stay.

[[Page 676]]

    (b) Contents. A petition for a stay shall be in writing. Material 
factual allegations shall be supported by an affidavit or other sworn 
statement unless the parties stipulate that the material facts are not 
in dispute.
    (c) Response. Within five days of the service of the petition, the 
National Futures Association may file an opposition to the petition. 
Material factual allegations shall be supported by an affidavit or other 
sworn statement unless the parties stipulate that the material facts are 
not in dispute.
    (d) Standards for determining petitions for a stay. In reviewing 
petitions filed under this section, the Commission shall consider:
    (1) The likelihood that petitioner's challenge to the merits of the 
decision will be successful; and
    (2) The likelihood that the denial of the petition would result in 
irreparable harm to the petitioner; and
    (3) The effect a grant of the petition would have on the National 
Futures Association; and
    (4) The effect a grant or denial of the petition would have on the 
public interest.
    (e) Expedited consideration. If the suspension, restriction or 
remedial action imposed by the National Futures Association in a member 
responsibility action is effective at the time a petition for a stay is 
filed with the Commission, the Commission shall not delay its decision 
on the petition to await the receipt of the National Futures 
Association's response. If the decision is not effective at the time the 
petition is filed, the Commission will not act upon the petition prior 
to the receipt of a response from the National Futures Association 
unless, in its view, expedited action on the petition is necessary to 
protect petitioner's right to a meaningful determination of the right to 
a stay. If the Commission grants the petition prior to the receipt of 
the response of the National Futures Association, the association may 
seek reconsideration of the Commission's action within seven days of 
service of the decision.



Sec. 171.44  Notice of appeal.

    (a) Time to file. Any party aggrieved by a final decision of the 
National Futures Association in a member responsibility action may, 
within thirty days of the service of the notice described in Sec. 
171.42, file with the Proceedings Clerk and serve on the National 
Futures Association a notice of appeal. The filing of such a notice 
shall not stay the effective date of the decision.
    (b) Contents. The notice of appeal shall meet the content 
requirements of Sec. 171.23(b).
    (c) Filing fee. Each notice of appeal must be accompanied by a 
nonrefundable filing fee of $100. This amount may be paid by check, bank 
draft or money order, payable to the Commodity Futures Trading 
Commission.
    (d) Defective notices of appeal. Notices of appeal that are untimely 
or not accompanied by the filing fee shall not be accepted by the 
Proceedings Clerk absent a showing, by motion, of excusable neglect.



Sec. 171.45  General procedures.

    The following procedural rules applicable to review of decisions of 
the National Futures Association in disciplinary, membership denial and 
registration actions shall also apply to the review of decisions of the 
National Futures Association in member responsibility actions:
    (a) Section 171.24 Submission of the Record.
    (b) Section 171.25 Appeal Brief.
    (c) Section 171.26 Answering Brief.
    (d) Section 171.27 Limited Participation By Interested Persons.
    (e) Section 171.28 Participation By Commission Staff.
    (f) Section 171.30 Scope of Review.
    (g) Section 171.31 Commission Review In the Absence of An Appeal.
    (h) Section 171.32 Oral Argument.
    (i) Section 171.33 Final Decision By the Commission.



Sec. 171.46  Standards of review.

    In reviewing the decision of the National Futures Association in a 
member responsibility action, the Commission shall consider whether:
    (a) The proceedings were conducted in a manner consistent with 
fundamental fairness;
    (b) The proceedings were conducted in a manner consistent with the 
rules of the National Futures Association;

[[Page 677]]

    (c) The weight of the evidence supports the findings of the National 
Futures Association concerning the reasons for the action;
    (d) The determination that summary action is necessary to protect 
the commodity futures markets, customers, or members of the National 
Futures Association rests on a reasonable interpretation of the NFA 
rules at issue;
    (e) The National Futures Association's application of its rules is 
consistent with the purposes of the Act;
    (f) In light of the findings of the National Futures Association 
concerning the reasons for the action and the public interest, the 
suspension, restriction or remedial action imposed by the National 
Futures Association is not excessive, oppressive or an abuse of 
discretion.



                    Subpart E_Delegation of Functions



Sec. 171.50  Delegation to the General Counsel.

    (a) The Commission hereby delegates, until it orders otherwise, to 
the General Counsel or the General Counsel's designee, the authority:
    (1) To waive or modify any of the requirements of Sec. Sec. 171.25, 
171.26, 171.27 and to waive or modify any requirement of the part 171 
Rules insofar as it pertains to changes in the time permitted for 
filing, or the form, execution, service and filing of documents;
    (2) To enter orders under Sec. Sec. 171.10, 171.12, 171.21 and 
171.31(c);
    (3) To decline to accept any notice of appeal, or petition for stay 
pending review, of matters specified in Sec. 171.1(b) and to so notify 
the appellant and the registered futures association;
    (4) To stay the effective date of a decision of the National Futures 
Association in a disciplinary, membership denial or registration action, 
or a decision relating to such actions issued by the Commission pursuant 
to these rules, for a reasonable period of time, not to exceed 10 days, 
when such a stay is necessary to allow the Commission to consider a 
petition to stay the effective date of such a decision or a motion for 
similar relief;
    (5) To decline to accept any document which has not been filed or 
perfected as specified in these rules;
    (6) To determine motions seeking permission to participate in a 
proceeding under Sec. 171.27 and to establish the related briefing 
schedule;
    (7) To establish briefing schedules under Sec. 171.28; and
    (8) To enter any order which, in his judgment, will facilitate or 
expedite Commission review of a decision by the National Futures 
Association in a disciplinary, membership denial or registration action.
    (b) Within seven days after service of a ruling issued pursuant to 
paragraph (a) of this section, a party may file with the Proceedings 
Clerk a petition for Commission reconsideration of the ruling. Unless 
the Commission orders otherwise, the filing of a petition for 
reconsideration will not operate to stay the effective date of such 
ruling.
    (c) The General Counsel or the General Counsel's designee may submit 
to the Commission for its consideration any matter which has been 
delegated pursuant to paragraph (a) of this section.
    (d) Nothing in this section will be deemed to prohibit the 
Commission, at its election, from exercising the authority delegated to 
the General Counsel under this section.

[55 FR 41068, Oct. 9, 1990, as amended at 64 FR 46271, Aug. 25, 1999]



PART 190_BANKRUPTCY--Table of Contents



Sec.
190.01 Definitions.
190.02 Operation of the debtor's estate subsequent to the filing date 
          and prior to the primary liquidation date.
190.03 Operation of the debtor's estate subsequent to the primary 
          liquidation date.
190.04 Operation of the debtor's estate--general.
190.05 Making and taking delivery on commodity contracts.
190.06 Transfers.
190.07 Calculation of allowed net equity.
190.08 Allocation of property and allowance of claims.
190.09 Member property.
190.10 General.

Appendix A to Part 190--Bankruptcy Forms
Appendix B to Part 190--Special Bankruptcy Distributions


[[Page 678]]


    Authority: 7 U.S.C. 1a, 2, 4a, 6c, 6d, 6g, 7a, 12, 19, and 24, and 
11 U.S.C. 362, 546, 548, 556, and 761-766, unless otherwise noted.

    Source: 48 FR 8739, Mar. 1, 1983, unless otherwise noted.



Sec. 190.01  Definitions.

    For purposes of this part:
    (a) Account class means each of the following types of customer 
accounts which must be recognized as a separate class of account by the 
trustee: futures accounts, foreign futures accounts, leverage accounts, 
commodity option accounts, delivery accounts as defined in Sec. 
190.05(a)(2), and, only with respect to the bankruptcy of a commodity 
broker that is a futures commission merchant, cleared OTC derivatives 
accounts; Provided, however, That to the extent that the equity balance, 
as defined in Sec. 190.07, of a customer in a commodity option, as 
defined in Sec. 1.3(hh) of this chapter, may be commingled with the 
equity balance of such customer in any domestic commodity futures 
contract pursuant to regulations under the Act, the aggregate shall be 
treated for purposes of this part as being held in a futures account; 
Provided, further, that, if positions in commodity contracts that would 
otherwise belong to one account class (and the money, securities, and/or 
other property margining, guaranteeing, or securing such positions), 
are, pursuant to a Commission order, commingled with positions in 
commodity contracts of the futures account class (and the money, 
securities, and/or other property margining, guaranteeing, or securing 
such positions), then the former positions (and the relevant money, 
securities, and/or other property) shall be treated, for purposes of 
this part, as being held in an account of the futures account class.
    (b) Allowed net equity means the amount calculated as allowed net 
equity in accordance with Sec. 190.07(a).
    (c) Bankruptcy Code means, except as the context of the regulations 
in this part otherwise requires, those provisions of the Bankruptcy 
Reform Act of 1978, as amended from time to time, relating to ordinary 
bankruptcies (chapters 1 through 5) and to liquidations (chapter 7 with 
the exception of subchapter III), together with the Federal rules of 
bankruptcy procedure relating thereto.
    (d) Business day means weekdays, not including Federal holidays.
    (e) Clearing organization shall have the same meaning as that set 
forth in section 761(2) of the Bankruptcy Code and shall include any 
organization which clears commodity options which are traded on or 
subject to the rules of a contract market or a board of trade.
    (f) Commodity broker means any person who is registered or required 
to register as a futures commission merchant under the Commodity 
Exchange Act including a person registered or required to be registered 
as such under Parts 32 and 33 of this chapter, and a ``commodity options 
dealer,'' ``foreign futures commission merchant,'' ``clearing 
organization,'' and ``leverage transaction merchant'' with respect to 
which there is a ``customer'' as those terms are defined in this 
section, but excluding a person registered as a futures commission 
merchant under section 4f(a)(2) of the Commodity Exchange Act.
    (g) Commodity contract shall have the same meaning, subject to 
paragraph (nn) of this section, as that set forth in section 761(4) of 
the Bankruptcy Code.
    (h) Commodity options dealer shall have the same meaning as that set 
forth in section 761(6) of the Bankruptcy Code.
    (i) Court means the bankruptcy court having jurisdiction over the 
debtor's estate.
    (j) Cover shall have the same meaning as that set forth in Sec. 
1.17(j) of this chapter.
    (k) Customer shall have the same meaning as that set forth in 
section 761(9) of the Bankruptcy Code.
    (l) Customer claim of record means a customer claim which is 
determinable solely by reference to the records of the debtor.
    (m) Customer class means each of the following two classes of 
customers which must be recognized by the trustee: public customers and 
non-public customers.
    (n) Customer property, customer estate are used interchangeably to 
mean the property subject to pro rata distribution in a commodity broker 
bankruptcy which is entitled to the priority

[[Page 679]]

set forth in section 766(h) of the Bankruptcy Code and includes certain 
cash, securities, and other property as set forth in Sec. 190.08(a).
    (o) Dealer option means an option granted, offered or sold pursuant 
to section 4c(d) of the Act and the Commission's regulations thereunder.
    (p) Debtor means an individual, association, partnership, 
corporation, or trust with respect to which a proceeding is commenced 
under subchapter IV of chapter 7 of the Bankruptcy Code.
    (q) Equity means the amount calculated as equity in accordance with 
Sec. 190.07(b)(1).
    (r) Filing date means the date a petition commencing a proceeding 
under the Bankruptcy Code is filed.
    (s) Final net equity determination date means the latest of
    (1) The day immediately following the day on which all commodity 
contracts held by or for the account of customers of the debtor have 
been transferred, liquidated or satisfied by exercise or delivery,
    (2) The day immediately following the day on which all property 
other than commodity contracts held for the account of customers has 
been transferred, returned or liquidated,
    (3) The bar date for filing customer proofs of claim, or
    (4) The day following the disposition of all disputed claims.
    (t) Foreign future shall have the same meaning as that set forth in 
section 761(11) of the Bankruptcy Code.
    (u) Foreign futures commission merchant shall have the same meaning 
as that set forth in section 761(12) of the Bankruptcy Code.
    (v) Funded balance means the amount calculated as funded balance in 
accordance with Sec. 190.07(c).
    (w) House account means any commodity account owned by the debtor.
    (x) In-the-money amount means:
    (1) With respect to a call option, the amount by which the value of 
the physical commodity or the contract for sale of a commodity for 
future delivery which is the subject of the option exceeds the strike 
price of the option; and
    (2) With respect to a put option, the amount by which the value of 
the physical commodity or the contract for sale of a commodity for 
future delivery which is the subject of the option is exceeded by the 
strike price of the option.
    (y) Joint account means any commodity account held by more than one 
person and includes any account of a commodity pool which is not a legal 
entity.
    (z) Leverage transaction merchant shall have the same meaning as 
that set forth in section 761(14) of the Bankruptcy Code.
    (aa) Net equity means the amount calculated as net equity in 
accordance with Sec. 190.07(b).
    (bb) Non-public customer means any person enumerated in Sec. 
1.3(y), Sec. 1.3(uu) or Sec. 31.4(e) of this chapter, who is defined 
as a customer under paragraph (k) of this section.
    (cc) Open commodity contract means a commodity contract which has 
been established in fact and which has not expired, been redeemed, been 
fulfilled by delivery or exercise, or been offset by another commodity 
contract.
    (dd) Order for relief means the filing of the petition in bankruptcy 
in a voluntary case and the adjudication of bankruptcy in an involuntary 
case.
    (ee) Premium means the amount agreed upon between the purchaser and 
seller, or their agents, for the purchase or sale of a commodity option.
    (ff) Primary liquidation date means the first business day 
immediately following the day on which all commodity contracts have been 
liquidated or transferred which are not being held open for later 
transfer in accordance with Sec. 190.03.
    (gg) Principal contract means a contract which is not traded on a 
board of trade, and includes leverage contracts and dealer options, but 
does not include transactions executed off the floor of a board of trade 
pursuant to rules approved by the Commission or rules which the board of 
trade is required to enforce, or pursuant to rules of a board of trade 
located outside the United States, its territories or possessions.
    (hh) Public customer means any person defined as a customer under 
paragraph (k) of this section except a non-public customer.

[[Page 680]]

    (ii) Security shall have the same meaning as that set forth in 
section 101(36) of the Bankruptcy Code.
    (jj) Short term obligation means any security, note, or other 
obligation with a duration or maturity date of 180 days or less.
    (kk) Specifically identifiable property means:
    (1) With respect to the following property received, acquired, or 
held by or for the account of the debtor from or for the account of a 
customer to margin, guarantee or secure an open commodity contract:
    (i) Any security which as of the filing date is:
    (A) Held for the account of a customer;
    (B) Registered in such customer's name;
    (C) Not transferable by delivery; and
    (D) Not a short term obligation; or
    (ii) Any warehouse receipt, bill of lading or other document of 
title which as of the filing date:
    (A) Can be identified on the books and records of the debtor as held 
for the account of a particular customer; and
    (B) Is not in bearer form and is not otherwise transferable by 
delivery.
    (2) With respect to open commodity contracts, and except as 
otherwise provided in paragraph (kk)(7) of this section, any such 
contract which:
    (i) As of the filing date is identified on the books and records of 
the debtor as held for the account of a particular customer;
    (ii) Is a bona fide hedging position or transaction as defined in 
Sec. 1.3(z) of this chapter or is a commodity option transaction which 
has been determined by the contract market to be economically 
appropriate to the reduction of risks in the conduct and management of a 
commercial enterprise pursuant to rules which have been adopted in 
accordance with the requirements of Sec. 1.61(b) of this chapter and 
approved by the Commission pursuant to section 5a(a)(12) of the 
Commodity Exchange Act; and
    (iii) Is in an account designated in the accounting records of the 
debtor as a hedging account in accordance with Sec. 190.04(e)(1).
    (3) With respect to warehouse receipts, bills of lading or other 
documents of title, or physical commodities received, acquired, or held 
by or for the account of the debtor for the purpose of making or taking 
delivery or exercise from or for the account of a customer, any such 
document of title or commodity which as of the entry of the order for 
relief can be identified on the books and records of the debtor as 
received from or for the account of a particular customer as held 
specifically for the purpose of delivery or exercise.
    (4) Any cash or other property deposited prior to the entry of the 
order for relief to pay for the taking of physical delivery on a long 
futures contract or for payment of the strike price upon exercise of a 
short put or a long call option contract on a physical commodity, which 
cannot be settled in cash, in excess of the amount necessary to margin 
such commodity contract prior to the notice date or exercise date, which 
cash or other property is identified on the books and records of the 
debtor as received from or for the account of a particular customer on 
or after three busines days before the first notice date or three 
business days before the exercise date specifically for the purpose of 
payment of the notice price upon taking delivery or the strike price 
upon exercise, respectively, and such customer takes delivery or 
exercises the option in accordance with the applicable contract market 
rules.
    (5) The cash price tendered for any property deposited prior to the 
entry of the order for relief to make physical delivery on a short 
futures contract or for exercise of a long put or a short call option 
contract on a physical commodity, which cannot be settled in cash, to 
the extent it exceeds the amount necessary to margin such contract prior 
to the notice date or exercise date, which property is identified on the 
books and records of the debtor as received from or for the account of a 
particular customer on or after three business days before the first 
notice date or three business days before the

[[Page 681]]

exercise date specifically for the purpose of a delivery or exercise, 
respectively, and such customer makes delivery or exercises the option 
in accordance with the applicable contract market rules.
    (6) Notwithstanding paragraph (kk)(1) of this section, fully paid, 
non-exempt securities identified on the books and records of the debtor 
as held by the debtor for or on behalf of the commodity account of a 
particular customer for which, according to such books and records as of 
the filing date, no open commodity contracts were held in the same 
capacity.
    (7) Open commodity contracts transferred in accordance with the 
provisions of Sec. 190.06.
    (8) Except as is otherwise specified in this paragraph (kk), no 
customer property may be treated as specifically identifiable property.
    (9) Notwithstanding any other provision of this paragraph (kk), 
security futures products, and any money, securities or property held to 
margin, guarantee or secure such products, or accruing as a result of 
such products, shall not be considered specifically identifiable 
property for the purposes of Subchapter IV of the Bankruptcy Code or 
this part 190, if held in a securities account.
    (ll) Strike price means the price per unit multiplied by the total 
number of units at which a person may purchase or sell the physical 
commodity or the contract of sale of a commodity for future delivery 
which is the subject of a commodity option.
    (mm) Trustee means, as appropriate, the trustee in bankruptcy 
apointed to administer the debtor's estate and any interim or successor 
trustee.
    (nn) Leverage contract shall have the same meaning as that set forth 
in Sec. 31.4(w) of this chapter.
    (oo) Cleared OTC derivatives shall mean positions in commodity 
contracts that have not been entered into or traded on a contract market 
(as such term is defined in Sec. 1.3(h) of this chapter) or on a 
derivatives transaction execution facility (within the meaning of 
Section 5a of the Act), but which nevertheless are submitted through a 
commodity broker that is a futures commission merchant (as such term is 
defined in Sec. 1.3(p) of this chapter) for clearing by a clearing 
organization (as such term is defined in this section), along with the 
money, securities, and/or other property margining, guaranteeing, or 
securing such positions, which are required to be segregated or set 
aside, in accordance with a rule, regulation, or order issued by the 
Commission, or which are required to be held in a separate account for 
cleared OTC derivatives only, in accordance with the rules or bylaws of 
a clearing organization (as such term is defined in this section).

(Secs. 2(a), 4c, 4d, 4g, 5, 5a, 8a, 15, 19 and 20 of the Commodity 
Exchange Act, as amended by the Futures Trading Act of 1982, Pub. L. 97-
444, 96 Stat. 2294 (1983), 7 U.S.C. 2 and 4a, 6c, 6d, 6g, 7, 7a, 12a, 
19, 23 and 24 (1976 & Supp. V. 1981 and Pub. L. 97-444); secs. 761-766 
of the Bankruptcy Reform Act of 1978, as amended by the Bankruptcy Act 
Amendments, Pub. L. 97-222, 96 Stat. 235 (1982), 11 U.S.C. 761-766 
(Supp. V. 1981 as amended by Pub. L. 97-222))

[48 FR 8739, Mar. 1, 1983; 48 FR 15122 and 15123, Apr. 7, 1983, as 
amended at 48 FR 28980, June 24, 1983; 49 FR 5541, Feb. 13, 1984, 50 FR 
34617, Sept. 6, 1985; 59 FR 5704, Feb. 8, 1994; 66 FR 20745, Apr. 25, 
2001; 67 FR 58298, Sept. 13, 2002; 75 FR 17302, Apr. 6, 2010]



Sec. 190.02  Operation of the debtor's estate subsequent to the filing 

date and prior to the primary liquidation date.

    Subsequent to the filing date and prior to the primary liquidation 
date, the debtor's estate shall be operated as follows:
    (a) Notices to the Commission and Designated Self-Regulatory 
Organizations--(1) General. Each commodity broker which files a petition 
in bankruptcy shall, at or before the time of such filing, and each 
commodity broker against which such a petition is filed shall, as soon 
as possible, but no later than one business day after the receipt of 
notice of such filing, notify the Commission and such broker's 
designated self-regulatory organization in accordance with Sec. 
190.10(a) of the filing date, the court in which the proceeding has been 
filed, and the docket number assigned to that proceeding by the court.
    (2) Of transfers under section 764(b) of the Bankruptcy Code. As 
soon as possible, but in no event later than the close of business on 
the third business

[[Page 682]]

day after the order for relief, the trustee, the applicable self-
regulatory organization, or the commodity broker must notify the 
Commission in accordance with Sec. 190.10(a) whether such entity or 
organization intends to transfer or to apply to transfer open commodity 
contracts on behalf of the commodity broker in accordance with section 
764(b) of the Bankruptcy Code and Sec. 190.06 (e) or (f).
    (b) Notices to customers--(1) Specifically identifiable property 
other than commodity contracts. The trustee must use its best efforts to 
promptly, but in no event later than two business days after entry of 
the order for relief, commence to publish in a daily newspaper or 
newspapers of general circulation approved by the court serving the 
location of each branch office of the commodity broker, for two 
consecutive days a notice to customers stating that all specifically 
identifiable property of customers other than open commodity contracts 
which has not otherwise been liquidated will be liquidated commencing on 
the fifth business day after the second publication date if the customer 
has not instructed the trustee in writing on or before the close of 
business on the fourth business day after the second publication date to 
return such property pursuant to the terms for distribution of 
specifically identifiable property contained in Sec. 190.08(d)(1) and, 
on the tenth business day after such second publication date, if such 
property has not been returned in accordance with such terms on or prior 
to that date. Such notice must describe specifically identifiable 
property in accordance with the definition in this part and must specify 
the terms upon which that property may be returned. Publication of the 
form of notice set forth in the appendix to this part will constitute 
sufficient notice for purposes of this paragraph (b)(1).
    (2) Request for instructions regarding transfer of open commodity 
contracts. The trustee must use its best efforts to request promptly, 
but in no event later than two business days after entry of an order for 
relief, customer instructions concerning the transfer or liquidation of 
the specifically identifiable open commodity contracts, if any, not 
required to be liquidated under paragraph (f)(1) of this section. The 
request for customer instructions required by this paragraph (b)(2) must 
state that the trustee is required to liquidate any such commodity 
contract for which transfer instructions have not been received on or 
before the close of business on the fifth business day after entry of 
the order for relief, and any such commodity contract for which 
instructions have been received which has not been transferred in 
accordance with Sec. 190.08(d)(2) on or before the close of business on 
the tenth business day after entry of the order for relief. A form of 
notice is set forth in the appendix to this part.
    (3) Involuntary cases. Prior to entry of an order for relief, and 
upon leave of the court, the trustee appointed in an involuntary 
proceeding may notify customers of the commencement of such proceeding 
and may request customer instructions with respect to the return, 
liquidation or transfer of specifically identifiable property, including 
open commodity contracts.
    (4) Notice of bankruptcy and request for proof of customer claim. 
The trustee must promptly notify each customer of record in writing that 
an order for relief has been entered and must instruct each such 
customer to file a proof of customer claim containing the information 
specified in paragraph (d) of this section. Such notice may be given 
separately from the notices required by paragraphs (b) (1) and (3) of 
this section.
    (c) Disposition of customer instructions in the event of a transfer 
pursuant to section 764(b) of the Bankruptcy Code. If the debtor's open 
commodity contracts have been, or are to be, transferred in accordance 
with section 764(b) of the Bankruptcy Code and Sec. 190.06, customer 
instructions previously received by the trustee with respect to open 
commodity contracts, or with respect to specifically identifiable 
property which is to be transferred with such contracts, shall be 
transmitted to the transferee of such contracts or property who shall 
comply therewith to the extent practicable.
    (d) Proof of customer claim. The trustee shall cause the proof of 
customer claim form referred to in paragraph (b)(4) of this section to 
set forth the

[[Page 683]]

bar date for its filing and to request that customers provide, to the 
extent reasonably possible, information sufficient to determine a 
customer's claim in accordance with the regulations contained in this 
part, including in the discretion of the trustee:
    (1) The class of commodity account upon which each claim is based;
    (2) The number of accounts held by each claimant, and the capacity 
in which they are held;
    (3) The equity as of the filing date of each account based on 
commodity transactions in that account;
    (4) Whether each account is a public or a non-public customer 
account;
    (5) Whether any account is a discretionary account;
    (6) A description of all claims against the debtor not based upon a 
commodity account of the claimant;
    (7) A description of all claims of the debtor against the claimant 
not included in the equity of a commodity account of the claimant;
    (8) A description of any deposits of money, securities or property 
with the debtor made by the claimant indicating the portion of such, if 
any, which was contained in the information provided in paragraph (d)(3) 
of this section and identifying any such property which would be 
specifically identifiable property as defined in Sec. 190.01(kk);
    (9) Whether the claimant is or was an ``affiliate,'' ``insider,'' or 
``relative'' of the debtor as these terms are defined by sections 101 
(2), (25), and (34), respectively, of the Bankruptcy Code;
    (10) The amount of the claimant's percentage interest in any joint 
account;
    (11) Whether the claimant's positions in security futures products 
are held in a futures account or a securities account, as these terms 
are defined in Sec. Sec. 1.3(vv) and (ww) of this chapter, 
respectively;
    (12) Whether the claimant wishes to receive payment in kind, to the 
extent possible, for any claim for securities; and
    (13) Copies of any documents which support the information contained 
in the proof of customer claim, including without limitation, customer 
confirmations, account statements, and statements of purchase or sale.

A proof of claim form which may be used by the trustee is set forth in 
the appendix to this part.
    (e) Transfers--(1) All cases. The trustee for a commodity broker 
must immediately use its best efforts to effect a transfer in accordance 
with Sec. 190.06 (e) and (f) no later than the close of business on the 
fourth business day after the order for relief of the open commodity 
contracts and equity held by the commodity broker for or on behalf of 
its customers.
    (2) Involuntary cases. A commodity broker against which an 
involuntary petition in bankruptcy is filed, or the trustee if a trustee 
has been appointed in such case, must use its best efforts to effect a 
transfer in accordance with Sec. 190.06 (e) and (f) of all open 
commodity contracts and equity held by the commodity broker for or on 
behalf of its customers and such other property as the Commission in its 
discretion may authorize, on or before the close of business on the 
fourth business day after the filing date, and immediately cease doing 
business: Provided, however, That the commodity broker may trade for 
liquidation only, unless otherwise directed by the Commission, by any 
applicable self-regulatory organization or by the court: And, Provided 
further, That if the commodity broker demonstrates to the Commission 
within such period that it was in compliance with the segregation and 
financial requirements of this chapter on the filing date, and the 
Commission determines, in its sole discretion, that such transfer or 
liquidation is neither appropriate nor in the public interest, the 
commodity broker may continue in business subject to applicable 
provisions of the Bankruptcy Code and of this chapter.
    (f) Liquidation or offset. After entry of the order for relief and 
subject to paragraph (e) of this section, which requires the trustee to 
attempt to make certain transfers permitted by Sec. 190.06 and section 
764(b) of the Bankruptcy Code, the following commodity contracts and 
other property held by or for the account of a debtor must be liquidated 
or offset by the trustee promptly and in an orderly manner, subject to 
limit

[[Page 684]]

moves and to applicable procedures under the Bankruptcy Code:
    (1) Open commodity contracts. All open commodity contracts except:
    (i) Dealer option contracts, if the dealer option grantor is not the 
debtor, which cannot be transferred on or before the close of business 
on the fourth business day after the order for relief; and
    (ii) Specifically identifiable commodity contracts as defined in 
Sec. 190.01(kk)(2) for which an instruction prohibiting liquidation is 
noted prominently in the accounting records of the debtor and timely 
received under paragraph (b)(2) of this section.

Notwithstanding the foregoing, an open commodity contract must be offset 
if: such contract is a futures contract which would otherwise remain 
open beyond the last day of trading, or the first day on which notice of 
intent to deliver may be tendered with respect thereto, whichever occurs 
first; such contract is a long option on a physical commodity which 
cannot be settled in cash and would be automatically exercised, has 
value and would remain open beyond the last day for exercise; such 
contract is a short option on a physical commodity which cannot be 
settled in cash; or, as otherwise specified in these rules.
    (2) Specifically identifiable property other than open commodity 
contracts. Specifically identifiable property other than open commodity 
contracts to the extent that:
    (i) The fair market value of such property is less than 90% of its 
fair market value on the date of entry of the order for relief; or
    (ii) The trustee has not received instructions to return, or has not 
returned, such property upon the terms contained in Sec. 190.08(d)(1) 
on or before the end of the period set forth in paragraph (b)(1) of this 
section.
    (3) All other property. All other property not required to be 
transferred or returned pursuant to customer instructions which has not 
been liquidated in accordance with paragraphs (f)(1) and (f)(2) of this 
section.
    (g) Treatment of open commodity contracts--(1) Margin payments by 
the trustee. Prior to the primary liquidation date, the trustee may make 
variation and maintenance margin payments to a commodity broker carrying 
the account of the debtor, as appropriate, pending liquidation of any 
open commodity contracts required to be liquidated under paragraph 
(f)(1) of this section, whether or not such contracts are specifically 
identifiable to a particular customer: Provided, That:
    (i) No payments may be made on behalf of accounts which are in 
deficit,
    (ii) No payments may be made on behalf of non-public customers or 
the debtor from funds which are segregated for the benefit of public 
customers,
    (iii) The trustee must make margin payments if payments of margin 
are received from customers after bankruptcy in response to margin 
calls, and
    (iv) No payments need be made to restore initial margin.
    (2) Margin calls. The trustee, or in the case of an involuntary 
bankruptcy, the commodity broker against which the petition is filed or 
the trustee if a trustee has been appointed, must issue margin calls 
with respect to any account in which the funded balance less the value 
on the date of return or transfer of any property previously returned or 
transferred does not equal or exceed:
    (i) 100% of the maintenance margin requirements of the applicable 
board of trade with respect to the open commodity contracts in such 
account; or
    (ii) If there are no such maintenance margin requirements, 100% of 
the clearing organization margin requirements applicable to the open 
commodity contracts in such account; or
    (iii) If there are no maintenance margin requirements or clearing 
organization margin requirements, then 50% of the initial margin 
applicable to the open commodity contracts in such account;

Provided, That no margin calls need be made by the trustee to restore 
initial margin. A margin call for such accounts should be made as soon 
as possible following the order for relief and the trustee shall be 
authorized, but not obligated, to liquidate any account for which such 
margin call is not met within a reasonable time as defined in Sec. 
190.04(e)(4): Provided, That the trustee must immediately liquidate any 
account which is in deficit.

[[Page 685]]

    (3) Margin payments by the customer. The full amount of any margin 
payment by a customer in response to a margin call under paragraph 
(g)(2) of this section must be credited to the funded balance of the 
particular account for which it was made.

[48 FR 8739, Mar. 1, 1983, as amended at 67 FR 58298, Sept. 13, 2002]



Sec. 190.03  Operation of the debtor's estate subsequent to the primary liquidation date.

    Subsequent to the primary liquidation date, accounts which contain 
open commodity contracts not required to be liquidated under Sec. 
190.02 (f)(1) shall be operated by the trustee as follows:
    (a) Operation of accounts held open for transfer--(1) Establishment 
of transfer accounts. On the primary liquidation date, the trustee must 
generate a new statement of account for each class of account of a 
customer which contains a commodity contract not required to be 
liquidated under Sec. 190.02(f)(1). The opening balance of such 
statement must be equal to its funded balance, less the value on the 
date of its transfer or return of any property transferred or returned 
with respect to the net equity claim for such account prior to the 
primary liquidation date.
    (2) Accounting for transfer accounts. The opening balance of any 
statement generated on the primary liquidation date in accordance with 
paragraph (a)(1) of this section must be adjusted for operations on or 
subsequent to the primary liquidation date in the same manner as the 
equity in a commodity futures account maintained for or on behalf of a 
customer would adjusted in the ordinary course of business prior to the 
filing date: Provided, however, That such statement of account must also 
be adjusted to reflect certain adjustments to the funded balance in 
accordance with Sec. 190.07(c)(2), such that the balance in that 
account will always be equal to the funded balance of the claimant's net 
equity claim adjusted for corrections and subsequent operations less the 
value on the date of transfer or return of any property transferred or 
returned with respect to that claim prior to the primary liquidation 
date.
    (3) Margin calls. The trustee must promptly issue margin calls with 
respect to any account referred to under paragraph (a)(1) of this 
section in which the balance does not equal or exceed 100% of the 
maintenance margin requirements of the applicable board of trade with 
respect to the open commodity contracts in such account, or if there are 
no such maintenance margin requirements, 100% of the clearing 
organization margin requirements applicable to the open commodity 
contracts in such account, or if there are no maintenance margin 
requirements or clearing organization margin requirements, then 50% of 
the initial margin applicable to the commodity contracts in such 
account: Provided, That no margin calls need be made to restore initial 
margin.
    (4) Margin payments. The trustee may make variation or maintenance 
margin payments to the broker carrying any account referred to in 
paragraph (a)(1) of this section as appropriate if such payments do not 
exceed the balance of the statement of account generated under paragraph 
(a)(1) of this section with respect to which such contracts are 
credited. Any customer for which commodity contracts remain open 
subsequent to the primary liquidation date will not be relieved of the 
obligation to make margin payments by reason of the bankruptcy of the 
commodity broker: Provided, That the full amount of any margin payment 
made by a customer subsequent to the primary liquidation date must be 
credited to the account referred to in paragraph (a)(1) of this section 
for which it was made.
    (5) Distribution. No distribution of equity may be made to or on 
behalf of customers by the trustee with respect to an account 
established in accordance with paragraph (a)(1) of this section, except 
pursuant to paragraph (a)(4) of this section and to Sec. 190.08(d).
    (b) Liquidation of open commodity contracts. Commodity contracts 
held open by the trustee in accordance with paragraph (a)(1) of this 
section must be liquidated promptly and in an orderly manner, if:
    (1) Any payment of margin would result in a deficit in the account 
in which they are held;

[[Page 686]]

    (2) The customer for, or on whose behalf, the account is held fails 
to meet a margin call within a reasonable time;
    (3) The trustee has received no customer instructions with respect 
to such contract by the close of business on the fifth business day 
after entry of the order for relief;
    (4) The commodity contract has not been transferred in accordance 
with Sec. 190.08(d)(2) on or before the close of business on the tenth 
business day after entry of the order for relief; or
    (5) The commodity contract would otherwise remain open beyond the 
last day of trading in such contract or the first day on which notice of 
delivery may be tendered with respect to such contract, whichever occurs 
first.
    (c) Liquidation of specifically identifiable property other than 
open commodity contracts. All specifically identifiable property other 
than open commodity contracts which have not been liquidated prior to 
the primary liquidation date, and for which no customer instructions 
have been timely received must be liquidated, to the extent reasonably 
possible, no later than the close of business on the fifth business day 
after final publication of the notice referred to in Sec. 190.02(b)(1). 
All other specifically identifiable property must be liquidated or 
returned, to the extent reasonably possible, no later than the close of 
business on the tenth business day after final publication of such 
notice.



Sec. 190.04  Operation of the debtor's estate--general.

    (a) Compliance with the Act and regulations. Except as specifically 
provided otherwise in this part, the trustee shall comply with all of 
the provisions of the Act and of the regulations thereunder as if it 
were the debtor.
    (b) Computation of funded balance. Using the information available, 
the trustee must compute a funded balance for each customer account 
which contains open commodity contracts as of the close of business each 
day subsequent to the order for relief until the final liquidation date. 
Such computation must be completed prior to noon on the next business 
day.
    (c) Records--(1) Maintenance. Subject to the requirements of the 
Bankruptcy Code, records of the computations required by this part shall 
be maintained in accordance with Sec. 1.31 of this chapter by the 
trustee for the greater of the period required by Sec. 1.31 of this 
chapter or for a period of one year after the close of the bankruptcy 
proceeding for which they were compiled.
    (2) Accessibility. The records required to be maintained by 
paragraph (c)(1) of this section shall be available during business 
hours to the Court, parties in interest, the Commission and the U.S. 
Department of Justice. At any time on or after the filing date, the 
commodity broker, or the trustee if a trustee has been appointed, shall 
be required to give the Commission and the U.S. Department of Justice 
immediate access to all records of the debtor, including records 
required to be retained in accordance with Sec. 1.31 of this chapter 
and all other records of the commodity broker, whether or not the Act or 
this chapter would require such records to be maintained by the 
commodity broker.
    (d) Liquidation--(1) Order of liquidation--(i) Open outcry. 
Liquidation of open commodity contracts held for a house or a customer 
account by or on behalf of a commodity broker which is a debtor shall be 
accomplished in accordance with Sec. 1.38 of this chapter: Provided, 
That to the extent reasonably possible the trustee shall first liquidate 
all net positions and shall subsequently liquidate all long and short 
positions in the same commodity in the same delivery month on the same 
contract market in tandem: and, Provided further, That any covered 
commodity owned by a debtor shall be liquidated, to the extent 
reasonably possible, at the same time as its cover.
    (ii) Book entry. Notwithstanding paragraph (1), in appropriate 
cases, upon application by the trustee or the affected clearing 
organization, the Commission may permit offsetting open commodity 
contracts to be liquidated, or settlement on such contracts to be made, 
by book entry. Such book entry shall offset such trades on the books of 
the commodity broker using an execution price equal to the weighted 
average of the liquidation prices for contracts in the same commodity 
for the same delivery month on

[[Page 687]]

the same contract market which are not matched on the books of the 
commodity broker, or if there are no such unmatched contracts, using the 
average of the opening price and the settlement price of contracts in 
the same commodity for the same delivery month on the same contract 
market as of the close of business on the market day of the order for 
relief.
    (2) Liquidation only. Nothing in this part shall be interpreted to 
permit the trustee to purchase or sell new commodity contracts for 
customers of the debtor except to offset open commodity contracts or to 
transfer any transferable notice received by the debtor or the trustee 
under any commodity contract: Provided, however, That the trustee may, 
in its discretion and with approval of the Commission, cover uncovered 
inventory or commodity contracts of the debtor which cannot be 
liquidated immediately because of price limits or other market 
conditions, or may take an offsetting position in a new month or at a 
strike price for which limits have not been reached.
    (3) Exception to Liquidation Only. Notwithstanding paragraph (d)(2) 
of this section, the trustee may, with the written permission of the 
Commission, operate the business of the debtor in the ordinary course, 
including the purchase or sale of new commodity contracts on behalf of 
the customers of the debtor under appropriate circumstances, as 
determined by the Commission.
    (e) Other matters--(1) Determination as to bona fide hedges. In 
determining which commodity contracts are eligible to be held open for 
transfer pursuant to customer instruction, the trustee may rely on the 
designation in the accounting records of the commodity broker that the 
account for or on behalf of which the contract is held is a hedging 
account. Commodity contracts maintained in a hedging account may be 
treated by the trustee as specifically identifiable.
    (2) Disbursements. The trustee shall make no disbursements to 
customers prior to final distribution except with approval of the court 
or in accordance with Sec. 190.08(d).
    (3) Investment. The trustee shall promptly invest the equity 
resulting from the liquidation of commodity contracts, and the proceeds 
of the liquidation of specifically identifiable property, in obligations 
of the United States and obligations fully guaranteed as to principal 
and interest by the United States, and may similarly invest any customer 
equity in accounts which remain open in accordance with Sec. 190.03: 
Provided, That such obligations are maintained in a depository located 
in the United States, its territories or possessions.
    (4) Margin calls--reasonable time. Except as otherwise provided in 
this part, a reasonable time for meeting margin calls made by the 
trustee shall be deemed to be one hour, or such greater period not to 
exceed one business day, as the trustee may determine in its sole 
discretion.
    (5) Management of Long Option Contracts. Subject to the applicable 
liquidation provisions the trustee must use its best efforts to assure 
that a long option contract with value does not expire worthless.

(Secs. 2(a), 4c, 4d, 4g, 5, 5a, 8a, 15, 19 and 20 of the Commodity 
Exchange Act, as amended by the Futures Trading Act of 1982, Pub. L. 97-
444, 96 Stat. 2294 (1983), 7 U.S.C. 2 and 4a, 6c, 6d, 6g, 7, 7a, 12a, 
19, 23 and 24 (1976 & Supp. V. 1981 and Pub. L. 97-444); secs. 761-766 
of the Bankruptcy Reform Act of 1978, as amended by the Bankruptcy Act 
Amendments, Pub. L. 97-222, 96 Stat. 235 (1982), 11 U.S.C. 761-766 
(Supp. V. 1981 as amended by Pub. L. 97-222))

[48 FR 8739, Mar. 1, 1983, as amended at 48 FR 28980, June 24, 1983; 75 
FR 44893, July 30, 2010]



Sec. 190.05  Making and taking delivery on commodity contracts.

    (a) General. (1) In the event that the trustee is unable to 
liquidate an open commodity futures contract subject to physical 
delivery or an option on a physical commodity, which cannot be settled 
in cash, prior to the last day of trading in that contract as required 
by Sec. Sec. 190.02(f)(1) and 190.03(b)(5), the trustee must use its 
best efforts to prevent property which is to be delivered for or on 
behalf of a customer to fulfill that contract, or property for which 
delivery is being taken with respect to a customer pursuant to that 
contract, from becoming part of the debtor's estate.

[[Page 688]]

    (2) Delivery account shall mean any account prominently designated 
as such in the records of the debtor which contains only the 
specifically identifiable property associated with delivery set forth in 
Sec. 190.01(kk) (3), (4), and (5), except that with respect to Sec. 
190.01(kk) (4) and (5), delivery need not be made or taken and exercise 
need not be effected for such property to be included in a delivery 
account.
    (3) The portion of the price or the proceeds of a commodity contract 
upon delivery which is not specifically identifiable property under 
Sec. 190.01(kk) (4) and (5) must be distributed pro rata under section 
766(h) of the Code.
    (b) Contract market rules for deliveries on behalf of a customer of 
a debtor. Except in the case of a commodity futures or option contract 
which is settled in cash, each contract market shall adopt, maintain in 
effect and enforce rules which have been approved by the Commission in 
accordance with section 5a(a)(12) of the Act and Sec. 1.41 of this 
chapter, which:
    (1) Permit the making and taking of delivery to fulfill a commodity 
futures contract for a physical commodity or an option on a physical 
commodity, which has not become part of the debtor's estate on the date 
of the entry of the order for relief but with respect to which commodity 
contract:
    (i) Trading has ceased on the date of the entry of the order for 
relief;
    (ii) Notice of delivery has been tendered on or before the date of 
the entry of the order for relief; or,
    (iii) Trading ceases before it can be liquidated by the trustee, to 
be effected directly between the customer of the debtor and the person 
identified by the clearing organization as the party to whom delivery 
should be made or from whom delivery should be taken by such customer of 
the debtor without intervention of the trustee and without including 
such physical commodity or the payment for such physical commodity in 
any bankruptcy distribution: Provided, however, That a customer shall 
not be relieved of his obligation to make or take delivery for the sole 
reason that delivery must be made or taken from a commodity broker which 
is a debtor; and
    (2) Recognize that the equity of a customer of the debtor in a 
commodity contract upon which delivery is made or taken must be included 
in the net equity claim of that customer and, as such, can only be 
distributed pro rata at the time of, and as part of, any distributions 
to customers made by the trustee.
    (c) Delivery made or taken within the debtor's estate. (1) Any 
property in a delivery account which is part of the debtor's estate on 
the date of the order for relief may be returned under the terms set 
forth in Sec. 190.08(d)(1)(ii).
    (2) If the property to be delivered is part of the debtor's estate 
on the date of the order for relief and a customer of the debtor is 
required to make delivery, the trustee must make delivery in the same 
manner as if no bankruptcy had occurred and the party by whom delivery 
is taken must pay the full notice price or strike price for delivery.
    (3) If delivery is to be made or taken on behalf of a house account 
the trustee must either make or take delivery, as the case may be, on 
behalf of the debtor's estate: Provided, That if the trustee, at any 
time, takes delivery of a physical commodity, the trustee must convert 
that physical commodity to cash as promptly as possible.

(Secs. 2(a), 4c, 4d, 4g, 5, 5a, 8a, 15, 19 and 20 of the Commodity 
Exchange Act, as amended by the Futures Trading Act of 1982, Pub. L. 97-
444, 96 Stat. 2294 (1983), 7 U.S.C. 2 and 4a, 6c, 6d, 6g, 7, 7a, 12a, 
19, 23 and 24 (1976 & Supp. V. 1981 and Pub. L. 97-444); secs. 761-766 
of the Bankruptcy Reform Act of 1978, as amended by the Bankruptcy Act 
Amendments, Pub. L. 97-222, 96 Stat. 235 (1982), 11 U.S.C. 761-766 
(Supp. V. 1981 as amended by Pub. L. 97-222))

[48 FR 8739, Mar. 1, 1983, as amended at 48 FR 28980, June 24, 1983; 59 
FR 5704, Feb. 8, 1994]



Sec. 190.06  Transfers.

    (a) Transfer rules. No self-regulatory organization or clearing 
organization may adopt, maintain in effect or enforce rules which:
    (1) Are inconsistent with the provisions of this part;
    (2) Interfere with the acceptance by its members of open commodity 
contracts and the equity margining or securing such contracts from 
futures commission merchants, or persons which are required to be 
registered as

[[Page 689]]

futures commission merchants, which are required to transfer accounts 
pursuant to Sec. 1.17(a)(4) of this chapter; or
    (3) Prevent the acceptance by its members of transfers of open 
commodity contracts and the equity margining or securing such contracts 
from futures commission merchants with respect to which a petition in 
bankruptcy has been filed, if such transfers have been approved by the 
Commission.

Provided, however, That this paragraph shall not limit the exercise of 
any contractual right of a self-regulatory organization or clearing 
organization to liquidate open commodity contracts.
    (b) Notice. Unless notice has been filed pursuant to Sec. 1.65(b) 
of this chapter, if a futures commission merchant, or a person required 
to be registered as a futures commission merchant, intends to transfer 
commodity contracts held by or for a commodity broker from or for the 
account of a customer to another person registered as a futures 
commission merchant after a petition in bankruptcy has been filed by or 
against such commodity broker, the transferor must notify the Commission 
no later than is required under Sec. 190.02(a)(2).
    (c) Financial requirements for transferees. (1) No transfer may be 
made which would cause the transferee to be in violation of the minimum 
financial requirements set forth in this chapter.
    (2) A transferee may accept a transfer of open commodity contracts 
even though the money, securities and other property eligible for 
transfer under the regulations contained in this part is insufficient to 
fully margin such positions, if the transferee agrees to accept the 
transfer subject to any loss due to the failure to recover such 
deficiency from the customers whose contracts it has accepted or from 
the estate of the debtor.
    (3) The transferee of a commodity contract for which notice is given 
under Sec. 190.06(b)(2) must keep that contract open one business day 
after its receipt, unless the customer for whom the transfer is made 
fails to respond within a reasonable time to a margin call for the 
difference between the margin transferred with such contract and the 
margin which such transferee would require with respect to a similar 
commodity contract held for the account of a customer in the ordinary 
course of business.
    (4) No commission may be collected by the transferor with respect to 
the transfer of an open commodity contract for which notice is given 
under Sec. 190.06(b)(2).
    (d) Customer instructions--(1) Customer instructions. A commodity 
broker must provide an opportunity for each customer to specify when 
undertaking its first hedging contract whether, in the event of 
bankruptcy, such customer prefers that open commodity contracts held in 
a hedging account be liquidated by the trustee without seeking customer 
instructions. Such commodity broker may obtain evidence of the customer 
instructions as provided in Sec. 1.55(d) of this chapter.
    (2) Record of customer instructions. Each futures commission 
merchant must indicate prominently in the accounting records in which it 
maintains open trade balances any customer accounts which are hedging 
accounts for which the customer has not specified that it prefers open 
contracts to be liquidated in bankruptcy by the trustee without 
instruction.
    (e) Eligibility for transfer under section 764(b) of the Bankruptcy 
Code--(1) Accounts eligible for transfer. Subject to the requirements of 
paragraph (e)(2) of this section, all accounts are eligible for transfer 
after the filing date pursuant to section 764(b) of the Bankruptcy Code, 
except:
    (i) House accounts or the accounts of general partners of the debtor 
if the debtor is a partnership;
    (ii) Leverage accounts, if the debtor is the leverage transaction 
merchant with respect to such accounts;
    (iii) Dealer option accounts, if the debtor is the dealer option 
grantor with respect to such accounts;
    (iv) Accounts which contain no open commodity contracts; or
    (v) Accounts which are in deficit.
    (2) Amount of equity which may be transferred. In no case may money, 
securities or property be transferred in respect of any eligible account 
if the value of such money, securities or property would exceed the 
funded balance of such account based on available

[[Page 690]]

information as of the close of business on the business day immediately 
preceding transfer less the value on the date of return or transfer of 
any property previously returned or transferred with respect thereto.
    (f) Special rules for transfers under section 764(b) of the 
Bankruptcy Code--(1) Dealer options--(i) Eligibility for transfer. Prior 
to exercise, any dealer option contract held by or for the account of a 
debtor which is a futures commission merchant from or for the account of 
a customer may be transferred even if the funded balance available for 
transfer which is attributable to such contract does not equal 100% of 
the portion of the purchase price required to be segregated with respect 
to such contract: Provided, That a dealer option contract will be 
eligible for transfer only if any deficiency in the funded balance of 
the customer account in which it is held is not due to amounts owed by 
such customer to the debtor; and, Provided further, That the transferee 
of any dealer option contract need not segregate more than an amount 
equal to that portion of the purchase price due the grantor which is 
transferred with the contract which should be equal to the grantor's 
funded balance in the portion of the purchase price segregated less any 
reasonable reserve established by the trustee for the nonrecovery of 
overpayments.
    (ii) Obligation of the dealer option grantor. In the event of the 
transfer of a dealer option contract pursuant to this section, the 
failure of the debtor futures commission merchant to segregate 100% of 
the purchase price due the grantor for such contract, or the failure of 
the dealer option grantor to collect 100% of such purchase price due the 
grantor, shall not excuse the dealer option grantor from its obligation 
to perform such contract in full upon its exercise, without any setoff 
or set aside for the premium deficiency.
    (2) Clearing organizations. Commodity contracts held by a clearing 
organization which is a debtor may not be transferred.
    (3) Partial transfers--(i) Of the customer estate. If all eligible 
customer accounts held by a debtor cannot be transferred under this 
section, a partial transfer may nonetheless be made. The Commission will 
not disapprove such a transfer for the sole reason that it was a partial 
transfer if it would prefer the transfer of accounts, the liquidation of 
which could adversely affect the market or the bankrupt estate. Any 
dealer option contract held by or for the account of a debtor which is a 
futures commission merchant from or for the account of a customer which 
has not previously been transferred, and is eligible for transfer, must 
be transferred on or before the close of business on the tenth business 
day after entry of the order for relief.
    (ii) Of a customer account. If all of a customer's open commodity 
contracts cannot be transferred under this section, a partial transfer 
of contracts may be made. A partial transfer may be effected by 
liquidating that portion of the open commodity contracts held by a 
customer which represents sufficient equity to permit the transfer of 
the remainder. If any commodity contracts to be transferred in a partial 
transfer are part of a spread or straddle, both sides of such spread or 
straddle must be transferred or neither side may be transferred.
    (g) Prohibition on avoidance of transfers under section 764(b) of 
the Bankruptcy Code--(1) Pre-relief transfers. Notwithstanding the 
provisions of paragraph (e) of this section, the following transfers may 
not be avoided by a trustee:
    (i) The transfer of commodity accounts prior to the entry of the 
order for relief in compliance with Sec. 1.17(a)(4) of this chapter 
unless such transfer is disapproved by the Commission; or
    (ii) The transfer prior to the order for relief by a public 
customer, including a transfer by a public customer which is a commodity 
broker, of commodity accounts held from or for the account of such 
customer by or on behalf of the debtor unless:
    (A) The customer acted in collusion with the debtor or its 
principals to obtain a greater share of the bankrupt estate than that to 
which it would be entitled in a bankruptcy distribution; or
    (B) The transfer is disapproved by the Commission.

[[Page 691]]

    (2) Post-relief transfers. On or after the entry of the order for 
relief, the following transfers to one or more transferees may not be 
avoided by the trustee:
    (i) The transfer of a customer account eligible to be transferred 
under paragraph (e) or (f) of this section made by the trustee of the 
commodity broker or by any self-regulatory organization or clearing 
organization of the commodity broker:
    (A) On or before the close of business on the fourth business day 
after the entry of the order for relief; and
    (B) The Commission is notified in accordance with Sec. 190.02(a)(2) 
prior to the transfer and does not disapprove the transfer; or
    (ii) The transfer of a customer account at the direction of the 
Commission on or before the close of business on the fourth business day 
after the order for relief upon such terms and conditions as the 
Commission may deem appropriate and in the public interest.
    (3) Withdrawals prior to bankruptcy. The withdrawal or settlement of 
a commodity account by a public customer including a public customer 
which is a commodity broker, prior to the filing date may not be avoided 
by a trustee unless:
    (i) The customer making the withdrawal or settlement acted in 
collusion with the debtor or its principals to obtain a greater share of 
the bankruptcy estate than that to which such customer would be entitled 
in a bankruptcy distribution; or
    (ii) The withdrawal or settlement is disapproved by the Commission.
    (h) Commission action. Notwithstanding any other provision of this 
section, in appropriate cases and to protect the public interest, the 
Commission may:
    (1) Prohibit the transfer of customer accounts; or
    (2) Permit transfers of accounts which do not comply with the 
requirements of this section.

[48 FR 8739, Mar. 1, 1983; 48 FR 15122 and 15123, Apr. 7, 1983; 58 FR 
17505, Apr. 5, 1993]



Sec. 190.07  Calculation of allowed net equity.

    Allowed net equity shall be computed as follows:
    (a) Allowed claim. The allowed net equity claim of a customer shall 
be equal to the aggregate of the funded balances of such customer's net 
equity claim for each account class plus or minus the adjustments 
specified in paragraph (d) of this section.
    (b) Net equity. Net equity means the total claim of a customer 
against the estate of the debtor based on the commodity contracts held 
by the debtor for or on behalf of such customer less any indebtedness of 
the customer to the debtor. Net equity shall be calculated as follows:
    (1) Step 1--Equity determination. Determine the equity balance of 
each customer account by computing, with respect to such account, the 
sum of:
    (i) The ledger balance;
    (ii) The open trade balance; and
    (iii) The current realizable market value, determined as of the 
close of the market on the last preceding market day, of any securities 
or other property held by or for the debtor from or for such account, 
plus accrued interest, if any.
    (A) For the purposes of this paragraph (b)(1), the ledger balance of 
a customer account shall be calculated by adding:
    (1) Cash deposited to purchase, margin, guarantee, secure, or settle 
a commodity contract;
    (2) Except as is otherwise provided in this chapter, the cash 
proceeds of such cash, or of securities or other property referred to in 
paragraph (b)(1) of this section held from or for the customer by or for 
the account of the commodity broker; and
    (3) Gains realized on trades, and
    (B) Subtracting from the result:
    (1) Losses realized on trades;
    (2) Disbursements to or on behalf of the customer; and
    (3) The normal costs attributable to the payment of commissions, 
brokerage, interest, taxes, storage, transaction fees, insurance and 
other costs and charges lawfully incurred in connection with the 
purchase, sale, exercise, or liquidation of any commodity contract in 
such account. For purposes

[[Page 692]]

of this paragraph (b)(1), the open trade balance of a customer's account 
shall be computed by subtracting the unrealized loss in value of the 
open commodity contracts held by or for such account from the unrealized 
gain in value of the open commodity contracts held by or for such 
account. In calculating the ledger balance or open trade balance of any 
customer, exclude any security futures products, any gains or losses 
realized on trades in such products, any property received to margin, 
guarantee or secure such products (including interest thereon or the 
proceeds thereof), to the extent any of the foregoing are held in a 
securities account, and any disbursements to or on behalf of such 
customer in connection with such products or such property held in a 
securities account.
    (2) Step 2--Customer determination (aggregation). Aggregate the 
credit and debit equity balances of all accounts of the same class held 
by a customer in the same capacity. Paragraphs (b)(2)(i) through 
(b)(2)(xiii) of this section prescribe which accounts must be treated as 
being held in the same capacity and which accounts must be treated as 
being held in a separate capacity.
    (i) Except as otherwise provided in this paragraph (b)(2), all 
accounts which are maintained with a debtor in a person's name and 
which, under this paragraph (b)(2), are deemed to be held by that person 
in its individual capacity shall be deemed to be held in the same 
capacity.
    (ii) An account maintained with a debtor by a guardian, custodian, 
or conservator for the benefit of a ward, or for the benefit of a minor 
under the Uniform Gift to Minors Act, shall be deemed to be held in a 
separate capacity from accounts held by such guardian, custodian or 
conservator in its individual capacity.
    (iii) An account maintained with a debtor in the name of an executor 
or administrator of an estate shall be deemed to be held in a separate 
capacity from accounts held by such executor or administrator in its 
individual capacity.
    (iv) Subject to paragraph (b)(2)(iii) of this section, an account 
maintained with a debtor in the name of a decedent, in the name of the 
decedent's estate, or in the name of the executor or administrator of 
such estate shall be deemed to be accounts held in the same capacity.
    (v) An account maintained with a debtor by a trustee shall be deemed 
to be held in the individual capacity of the grantor of the trust unless 
the trust is created by a valid written instrument for a purpose other 
than avoidance of an offset under the regulations contained in this 
part. A trust account which is not deemed to be held in the individual 
capacity of its grantor under paragraph (b)(2)(v) of this section shall 
be deemed to be held in a separate capacity from accounts held in an 
individual capacity by the trustee, by the grantor or any successor in 
interest of the grantor, or by any trust beneficiary, and from accounts 
held by any other trust.
    (vi) An account maintained with a debtor by a corporation, 
partnership, or unincorporated association shall be deemed to be held in 
a separate capacity from accounts held by the shareholders, partners or 
members of such corporation, partnership or unincorporated association, 
if such entity was created for purposes other than avoidance of an 
offset under the regulations contained in this part.
    (vii) A hedging account of a person shall be deemed to be held in 
the same capacity as a speculative account of such person.
    (viii) Subject to paragraph (b)(2)(ix) of this section, the futures 
accounts, leverage accounts, options accounts, foreign futures accounts, 
and cleared OTC derivatives accounts of the same person shall not be 
deemed to be held in separate capacities: Provided, however, That such 
accounts may be aggregated only in accordance with paragraph (b)(3) of 
this section.
    (ix) An omnibus customer account of a futures commission merchant 
maintained with a debtor shall be deemed to constitute one account and 
to be held in a separate capacity from the house account and any other 
omnibus customer account of such futures commission merchant.
    (x) A joint account maintained with the debtor shall be deemed to be 
held in a separate capacity from any account held in an individual 
capacity by

[[Page 693]]

the participants in such account, from any account held in an individual 
capacity by a commodity pool operator or commodity trading advisor for 
such account, and from any other joint account: Provided, however, That 
if such account is not transferred in accordance with Sec. 190.06, it 
shall be deemed to be held in the same capacity as any other joint 
account held by identical participants and a participant's percentage 
interest therein shall be deemed to be held in the same capacity as any 
account held in an individual capacity by such participant.
    (xi) An account maintained with a debtor in the name of a plan 
which, on the filing date, has in effect a registration statement in 
accordance with the requirements of section 1031 of the Employee 
Retirement Income Security Act of 1974 and the regulations thereunder 
shall be deemed to be held in a separate capacity from an account held 
in an individual capacity by the plan administrator, any employer, 
employee, participant, or beneficiary with respect to such plan.
    (xii) Except as otherwise provided in this section, an account 
maintained with a debtor by an agent or nominee for a principal or a 
beneficial owner shall be deemed to be an account held in the individual 
capacity of such principal or beneficial owner.
    (xiii) Accounts held by a customer in separate capacities shall be 
deemed to be accounts of different customers. The burden of proving that 
an account is held in a separate capacity shall be upon the customer.
    (3) Step 3--Setoffs. (i) The net equity of one customer account may 
not be offset against the net equity of any other customer.
    (ii) Any obligation which is not required to be included in 
computing the equity of a customer under paragraph (b)(1) of this 
section, but which is owed by such customer to the debtor must be 
deducted from any obligation not required to be included in computing 
the equity of a customer which is owed by such debtor to the customer. 
If the former amount exceeds the latter, the excess must be deducted 
from the equity balance of the customer obtained after performing the 
preceding calculations required by paragraph (b) of this section: 
Provided, That if the customer owns more than two classes of accounts 
the excess must be offset against each positive equity balance in the 
same proportion as that positive equity balance bears to the total of 
all positive equity balances of accounts of different classes held by 
such customer.
    (iii) A negative equity balance obtained with respect to one 
customer account class must be set off against a positive equity balance 
in any other account class of such customer held in the same capacity: 
Provided, That if a customer owns more than two classes of accounts such 
balance must be offset against each positive equity balance in the same 
proportion as that positive equity balance bears to the total of all 
positive equity balances in accounts of different classes held by such 
customer.
    (iv) To the extent any indebtedness of the debtor to the customer 
which is not required to be included in computing the equity of such 
customer under paragraph (b)(1) of this section exceeds such 
indebtedness of the customer to the debtor, the customer claim therefor 
will constitute a general creditor's claim rather than a customer 
property claim, and the net equity therefor shall be separately 
calculated.
    (v) The rules pertaining to separate capacities and permitted 
setoffs contained in this section must be applied subsequent to the 
entry of an order for relief; prior to the filing date the provisions of 
Sec. 1.22 of this chapter and of section 4d(a)(2) of the Act shall 
govern what setoffs are permitted.
    (4) Step 4--Correction for distributions. The value on the date of 
transfer or distribution of any property transferred or distributed 
subsequent to the filing date and prior to the primary liquidation data 
with respect to each class of account held by a customer must be added 
to the equity obtained for that customer for accounts of that class 
after performing the steps contained in paragraphs (b)(1)-(3) of this 
section: Provided, however, That if all accounts for which there are 
customer claims of record and 100% of the equity pertaining thereto are 
transferred in accordance with Sec. 190.06 and section

[[Page 694]]

764(b) of the Bankruptcy Code, net equity shall be computed based solely 
upon those customer claims, if any, filed subsequent to bankruptcy which 
are not claims of record on the filing date.
    (5) Step 5--Correction for subsequent events. Compute any 
adjustments to Steps 1 through 4 of this paragraph (b) required to 
correct misestimates or errors including, without limitation, 
corrections for subsequent events such as the liquidation of 
unliquidated claims at a value different from the estimated value 
previously used in computing net equity.
    (6) Step 6--Net equity of accounts which remain open subsequent to 
the primary liquidation date. If the accounts of a customer contain 
commodity contracts which remain open subsequent to the primary 
liquidation date, the trustee must adjust the net equity obtained for 
that customer pursuant to the steps contained in paragraphs (b) (1) 
through (5) of this section as provided in paragraphs (d)(1) and (d)(2) 
of this section.
    (c) Calculation of funded balance. ``Funded balance'' means a 
customer's pro rata share of the customer estate with respect to each 
account class available as of the primary liquidation date for 
distribution to customers of the same class.
    (1) The funded balance of any customer claim shall be computed by:
    (i) Multiplying the ratio of the amount the net equity claim less 
the amounts referred to in (1)(ii) of this section of such customer for 
any account class bears to the sum of the net equity claims less the 
amounts referred to in (1)(ii) of this section of all customers for 
accounts of that class by the sum of:
    (A) The value of the money, securities or property segregated on 
behalf of all accounts of the same class less the amounts referred to in 
(1)(ii) of this section;
    (B) The value of any money, securities or property which must be 
allocated under Sec. 190.08 to customer accounts of the same class; and
    (C) The amount of any add-back required under paragraph (b)(4) of 
this section; and
    (ii) Then adding 100% of any margin payment made between the entry 
of the order for relief and the primary liquidation date.
    (2) Corrections to funded balance. The funded balance must be 
adjusted, as of the primary liquidation date, to correct for subsequent 
events including, without limitation:
    (i) Added claimants;
    (ii) Disallowed claims;
    (iii) Liquidation of unliquidated claims at a value other than their 
estimated value;
    (iv) Recovery of property; and
    (v) Deficits generated by the continued operation of accounts after 
the primary liquidation date which cannot be fully adjusted under 
paragraph (d) of this section.
    (d) Adjustments to funded balance for operations subsequent to the 
primary liquidation date. If accounts of a customer contain commodity 
contracts which remain open subsequent to the primary liquidation date, 
the funded balance for each class must be adjusted until liquidation or 
transfer of all such open commodity contracts of that customer of the 
same class, as follows:
    (1) Unrealized and realized gains and any receipts of margin with 
respect thereto must be added to the funded balance;
    (2) Unrealized and realized losses, and the normal costs 
attributable to the payment of commissions, brokerage, interest, taxes, 
storage, transaction fees and other costs and charges lawfully incurred 
with respect to the maintenance or liquidation of such open commodity 
contracts, and any distributions must be subtracted from the funded 
balance; and
    (3) Subject to claims against the trustee for failure to liquidate, 
any deficit which is not recovered from the customer on whose behalf it 
is incurred must be charged against the funded balance of each account 
which remained open on the date the deficit occurred in the same 
proportion as the funded balance of each account bears to all the funded 
balances of all accounts which remained open on that date.
    (e) Valuation. In computing net equity, commodity contracts and 
other property held by or for a commodity broker must be valued as 
provided in this paragraph (e): Provided, however,

[[Page 695]]

That if identical commodity contracts, securities, or other property are 
liquidated on the same date, but cannot be liquidated at the same price, 
the trustee may use the weighted average of the liquidation prices in 
computing the net equity of each customer holding such contracts, 
securities or property.
    (1) Exchange-traded contracts. The value of an open commodity 
contract which is traded on a board of trade shall be equal to the 
settlement price as of the close of business on the board of trade upon 
which it is traded: Provided, That if such contract is transferred its 
value shall be determined at the time of its transfer: and Provided 
further, That if such contract is liquidated, its value shall be equal 
to the net proceeds of liquidation.
    (2) Principal contracts. The valuation date of principal contracts 
which are not transferred shall be the date of the order for relief 
unless there is specific property which constitutes cover by the 
principal for the principal contract in which case it shall be the date 
of liquidation of the cover. For purposes of valuing contracts for which 
there is no established secondary market:
    (i) Cash price series approved by Commission. The market value of 
the physical commodity which is the subject of a principal contract 
shall be computed using a cash price series approved by the Commission 
for use by the dealer option grantor, in the case of dealer options, and 
by the leverage transaction merchant, in the case of leverage contracts.
    (ii) No cash price series approved by Commission. If no applicable 
cash price series has been submitted to the Commission, or if such a 
cash price series has been submitted, but has not been approved by the 
Commission, the market value of the physical commodity which is the 
subject of a principal contract shall be equal to the lesser of:
    (A) The market value of the physical commodity as of the close of 
business on the local cash market most proximate to the debtor's 
principal place of business; or
    (B) The spot month settlement price on a contract market which 
trades contracts in that physical commodity most proximate to the 
debtor's principal place of business: Provided, That where there is more 
than one local market as described in paragraphs (e)(2)(ii) (A) or (B) 
of this section, the trustee should use the most active market.
    (iii) Special rule for valuing dealer options. A dealer option which 
is in-the-money will be deemed to have been exercised for purposes of 
determining its value which shall be equal to the greater of:
    (A) The in-the-money amount; or
    (B) The premium paid for such option divided by the number of days 
contained in the option period and multiplied by the number of days 
remaining in such period on the liquidation date: Provided, That in the 
trustee's sole discretion, the trustee may reduce such value to an 
amount which does not exceed the average of the premiums recently paid 
for similar options granted by the same grantor.

Any time value not reflected in this computation claimed by a customer 
must be treated as a general creditor's claim.
    (iv) Special rule for valuing leverage contracts. Notwithstanding 
paragraphs (e)(2) (i) and (ii) of this section, if the records of the 
debtor are not sufficient to substantiate customer claims for profits 
and to identify the owners of contracts with losses, the liquidation 
value of a leverage contract shall be deemed to be an amount equal to 
the total deposit made by a customer in respect to such contract.
    (3) Bucketed contracts. The value of a commodity contract which has 
not been established in fact shall be deemed to be equal to the value of 
the total deposit made by a customer in respect to such contract.
    (4) Securities. The value of a listed security shall be equal to the 
closing price for such security on the exchange upon which it is traded. 
The value of over-the-counter securities traded pursuant to the National 
Association of Securities Dealers Automated Quotation system shall be 
equal, in the case of a long position, to the closing bid price and, in 
the case of a short position, to the closing asking price. The value of 
all other over-the-counter securities shall be equal in the case of a 
long position, to the average of the bid

[[Page 696]]

prices for long positions, and in the case of a short position, to the 
average of the asking prices for the short positions. If liquidated 
prior to the primary liquidation date, the value of such security shall 
be equal to the net proceeds of its liquidation. Securities which are 
not publicly traded shall be valued by the trustee subject to approval 
of the court, using such professional assistance as the trustee deems 
necessary in its sole discretion under the circumstances.
    (5) Property. Cash commodities held in inventory, as collateral or 
otherwise, shall be valued at their fair market value. Subject to the 
other provisions of this paragraph (e), all other property shall be 
valued by the trustee subject to approval by the court, using such 
professional assistance as the trustee deems necessary in its sole 
discretion under the circumstances: Provided, however, That if such 
property is sold, its value for purposes of the calculations required by 
this part shall be the net proceeds of such sale: Provided further, That 
the sale is made in compliance with all applicable statutes, rules and 
orders of any court or governmental entity with jurisdiction thereover.

[48 FR 8739, Mar. 1, 1983; 48 FR 15122 and 15123, Apr. 7, 1983, as 
amended at 67 FR 58298, Sept. 13, 2002; 69 FR 41427, July 9, 2004; 75 FR 
17303, Apr. 6, 2010]



Sec. 190.08  Allocation of property and allowance of claims.

    The property of the debtor's estate must be allocated among account 
classes and between customer classes as provided in this section, except 
for special distributions required under appendix B to this part. The 
property so allocated will constitute a separate estate of the customer 
class and the account class to which it is allocated, and will be 
designated by reference to such customer class and account class.
    (a) Scope of customer property. (1) Customer property includes the 
following:
    (i) All cash, securities, or other property or the proceeds of such 
cash, securities or other property received, acquired, or held by or for 
the account of the debtor, from or for the account of a customer, 
including a non-public customer, which is:
    (A) Property received, acquired or held to margin, guarantee, 
secure, purchase or sell a commodity contract;
    (B) Open commodity contracts;
    (C) Warehouse receipts, bills of lading, or other documents of title 
or property held or acquired by the debtor to fulfill a commodity 
contract;
    (D) Profits or contractual rights accruing to a customer as the 
result of a commodity contract;
    (E) The full proceeds of a letter of credit if such letter of credit 
was received, acquired or held to margin, guarantee, secure, purchase or 
sell a commodity contract;
    (F) Property hypothecated under Sec. 1.30 of this chapter to the 
extent that the value of such property exceeds the proceeds of any loan 
of margin made with respect thereto, and
    (ii) All cash, securities, or other property which:
    (A) Is segregated on the filing date;
    (B) Is a security owned by the debtor to the extent there are 
customer claims for securities of the same class and series of an 
issuer;
    (C) Is specifically identifiable to a customer;
    (D) Is property of a type described in paragraph (a)(1)(i)(A) of 
this section which has been withdrawn and subsequently is recovered by 
the avoidance powers of the trustee;
    (E) Represents recovery of any debit balance, margin deficit, or 
other claim of the debtor against a customer account;
    (F) Was unlawfully converted but is part of the debtor's estate;
    (G) Is property of the debtor that any applicable law, rule, 
regulation, or order requires to be set aside for the benefit of 
customers, unless including such property in the customer estate would 
not significantly increase the customer estate;
    (H) Is property of the debtor's estate recovered by the Commission 
in any proceeding brought against the principals, agents, or employees 
of the debtor;
    (I) Is proceeds from the investment of customer property by the 
trustee pending final distribution; or
    (J) Is cash, securities or other property of the debtor's estate, 
including

[[Page 697]]

the debtor's trading or operating accounts and commodities of the debtor 
held in inventory, but only to the extent that the property enumerated 
in paragraphs (a)(1)(i)(E) and (a)(1)(ii)(A) through (a)(1)(ii)(H) of 
this section is insufficient to satisfy in full all claims of public 
customers.
    (2) Customer property will not include:
    (i) Claims against the debtor for damages for any wrongdoing of the 
debtor, including claims for misrepresentation or fraud, or for any 
violation of the Act or of the regulations thereunder;
    (ii) Other claims for property which are not based upon property 
received, acquired or held by or for the account of the debtor, from or 
for the account of the customer;
    (iii) Forward contracts;
    (iv) Property delivered to or from a customer to or by another 
customer to fulfill a commodity contract held for or on behalf of either 
customer by the debtor if such delivery is effected pursuant to Sec. 
190.05 by a commodity broker other than the debtor;
    (v) Property deposited by a customer with a commodity broker after 
the entry of an order for relief which is not necessary to meet the 
maintenance margin requirements applicable to the accounts of such 
customer;
    (vi) Property hypothecated pursuant to Sec. 1.30 of this chapter to 
the extent of the loan of margin with respect thereto; and
    (vii) Money, securities or property held to margin, guarantee or 
secure security futures products, or accruing as a result of such 
products, if held in a securities account.
    (b) Allocation of property between customer classes. No portion of 
the customer estate may be allocated to pay non-public customer claims 
until all public customer claims have been satisfied in full. Any 
property segregated on behalf of non-public customers must be treated 
initially as part of the public customer estate and allocated under 
paragraph (c)(2) of this section.
    (c) Allocation of property among account classes--(1) Segregated 
property. Subject to paragraph (b) of this section, property held by or 
for the account of a customer, which is segregated on behalf of a 
specific account class, or readily traceable on the filing date to 
customers of such account class, must be allocated to the customer 
estate of the account class for which it is segregated or to which it is 
readily traceable.
    (2) All other property. Money, securities and property received from 
or for the account of customers on behalf of any account class which is 
recovered on behalf of the customer estate and which cannot be allocated 
in accordance with paragraph (c)(1) of this section, must be allocated 
as of the primary liquidation date in the following order:
    (i) To the estate of the account class for which, after the 
allocation required in paragraph (c)(1) of this section, the percentage 
of each public customer net equity claim which is funded is the lowest, 
until the funded percentage of net equity claims of such class equals 
the percentage of each public customer's net equity claim which is 
funded for the account class with the next lowest percentage of the 
funded claims; and then
    (ii) To the estate of the two account classes referred to in 
paragraph (c)(2)(i) of this section so that the percentage of the net 
equity claims which are funded for each class remains equal until the 
percentage of each public customer net equity claim which is funded 
equals the percentage of each public customer net equity claim which is 
funded for the account class with the next lowest percentage of funded 
claims, and so forth, until the percentage of each public customer net 
equity claim which is funded is equal for all classes of accounts; and 
then,
    (iii) Among account classes in the same proportion as the public 
customer net equity claims for each such account class bears to the 
total of public customer net equity claims of all account classes until 
the public customer claims of each account class are paid in full; and, 
thereafter,
    (iv) To the non-public customer estate for each account class in the 
same order as is prescribed in paragraphs (c)(2) (i) to (iii) of this 
section for the allocation of the customer estate among account classes.

[[Page 698]]

    (d) Distribution of customer property--(1) Return or transfer of 
specifically identifiable property other than a commodity contract. 
Specifically identifiable property other than an open commodity contract 
not required to be liquidated under Sec. 190.02(f)(2) may be returned 
or transferred on behalf of the customer to which it is identified:
    (i) If it is margining an open commodity contract, only if cash is 
first deposited with the trustee in an amount equal to the greater of 
the full fair market value of such property on the return date or the 
balance due on the return date on any loan by the debtor to the customer 
for which such property constitutes security; or
    (ii) If it is not so margining an open contract, at the option of 
the customer, either pursuant to the terms of paragraph (d)(1)(i) of 
this section, or pursuant to the following terms: such customer first 
deposits cash with the trustee in an amount equal to the amount by which 
the greater of the value of the specifically identifiable property to be 
transferred or returned on the date of such transfer or return or the 
balance due on the return date on any loan by the debtor to the customer 
for which such property constitutes security, together with any other 
disbursements made, or to be made, to such customer, plus a reasonable 
reserve in the trustee's sole discretion, exceeds the estimated 
aggregate of the funded balances for each class of account of such 
customer less the value on the date of its transfer or return of any 
property transferred or returned prior to the primary liquidation date 
with respect to the customer's net equity claim for such account; 
Provided, That adequate security for the nonrecovery of any overpayments 
by the trustee is provided to the debtor's estate by the customer.
    (2) Transfers of specifically identifiable commodity contracts under 
section 766 of the Bankruptcy Code. Any specifically identifiable 
commodity contract which is not required to be liquidated under Sec. 
190.02(f)(1) or Sec. 190.03(b), and which is not otherwise liquidated, 
may be transferred on behalf of a customer: Provided, That such customer 
must first deposit cash with the trustee in an amount equal to the 
amount by which the equity to be transferred to margin such contract 
together with any other transfers or returns of specifically 
identifiable property or disbursements made, or to be made, to such 
customer, plus a reasonable reserve in the trustee's sole discretion, 
exceeds the estimated aggregate of the funded balances for each class of 
account of such customer less the value on the date of its transfer or 
return of any property transferred or returned prior to the primary 
liquidation date with the respect to the customer's net equity claim for 
such account: and, Provided further, That adequate security for the 
nonrecovery of any overpayments by the trustee is provided to the 
debtor's estate by the customer.
    (3) Distribution in kind of specifically identifiable securities. If 
any securities of a customer would have been specifically identifiable 
under Sec. 190.01(kk)(6) if that customer had had no open commodity 
contracts, the customer may request that the trustee purchase or 
otherwise obtain the largest whole number of like-kind securities, with 
a fair market value (inclusive of transaction costs) which does not 
exceed that portion of such customer's allowed net equity claim that 
constitutes a claim for securities, if like-kind securities can be 
purchased in a fair and orderly manner.
    (4) Proof of customer claim. No distribution shall be made pursuant 
to paragraphs (d)(1) and (d)(3) of this section prior to receipt of a 
completed proof of customer claim as described in Sec. 190.02(d).
    (5) No differential distributions. No further disbursements may be 
made to customers for whom transfers have been made pursuant to Sec. 
190.06 and paragraph (d)(2) of this section, until a percentage of each 
net equity claim equivalent to the percentage distributed to such 
customers is distributed to all public customers. Partial distributions, 
other than the transfers referred to in Sec. 190.06 and paragraph 
(d)(2) of this section, made prior to the final net equity determination 
date must be made pursuant to a preliminary plan of distribution 
approved by the court, upon notice to the parties and to all customers, 
which plan requires adequate security to the debtor's estate

[[Page 699]]

for the nonrecovery of any overpayments by the trustee and distributes 
an equal percentage of net equity to all public customers.
    (6) Margin payments. The trustee may make margin payments on behalf 
of any account which do not exceed the funded balance of that account.

[48 FR 8739, Mar. 1, 1983; 48 FR 15122, Apr. 1, 1983, as amended at 59 
FR 17471, Apr. 13, 1994; 67 FR 58298, Sept. 13, 2002]



Sec. 190.09  Member property.

    (a) Member property. ``Member property'' means, in connection with a 
clearing organization bankruptcy, the property which may be used to pay 
that portion of the net equity claim of a member which is based on its 
house account.
    (b) Scope of member property. Member property shall include all 
money, securities and property received, acquired, or held by a clearing 
organization to margin, guarantee or secure the proprietary account, as 
defined in Sec. 1.3(y) of this chapter, of a clearing member: Provided, 
however, That any guaranty deposit or similar payment or deposit made by 
such member and any capital stock, or membership of such member in the 
clearing organization shall also be included in member property after 
payment in full of that portion of the net equity claim of the member 
based on its customer account and of any obligations due the clearing 
organization which may be paid therefrom in accordance with the by-laws 
or rules of the clearing organization, including obligations due from 
the clearing organization to customers or other members.



Sec. 190.10  General.

    (a) Notices. Unless instructed otherwise, all mandatory or 
discretionary notices to be given to the Commission under this part 
shall be directed to the Washington, DC headquarters of the Commission 
(Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581) 
and addressed to the Secretariat, for the attention of the Director of 
the Division of Clearing and Intermediary Oversight. All such notices 
shall be in writing and shall be given by telegram or other similarly 
rapid means of communication. For purposes of this part, notice to the 
Commission shall be deemed to be given only upon actual receipt.
    (b) Request for exemption from time limit. (1) A trustee or any 
other person charged with the management of a commodity broker which has 
filed a petition in bankruptcy, or against which such a petition has 
been filed, may for good cause shown request from the Commission an 
exemption from, or extension of, any time limit prescribed by this part 
190: Provided, That no such exemption or extension will be granted for 
any time period established by the Bankruptcy Code, as amended, 11 
U.S.C. 101 et seq.
    (2) Such a request shall be made ex parte and by any means of 
communication, written or oral: Provided, That an oral request shall be 
confirmed in writing within one business day and such confirmation shall 
contain all the information required by paragraph (b)(3) of this 
section. Any such request shall be directed to the person as provided in 
paragarph (a) of this section, and at the address provided therein.
    (3) Such a request shall state the particular provision of the part 
190 rules with respect to which the exemption or extension is sought, 
the reason for the requested exemption or extension, the amount of time 
sought if the request is for an extension, and the reason why such 
exemption or extension would not be contrary to the purposes of the 
Bankruptcy Code and the Commission's part 190 regulations promulgated 
thereunder.
    (4) The Director of the Division of Clearing and Intermediary 
Oversight, or such members of the Commission's staff acting under his 
direction as he may designate, on the basis of the information provided 
in any such request, shall determine, in his sole discretion, whether to 
grant, deny or otherwise respond to a request, and shall communicate 
that determination by the most appropriate means to the person making 
the request and to the bankruptcy court with jurisdiction over the case.
    (c) Disclosure statement for non-cash margin. (1) Except as provided 
in Sec. 1.65 of this chapter, no commodity broker (other than a 
clearing organization) may accept property other than cash

[[Page 700]]

from or for the account of a customer, other than a customer specified 
in Sec. 1.55(f) of this chapter, to margin, guarantee, or secure a 
commodity contract unless the commodity broker first furnishes the 
customer with the disclosure statement set forth in paragraph (c)(2) of 
this section in boldface print in at least 10 point type which may be 
provided as either a separate, written document or incorporated into the 
customer agreement, or with another statement approved under Sec. 
1.55(c) of this chapter and set forth in appendix A to Sec. 1.55 which 
the Commission finds satisfies this requirement.
    (2) The disclosure statement required by paragraph (c)(1) of this 
section is as follows:

    THIS STATEMENT IS FURNISHED TO YOU BECAUSE RULE 190.10 (c) OF THE 
COMMODITY FUTURES TRADING COMMISSION REQUIRES IT FOR REASONS OF FAIR 
NOTICE UNRELATED TO THIS COMPANY'S CURRENT FINANCIAL CONDITION.
    1. YOU SHOULD KNOW THAT IN THE UNLIKELY EVENT OF THIS COMPANY'S 
BANKRUPTCY, PROPERTY, INCLUDING PROPERTY SPECIFICALLY TRACEABLE TO YOU, 
WILL BE RETURNED, TRANSFERRED OR DISTRIBUTED TO YOU, OR ON YOUR BEHALF, 
ONLY TO THE EXTENT OF YOUR PRO RATA SHARE OF ALL PROPERTY AVAILABLE FOR 
DISTRIBUTION TO CUSTOMERS.
    2. NOTICE CONCERNING THE TERMS FOR THE RETURN OF SPECIFICALLY 
IDENTIFIABLE PROPERTY WILL BE BY PUBLICATION IN A NEWSPAPER OF GENERAL 
CIRCULATION.
    3. THE COMMISSION'S REGULATIONS CONCERNING BANKRUPTCIES OF COMMODITY 
BROKERS CAN BE FOUND AT 17 CODE OF FEDERAL REGULATIONS PART 190.

    (3) The statement contained in paragraph (c)(2) of this section need 
be furnished only once to each customer to whom it is required to be 
furnished by this section.
    (d) Delegation of authority to the Director of the Division of 
Clearing and Intermediary Oversight. (1) Until such time as the 
Commission orders otherwise, the Commission hereby delegates to the 
Director of the Division of Clearing and Intermediary Oversight, and to 
such members of the Commission's staff acting under his direction as he 
may designate, all the functions of the Commission set forth in this 
part except the authority to approve or disapprove a withdrawal or 
settlement of a commodity account by a public customer pursuant to Sec. 
190.06(g)(3).
    (2) The Director of the Division of Clearing and Intermediary 
Oversight may submit to the Commission for its consideration any matter 
which has been delegated to him pursuant to paragraph (d)(1) of this 
section.
    (3) Nothing in this section shall prohibit the Commission, at its 
election, from exercising its authority delegated to the Director of the 
Division of Clearing and Intermediary Oversight under paragraph (d)(1) 
of this section.
    (e) Forward contracts. For purposes of this part, an entity for or 
with whom the debtor deals who holds a claim against the debtor solely 
on account of a forward contract will not be deemed to be a customer.
    (f) Notice of court papers pertaining to the operation of the 
estate. The trustee shall promptly provide the Commission with copies of 
any complaint, motion, or petition filed in a commodity broker 
bankruptcy which concerns the disposition of customer property. Court 
papers shall be directed to the Washington, DC headquarters of the 
Commission addressed as provided in paragraph (a) of this section.
    (g) Other. The Bankruptcy Code will not be construed by the 
Commission to prohibit a commodity broker from doing business as any 
combination of the following: futures commission merchant, commodity 
option dealer, foreign futures commission merchant or leverage 
transaction merchant, nor will the Commission construe the Bankruptcy 
Code to permit any operation, trade or business, or any combination of 
the foregoing, otherwise prohibited by the Act or by any rule, 
regulation or order of the Commission thereunder.
    (h) Rule of construction. Contracts in security futures products 
held in a securities account shall not be considered to be ``from or for 
the commodity futures account'' or ``from or for the commodity options 
account'' of such

[[Page 701]]

customers, as such terms are used in section 761(9) of the Bankruptcy 
Code.

(Secs. 2(a), 4c, 4d, 4g, 5, 5a, 8a, 15, 19 and 20 of the Commodity 
Exchange Act, as amended by the Futures Trading Act of 1982, Pub. L. 97-
444, 96 Stat. 2294 (1983), 7 U.S.C. 2 and 4a, 6c, 6d, 6g, 7, 7a, 12a, 
19, 23 and 24 (1976 & Supp. V. 1981 and Pub. L. 97-444); secs. 761-766 
of the Bankruptcy Reform Act of 1978, as amended by the Bankruptcy Act 
Amendments, Pub. L. 97-222, 96 Stat. 235 (1982), 11 U.S.C. 761-766 
(Supp. V. 1981 as amended by Pub. L. 97-222))

[48 FR 8739, Mar. 1, 1983, as amended at 48 FR 28980, June 24, 1983; 58 
FR 17505, Apr. 5, 1993; 59 FR 34382, July 5, 1994; 60 FR 49336, Sept. 
25, 1995; 63 FR 8571, Feb. 20, 1998; 67 FR 58298, Sept. 13, 2002; 67 FR 
62353, Oct. 7, 2002]



              Sec. Appendix A to Part 190--Bankruptcy Forms

 bankruptcy appendix form 1--operation of the debtor's estate--schedule 
                           of trustee's duties

    For the convenience of a prospective trustee, the Commission has 
constructed an approximate schedule of important duties which the 
trustee should perform during the early stages of a commodity broker 
bankruptcy proceeding. The schedule includes duties required by this 
part, subchapter IV of chapter 7 of the Bankruptcy Code as well as 
certain practical suggestions, but it is only intended to highlight the 
more significant duties and is not an exhaustive description of all the 
trustee's responsibilities. It also assumes that the commodity broker 
being liquidated is an FCM. Moreover, it is important to note that the 
operating facts in a particular bankruptcy proceeding may vary the 
schedule or obviate the need for any of the partiular activities.

                                All Cases

                        Date of Order for Relief

    1. Assure that the commodity broker has notified the Commission and 
its designated self-regulatory organization (``DSRO'') that a petition 
or order for relief has been filed (Sec. 190.02(a)(1)).
    2. Attempt to estimate short-fall in customer segregated funds.
    a. If there is a substantial short-fall of customer segregated 
funds, the trustee should:
    i. Contact the DSRO and attempt to effectuate a transfer under 
section 764(b) of the Code (hereinafter ``bulk transfer''); notify the 
Commission for assistance (Sec. Sec. 190.02(a)(2) and (e)(1), Sec. 
190.06(b)(2), (e), (f)(3), (g)(2), and (h)) but recognize that a bulk 
transfer is highly unlikely.
    ii. If a bulk transfer cannot be effectuated, liquidate all customer 
commodity contracts, except dealer options and specifically identifiable 
commodity contracts which are bona fide hedging positions (as defined in 
Sec. 190.01(kk)(2)) with instructions not to be liquidated. (See 
Sec. Sec. 190.02(f) and 190.06(d)(1)). (In this connection, depending 
upon the size of the debtor and other complications of liquidation, the 
trustee should be aware of special liquidation rules, and in particular 
the availability under certain circumstances of book-entry liquidation 
(Sec. 190.04(d)(1)(ii)).
    b. If there is a small short-fall of customer segregrated funds, 
negotiate with the clearing organization to effect a bulk transfer; 
notify the Commission (Sec. Sec. 190.02(a)(2) and (e)(1), 190.06(b)(2), 
(e), (f)(3), (g)(2), and (h)).
    3. Whether or not a transfer has occurred, liquidate or offset open 
commodity contracts not eligible for transfer (i.e., deficit accounts, 
accounts with no open positions) (Sec. 190.06(e)(1)).
    4. Offset all futures contracts which would otherwise remain open 
beyond the last day of trading or first day on which notice of intent to 
deliver may be tendered; offset long options on a physical commodity 
which cannot be settled in cash, have value and would be automatically 
exercised or would remain open beyond the last day of exercise; and 
offset all short options on a physical commodity which cannot be settled 
in cash (Sec. 190.02(f)(1)).
    5. Compute estimated funded balance for each customer commodity 
account containing open commodity contracts (Sec. 190.04(b)) (daily 
thereafter).
    6. Make margin calls if necessary (Sec. 190.02(g)(1)) (daily 
thereafter).
    7. Liquidate or offset any open commodity account for which a 
customer has failed to meet a margin call (Sec. 190.02(f)(1)) (daily 
thereafter).
    8. Commence liquidation or offset of specifically identifiable 
property described in Sec. 190.02(f)(2)(i) (property which has lost 10% 
or more of value) (and as appropriate thereafter).
    9. Commence liquidation or offset of property described in Sec. 
190.02(f)(3) (``all other property'').
    10. Be aware of any contracts in delivery position and rules 
pertaining to such contracts (Sec. 190.05).

        First Business Day After the Entry of an Order for Relief

    1. If a bulk transfer occurred on the date of entry of the order for 
relief:
    a. Liquidate any remaining open commodity contracts, except any 
dealer option or specifically identifiable commodity contract [hedge] 
(See Sec. 190.01(kk)(2) and Sec. 190.02(f)(1)), and not otherwise 
transferred in the bulk transfer.
    b. Primary liquidation date for transferred or liquidated commodity 
contracts (Sec. 190.01(ff)).

[[Page 702]]

    2. If no bulk transfer has yet been effected, continue attempt to 
negotiate bulk transfer of open commodity positions and dealer options 
(Sec. 190.02(c)(1)).
    3. Provide the clearing house or carrying broker with assurances to 
prevent liquidation of open accounts available for transfer at the 
customer's instruction or liquidate all open contracts except those 
available for transfer at a customer's instruction and dealer options.

       Second Business Day After the Entry of an Order for Relief

    If no bulk transfer has yet been effected, request directly customer 
instructions regarding transfer of open commodity contracts and publish 
notice for customer instructions regarding the return of specifically 
identifiable property other than commodity contracts (Sec. Sec. 
190.02(b) (1) and (2)).

        Third Business Day After the Entry of an Order for Relief

    1. Last day on which to notify the Commission with regard to whether 
a bulk transfer in accordance with section 764(b) of the Bankruptcy Code 
will take place (Sec. 190.02(a)(2) and Sec. 190.06(e)).
    2. Second publication date for customer instructions (Sec. 
190.02(b)(1)) (publication is to be made on two consecutive days, 
whether or not the second day is a business day).

       Fourth Business Day After the Entry of an Order for Relief

    If not previously concluded, conclude transfers under Sec. 
190.06(e) and (f). (See Sec. 190.02(e)(1) and Sec. 
190.06(g)(2)(i)(A)).

        Fifth Business Day After the Entry of an Order for Relief

    Last day for customers to instruct the trustee concerning open 
commodity contracts (Sec. 190.02(b)(2)).

        Sixth Business Day After the Entry of an Order for Relief

    Commence liquidation of open commodity contracts for which no 
customer instructions have been received (Sec. 190.02(b)(2)).

       Seventh Business Day After the Entry of an Order for Relief

    1. Customer instructions due to trustee concerning specifically 
indentifiable property (Sec. 190.02(b)(1)).
    2. Primary liquidation date (Sec. 190.01(ff)) (assuming no bulk 
transfers and liquidation effected for all open commodity contracts for 
which no customer instructions were received by the close of business on 
the sixth business day).
    3. Establishment of transfer accounts (Sec. 190.03(a)(1)) (assuming 
this is the primary liquidation date); mark such accounts to market 
(Sec. 190.03(a)(2)) (daily thereafter until closed).

       Eighth Business Day After the Entry of an Order for Relief

    Commence liquidation of specifically identifiable property for which 
no customer intructions have been received (Sec. 190.02(b)(1)).

        Ninth Business Day After the Entry of an Order for Relief

    Complete liquidation to the extent reasonably possible of 
specifically identifiable property which has yet to be liquidated and 
for which no customer instructions have been received (Sec. 190.03(c)).

        Tenth Business Day After the Entry of an Order for Relief

    1. Liquidate or offset all remaining open commodity contracts (Sec. 
190.02(b)(2)).
    2. Transfer all open dealer option contracts which have not 
previously been transferred (Sec. 190.06(f)(3)(i)).

      Eleventh Business Day After the Entry of an Order for Relief

    If not done previously, notify customers of bankruptcy and request 
customer proof of claim (Sec. 190.02(b)(4)).

     Thirteenth Business Day After the Entry of an Order for Relief

    Commence liquidation of specifically identifiable property for which 
no arrangements for return have been made in accordance with customer 
instructions (Sec. Sec. 190.02(b)(1), 190.03(c)).

      Separate Procedures for Involuntary Petitions for Bankruptcy

    1. Within one business day after notice of receipt of filing of the 
petition in bankruptcy, the trustee should assure that proper 
notification has been given to the Commission and the commodity broker's 
designated self-regulatory organization (Sec. 190.02(a)(1)); margin 
calls should be issued if necessary (Sec. 190.02(g)(2)).
    2. On or before the fourth business day after the filing of a 
petition in bankruptcy, the trustee should use his best efforts to 
effect a transfer in accordance with Sec. Sec. 190.06 (e) and (f) of 
all open commodity contracts and equity held for or on behalf of 
customers of the commodity broker (Sec. 190.02(e)(2)) unless the debtor 
can provide certain assurances to the trustee.

[[Page 703]]

bankruptcy appendix form 2--request for instructions concerning non-cash 
               property deposited with (commodity broker)

    Please take notice: On (date), a petition in bankruptcy was filed by 
[against] (commodity broker). Those commodity customers of (commodity 
broker) who deposited certain kinds of non-cash property (see below) 
with (commodity broker) may instruct the trustee of the estate to return 
their property to them as provided below.
    As no customer may obtain more than his proportionate share of the 
property available to satisfy customer claims, if you instruct the 
trustee to return your property to you, you will be required to pay the 
estate, as a condition to the return of your property, an amount 
determined by the trustee. If your property is not margining an open 
contract, this amount will approximate the difference between the market 
value of your property and your pro rata share of the estate, as 
estimated by the trustee. If your property is margining an open 
contract, this amount will be approximately the full fair market value 
of the property on the date of its return.

             Kinds of Property to Which This Notice Applies

    1. Any security deposited as margin which, as of (date petition was 
filed), was securing an open commodity contract and is:
--registered in your name,
--not transferable by delivery, and
--not a short-term obligation.
    2. Any fully-paid, non-exempt security held for your account in 
which there were no open contracts as of (date petition was filed). 
(Rather than the return, at this time, of the specific securities you 
deposited with (commodity broker), you may instead request now, or at 
any later time, that the trustee purchase ``like-kind'' securities of a 
fair market value which does not exceed your proportionate share of the 
estate).
    3. Any warehouse receipt, bill of lading or other document of title 
deposited as margin which, as of (date petition was filed), was securing 
an open commodity contract and--can be identified in (commodity 
broker)'s records as being held for your account, and--is neither in 
bearer form nor otherwise transferable by delivery.
    4. Any warehouse receipt bill of lading or other document of title, 
or any commodity received, acquired or held by (commodity broker) to 
make or take delivery or exercise from or for your account and which--
can be identified in (commodity broker)'s records as received from or 
for your account as held specifically for the purpose of delivery or 
exercise.
    5. Any cash or other property deposited to make or take delivery on 
a futures or options contract may be eligible to be returned. The 
trustee should be contacted directly for further information if you have 
deposited such property with (commodity broker) and desire its return.
    Instructions must be received by (close of business on 4th business 
day after 2d publication date) or the trustee will liquidate your 
property. (If you own such property but fail to provide the trustee with 
instructions, you will still have a claim against (commodity broker) but 
you will not be able to have your specific property returned to you).

    Note: Prior to receipt of your instructions, circumstances may 
require the trustee to liquidate your property, or transfer your 
property to another broker if it is margining open contracts. If your 
property is transferred and your instructions were received within the 
required time, your instructions will be forwarded to the new broker.

    Instructions should be directed to: (Trustee's name, address, 
telephone and/or telex number).
    Even if you request the return of your property, you must also pay 
the trustee the amount he specifies and provide the trustee with proof 
of your claim before (close of business on the 10th business day after 
2d publication date) or your property will be liquidated. (Upon receipt 
of customer instructions to return property, the trustee will mail the 
sender a form which describes the information he must provide to 
substantiate his claim).

    Note: The trustee is required to liquidate your property despite the 
timely receipt of your instructions, money, and proof of claim if, for 
any reason, your property cannot be returned by (close of business on 
the 10th business day after 2d publication date).

bankruptcy appendix form 3--request for instructions concerning transfer 
           of your hedge contracts held by (commodity broker)

    United States Bankruptcy Court ---- District of ----In re ----, 
Debtor, No. ----.
    Please take notice: On (date), a petition in bankruptcy was filed by 
[against] (commodity broker).
    You indicated when your hedge account was opened that the contracts 
(futures and/or options) in your hedge account should not be liquidated 
automatically in the event of the bankruptcy of (commodity broker), and 
that you wished to provide instructions at this time concerning their 
disposition.
    Instructions to transfer your positions and a cash deposit (as 
described below) must be received by the trustee by (close of business 
on 5th business day after entry of order for relief) or your positions 
will be liquidated.
    If you request the transfer of your contracts, prior to their 
transfer, you must pay the trustee in cash an amount determined by the

[[Page 704]]

trustee which will approximate the difference between the value of the 
equity margining your positions and your pro rata share of the estate 
plus an amount constituting security for the nonrecovery of any 
overpayments. In your instructions, you should specify the broker to 
which you wish your contracts transferred.
    Be further advised that prior to receipt of your instructions, 
circumstances may, in any event, require the trustee to liquidate or 
transfer your contracts. If your contracts are so transferred and your 
instructions are received, your instructions will be forwarded to the 
new broker.
    Note also that the trustee is required to liquidate your positions 
despite the timely receipt of your instructions and money if, for any 
reason, you have not made arrangements to transfer and/or your contracts 
are not transferred by (10 business days after entry of order for 
relief).
    Instructions should be sent to: (Trustee's or designee's name, 
address, telephone and/or telex number). [Instructions may also be 
provided by phone].

               bankruptcy appendix form 4--proof of claim

    [Note to trustee: As indicated in Sec. 190.02(d), this form is 
provided as a guide to the trustee and should be modified as necessary 
depending upon the information which the trustee needs at the time a 
proof of claim is requested and the time provided for a response.]

                             proof of claim

    United States Bankruptcy Court ---- District of ---- in re ----, 
Debtor, No. ----.
    Return this form by ---- or your claim will be barred (unless 
extended, for good cause only).
    I. [If claimant is an individual claiming for himself] The 
undersigned, who is the claimant herein, resides at ----.
    [If claimant is a partnership claiming through a member] The 
undersigned, who resides at ----, is a member of ----, a partnership, 
composed of the undersigned and ----, of ----, and doing business at --
--, and is duly authorized to make this proof of claim on behalf of the 
partnership.
    [If claimant is a corporation claiming through a duly authorized 
officer] The undersigned, who resides at ---- is the ---- of ----, a 
corporation organized under the laws of ---- and doing business at ----, 
and is duly authorized to make this proof of claim on behalf of the 
corporation.
    [If claim is made by agent] The undersigned, who resides at ----, is 
the agent of ----, and is duly authorized to make this proof of claim on 
behalf of the claimant.
    II. The debtor was, at the time of the filing of the petition 
initiating this case, and still is, indebted to this claimant for the 
total sum of $----.
    III. List EACH account on behalf of which a claim is being made by 
number and name of account holder[s], and for EACH account, specify the 
following information:
    a. Whether the account is a futures, foreign futures, leverage, 
option (if an option account, specify whether exchange-traded or 
dealer), ``delivery'' account, or, only with respect to a bankruptcy of 
a commodity broker that is a futures commission merchant, a cleared OTC 
derivatives account. A ``delivery'' account is one which contains only 
documents of title, commodities, cash, or other property identified to 
the claimant and deposited for the purposes of making or taking delivery 
on a commodity underlying a commodity contract or for payment of the 
strike price upon exercise of an option.
    b. The capacity in which the account is held, as follows (and if 
more than one is applicable, so state):
    1. [The account is held in the name of the undersigned in his 
individual capacity];
    2. [The account is held by the undersigned as guardian, custodian, 
or conservator for the benefit of a ward or a minor under the Uniform 
Gift to Minors Act];
    3. [The account is held by the undersigned as executor or 
administrator of an estate];
    4. [The account is held by the undersigned as trustee for the trust 
beneficiary];
    5. [The account is held by the undersigned in the name of a 
corporation, partnership, or unincorporated association];
    6. [The account is held as an omnibus customer account of the 
undersigned futures commission merchant];
    7. [The account is held by the undersigned as part owner of a joint 
account];
    8. [The account is held by the undersigned in the name of a plan 
which, on the date the petition in bankruptcy was filed, had in effect a 
registration statement in accordance with the requirements of Sec. 1031 
of the Employee Retirement Income Security Act of 1974 and the 
regulations thereunder]; or
    9. [The account is held by the undersigned as agent or nominee for a 
principal or beneficial owner (and not described above in items 1-8 of 
this II, b)].
    10. [The account is held in any other capacity not described above 
in items 1-9 of this II, b. Specify the capacity].
    c. The equity, as of the date the petition in bankruptcy was filed, 
based on the commodity transactions in the account.
    d. Whether the person[s] (including a general partnership, limited 
partnership, corporation, or other type of association) on whose behalf 
the account is held is one of the following persons OR whether one of 
the following persons, alone or jointly, owns 10% or more of the 
account:
    1. [If the debtor is an individual--
    A. Such individual;

[[Page 705]]

    B. Relative (as defined below in item 8 of this III,d) of the debtor 
or of a general partner of the debtor;
    C. Partnership in which the debtor is a general partner;
    D. General partner of the debtor; or
    E. Corporation of which the debtor is a director, officer, or person 
in control];
    2. [If the debtor is a partnership--
    A. Such partnership;
    B. General partner in the debtor;
    C. Relative (as defined in item 8 of this III,d) of a general 
partner in, general partner of, or person in control of the debtor;
    D. Partnership in which the debtor is a general partner;
    E. General partner of the debtor; or
    F. Person in control of the debtor];
    3. [If the debtor is a limited partnership--
    A. Such limited partnership;
    B. A limited or special partner in such partnership whose duties 
include:
    i. The management of the partnership business or any part thereof;
    ii. The handling of the trades or customer funds of customers of 
such partnership;
    iii. The keeping of records pertaining to the trades or customer 
funds of customers of such partnership; or
    iv. The signing or co-signing of checks or drafts on behalf of such 
partnership];
    4. [If the debtor is a corporation or association (except a debtor 
which is a futures commission merchant and is also a cooperative 
association of producers)--
    A. Such corporation or association;
    B. Director of the debtor;
    C. Officer of the debtor;
    D. Person in control of the debtor;
    E. Partnership in which the debtor is a general partner;
    F. General partner of the debtor;
    G. Relative (as defined in item 8 of this III,d) of a general 
partner, director, officer, or person in control of the debtor;
    H. An officer, director or owner of ten percent or more of the 
capital stock of such organization];
    5. [If the debtor is a futures commission merchant which is a 
cooperative association of producers--
    Shareholder or member of the debtor which is an officer, director or 
manager];
    6. [An employee of such individual, partnership, limited 
partnership, corporation or association whose duties include:
    A. The management of the business of such individual, partnership, 
limited partnership, corporation or association or any part thereof;
    B. The handling of the trades or customer funds of customers of such 
individual, partnership, limited partnership, corporation or 
association;
    C. The keeping of records pertaining to the trades or funds of 
customers of such individual, partnership, limited partnership, 
corporation or association; or
    D. The signing or co-signing of checks or drafts on behalf of such 
individual, partnership, limited partnership, corporation or 
association];
    7. [Managing agent of the debtor];
    8. [A spouse or minor dependent living in the same household of ANY 
OF THE FOREGOING PERSONS, or any other relative, regardless of 
residency, (unless previously described in items 1-B, 2-C, or 4-G of 
this III,d) defined as an individual related by affinity or 
consanguinity within the third degree as determined by the common law, 
or individual in a step or adoptive relationship within such degree];
    9. [``Affiliate'' of the debtor, defined as:
    A. Entity that directly or indirectly owns, controls, or holds with 
power to vote, 20 percent or more of the outstanding voting securities 
of the debtor, other than an entity that holds such securities--
    i. In a fiduciary or agency capacity without sole discretionary 
power to vote such securities; or
    ii. Solely to secure a debt, if such entity has not in fact 
exercised such power to vote;
    B. Corporation 20 percent or more of whose outstanding voting 
securities are directly or indirectly owned, controlled, or held with 
power to vote, by the debtor, or by an entity that directly or 
indirectly owns, controls, or holds with power to vote, 20 percent or 
more of the outstanding voting securities of the debtor, other than an 
entity that holds such securities--
    i. In a fiduciary or agency capacity without sole discretionary 
power to vote such securities; or
    ii. Solely to secure a debt, if such entity has not in fact 
exercised such power to vote;
    C. Person whose business is operated under a lease or operating 
agreement by the debtor, or person substantially all of whose property 
is operated under an operating agreement with the debtor;
    D. Entity that otherwise, directly or indirectly, is controlled by 
or is under common control with the debtor];
    E. Entity that operates the business or all or substantially all of 
the property of the debtor under a lease or operating agreement; or
    F. Entity that otherwise, directly or indirectly, controls the 
debtor; or
    10. [Any of the persons listed in items 1-7 above of this III,d if 
such person is associated with an affiliate (see item 9 above) of the 
debtor as if the affiliate were the debtor].
    e. Whether the account is a discretionary account. (If it is, the 
name in which the ``attorney in fact'' is held).
    f. If the account is a joint account, the amount of the claimant's 
percentage interest

[[Page 706]]

in the account. (Also specify whether participants in a joint account 
are claiming separately or jointly).
    g. Whether the claimant's positions in security futures products are 
held in a futures account or a securities account, as these terms are 
defined in Sec. Sec. 1.3(vv) and (ww) of this chapter, respectively.
    IV. Describe all claims against the debtor not based upon a 
commodity account of the claimant (e.g., if landlord, for rent; if 
customer, for misrepresentation or fraud).
    V. Describe all claims of the DEBTOR against the CLAIMANT not 
already included in the equity of a commodity account[s] of the claimant 
(see III,c above).
    VI. Describe any deposits of money, securities or other property 
held by or for the debtor from or for the claimant, and indicate if any 
of this property was included in your answer to III,c above.
    VII. Of the money, securities, or other property described in VI 
above, identify any which consists of the following:
    a. With respect to property received, acquired, or held by or for 
the account of the debtor from or for the account of the claimant to 
margin, guarantee or secure an open commodity contract, the following:
    1. Any security which as of the filing date is:
    A. Held for the claimant's account;
    B. Registered in the claimant's name;
    C. Not transferable by delivery; and
    D. Not a short term obligation; or
    2. Any warehouse receipt, bill of lading or other document of title 
which as of the filing date:
    A. Can be identified on the books and records of the debtor as held 
for the account of the claimant; and
    B. Is not in bearer form and is not otherwise transferable by 
delivery.
    b. With respect to open commodity contracts, and except as otherwise 
provided below in item g of this VII, any such contract which:
    1. As of the date the petition in bankruptcy was filed, is 
identified on the books and records of the debtor as held for the 
account of the claimant;
    2. Is a bona fide hedging position or transaction as defined in Rule 
1.3(z) of the Commodity Futures Trading Commission (``CFTC'') or is a 
commodity option transaction which has been determined by the exchange 
to be economically appropriate to the reduction of risks in the conduct 
and management of a commercial enterprise pursuant to rules which have 
been adopted in accordance with Rule 1.61(b) of the CFTC and approved by 
the CFTC; and
    3. Is in an account designated in the accounting records of the 
debtor as a hedging account.
    c. With respect to warehouse receipts, bills of lading or other 
documents of title, or physical commodities received, acquired, or held 
by or for the account of the debtor for the purpose of making or taking 
delivery or exercise from or for the claimant's account, any such 
document of title or commodity which as of the filing date can be 
identified on the books and records of the debtor as received from or 
for the account of the claimant specifically for the purpose of delivery 
or exercise.
    d. Any cash or other property deposited prior to bankruptcy to pay 
for the taking of physical delivery on a long futures contract or for 
payment of the strike price upon exercise of a short put or a long call 
option contract on a physical commodity, which cannot be settled in 
cash, in excess of the amount necessary to margin such commodity 
contract prior to the notice date or exercise date which cash or other 
property is identified on the books and records of the debtor as 
received from or for the account of the claimant within three or less 
days of the notice date or three or less days of the exercise date 
specifically for the purpose of payment of the notice price upon taking 
delivery or the strike price upon exercise.
    e. The cash price tendered for any property deposited prior to 
bankruptcy to make physical delivery on a short futures contract or for 
exercise of a long put or a short call option contract on a physical 
commodity, which cannot be settled in cash, to the extent it exceeds the 
amount necessary to margin such contract prior to the notice exercise 
date which property is identified on the books and records of the debtor 
as received from or for the account of the claimant within three or less 
days of the notice date or of the exercise date specifically for the 
purpose of a delivery or exercise.
    f. Fully paid, non-exempt securities identified on the books and 
records of the debtor as held by the debtor for or on behalf of the 
commodity account of the claimant for which, according to such books and 
records as of the filing date, no open commodity contracts were held in 
the same capacity.
    g. Open commodity contracts transferred to another futures 
commission merchant by the trustee.
    VIII. Specify whether the claimant wishes to receive payment in 
kind, to the extent possible, for any claim for securities.
    IX. Attach copies of any documents which support the information 
provided in this proof of claim, including but not limited to customer 
confirmations, account statements, and statements of purchase or sale.
    This proof of claim must be filed with the trustee no later than --
--, or your claim will be barred unless an extension has been granted, 
available only for good cause.
    Return this form to:
(Trustee's name (or designee's)
and address)
________________________________________________________________________

[[Page 707]]

Dated:__________________________________________________________________
(Signed)________________________________________________________________
    Penalty for Presenting Fraudulent Claim. Fine of not more than 
$5,000 or imprisonment for not more than five years or both--Title 18, 
U.S.C. 152.

(Approved by the Office of Management and Budget under control number 
3038-0021)

[48 FR 8739, Mar. 1, 1983; 48 FR 15122 and 15123, Apr. 7, 1983, as 
amended at 67 FR 58298, Sept. 13, 2002; 75 FR 17303, Apr. 6, 2010]



      Sec. Appendix B to Part 190--Special Bankruptcy Distributions

      Framework 1--Special Distribution of Customer Funds When FCM 
                     Participated in Cross-Margining

    The Commission has established the following distributional 
convention with respect to customer funds held by a futures commission 
merchant (FCM) that participated in a cross-margining (XM) program which 
shall apply if participating market professionals sign an agreement that 
makes reference to this distributional rule and the form of such 
agreement has been approved by the Commission by rule, regulation or 
order:
    All customer funds held in respect of XM accounts, regardless of the 
product that customers holding such accounts are trading, are required 
by Commission order to be segregated separately from all other customer 
segregated funds. For purposes of this distributional rule, XM accounts 
will be deemed to be commodity interest accounts and securities held in 
XM accounts will be deemed to be received by the FCM to margin, 
guarantee or secure commodity interest contracts. The maintenance of 
property in an XM account will result in subordination of the claim for 
such property to certain non-XM customer claims and thereby will operate 
to cause such XM claim not to be treated as a customer claim for 
purposes of the Securities Investors Protection Act and the XM 
securities to be excluded from the securities estate. This creates 
subclasses of customer accounts, an XM account and a non-XM account (a 
person could hold each type of account), and results in two pools of 
customer segregated funds: An XM pool and a non-XM pool. In the event 
that there is a shortfall in the non-XM pool of customer class 
segregated funds and there is no shortfall in the XM pool of customer 
segregated funds, all customer net equity claims, whether or not they 
arise out of the XM subclass of accounts, will be combined and will be 
paid pro rata out of the total pool of available XM and non-XM customer 
funds. In the event that there is a shortfall in the XM pool of customer 
segregated funds and there is no shortfall in the non-XM pool of 
customer segregated funds, then customer net equity claims arising from 
the XM subclass of accounts shall be satisfied first from the XM pool of 
customer segregated funds, and customer net equity claims arising from 
the non-XM subclass of accounts shall be satisfied first from the non-XM 
customer segregated funds. Furthermore, in the event that there is a 
shortfall in both the non-XM and XM pools of customer segregated funds: 
(1) If the non-XM shortfall as a percentage of the segregation 
requirement in the non-XM pool is greater than or equal to the XM 
shortfall as a percentage of the segregation requirement in the XM pool, 
all customer net equity claims will be paid pro rata; and (2) if the XM 
shortfall as a percentage of the segregation requirement in the XM pool 
is greater than the non-XM shortfall as a percentage of the segregation 
requirement of the non-XM pool, non-XM customer net equity claims will 
be paid pro rata out of the available non-XM segregated funds, and XM 
customer net equity claims will be paid pro rata out of the available XM 
segregated funds. In this way, non-XM customers will never be adversely 
affected by an XM shortfall.
    The following examples illustrate the operation of this convention. 
The examples assume that the FCM has two customers, one with exclusively 
XM accounts and one with exclusively non-XM accounts. However, the 
examples would apply equally if there were only one customer, with both 
an XM account and a non-XM account.
    1. Sufficient Funds to Meet Non-XM and XM Customer Claims:

------------------------------------------------------------------------
                                          Non-XM          XM       Total
------------------------------------------------------------------------
Funds in segregation.................           150          150     300
Segregation requirement..............           150          150     300
Shortfall (dollars)..................             0            0  ......
Shortfall (percent)..................             0            0  ......
Distribution.........................           150          150     300
------------------------------------------------------------------------

There are adequate funds available and both the non-XM and the XM 
customer claims will be paid in full.
    2. Shortfall in Non-XM Only:

------------------------------------------------------------------------
                                          Non-XM          XM       Total
------------------------------------------------------------------------
Funds in segregation.................           100          150     250
Segregation requirement..............           150          150     300
Shortfall (dollars)..................            50            0  ......
Shortfall (percent)..................   50/150=33.3            0  ......
Pro rata (percent)...................    150/300=50   150/300=50  ......
Pro rata (dollars)...................           125          125  ......
Distribution.........................           125          125     250
------------------------------------------------------------------------

Due to the non-XM account, there are insufficient funds available to 
meet both the non-XM and the XM customer claims in full. Each customer 
will receive his pro rata share

[[Page 708]]

of the funds available, or 50% of the $250 available, or $125.
    3. Shortfall in XM Only:

------------------------------------------------------------------------
                                          Non-XM          XM       Total
------------------------------------------------------------------------
Funds in segregation.................           150          100     250
Segregation requirement..............           150          150     300
Shortfall (dollars)..................             0           50  ......
Shortfall (percent)..................             0  50/150=33.3  ......
Pro rata (percent)...................    150/300=50   150/300=50  ......
Pro rata (dollars)...................           125          125  ......
Distribution.........................           150          100     250
------------------------------------------------------------------------

Due to the XM account, there are insufficient funds available to meet 
both the non-XM and the XM customer claims in full. Accordingly, the XM 
funds and non-XM funds are treated as separate pools, and the non-XM 
customer will be paid in full, receiving $150 while the XM customer will 
receive the remaining $100.
    4. Shortfall in Both, With XM Shortfall Exceeding Non-XM Shortfall:

------------------------------------------------------------------------
                                          Non-XM          XM       Total
------------------------------------------------------------------------
Funds in segregation.................           125          100     225
Segregation requirement..............           150          150     300
Shortfall (dollars)..................            25           50  ......
Shortfall (percent)..................   25/150=16.7  50/150=33.3  ......
Pro rata (percent)...................    150/300=50   150/300=50  ......
Pro rata (dollars)...................        112.50       112.50  ......
Distribution.........................           125          100     225
------------------------------------------------------------------------

There are insufficient funds available to meet both the non-XM and the 
XM customer claims in full, and the XM shortfall exceeds the non-XM 
shortfall. The non-XM customer will receive the $125 available with 
respect to non-XM claims while the XM customer will receive the $100 
available with respect to XM claims.
    5. Shortfall in Both, With Non-XM Shortfall Exceeding XM Shortfall:

------------------------------------------------------------------------
                                          Non-XM          XM       Total
------------------------------------------------------------------------
Funds in segregation.................           100          125     225
Segregation requirement..............           150          150     300
Shortfall (dollars)..................            50           25  ......
Shortfall (percent)..................   50/150=33.3  25/150=16.7  ......
Pro rata (percent)...................    150/300=50   150/300=50  ......
Pro rata (dollars)...................        112.50       112.50  ......
Distribution.........................        112.50       112.50     225
------------------------------------------------------------------------

There are insufficient funds available to meet both the non-XM and the 
XM customer claims in full, and the non-XM shortfall exceeds the XM 
shortfall. Each customer will receive 50% of the $225 available, or 
$112.50.
    6. Shortfall in Both, Non-XM Shortfall = XM Shortfall:

------------------------------------------------------------------------
                                          Non-XM          XM       Total
------------------------------------------------------------------------
Funds in segregation.................           100          100     200
Segregation requirement..............           150          150     300
Shortfall (dollars)..................            50           50  ......
Shortfall (percent)..................   50/150=33.3  50/150=33.3  ......
Pro rata (percent)...................    150/300=50   150/300=50  ......
Pro rata (dollars)...................           100          100  ......
Distribution.........................           100          100     200
------------------------------------------------------------------------

There are insufficient funds available to meet both the non-XM and the 
XM customer claims in full, and the non-XM shortfall equals the XM 
shortfall. Each customer will receive 50% of the $200 available, or 
$100.
    These examples illustrate the principle that pro rata distribution 
across both accounts is the preferable approach except when a shortfall 
in the XM account could harm non-XM customers. Thus, pro rata 
distribution occurs in Examples 1, 2, 5 and 6. Separate treatment of the 
XM and non-XM accounts occurs in Examples 3 and 4.

  Framework 2--Special Allocation of Shortfall to Customer Claims When 
Customer Funds are Held in a Depository Outside of the United States or 
                          in a Foreign Currency

    The Commission has established the following allocation convention 
with respect to customer funds segregated pursuant to the Act and 
Commission rules thereunder held by a futures commission merchant 
(``FCM'') or derivatives clearing organization (``DCO'') in a depository 
outside the United States (``U.S.'') or in a foreign currency. The 
maintenance of customer funds in a depository outside the U.S. or 
denominated in a foreign currency will result, in certain circumstances, 
in the reduction of customer claims for such funds. For purposes of this 
proposed bankruptcy convention, sovereign action of a foreign government 
or court would include, but not be limited to, the application or 
enforcement of statutes, rules, regulations, interpretations, 
advisories, decisions, or orders, formal or informal, by a federal, 
state, or provincial executive, legislature, judiciary, or government 
agency. If an FCM enters into bankruptcy and maintains customer funds in 
a depository located in the U.S. in a currency other than U.S. dollars 
or in a depository outside the U.S., the following allocation procedures 
shall be used to calculate the claim of each customer.

              I. Reduction in Claims for General Shortfall

     A. Determination of losses not attributable to sovereign action

    1. Convert each customer's claim in each currency to U.S. Dollars at 
the exchange rate in effect on the Final Net Equity Determination Date, 
as defined in Sec. 190.01(s) (the ``Exchange Rate'').

[[Page 709]]

    2. Determine the amount of assets available for distribution to 
customers. In making this calculation, include customer funds that would 
be available for distribution but for the sovereign action.
    3. Convert the amount of assets available for distribution to U.S. 
Dollars at the Exchange Rate.
    4. Determine the Shortfall Percentage that is not attributable to 
sovereign action, as follows:
[GRAPHIC] [TIFF OMITTED] TR04FE03.000

      B. Allocation of Losses Not Attributable to Sovereign Action

    1. Reduce each customer's claim by the Shortfall Percentage.

               II. Reduction in Claims for Sovereign Loss

A. Determination of Losses Attributable to Sovereign Action (``Sovereign 
                                 Loss'')

    1. If any portion of a customer's claim is required to be kept in 
U.S. dollars in the U.S., that portion of the customer's claim is not 
exposed to Sovereign Loss.
    2. If any portion of a customer's claim is authorized to be kept in 
only one location and that location is:
    a. The U.S. or a location in which there is no Sovereign Loss, then 
that portion of the customer's claim is not exposed to Sovereign Loss.
    b. A location in which there is Sovereign Loss, then that entire 
portion of the customer's claim is exposed to Sovereign Loss.
    3. If any portion of a customer's claim is authorized to be kept in 
only one currency and that currency is:
    a. U.S. dollars or a currency in which there is no Sovereign Loss, 
then that portion of the customer's claim is not exposed to Sovereign 
Loss.
    b. A currency in which there is Sovereign Loss, then that entire 
portion of the customer's claim is exposed to Sovereign Loss.
    4. If any portion of a customer's claim is authorized to be kept in 
more than one location and:
    a. There is no Sovereign Loss in any of those locations, then that 
portion of the customer's claim is not exposed to Sovereign Loss.
    b. There is Sovereign Loss in one of those locations, then that 
entire portion of the customer's claim is exposed to Sovereign Loss.
    c. There is Sovereign Loss in more than one of those locations, then 
an equal share of that portion of the customer's claim will be exposed 
to Sovereign Loss in each such location.
    5. If any portion of a customer's claim is authorized to be kept in 
more than one currency and:
    a. There is no Sovereign Loss in any of those currencies, then that 
portion of the customer's claim is not exposed to Sovereign Loss.
    b. There is Sovereign Loss in one of those currencies, then that 
entire portion of the customer's claim is exposed to Sovereign Loss.
    c. There is Sovereign Loss in more than one of those currencies, 
then an equal share of that portion of the customer's claim will be 
exposed to Sovereign Loss.

                    B. Calculation of Sovereign Loss

    1. The total Sovereign Loss for each location is the difference 
between:
    a. The total customer funds deposited in depositories in that 
location and
    b. The amount of funds in that location that are available to be 
distributed to customers, after taking into account any sovereign 
action.
    2. The total Sovereign Loss for each currency is the difference 
between:
    a. The value, in U.S. dollars, of the funds held in that currency on 
the day before the sovereign action took place and
    b. The value, in U.S. dollars, of the funds held in that currency on 
the Final Net Equity Determination Date.

                     C. Allocation of Sovereign Loss

    1. Each portion of a customer's claim exposed to Sovereign Loss in a 
location will be reduced by:
[GRAPHIC] [TIFF OMITTED] TR04FE03.001


[[Page 710]]


    2. Each portion of a customer's claim exposed to Sovereign Loss in a 
currency will be reduced by:
[GRAPHIC] [TIFF OMITTED] TR04FE03.002

    3. A portion of a customer's claim exposed to Sovereign Loss in a 
location or currency will not be reduced below zero. (The above 
calculations might yield a result below zero where the FCM kept more 
customer funds in a location or currency than it was authorized to 
keep.)
    4. Any amount of Sovereign Loss from a location or currency in 
excess of the total amount of funds authorized to be kept in that 
location or currency (calculated in accord with Section II.1 above) 
(``Total Excess Sovereign Loss'') will be divided among all customers 
who have authorized funds to be kept outside the U.S., or in currencies 
other than U.S. dollars, with each such customer claim reduced by the 
following amount:
[GRAPHIC] [TIFF OMITTED] TR04FE03.003

    The following examples illustrate the operation of this convention.

    Example 1. No shortfall in any location.

------------------------------------------------------------------------
                                                   Location(s) customer
            Customer                  Claim      has consented to having
                                                        funds held
------------------------------------------------------------------------
A..............................             $50  U.S.
B..............................        [euro]50  U.K.
C..............................        [euro]50  Germany
D..............................      [pound]300  U.K.
------------------------------------------------------------------------


------------------------------------------------------------------------
                Location                       Actual asset balance
------------------------------------------------------------------------
U.S....................................  $50
U.K....................................  [pound]300
U.K....................................  [euro]50
Germany................................  [euro]50
------------------------------------------------------------------------
Note: Conversion Rates: 1 = $1; [pound]1=$1.5.

    Convert each customer's claim in each currency to U.S. Dollars:

----------------------------------------------------------------------------------------------------------------
                                                                                                  Claim in U.S.
                         Customer                                 Claim        Conversion rate       dollars
----------------------------------------------------------------------------------------------------------------
A.........................................................               $50               1.0               $50
B.........................................................          [euro]50               1.0                50
C.........................................................          [euro]50               1.0                50
D.........................................................        [pound]300               1.5               450
 
    Total.................................................  ................  ................            600.00
----------------------------------------------------------------------------------------------------------------

    Determine assets available for distribution to customers, converting 
to U.S. dollars:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Shortfall due      Actual
                                                                            Conversion    Assets in U.S.   to sovereign    shortfall due      Amount
                        Location                              Assets           rate           dollars         action       to sovereign      actually
                                                                                                            percentage        action         available
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S.....................................................             $50             1.0             $50  ..............  ..............             $50
U.K.....................................................      [pound]300             1.5             450  ..............  ..............             450
U.K.....................................................        [euro]50             1.0              50  ..............  ..............              50
Germany.................................................        [euro]50             1.0              50  ..............  ..............              50
                                                                                         ----------------                -------------------------------

[[Page 711]]

 
    Total...............................................  ..............  ..............          600.00  ..............               0          600.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

    There are no shortfalls in funds held in any location. Accordingly, 
there will be no reduction of customer claims.

                                 Claims:

----------------------------------------------------------------------------------------------------------------
                                                              Claim in U.S.
                                                              dollars after     Allocation of
                         Customer                            allocated non-   shortfall due to   Claim after all
                                                                sovereign     sovereign action     reductions
                                                                shortfall
----------------------------------------------------------------------------------------------------------------
A.........................................................               $50                $0               $50
B.........................................................                50                 0                50
C.........................................................                50                 0                50
D.........................................................               450                 0               450
                                                           -----------------------------------------------------
    Total.................................................            600.00              0.00            600.00
----------------------------------------------------------------------------------------------------------------

    Example 2. Shortfall in funds held in the U.S.

------------------------------------------------------------------------
                                                   Location(s) customer
            Customer                  Claim      has consented to having
                                                        funds held
------------------------------------------------------------------------
A..............................            $100  U.S.
B..............................        [euro]50  U.K.
C..............................       [euro]100  U.K., Germany, or Japan
------------------------------------------------------------------------


------------------------------------------------------------------------
                Location                       Actual asset balance
------------------------------------------------------------------------
U.S....................................  $50
U.K....................................  [euro]100
Germany................................  [euro]50
---------------------------------------------------------      ---------
Note: Conversion Rates: [euro]1=$1.

                Reduction in Claims for General Shortfall

    There is a shortfall in the funds held in the U.S. such that only 
\1/2\ of the funds are available.
    Convert each customer's claim in each currency to U.S. Dollars:

----------------------------------------------------------------------------------------------------------------
               Customer                         Claim               Conversion rate            Claim in US$
----------------------------------------------------------------------------------------------------------------
A....................................  $100...................  1.0....................  $100
B....................................  [euro]50...............  1.0....................  50
C....................................  [euro]100..............  1.0....................  100
                                                                                        ------------------------
    Total............................  .......................  .......................  250.00
----------------------------------------------------------------------------------------------------------------

    Determine assets available for distribution to customers, converting 
to U.S. dollars:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Shortfall due      Actual
                                                                            Conversion    Assets in U.S.   to sovereign    shortfall due      Amount
                        Location                              Assets           rate           dollars         action       to sovereign      actually
                                                                                                            percentage        action         available
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S.....................................................             $50             1.0          $50.00  ..............  ..............             $50
U.K.....................................................       [euro]100             1.0             100  ..............  ..............             100
Germany.................................................        [euro]50             1.0              50  ..............  ..............             $50
                                                                                         ----------------                                ---------------
    Total...............................................  ..............  ..............          200.00  ..............  ..............          200.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Determine the percentage of shortfall that is not attributable to 
sovereign action: Shortfall Percentage = (1-200/250) = (1-80%) = 20%.
    Reduce each customer's claim by the Shortfall Percentage:

----------------------------------------------------------------------------------------------------------------
                                                                                                  Claim in U.S.
                                                                                  Allocated       dollars after
                         Customer                             Claim in US$     shortfall (non-      allocated
                                                                                 sovereign)         shortfall
----------------------------------------------------------------------------------------------------------------
A.........................................................              $100            $20.00            $80.00
B.........................................................                50             10.00             40.00

[[Page 712]]

 
C.........................................................               100             20.00             80.00
                                                           -----------------------------------------------------
    Total.................................................            250.00             50.00            200.00
----------------------------------------------------------------------------------------------------------------

        Reduction in Claims for Shortfall Due to Sovereign Action

    There is no shortfall due to sovereign action. Accordingly, the 
customer claims will not be further reduced.

                         Claims After Reductions

----------------------------------------------------------------------------------------------------------------
                                        Claim in U.S. dollars
               Customer                  after allocated non-   Allocation of shortfall      Claim after all
                                         sovereign shortfall    due to sovereign action         reductions
----------------------------------------------------------------------------------------------------------------
A....................................  $80....................  .......................  $80.00
B....................................  40.....................  .......................  40.00
C....................................  80.....................  .......................  80.00
                                      --------------------------------------------------------------------------
    Total............................  200.00.................  0......................  200.00
----------------------------------------------------------------------------------------------------------------

    Example 3. Shortfall in funds held outside the U.S., or in a 
currency other than U.S. dollars, not due to sovereign action.

------------------------------------------------------------------------
                                                   Location(s) customer
            Customer                  Claim      has consented to having
                                                        funds held
------------------------------------------------------------------------
A..............................            $150  U.S.
B..............................       [euro]100  U.K.
C..............................        [euro]50  Germany
D..............................            $100  U.S.
D..............................       [euro]100  U.K. or Germany
------------------------------------------------------------------------


------------------------------------------------------------------------
                Location                       Actual asset balance
------------------------------------------------------------------------
U.S....................................  $250
U.K....................................  [euro]50
Germany................................  [euro]100
------------------------------------------------------------------------
Note: Conversion Rates: [euro]1=$1.

                Reduction in Claims for General Shortfall

    Convert each customer's claim in each currency to U.S. Dollars:

----------------------------------------------------------------------------------------------------------------
               Customer                         Claim               Conversion rate            Claim in US$
----------------------------------------------------------------------------------------------------------------
A....................................  $150...................  1.0....................  $150
B....................................  [euro]100..............  1.0....................  100
C....................................  [euro]50...............  1.0....................  50
D....................................  $100...................  1.0....................  100
                                                                                        ------------------------
D....................................  [euro]100..............  1.0....................  100
                                      --------------------------------------------------------------------------
    Total............................  .......................  .......................  500.00
----------------------------------------------------------------------------------------------------------------

    Determine assets available for distribution to customers, converting 
to U.S. dollars:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Shortfall due      Actual
                                                                            Conversion    Assets in U.S.   to sovereign    shortfall due      Amount
                        Location                              Assets           rate           dollars         action       to sovereign      actually
                                                                                                            percentage        action         available
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S.....................................................            $250             1.0            $250  ..............  ..............            $250
U.K.....................................................        [euro]50             1.0              50  ..............  ..............              50
Germany.................................................       [euro]100             1.0             100  ..............  ..............             100
                                                                                         ----------------                -------------------------------
    Total...............................................  ..............  ..............          400.00  ..............               0          400.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Determine the percentage of shortfall that is not attributable to 
sovereign action: Shortfall Percentage = (1-400/500) = (1-80%) = 20%.
    Reduce each customer's claim by the shortfall percentage:

[[Page 713]]



----------------------------------------------------------------------------------------------------------------
                                                                                          Claim in U.S. dollars
               Customer                      Claim in US$         Allocated shortfall        after allocated
                                                                    (non-sovereign)             shortfall
----------------------------------------------------------------------------------------------------------------
A....................................  $150...................  $30.00.................  120.00
B....................................  100....................  20.00..................  80.00
C....................................  50.....................  10.00..................  40.00
D....................................  200....................  40.00..................  160.00
                                      --------------------------------------------------------------------------
    Total............................  500.00.................  100.00.................  400.00
----------------------------------------------------------------------------------------------------------------

        Reduction in Claims for Shortfall Due to Sovereign Action

    There is no shortfall due to sovereign action. Accordingly, the 
claims will not be further reduced.

                         Claims After Reductions

----------------------------------------------------------------------------------------------------------------
                                        Claim in U.S. dollars
               Customer                  after allocated non-   Allocation of shortfall      Claim after all
                                         sovereign shortfall    due to sovereign action         reductions
----------------------------------------------------------------------------------------------------------------
A....................................  $120.00................  .......................  $120
B....................................  80.00..................  .......................  80
C....................................  40.00..................  .......................  40
D....................................  160.00.................  0......................  160
                                      --------------------------------------------------------------------------
    Total............................  400.00.................  0......................  400
----------------------------------------------------------------------------------------------------------------

    Example 4. Shortfall in funds held outside the U.S., or in a 
currency other than U.S. dollars, due to sovereign action.

------------------------------------------------------------------------
                                                    Location(s) where
            Customer                  Claim       customer has consented
                                                    to have funds held
------------------------------------------------------------------------
A..............................             $50  U.S.
B..............................        [euro]50  U.K.
C..............................        [euro]50  Germany
D..............................           $100.  U.S.
D..............................       [euro]100  U.K. or Germany
------------------------------------------------------------------------


------------------------------------------------------------------------
                Location                       Actual asset balance
------------------------------------------------------------------------
U.S....................................  $150
U.K....................................  100
Germany................................  100
------------------------------------------------------------------------
Notice: Conversion Rates: [euro]1 = $1; [yen]1= $0.01, [pound]1= $1.5.

                Reduction in Claims for General Shortfall

    Convert each customer's claim in each currency to U.S. Dollars:

----------------------------------------------------------------------------------------------------------------
               Customer                         Claim               Conversion rate            Claim in US$
----------------------------------------------------------------------------------------------------------------
A....................................  $50....................  1.0....................  $50
B....................................  [euro]50...............  1.0....................  50
C....................................  [euro]50...............  1.0....................  50
D....................................  $100...................  1.0....................  100
D....................................  [euro]100..............  1.0....................  100
                                                                                        ------------------------
    Total............................  .......................  .......................  350.00
----------------------------------------------------------------------------------------------------------------

    Determine assets available for distribution to customers, converting 
to U.S. dollars:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Shortfall due      Actual
                                                                            Conversion    Assets in U.S.   to sovereign    shortfall due      Amount
                        Location                              Assets           rate           dollars         action       to sovereign      actually
                                                                                                            percentage        action         available
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S.....................................................            $150             1.0            $150  ..............  ..............            $150
U.K.....................................................       [euro]100             1.0             100  ..............  ..............             100
Germany.................................................       [euro]100             1.0             100             50%              50              50
                                                                                         ----------------                -------------------------------
    Total...............................................  ..............  ..............          350.00  ..............           50.00          300.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Determine the percentage of shortfall that is not attributable to 
sovereign action: Shortfall Percentage = (1-350/350) = (1-100%) = 0%.

[[Page 714]]

    Reduce each customer's claim by the shortfall percentage:

----------------------------------------------------------------------------------------------------------------
                                                                                                  Claim in U.S.
                                                                                  Allocated       dollars after
                         Customer                             Claim in US$     shortfall (non-      allocated
                                                                                 sovereign)         shortfall
----------------------------------------------------------------------------------------------------------------
A.........................................................               $50                 0            $50.00
B.........................................................                50                 0             50.00
C.........................................................                50                 0             50.00
D.........................................................               200                 0            200.00
                                                           -----------------------------------------------------
    Total.................................................            350.00              0.00            350.00
----------------------------------------------------------------------------------------------------------------

        Reduction in Claims for Shortfall Due to Sovereign Action

    Due to sovereign action, only \1/2\ of the funds in Germany are 
available.

----------------------------------------------------------------------------------------------------------------
                                                                         Presumed location of funds
                         Customer                          -----------------------------------------------------
                                                                  U.S.              U.K.             Germany
----------------------------------------------------------------------------------------------------------------
A.........................................................               $50  ................  ................
B.........................................................  ................               $50  ................
C.........................................................  ................  ................               $50
D.........................................................               100  ................               100
                                                           -----------------------------------------------------
    Total.................................................            150.00             50.00            150.00
----------------------------------------------------------------------------------------------------------------

    Calculation of the allocation of the shortfall due to sovereign 
action--Germany ($50 shortfall to be allocated):

----------------------------------------------------------------------------------------------------------------
                                                                  Allocation share of actual    Actual shortfall
                  Customer                    Allocation share             shortfall                allocated
----------------------------------------------------------------------------------------------------------------
C...........................................          $50/$150  33.3% of $50..................            $16.67
D...........................................          100/$150  66.7% of $50..................             33.33
                                                                                               -----------------
    Total...................................  ................  ..............................             50.00
----------------------------------------------------------------------------------------------------------------

                        Claims After Reductions:

----------------------------------------------------------------------------------------------------------------
                                                              Claim in U.S.
                                                              dollars after     Allocation of
                         Customer                            allocated non-   shortfall due to   Claim after all
                                                                sovereign     sovereign action     reductions
                                                                shortfall       from Germany
----------------------------------------------------------------------------------------------------------------
A.........................................................               $50  ................               $50
B.........................................................                50  ................                50
C.........................................................                50            $16.67             33.33
D.........................................................               200             33.33            166.67
                                                           -----------------------------------------------------
    Total.................................................            350.00             50.00            300.00
----------------------------------------------------------------------------------------------------------------

    Example 5. Shortfall in funds held outside the U.S., or in a 
currency other than U.S. dollars, due to sovereign action and a 
shortfall in funds held in the U.S.

------------------------------------------------------------------------
                                                   Location(s) customer
            Customer                  Claim      has consented to having
                                                        funds held
------------------------------------------------------------------------
A..............................            $100  U.S.
B..............................        [euro]50  U.K.
C..............................       [euro]150  Germany
D..............................            $100  U.S.
D..............................      [pound]300  U.K.
D..............................       [euro]150  U.K. or Germany
------------------------------------------------------------------------


------------------------------------------------------------------------
                Location                       Actual asset balance
------------------------------------------------------------------------
U.S....................................  $100
U.K....................................  [pound]300
U.K....................................  [euro]200
Germany................................  [euro]150
------------------------------------------------------------------------
Conversion Rates: [euro]1=$1; [pound]1=$1.5.


[[Page 715]]

                Reduction in Claims for General Shortfall

    Convert each customer's claim in each currency to U.S. Dollars:

----------------------------------------------------------------------------------------------------------------
                         Customer                                 Claim        Conversion rate    Claim in US$
----------------------------------------------------------------------------------------------------------------
A.........................................................              $100               1.0              $100
B.........................................................          [euro]50               1.0                50
C.........................................................         [euro]150               1.0               150
D.........................................................              $100               1.0               100
D.........................................................        [pound]300               1.5               450
D.........................................................         [euro]150               1.0               150
                                                                                               -----------------
    Total.................................................  ................  ................           1000.00
----------------------------------------------------------------------------------------------------------------

    Determine assets available for distribution to customers, converting 
to U.S. dollars:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Shortfall due      Actual
                                                                            Conversion    Assets in U.S.   to sovereign    shortfall due      Amount
                        Location                              Assets           rate           dollars         action       to sovereign      actually
                                                                                                            percentage        action         available
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S.....................................................            $100             1.0            $100  ..............  ..............            $100
U.K.....................................................      [pound]300             1.5             450  ..............  ..............             450
U.K.....................................................       [euro]200             1.0             200  ..............  ..............             200
Germany.................................................       [euro]150             1.0             150            100%            $150               0
                                                                                         ----------------                -------------------------------
    Total...............................................  ..............  ..............          900.00  ..............          150.00          750.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Determine the percentage of shortfall that is not attributable to 
sovereign action: Shortfall Percentage = (1 - 900 / 1000) = (1 - 90%) = 
10%.
    Reduce each customer's claim by the shortfall percentage:

----------------------------------------------------------------------------------------------------------------
                                                                                                  Claim in U.S.
                                                                                  Allocated       dollars after
                         Customer                             Claim in US$     shortfall (non-      allocated
                                                                                 sovereign)         shortfall
----------------------------------------------------------------------------------------------------------------
A.........................................................              $100            $10.00            $90.00
B.........................................................                50              5.00             45.00
C.........................................................               150             15.00            135.00
D.........................................................               700             70.00             63.00
                                                           -----------------------------------------------------
    Total.................................................           1000.00            100.00            900.00
----------------------------------------------------------------------------------------------------------------

        Reduction in Claims for Shortfall Due to Sovereign Action

    Due to sovereign action, none of the money in Germany is available.

----------------------------------------------------------------------------------------------------------------
                                                                         Presumed location of funds
                         Customer                          -----------------------------------------------------
                                                                  U.S.              U.K.             Germany
----------------------------------------------------------------------------------------------------------------
A.........................................................              $100  ................  ................
B.........................................................  ................               $50  ................
C.........................................................  ................  ................              $150
D.........................................................               100               450               150
                                                           -----------------------------------------------------
    Total.................................................            200.00            500.00            300.00
----------------------------------------------------------------------------------------------------------------

    Calculation of the allocation of the shortfall due to sovereign 
action Germany ($150 shortfall to be allocated):

----------------------------------------------------------------------------------------------------------------
                                                                              Allocation Share
                         Customer                           Allocation share      of actual     Actual shortfall
                                                                                  shortfall         allocated
----------------------------------------------------------------------------------------------------------------
C.........................................................         $150/$300       50% of $150               $75
D.........................................................          150/$300       50% of $150                75
                                                                                               -----------------
    Total.................................................  ................  ................            150.00
----------------------------------------------------------------------------------------------------------------


[[Page 716]]

                         Claims After Reductions

----------------------------------------------------------------------------------------------------------------
                                                              Claim in U.S.
                                                              dollars after     Allocation of
                         Customer                            allocated non-   shortfall due to   Claim after all
                                                                sovereign     sovereign action     reductions
                                                                shortfall       from Germany
----------------------------------------------------------------------------------------------------------------
A.........................................................               $90  ................               $90
B.........................................................                45  ................                45
C.........................................................               135               $75                60
D.........................................................               630                75               555
                                                           -----------------------------------------------------
    Total.................................................            900.00            150.00            750.00
----------------------------------------------------------------------------------------------------------------

    Example 6. Shortfall in funds held outside the U.S., or in a 
currency other than U.S. dollars, due to sovereign action, shortfall in 
funds held outside the U.S., or in a currency other than U.S. dollars, 
not due to sovereign action, and a shortfall in funds held in the U.S.

------------------------------------------------------------------------
                                                   Location(s) customer
            Customer                  Claim      has consented to having
                                                        funds held
------------------------------------------------------------------------
A..............................             $50  U.S.
B..............................        [euro]50  U.K.
C..............................             $20  U.S.
C..............................        [euro]50  Germany
D..............................           $100.  U.S.
D..............................      [pound]300  U.K.
D..............................       [euro]100  U.K., Germany, or Japan
E..............................             $80  U.S.
E..............................     [yen]10,000  Japan
------------------------------------------------------------------------


------------------------------------------------------------------------
                Location                       Actual asset balance
------------------------------------------------------------------------
U.S....................................  $200
U.K....................................  [pound]200
U.K....................................  [euro]100
Germany................................  [euro]50
Japan..................................  [yen]10,000
------------------------------------------------------------------------
Conversion Rates: [pound] 1 = $1; [yen]1=$0.01, [pound] 1=$1.5.

                Reduction in Claims for General Shortfall

    Convert each customer s claim in each currency to U.S. Dollars:

----------------------------------------------------------------------------------------------------------------
                         Customer                                 Claim        Conversion rate    Claim in US$
----------------------------------------------------------------------------------------------------------------
A.........................................................               $50               1.0               $50
B.........................................................          [euro]50               1.0                50
C.........................................................               $20               1.0                20
C.........................................................          [euro]50               1.0                50
D.........................................................             $100.               1.0               100
D.........................................................         [euro]300               1.5               450
D.........................................................       [pound] 100               1.0               100
E.........................................................               $80               1.0                80
E.........................................................       [yen]10,000              0.01               100
                                                                                               -----------------
    Total.................................................  ................  ................           1000.00
----------------------------------------------------------------------------------------------------------------

    Determine assets available for distribution to customers, converting 
to U.S. dollars:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Shortfall due      Actual
                                                                            Conversion    Assets in U.S.   to sovereign    shortfall due      Amount
                        Location                              Assets           rate           dollars         action       to sovereign      actually
                                                                                                            percentage        action         available
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S.....................................................            $200             1.0            $200  ..............  ..............            $200
U.K.....................................................      [pound]200             1.5             300  ..............  ..............             300
U.K.....................................................       [euro]100             1.0             100  ..............  ..............             100
Germany.................................................        [euro]50             1.0              50            100%             $50               0
Japan...................................................     [yen]10,000            0.01             100             50%              50              50
                                                                                         ----------------                -------------------------------
    Total...............................................  ..............  ..............             750  ..............          100.00          650.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Determine the percentage of shortfall that is not attributable to 
sovereign action:
    Shortfall Percentage = (1-750/1000) = (1-75%) = 25%.
    Reduce each customer's claim by the shortfall percentage:

[[Page 717]]



----------------------------------------------------------------------------------------------------------------
                                                                                                  Claim in U.S.
                                                                                  Allocated       dollars after
                         Customer                            Claim in U.S.$    shortfall (non-      allocated
                                                                                 sovereign)         shortfall
----------------------------------------------------------------------------------------------------------------
A.........................................................               $50            $12.50            $37.50
B.........................................................                50             12.50             37.50
C.........................................................                70             17.50             52.50
D.........................................................               650            162.50            487.50
E.........................................................               180             45.00            135.00
                                                           -----------------------------------------------------
    Total.................................................           1000.00            250.00            750.00
----------------------------------------------------------------------------------------------------------------

        Reduction in Claims for Shortfall Due to Sovereign Action

    Due to sovereign action, none of the money in Germany and only \1/2\ 
of the funds in Japan are available.

----------------------------------------------------------------------------------------------------------------
                                                                    Presumed location of funds
                    Customer                     ---------------------------------------------------------------
                                                       U.S.            U.K.           Germany          Japan
----------------------------------------------------------------------------------------------------------------
A...............................................             $50  ..............  ..............  ..............
B...............................................  ..............             $50  ..............  ..............
C...............................................              20  ..............             $50  ..............
D...............................................             100             450              50             $50
E...............................................              80  ..............  ..............             100
                                                 ---------------------------------------------------------------
    Total.......................................          250.00          500.00          100.00          150.00
----------------------------------------------------------------------------------------------------------------

    Calculation of the allocation of the shortfall due to sovereign 
action--Germany ($50 shortfall to be allocated):

----------------------------------------------------------------------------------------------------------------
                                                                  Allocation share of actual    Actual shortfall
             Customer allocation              Allocation share             shortfall                allocated
----------------------------------------------------------------------------------------------------------------
C...........................................          $50/$100  50% of $50....................               $25
D...........................................            50/100  50% of 50.....................                25
                                                                                               -----------------
    Total...................................  ................  ..............................                50
----------------------------------------------------------------------------------------------------------------

    Japan ($50 shortfall to be allocated):

----------------------------------------------------------------------------------------------------------------
                                                                  Allocation share of actual    Actual shortfall
                  Customer                    Allocation share             shortfall                allocated
----------------------------------------------------------------------------------------------------------------
D...........................................          $50/$150  33.3% of $50..................            $16.67
E...........................................           100/150  66.6% of 50...................             33.33
                                                                                               -----------------
    Total...................................  ................  ..............................             50.00
----------------------------------------------------------------------------------------------------------------

                         Claims After Reductions

----------------------------------------------------------------------------------------------------------------
                                             Claim in US
                                            dollars after     Allocation of     Allocation of
                Customer                   allocated non-   shortfall due to  shortfall due to   Claim after all
                                              sovereign      soverign action  sovereign action     reductions
                                              shortfall       from Germany       from Japan
----------------------------------------------------------------------------------------------------------------
A.......................................            $37.50  ................  ................             37.50
B.......................................             37.50  ................  ................             37.50
C.......................................             52.50               $25  ................             27.50
D.......................................            487.50                25             16.67            445.83
E.......................................            135.00  ................             33.33            101.67
                                         -----------------------------------------------------------------------
    Total...............................            750.00             50.00             50.00            650.00
----------------------------------------------------------------------------------------------------------------

    Example 7. Shortfall in funds held outside the U.S., or in a 
currency other than U.S. dollars, due to sovereign action, where the FCM 
kept more funds than permitted in such location or currency.

------------------------------------------------------------------------
                                                   Location(s) customer
            Customer                  Claim      has consented to having
                                                        funds held
------------------------------------------------------------------------
A..............................             $50  U.S.
B..............................              50  U.S.
B..............................        [euro]50  U.K.
C..............................        [euro]50  Germany.

[[Page 718]]

 
D..............................            100.  U.S.
D..............................       [euro]100  U.K. or Germany.
E..............................              50  U.S.
E..............................        [euro]50  U.K.
------------------------------------------------------------------------


------------------------------------------------------------------------
                Location                       Actual asset balance
------------------------------------------------------------------------
U.S....................................  $250
U.K....................................  [euro]50
Germany................................  [euro]200
------------------------------------------------------------------------

    Conversion Rates: 1 = $1.

                Reduction in Claims for General Shortfall

    Convert each customer's claim in each currency to U.S. Dollars:

----------------------------------------------------------------------------------------------------------------
                         Customer                                 Claim        Conversion rate    Claim in US$
----------------------------------------------------------------------------------------------------------------
A.........................................................               $50               1.0               $50
B.........................................................                50               1.0                50
B.........................................................          [euro]50               1.0                50
C.........................................................          [euro]50               1.0                50
D.........................................................        [euro]100.               1.0               100
D.........................................................         [euro]100               1.0               100
E.........................................................                50               1.0                50
E.........................................................          [euro]50               1.0                50
                                                                                               -----------------
    Total.................................................  ................  ................            500.00
----------------------------------------------------------------------------------------------------------------

    Determine assets available for distribution to customers, converting 
to U.S. dollars:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Shortfall due      Actual
                                                                            Conversion    Assets in U.S.   to sovereign    shortfall due      Amount
                        Location                              Assets           rate           dollars         action       to sovereign      actually
                                                                                                            percentage        action         available
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S.....................................................            $250             1.0            $250  ..............  ..............            $250
U.K.....................................................        [euro]50             1.0              50  ..............  ..............              50
Germany.................................................       [euro]200             1.0             200            100%             200               0
                                                                                         ----------------                -------------------------------
    Total...............................................  ..............  ..............          500.00  ..............             200          300.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Determine the percentage of shortfall that is not attributable to 
sovereign
    Shortfall Percentage = (1-500/500) = (1-100%) = 0%.
    Reduce each customer's claim by the shortfall percentage:

----------------------------------------------------------------------------------------------------------------
                                                                                                  Claim in U.S.
                                                                                  Allocated       dollars after
                         Customer                             Claim in US$     shortfall (non-      allocated
                                                                                 sovereign)         shortfall
----------------------------------------------------------------------------------------------------------------
A.........................................................               $50                $0            $50.00
B.........................................................               100                 0            100.00
C.........................................................                50                 0             50.00
D.........................................................               200                 0            200.00
E.........................................................               100                 0            100.00
                                                           -----------------------------------------------------
    Total.................................................            500.00              0.00            500.00
----------------------------------------------------------------------------------------------------------------

        Reduction in Claims for Shortfall Due to Sovereign Action

    Due to sovereign action, none of the money in Germany is available.

----------------------------------------------------------------------------------------------------------------
                                                                         Presumed location of funds
                         Customer                          -----------------------------------------------------
                                                                  U.S.              U.K.             Germany
----------------------------------------------------------------------------------------------------------------
A.........................................................               $50
B.........................................................                50                50
C.........................................................                                                    50
D.........................................................               100                                 100
E.........................................................                50                50
                                                           -----------------------------------------------------

[[Page 719]]

 
    Total.................................................            250.00            100.00            150.00
----------------------------------------------------------------------------------------------------------------

    Calculation of the allocation of the shortfall due to sovereign 
action--Germany ($200 shortfall to be allocated):

----------------------------------------------------------------------------------------------------------------
                                                                  Allocation share of actual    Actual shortfall
                  Customer                    Allocation share             shortfall                allocated
----------------------------------------------------------------------------------------------------------------
C...........................................          $50/$150  33.3% of $200.................            $66.67
D...........................................         $100/$150  66.7% of $200.................           $133.33
                                                                                               -----------------
    Total...................................                                                            $200.000
----------------------------------------------------------------------------------------------------------------

    This would result in the claims of customers C and D being reduced 
below zero.
    Accordingly, the claims of customer C and D will only be reduced to 
zero, or $50 for C and $100 for D. This results in a Total Excess 
Shortfall of $50.

----------------------------------------------------------------------------------------------------------------
                                                              Allocation of     Allocation of
                     Actual shortfall                         shortfall for     shortfall for     Total excess
                                                               customer C        customer D         shortfall
----------------------------------------------------------------------------------------------------------------
$200......................................................               $50              $100               $50
----------------------------------------------------------------------------------------------------------------

    This shortfall will be divided among the remaining customers who 
have authorized funds to be held outside the U.S. or in a currency other 
than U.S. dollars.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    Allocation share
                                                 Total claims of                      (column B-C/
                                                    customers     Portion of claim  column B Total--  Allocation share of actual total    Actual total
                   Customer                     permitting funds   required to be     all customer            excess shortfall          excess shortfall
                                                   to be held       int the U.S.     claims in U.S.)                                        allocated
                                                outside the U.S.
--------------------------------------------------------------------------------------------------------------------------------------------------------
B.............................................              $100               $50          $50/$200  25% of $50......................            $12.50
C.............................................                50                 0             \(1)\                                                   0
D.............................................               200               100          $100/200  50% of $50......................                25
E.............................................               100                50            50/100  25% of $50......................             12.50
                                               ------------------                                                                      -----------------
    Total.....................................            450.00                                                                                  50.00
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Claim already reduced to $0.

                         Claims After Reductions

----------------------------------------------------------------------------------------------------------------
                                            Claim in U.S.
                                            dollars after     Allocation of     Allocation of
                Customer                   allocated non-   shortfall due to    total excess     Claim after all
                                              sovereign     sovereign action      shortfall        reductions
                                              shortfall          Germany
----------------------------------------------------------------------------------------------------------------
A.......................................               $50                                                $50.00
B.......................................               100                               12.50             87.50
C.......................................                50                50                                   0
D.......................................               200               100                25             75.00
E.......................................               100                               12.50             87.50
    Total...............................            500.00            150.00             50.00            300.00
----------------------------------------------------------------------------------------------------------------


[48 FR 8739, Mar. 1, 1983, as amended at 68 FR 5552, Feb. 4, 2003]

                        PARTS 191	199 [RESERVED]

[[Page 721]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 723]]



                    Table of CFR Titles and Chapters




                      (Revised as of April 1, 2011)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
       III  Administrative Conference of the United States (Parts 
                300--399)
        IV  Miscellaneous Agencies (Parts 400--500)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 100--
                199)
        II  Office of Management and Budget Circulars and Guidance 
                (200--299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300-- 
                399)
        IV  Department of Agriculture (Parts 400--499)
        VI  Department of State (Parts 600--699)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
      XIII  Department of Commerce (Parts 1300--1399)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1880--1899)
        XX  United States Nuclear Regulatory Commission (Parts 
                2000--2099)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      XXIV  Housing and Urban Development (Parts 2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)
     XXVII  Small Business Administration (Parts 2700--2799)
    XXVIII  Department of Justice (Parts 2800--2899)
       XXX  Department of Homeland Security (Parts 3000--3099)

[[Page 724]]

      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
    XXXVII  Peace Corps (Parts 3700--3799)
     LVIII  Election Assistance Commission (Parts 5800--5899)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--99)
        II  Recovery Accountability and Transparency Board (Parts 
                200--299)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Parts 2100--2199)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)
      XXVI  Department of Defense (Parts 3600-- 3699)
    XXVIII  Department of Justice (Parts 3800--3899)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Parts 4300--
                4399)
     XXXIV  Securities and Exchange Commission (Parts 4400--4499)

[[Page 725]]

      XXXV  Office of Personnel Management (Parts 4500--4599)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
      XLIX  Federal Labor Relations Authority (Parts 5900--5999)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)
       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
     LXXII  Special Inspector General for Iraq Reconstruction 
                (Parts 8200--8299)
    LXXIII  Department of Agriculture (Parts 8300--8399)
     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)
     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
    LXXVII  Office of Management and Budget (Parts 8700--8799)
      LXXX  Federal Housing Finance Agency (Parts 8700--8799)
    LXXXII  Special Inspector General for Iraq Reconstruction 
                (Parts 9200--9299)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)

[[Page 726]]

      XCIX  Department of Defense Human Resources Management and 
                Labor Relations Systems (Department of Defense--
                Office of Personnel Management) (Parts 9900--9999)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 0--99)

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)
        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)

[[Page 727]]

      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy Policy and New Uses, Department of 
                Agriculture (Parts 2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  National Institute of Food and Agriculture (Parts 
                3400--3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)
         L  Rural Business-Cooperative Service, Rurual Housing 
                Service, and Rural Utilities Service, Department 
                of Agriculture (Parts 5000--5099)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

[[Page 728]]

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XIII  Nuclear Waste Technical Review Board (Parts 1303--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)
        II  Election Assistance Commission (Parts 9400--9499)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)
         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XII  Federal Housing Finance Agency (Parts 1200--1299)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (Parts 
                500--599)

[[Page 729]]

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

[[Page 730]]

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  U.S. Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)
        IV  U.S. Immigration and Customs Enforcement, Department 
                of Homeland Security (Parts 400--599)

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

[[Page 731]]

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board (Parts 900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Millenium Challenge Corporation (Parts 1300--1399)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)
        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                HousingCommissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)

[[Page 732]]

         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XV  Emergency Mortgage Insurance and Loan Programs, 
                Department of Housing and Urban Development (Parts 
                2700--2799)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Parts 1200--1299)

[[Page 733]]

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--899)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)
        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)

[[Page 734]]

     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Bureau of Ocean Energy Management, Regulation, and 
                Enforcement, Department of the Interior (Parts 
                200--299)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)
       XII  Office of Natural Resources Revenue, Department of the 
                Interior (Parts 1200--1299)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)
        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)
         X  Financial Crimes Enforcement Network, Departmnent of 
                the Treasury (Parts 1000--1099)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)

[[Page 735]]

      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army (Parts 
                200--399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvmeent, 
                Department of Education [Reserved]
        XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)

[[Page 736]]

        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
        VI  [Reserved]
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Parts 1500--
                1599)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
       III  Copyright Royalty Board, Library of Congress (Parts 
                301--399)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)
        II  Armed Forces Retirement Home

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Regulatory Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

[[Page 737]]

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
   62--100  [Reserved]
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
  103--104  [Reserved]
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
  129--200  [Reserved]
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System [Reserved]
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands

[[Page 738]]

         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10099)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899) 
                [Reserved]
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)

[[Page 739]]

       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)
        IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)
         3  Health and Human Services (Parts 300--399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  Agency for International Development (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)
        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management, Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)

[[Page 740]]

        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement [Reserved]
        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  Civilian Board of Contract Appeals, General Services 
                Administration (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Pipeline and Hazardous Materials Safety 
                Administration, Department of Transportation 
                (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)
         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)

[[Page 741]]

         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation [Reserved]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR

[[Page 743]]





           Alphabetical List of Agencies Appearing in the CFR




                      (Revised as of April 1, 2011)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Administrative Conference of the United States    1, III
Advanced Research Projects Agency                 32, I
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            2, IV; 5, LXXIII
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Economic Research Service                       7, XXXVII
  Energy Policy and New Uses, Office of           2, IX; 7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  National Institute of Food and Agriculture.     7, XXXIV
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII, L
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV, L
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII, L
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX

[[Page 744]]

Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Bureau of Ocean Energy Management, Regulation,    30, II
     and Enforcement
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Civil Rights, Commission on                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               44, IV; 50, VI
  Census Bureau                                   15, I
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III, IV
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Copyright Office                                  37, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    28, VIII
     for the District of Columbia
Customs and Border Protection Bureau              19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII

[[Page 745]]

  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Acquisition Regulations System          48, 2
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  Human Resources Management and Labor Relations  5, XCIX
       Systems
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 2, XI; 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
District of Columbia, Court Services and          28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Election Assistance Commission                    2, LVIII; 11, II
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9, 34
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   2, XV; 5, LIV; 40, I, IV, 
                                                  VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                5, III, LXXVII; 14, VI; 
                                                  48, 99

[[Page 746]]

  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           2, XXXV; 5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Agency                    5, LXXX; 12, XII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority                 5, XIV, XLIX; 22, XIV
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Financial Crimes Enforcement Network              31, X
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II

[[Page 747]]

General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102
  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          2, III; 5, XLV; 45, 
                                                  Subtitle A,
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  2, XXX; 6, I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection Bureau            19, I
  Federal Emergency Management Agency             44, I
  Human Resources Management and Labor Relations  5, XCVII
       Systems
  Immigration and Customs Enforcement Bureau      19, IV
  Immigration and Naturalization                  8, I
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing and Urban Development, Department of      2, XXIV; 5, LXV; 24, 
                                                  Subtitle B
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Human Development Services, Office of             45, XIII
Immigration and Customs Enforcement Bureau        19, IV
Immigration and Naturalization                    8, I
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII

[[Page 748]]

Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
     Archives and Records Administration
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department
  American Indians, Office of the Special         25, VII
       Trustee
  MBureau of Ocean Energy Management,             30, II
       Regulation, and Enforcement
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Natural Resource Revenue, Office of             30, XII
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Fishing and Related Activities      50, III
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
Investment Security, Office of                    31, VIII
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                2, XXVII; 5, XXVIII; 28, 
                                                  I, XI; 40, IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V

[[Page 749]]

  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Office of Workers' Compensation Programs        20, VII
  Public Contracts                                41, 50
  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
  Copyright Royalty Board                         37, III
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Millenium Challenge Corporation                   22, XIII
Mine Safety and Health Administration             30, I
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
Museum and Library Services, Institute of         2, XXXI
National Aeronautics and Space Administration     2, XVIII; 5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   45, XII, XXV
National Archives and Records Administration      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           21, III
National Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 47, VI; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Food and Agriculture.       7, XXXIV
National Institute of Standards and Technology    15, II
National Intelligence, Office of Director of      32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III

[[Page 750]]

National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       2, XXV; 5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III, IV
     Administration
National Transportation Safety Board              49, VIII
Natural Resources Conservation Service            7, VI
Natural Resource Revenue, Office of               30, XII
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     2, XX; 5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI
Office of Workers' Compensation Programs          20, VII
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Human Resources Management and Labor Relations  5, XCIX
       Systems, Department of Defense
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Regulatory Commission                      5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Procurement and Property Management, Office of    7, XXXII
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Recovery Accountability and Transparency Board    4, II
Refugee Resettlement, Office of                   45, IV
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
Rural Business-Cooperative Service                7, XVIII, XLII, L
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV, L
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII, L

[[Page 751]]

Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                5, XXXIV; 17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
Special Inspector General for Iraq                5, LXXXVII
     Reconstruction
State Department                                  2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV
Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     2, XII; 5, L
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 47, IV; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection Bureau            19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  Federal Law Enforcement Training Center         31, VII
  Financial Crimes Enforcement Network            31, X
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, Office of                  31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
   Commission
[[Page 752]]

United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       2, VIII; 38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 753]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations that were 
made by documents published in the Federal Register since January 1, 
2001, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Page numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 2001, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, 1973-1985, and 1986-2000'' published in 
11 separate volumes.

                                  2001

17 CFR
                                                                   66 FR
                                                                    Page
Chapter I
1 Technical correction..............................................1375
    Fee schedule...................................................32737
    Order..........................................................34110
    Authority citation revised.....................................42269
1.1 Revised........................................................42269
1.3 (gg)(3) and (uu) added.........................................20744
    Introductory text revised......................................42269
    (g) added......................................................53516
1.10 (a)(2) and (j)(8) revised.....................................53516
1.12 (b)(2) revised................................................20744
1.17 (a)(1)(i)(B) revised; (e)(1)(ii), (h)(2)(vi)(C)(2), 
        (vii)(A)(2), (B)(2), (viii)(A)(2), (3)(ii)(B) and (v)(B) 
        amended....................................................20744
    (a)(1)(ii) redesignated as (a)(1)(iii); new (a)(1)(ii) added 
                                                                   53517
1.32 Revised.......................................................41133
1.33 (g) added.....................................................53517
1.37 (a) redesignated as (a)(1); (a)(2) added......................20744
    (c) and (d) added..............................................42269
1.41 Removed.......................................................42269
1.41b Removed......................................................42269
1.43 Removed.......................................................42269
1.45 Removed.......................................................42269
1.46 (a) introductory text and (e) revised; (d)(4) through (7) and 
        (9) removed................................................53517
1.50 Removed.......................................................42269
1.51 Removed.......................................................42269
1.55 (d) and (f) revised...........................................53518
1.68 Added.........................................................20744
3 Technical correction.............................................47059
    Authority citation revised.....................................53518
3.1 (a)(1) and (2) revised.........................................53518
3.10 (a)(1)(i) revised; (a)(3) added; (d) amended..................43082
    (a)(2)(ii) removed; (a)(2)(i) redesignated as (a)(2)...........53518
3.21 (c) introductory text revised.................................53518
3.31 (a) redesignated as (a)(1); (a)(2) added......................53518
3.32 Removed.......................................................53518
3.34 Removed.......................................................53518
3 Appendix A amended...............................................53518
    Appendix B amended.............................................53521
4.10 (e)(1) revised................................................53522
4.24 (f)(1)(v) and (h)(2) revised..................................53522
4.32 Added.........................................................53522
4.34 (f)(1)(ii) and (h) revised....................................53522
5 Removed; Appendix A redesignated as Appendix A, Part 40 and 
        heading revised; Appendix E redesignated as Appendix C, 
        Part 40....................................................42287
15 Authority citation revised......................................42269
15.05 Heading revised; (e) and (h) added...........................42269
30 Order....................................................27859, 34110
    Compliance date................................................50102
36 Revised.........................................................42270
37 Added...........................................................42271
38 Added...........................................................42277
39 Added...........................................................45609
    Compliance date................................................50102
40 Added...........................................................42283
    Fee schedule...................................................42289
    Compliance date................................................50103

[[Page 754]]

40 Appendices A and C redesignated from Appendices A and E, Part 5
                                                                   42287
41 Added....................................................42287, 44511
    Authority citation added.......................................43086
    Heading and authority citation revised.........................44965
41.1 (a), (b) and (f) through (i) added............................44965
41.21--41.25 (Subpart C) Added.....................................55083
41.31--41.34 (Subpart D) Added.....................................44965
41.41 Added........................................................43086
140.72 (a) revised..................................................1576
140.73 (a) introductory text and (1) revised........................1576
140.91 (a)(8) added................................................43087
    (a)(7) added...................................................53523
140.99 (i) amended; (i)(1) and (2) revised; (i)(3) added...........44967
155.3 (b)(2) revised...............................................53523
155.4 (b)(2) revised...............................................53523
155.6 Added........................................................53523
160 Added..........................................................21252
160.18 (b)(1) revised..............................................24061
    (a) corrected..................................................24183
166 Authority citation revised.....................................42287
166.5 Added........................................................42287
170 Authority citation revised.....................................42288
    Technical correction...........................................47059
170.8 Revised......................................................42288
170.15 Revised.....................................................43083
180 Removed........................................................42288
190.01 (bb) revised................................................20745

                                  2002

17 CFR
                                                                   67 FR
                                                                    Page
Chapter I
1 Fee schedule.....................................................44036
    Technical correction....................................63966, 67445
1.3 (gg)(4), (vv) and (ww) added...................................58297
1.12 (g)(3) and (h) amended........................................62351
1.41a Removed......................................................62353
1.41c Removed......................................................62353
1.42 Removed.......................................................62353
1.55 (h) added.....................................................58297
1.62 (b) amended...................................................62351
1.65 (d) amended...................................................62351
1.66 (b)(5)(ii) amended............................................62351
3.2 (c) revised....................................................38874
3.10 (a)(2)(i) revised; (d) removed................................38874
    Corrected......................................................41166
3.11 (a)(2), (3) and (b) revised; (C) and (d) removed..............38874
3.12 (c)(1), (4), (d)(1) introductory text and (f) revised; (d)(2) 
        and (3) redesignated as (d)(3) and (4); new (d)(2) added 
                                                                   38874
    (g)(2)(i) and (ii) amended.....................................62351
3.22 Amended.......................................................62351
3.31 (a)(2) redesignated as (a)(3); new (a)(2) added; (a)(1) and 
        new (3) revised; (d) amended...............................38875
3.33 (b) introductory text and (e) amended; (b)(3) and (d) 
        removed; (b)(4) through (7) and (c)(2) redesignated as 
        (b)(3) through (6) and (c).................................38876
    (e) amended....................................................62351
3.40 Revised.......................................................38876
3.41 Removed.......................................................38876
3.42 (a)(2), (3), (4) and (6) revised..............................38876
3.44 (a)(4) introductory text and (5) revised......................38876
3.46 (a)(6) and (8) revised........................................38876
3.50 (c) and (d) amended...........................................62351
3.55 (e)(2) amended................................................62351
3.56 (e)(2) amended................................................62351
3.63 Amended.......................................................62351
3.70 (a) amended............................................62351, 62352
3 Appendix A amended...............................................62352
4 Technical correction.............................................44931
4.2 (a) amended....................................................62352
4.5 (c) introductory text, (3) and (d)(1) amended; (f)(3) removed; 
        (f)(4) redesignated as (f)(3)..............................77410
4.7 (b)(3)(i), (d)(1)(viii), (ix) and (3) amended; (d)(2) revised 
                                                                   77411
4.12 (b)(3)(vii) removed; (b)(3)(viii) redesignated as new 
        (b)(3)(vii); (b)(3) introductory text, new (vii) and 
        (5)(ii) amended............................................77411
4.13 (b)(1)(iv)(A) removed; (b)(1)(iv)(B) redesignated as 
        (b)(1)(vii)(A).............................................77411
4.14 (a)(8)(v)(C) removed; (a)(8)(v)(D) redesignated as 
        (a)(8)(v)(C); (a)(8)(iii) and new (v)(C) amended...........77411
4.22 (c) introductory text, (f)(1) and (2)(i) amended..............77411
4.26 (c) removed; (b) redesignated as new (c); new (b) added.......42710
    (d) revised....................................................77411
4.36 (d) amended...................................................77411
9.2 (h) amended....................................................62352
9.11 (c) amended...................................................62352
9.12 (b) amended...................................................62352

[[Page 755]]

9.26 Amended.......................................................62352
9.31 (a) amended...................................................62352
11 Technical correction............................................39473
11.2 (a) amended...................................................62352
11.4 (e) and (f) added.............................................37322
15 Authority citation revised......................................11571
15.03 (b) revised...........................................11571, 64524
    Table corrected................................................13680
16.07 Amended......................................................62352
17.03 Amended......................................................62352
18.03 Amended......................................................62352
19.00 (a)(3) amended...............................................62352
21.02a (c) amended.................................................62352
30 Order....................................................30785, 45056
31.6 (f)(1) and (2) amended........................................62352
31.13 (n)(1) amended...............................................62352
31.14 (a) amended..................................................62352
36.3 (b)(2)(ii) amended............................................62352
37 Authority citation revised......................................62876
37.2 Revised; eff. 4-12-02.........................................11227
    Revised........................................................62876
37.5 (f)(1) and (2) amended........................................62352
    (a), (b) and (f)(1) revised....................................62876
37.6 (a), (b) introductory text, (1), (2), (i) introductory text, 
        (iii) and (c) revised......................................62877
37.8 (d) amended...................................................62352
38 Authority citation revised......................................62877
38.2 Revised; eff. 4-12-02.........................................11227
    Revised........................................................62877
38.3 (e)(1) and (2) amended........................................62352
    (a) revised....................................................62878
38.4 (a)(2) revised................................................62878
38.5 (c) added.....................................................62878
38 Appendix B amended..............................................62352
39 Authority citation revised......................................62878
39.3 (e)(1) and (2) amended........................................62352
39.4 Heading revised; (c) text redesignated as (c)(2); (c)(1) 
        added......................................................62878
40 Fee schedule....................................................38379
    Authority citation revised.....................................62878
40.1 Amended.......................................................62878
40.3 (a)(4) revised; (a)(5) added..................................62879
40.4 (b)(5) and (6) revised; (b)(7) and (8) added..................62879
40.5 (a)(1)(v) and (vi) revised; (a)(1)(vii) added.................62879
40.6 (a)(2) amended; (c)(2)(iii), (iv), (3)(ii)(B), (C) AND (D) 
        revised; (c)(2)(v) and (3)(ii)(E) added....................62879
40.7 (a)(1), (2) and (b) introductory text amended.................62352
    (b)(1) revised.................................................62880
40.8 Added.........................................................62880
40 Appendix C amended..............................................62880
41 Authority citation revised; eff. 4-12-02........................11227
    Authority citation revised.......................36761, 53171, 58297
    Heading revised................................................53171
    Technical correction...........................................67445
41.1 (j), (k) and (l) added........................................36761
41.3 Redesignated from 41.41.......................................53171
    (d) amended....................................................62352
41.25 (a)(2) and (d) added; (b) revised............................36761
41.27 Added;4-12-02................................................11227
41.33 (g)(1) and (2) amended.......................................62352
41.34 Revised; eff. 4-12-02........................................11229
41.41 Redesignated as 41.3.........................................53171
    Added..........................................................58297
41.42--41.49 (Subpart E) Added.....................................53171
140 (Subpart C) Authority citation revised..........................5939
140.72 (a) amended.................................................62352
140.73 (a) and (b) amended.........................................62352
140.74 (a), (b) and (c) amended....................................62352
140.75 Amended.....................................................62352
140.76 (a) and (b) amended.........................................62352
140.77 (a), (b) and (c) amended....................................62353
140.91 (a) and (b) amended.........................................62353
140.92 (a), (b) and (c) amended....................................62353
140.93 (a), (b) and (c) amended....................................62353
140.95 (a), (b) and (c) amended....................................62353
140.96 (a) through (d) amended.....................................62353
140.97 (a), (b) and (c) amended....................................62353
140.99 (a)(5) amended; (d)(2) revised..............................62353
140.100 Added......................................................45299
    Removed........................................................62354
140.735-1 Revised...................................................5939
140.735-2 Revised...................................................5939
140.735-2a Added....................................................5940
    Note 7 amended.................................................62353
140.735-8 (b)(3) revised............................................5941
145.6 (a) amended..................................................62353
    (b)(2) revised.................................................63539
145 Appendix A amended......................................62353, 63539
    Appendix D amended.............................................63539
150.3 (b) amended..................................................62353
150.4 (e) amended..................................................62353
155.5 Removed; eff. 4-12-02........................................11229
160.18 (a) corrected................................................6790
170.12 Amended.....................................................62353
171.28 Amended.....................................................62353
171.31 (a) amended.................................................62353
190 Technical correction...........................................67445
190.01 (f) revised; (kk)(9) added..................................58298
190.02 (d)(8) amended; (d)(11) and (12) redesignated as(d)(12) and 
        (13); new (d)(11) added....................................58298

[[Page 756]]

190.07 (b)(1)(iii)(B)(3) revised...................................58298
190.08 (a)(2)(v) and (vi) revised; (a)(2)(vii) added...............58298
190.10 (h) added...................................................58298
    (a), (b)(4), (d) heading, (1), (2) and (3) amended.............62353
190 Appendix A amended.............................................58298

                                  2003

17 CFR
                                                                   68 FR
                                                                    Page
Chapter I
1.32 (a) introductory text revised..................................5551
1.35 (a-1)(5) revised..............................................34794
1.49 Added..........................................................5551
4.5 (c)(2)(i) and (ii) removed; (c)(2)(iii) and (iv) redesignated 
        as (c)(2)(i); new (c)(2)(i), (ii) and (f)(2) revised; (g) 
        added......................................................47230
4.7 (a)(2)(vi), (3)(vii) and (d)(1)(vii) revised...................47231
4.10 (m) added.....................................................42967
4.12 (b)(3)(vi) revised............................................47231
4.13 (c) and (d) redesignated as (d) and (e); (a)(1)(iv) amended; 
        (a)(2), (b), new (d) and (e) revised; introductory text, 
        (a)(3), (4), (5), new (c) and (f) added....................47231
    (e)(2)(i)(B) and (ii) corrected; (e)(2)(iii) added.............52837
    Introductory text corrected....................................59113
4.14 Introductory text and (a)(10) added; (a)(8) and (c) revised; 
        (a)(9)(ii) amended.........................................47233
    (a)(8)(iii)(A)(2) and (c)(2) corrected.........................52837
    (a)(8)(i)(D) corrected.........................................59114
4.21 (a) revised...................................................47234
4.22 (a) introductory text, (c) introductory text, (h)(1) and (3) 
        revised; (a)(4), (c)(6), (i) and (j) added.................47234
    (c) corrected; (j) introductory text, (A), (B) and (ii) 
redesignated as (j)(1), (1)(i), (ii) and (2).......................52837
4.25 (a)(1)(ii)(H) added...........................................42967
4.26 (d) introductory text amended; (d)(3) removed.................12584
4.31 (a) revised...................................................47235
    (a) corrected..................................................59114
4.35 (a)(7) and (8) redesignated as (a)(8) and (9); new (a)(7) 
        added......................................................42967
    (a)(1)(viii) revised...........................................47235
4 Appendices A and B added.........................................47236
    Appendix A corrected...........................................52837
    Appendix B corrected...........................................53430
18.04 correctly removed: CFR correction............................48549
30 Order...........................................................39006
    Authority citation revised.....................................40499
    Technical correction...........................................46446
30.5 Introductory text, (a) and (b) revised; (e) removed...........40499
30.7 (c) revised....................................................5551
30 Appendix D redesignated from Part 40 Appendix C; new Appendix D 
        revised....................................................33624
    Appendix C amended.............................................58587
40 Appendix C redesignated as Part 30 Appendix D...................33624
42 Added...........................................................25159
190 Appendix B revised..............................................5552

                                  2004

17 CFR
                                                                   69 FR
                                                                    Page
Chapter I
1.10 (c), (e)(1), (2) and (f)(2) amended...........................41425
    (b)(1), (2)(i), (c), (d)(4), (e) and (f) revised...............49795
    (c)(3) and (f)(1)(ii)(B) corrected; (j)(8)(ii) correctly 
revised............................................................55949
1.12 (i)(1) amended................................................41426
    (a)(1), (b)(1), (2), (3), (4), (c), (d), (e), (f), (h) and 
(i)(1) revised.....................................................49797
1.16 (d)(1) amended................................................41426
    (f) revised....................................................49798
1.17 (h)(3)(vi) amended............................................41426
    (a)(1)(i)(B), (b)(4), (e)(1)(i), (ii), (h)(2)(vi)(C)(1), (2), 
(vii)(A)(1), (2), (vii)(B)(1), (2), (vii)(A)(1), (2), (3)(ii)(A), 
(B), (v)(A), (B) and (vii) revised; (b)(7) and (8) added...........49799
    (a)(2)(ii) correctly amended...................................55949
1.18 (b) revised...................................................49800
1.23 Amended.......................................................41426
1.25 (a)(2) and (b)(5) revised......................................6145
1.30 Amended.......................................................41426
1.46 (a) introductory text revised.................................59545
3.12 (f)(3) and (4) correctly added................................16792
4.13 (a)(3)(iii)(C) and (D) revised; (a)(3)(iii)(E) added..........41426
15.00 (b)(1)(ii) revised...........................................76397
15.02 Revised......................................................76397
15.03 Revised......................................................76397

[[Page 757]]

16.00 (a)(4) and (b) revised.......................................76398
16.01 (a)(2), concluding text and (d) revised; (b)(3) amended......76399
16.06 Revised......................................................76399
16.07 (a) and (b) revised..........................................76399
17.00 (a) heading, (g)(2)(i), (v), (vi), (xi) and (h) revised; 
        (a)(1) added...............................................76399
17.01 Introductory text, (e), (f) and (g) revised..................76400
17.02 Revised......................................................76400
17.03 (a) and (b) revised; (c) redesignated as (d); new (c) added 
                                                                   76400
17.04 (b) amended; (b)(1)(i) and (2) revised.......................76400
18.00 Revised......................................................76400
18.02 Removed......................................................76401
18.06 Removed......................................................76401
19.00 (a)(1) revised; (a)(3) amended...............................76401
21.02a Removed.....................................................76401
30.4 (a) revised; (e) removed......................................49803
30.10 Existing text designated as (a); (b) added...................49803
31.13 (c) and (e) amended..........................................41426
36.3 (b)(1)(i), (ii) and (c)(2) revised; (b)(2) and (3) 
        redesignated as (b)(3) and (4); (b)(1)(iii), (iv), new 
        (2), (c)(1) heading and (3) heading added..................43294
37.5 Revised.......................................................67815
38.3 Revised.......................................................67816
40.2 Revised.......................................................67504
40.3 (a)(4) and (5) revised; (a)(6) added..........................67505
40.5 (a)(1)(vi) and (vii) revised; (a)(1)(viii) added..............67505
40.6 (a)(3)(iv) and (v) revised; (a)(3)(vi) added..................67505
40.8 Existing text designated as (b); new (a) added................67505
40 Appendix D added................................................67505
41.23 (a)(4) and (5) revised; (a)(6) added.........................67507
41.24 (a)(3) and (4) revised; (a)(5) added.........................67507
140.2 Revised......................................................41426
140.99 Second (d)(2) removed.......................................41426
143 Authority citation revised.....................................52997
143.1 Revised......................................................52997
143.2--143.8 (Subpart A) Designation and heading added.............52997
143.2 (c) revised..................................................52997
143.7 (a) revised..................................................52997
143.8 (a) revised..................................................52995
143.9--143.10 (Subpart B) Added....................................52997
145.6 (a) revised..................................................41426
145.7 (h)(3) amended; (j) redesignated as (i)(7); new (j) added....67507
145.9 (e)(2) revised...............................................67507
145 Appendices A and B amended.....................................67507
145 Appendix D removed.............................................67508
190 Policy statement...............................................69510
190.07 (b)(3)(v) amended...........................................41427

                                  2005

17 CFR
                                                                   70 FR
                                                                    Page
Chapter I
1 Fee schedule.....................................................56823
1.25 Revised.......................................................28200
    (b)(3)(i)(B) corrected.........................................32866
1.27 (a), (3), (6), (7) and (b) amended; (a)(8) added..............28204
1.55 (d)(1) and (f) revised.........................................5924
30 Appendix C amended..............................................75937
41.11 (a)(2)(ii) and (b)(2)(ii)(B) revised.........................43750
140.93 Heading amended; (a)(2) removed; (a)(3) through (6) 
        redesignated as (a)(2) through (5); new (a)(4) corrected 
                                                                    2566
150 Authority citation revised.....................................24706
150.2 Revised......................................................24706
155.3 (b)(2) revised................................................5924
155.4 (b)(2) revised................................................5924
171.1 (b)(4) amended; (b)(5) added..................................2352

                                  2006

17 CFR
                                                                   71 FR
                                                                    Page
Chapter I
1 Technical correction..............................................8889
1.3 (bb)(1) revised; (bb)(2) added..................................9445
    (c) and (d) revised............................................37816
1.10 (d)(4)(ii), (f)(1) introductory text, (g)(1), (2), (4) and 
        (h) revised.................................................5592
    (b)(2)(iii), (d)(4)(ii) and (h) revised; (d)(4)(iii) added.....67465
1.16 (c)(5) revised.................................................5593
1.17 (c)(5)(ii) revised; (c)(6) added...............................5593
1.18 (a) and (b)(2) revised.........................................5594
1.31 (d) revised...................................................67465
1.52 (a) revised....................................................5595
4.7 (b)(2) and (3) revised..........................................8942

[[Page 758]]

4.22 (c) introductory text, (d) introductory text, (f)(1)(ii)(B), 
        (g)(2), (3) and (h) revised; (j) removed....................8942
4.23 (a)(12) added..................................................8943
15.00 Revised......................................................37816
15.01 (a) and (b) revised..........................................37817
15.03 (b) revised..................................................37817
15.05 (a) and (h) revised..........................................37818
16 Heading and authority citation revised..........................37818
16.00 (a) introductory text, (1), (5) and (b) introductory text 
        revised; (c) added.........................................37818
16.01 (a) through (d) introductory text revised; (a) note removed; 
        (e) added..................................................37818
16.06 Revised......................................................37819
16.07 (a) and (b) revised..........................................37819
17 Heading and authority citation revised..........................37819
17.00 (a)(1), (b)(2) and (g)(2)(iv) revised; (i) added.............37819
17.01 Introductory text, (a), (b) introductory text, (d), (f) and 
        (g) revised; (h) added.....................................37820
17.02 Revised......................................................37820
17.03 Introductory text and (c) revised............................37820
17.04 (a), (b)(1)(i) and (2) revised...............................37820
18.00 Introductory text revised....................................37821
18.05 Revised......................................................37821
19.00 (a) and (b) introductory text revised........................37821
19.01 (a) introductory text revised................................37821
21.01 Revised......................................................37821
21.02 Heading and introductory text revised........................37821
21.03 Heading, (c), (d), (e) introductory text and (f) revised.....37821
30 Appendix C amended..............................................40396
36.2 (b) and (c) revised............................................1961
36.3 (a) and (c)(2)(ii) revised; (c)(4) added.......................1962
37.1 (a) revised....................................................1962
37.2 Revised.................................................1962, 37822
37.3 (a)(5), (6) introductory text, (i), (ii), (A) through (H), 
        (b) and (c) redesignated as new (b), (c) introductory 
        text, (1), (2), (i) through (viii), (d) and (e).............1963
37.6 Revised........................................................1963
37.7 (b) revised....................................................1963
37.8 (b) revised....................................................1963
37 Appendices A and B amended.......................................1964
38.1 Revised........................................................1964
38.2 Revised........................................................1964
38.5 (b) revised; (c) redesignated as (d); new (c) added............1964
38 Appendix A.......................................................1965
    Appendix B amended........................................1965, 1966
39.3 Revised........................................................1966
40.1 Revised........................................................1967
40.2 Revised........................................................1968
40.3 (a), (c) and (e)(2) revised....................................1968
40.4 Revised........................................................1969
40.5 (a), (c)(1) and (e)(2) revised.................................1969
40.6 (a) introductory text, (2), (3), (c) introductory text, (1), 
        (2)(iii) and (v) revised; (a)(4), (c)(2)(vi) and 
        (3)(ii)(F) added............................................1970
40.7 (a)(3) and (b)(3) added........................................1971
40.8 (b) revised....................................................1971
40 Appendix D amended...............................................1971
41.15 Added........................................................39541
41.21 (a)(2)(i), (ii), (b)(3)(i) and (ii) amended; (a)(2)(iii) and 
        (b)(3)(iii) added..........................................39542
140 Policy statement...............................................64443
145 Technical correction............................................8889
145.5 (d)(1) and (h) revised........................................5595
147 Technical correction............................................8889
147.3 (b)(4)(i) and (8) revised.....................................5595

                                  2007

17 CFR
                                                                   72 FR
                                                                    Page
Chapter I
1.3 (xx) and (yy) added............................................63978
1.12 (g)(2) revised.................................................1151
1.17 (d)(1) introductory text and (e) introductory text amended; 
        (d)(1)(ii)(D) and (g) added.................................1152
1.55 (f) revised...................................................63979
1.56 (a) removed...................................................63979
2 Authority citation revised.......................................29247
2.4 Added..........................................................29247
3.1 (f) removed....................................................63979
3.10 (d) added.....................................................35920
    (c) revised....................................................63979
3.12 (b) revised...................................................63103
    (h)(1)(ii) and (iii)(D) amended; (h)(1)(iv) added..............63979
3.31 (c)(1) introductory text and (2) revised......................63104
3.33 (f) introductory text revised.................................35920
4.2 Removed.........................................................1662

[[Page 759]]

4.5 (c) introductory text, (2)(i), (d)(1), (2) and (f) revised......1662
4.7 (d)(1) revised..................................................1662
4.8 (a) and (b) revised.............................................1662
4.10 (a) removed...................................................63979
4.12 (b)(1)(ii), (3) and (5)(i) revised.............................1663
4.13 (a)(5), (b)(1) introductory text, (iii), (2), (4) and (e)(2) 
        revised.....................................................1663
4.14 (a)(8)(iii)(A) introductory text, (3), (B) and (D) revised.....1664
4.41 (a)(1) and (2) amended; (a)(3) added; (b)(1)(i), (2) and 
        (c)(1) revised..............................................8109
15.00 (g) removed..................................................63979
18 Authority citation revised......................................60771
18.05 Revised......................................................60771
21.02 (f) amended; (g) redesignated as (i); new (g) and (h) added 
                                                                   50211
21.04 Added........................................................50211
30 Order...........................................................14413
    Technical correction...........................................17989
    Appendix C amended.............................................50646
38 Authority citation revised.......................................6957
    Appendix B amended..............................................6957
    Appendix B suspended in part...................................65658
140.2 Heading, introductory text and (c) revised...................16269
145.6 (a) revised..................................................16269
150................................................................66097
166.1 (b) removed..................................................63979
170.15 (a) revised..................................................2615
171.9 (b) revised..................................................42277

                                  2008

17 CFR
                                                                   73 FR
                                                                    Page
Chapter I
3.10 (c)(4) added..................................................54071
10 Authority citation revised......................................63360
10.12 (a)(2), (b) and (d)(1) revised...............................63360
12.10 (a)(2), (3) and (b) revised..................................63360
12.11 (a) and (c) revised..........................................63361
12.106 (c) revised.................................................70275
12.407 (d) revised.................................................70275
30 Order....................................................39226, 60625
30.8 Removed.......................................................54072
36.3 (b)(3)(ii) revised.............................................8604
40.1 (a) through (g) revised........................................8604
40.2 Heading, (a) introductory text, (1) and (2) revised............8605
40.3 (a) introductory text revised..................................8605
40.4 (a) and (b)(2) revised.........................................8605
40.5 (a) introductory text and (c) introductory text revised........8605
40.6 (a)(2), (c) introductory text, (1), (3) introductory text, 
        (i) and (ii)(B) amended; heading, (a) introductory text, 
        (2), (c)(2)(iii) and (iv) revised; (c)(2)(vii), (viii), 
        (ix), (3)(ii)(G) and (H) added..............................8605
140 Authority citation revised.....................................79609
140.72 (a) amended.................................................79609
140.73 (a) introductory text.......................................79609
143.8 (a) revised..................................................57514
190 Policy statement...............................................57235
    Technical correction...........................................65514

                                  2009

17 CFR
                                                                   74 FR
                                                                    Page
Chapter I
1.10 (b)(2)(iii) removed; (b)(2)(i), (ii)(A), (3), (c)(1), (2), 
        (d)(1)(ii), (4)(iii) and (h) revised.......................69008
1.12 (a)(2) and (i)(1) revised; (a)(3) removed; (i)(3) added.......69009
1.17 (a)(1)(i)(A), (B), (iii)(A), (b)(2), (3), (4) introductory 
        text, (7) introductory text, (8) introductory text and 
        (c)(5)(x) introductory text revised; (b)(9) and (10) added
                                                                   69282
4.7 (b)(2)(iii)(A), (B), (b)(2)(iv), (v) and (3)(i)(D) added; 
        (b)(3)(i) introductory text, (B), (C) and (ii) revised.....57590
4.13 (c)(2) removed; (c)(3) redesignated as new (c)(2).............57590
4.22 (a) introductory text, (1) introductory text, (2) 
        introductory text, (c) introductory text, (4), (5), (d), 
        (e) and (f)(2) revised; (c)(6) redesignated as (c)(8); 
        (a)(5), (6), and new (c)(6) and (7) added..................57590
4.26 (d)(1) and (2) revised; eff. 4-6-09............................9569
4.36 (d) revised; eff. 4-6-09.......................................9569
7 Authority citation revised.......................................39212
7.201 Removed......................................................39212
15 Authority citation revised......................................12188
15.00 Revised; eff. 4-22-09........................................12188
15.01 (a) revised; eff. 4-22-09....................................12189
15.05 Heading and (a) revised; (i) added; eff. 4-22-09.............12189
15.06 Added; eff. 4-22-09..........................................12190

[[Page 760]]

16 Authority citation revised......................................12190
16.01 (e) revised; eff. 4-22-09....................................12190
16.02 Added; eff. 4-22-09..........................................12190
16.07 Heading and introductory text revised; (c) added; eff. 4-22-
        09.........................................................12190
17 Authority citation revised......................................12190
    Heading revised; eff. 4-22-09..................................12190
17.00 (a) heading, (1), (b)(1) and (f) revised; (c) added; eff. 4-
        22-09......................................................12190
17.03 Heading, introductory text, (a) and (b) revised; eff. 4-22-
        09.........................................................12191
17.04 Heading, (a) and (b)(1)(ii) revised; eff. 4-22-09............12191
18 Authority citation revised......................................12191
18.01 Revised; eff. 4-22-09........................................12191
18.04 (a)(7) and (b)(3)(i) revised; eff. 4-22-09...................12191
18.05 (a)(2), (3) and (4) revised; eff. 4-22-09....................12192
19 Authority citation revised......................................12192
19.00 (a) revised; eff. 4-22-09....................................12192
19.01 (b) introductory text and (1) revised; eff. 4-22-09..........12192
21 Authority citation revised......................................12192
21.01 Revised; eff. 4-22-09........................................12192
21.02 Heading, introductory text, (f) and (i) revised; eff. 4-22-
        09.........................................................12192
21.03 Heading, (a) through (d), (e) introductory text, (1) 
        introductory text, (iv), (v), (f), (g) and (h) revised; 
        eff. 4-22-09...............................................12192
21.04 Revised; eff. 4-22-09........................................12193
36 Authority citation revised......................................12194
36.3 (b) revised; eff. 4-22-09.....................................12194
    (c) revised; eff. 4-22-09......................................12195
    (d) added; eff. 4-22-09........................................12197
36 Appendix A added; eff. 4-22-09..................................12197
    Appendix B added; eff. 4-22-09.................................12198
38 Appendix B partial suspension lifted; amended...................18990
40 Authority citation revised......................................12202
    Heading revised; eff. 4-22-09..................................12202
40.1 (b)(2), (3), (f)(2) and (h) amended; eff. 4-22-09.............12202
40.2 (a) introductory text, (1) and and (3)(iv) amended; (b) 
        revised; eff. 4-22-09......................................12202
    (a)(3)(v) added................................................17394
40.3 (a)(1), (c)(1), (2) and (e)(2) amended; eff. 4-22-09..........12202
    (a)(7) revised.................................................17394
40.4 (b)(9)(ii) amended; eff. 4-22-09..............................12202
40.5 (a)(8) revised................................................17394
40.6 (a)(2), (c)(3)(ii)(G) and (H) revised; eff. 4-22-09...........12202
    (a)(3)(vi) revised.............................................17394
40.7 (b) amended; eff. 4-22-09.....................................12203
40.8 (a) revised; (b) redesignated as (c); new (b) added; eff. 4-
        22-09......................................................12203
    (c) and (d) added..............................................17394
40 Appendix D revised; eff. 4-22-09................................12203
    Appendix D amended.............................................17394
41.23 (a)(7) added.................................................17394
41.24 (a)(6) added.................................................17394

                                  2010

17 CFR
                                                                   75 FR
                                                                    Page
Chapter I
1.1 Removed........................................................55418
1.3 (nn) and (yy) revised..........................................55418
1.4 Revised........................................................55418
1.10 (j) revised...................................................55418
1.35 (a), (a-1) and (b) revised....................................55419
1.36 (a) revised...................................................55422
1.37 (a)(1) revised................................................55422
1.40 Revised.......................................................55422
1.46 (a) and (b) revised...........................................55422
1.52 (a), (c) introductory text, (1), (2), (g)(3), (4), (h), (j) 
        and (k) revised............................................55423
3.1 (c) revised....................................................55424
3.4 (a) revised....................................................55424
3.10 Heading, (a)(1), (b) and (d) revised..........................55424
3.12 Heading, (a), (f)(1)(iii)(E), (4), (h)(1)(i) and (iii) 
        revised; (j) removed.......................................55424
3.21 (b)(3), (c) introductory text, (1), (2), (3) and (4)(i) 
        revised....................................................55425
3.30 (a) revised...................................................55426
3.31 (a)(1), (b), (c) and (d) revised..............................55426
3.33 (a) introductory text, (b) introductory text, (6) and (e) 
        revised....................................................55426
3.44 (a)(1) through (5) revised....................................55427
3.45 (b) revised...................................................55427
3.50 (b)(2) revised................................................55427
3.60 (b)(2)(i)(B) revised..........................................55428
4.7 (a)(1)(v)(B) and (2)(i) revised................................55428
4.12 (b)(1)(i)(C) revised..........................................55428

[[Page 761]]

4.13 (a)(3)(ii)(A) and (B)(1) revised..............................55428
4.14 (a)(7) revised................................................55428
4.23 (a)(1), (7), (b)(1) AND (2) revised...........................55428
4.24 (b)(1) introductory text, (e)(6), (g), (h)(2), (4)(iii), 
        (i)(2)(ii), (j)(1)(vi), (3), (l)(1)(iii), (2) introductory 
        text and (i) revised; (b)(1) clause amended; (i)(2)(xii) 
        redesignated as (i)(2)(xiii); (b)(4) and new (i)(2)(xii) 
        added......................................................55429
4.25 (c)(3)(ii) revised............................................55430
4.30 Revised.......................................................55430
4.33 (a)(6), (b)(1) and (2) revised................................55430
4.34 (b), (e)(2), (g), (h), (i)(2), (j)(1), (3), (k)(1)(ii), 
        (iii), (2) introductory text and (i) revised...............55430
5 Added............................................................55432
10.1 (a) revised...................................................55449
12 Policy statement.................................................3371
30 Order...........................................................35291
44 Added; interim..................................................63084
44.00 (c), (d) and (e) redesignated as (d), (e) and (f); (c) 
        revised; interim...........................................78896
44.03 Added; interim...............................................78896
140.94 Added.......................................................55449
145.5 (d)(1)(viii) and (h) revised.................................55449
147.3 (b)(4)(i)(H) and (8) revised.................................55450
160.1 (b) revised..................................................55450
160.3 (a) introductory text, (2), (n)(1)(i), (2)(i), (o)(1)(i) and 
        (u)(2)(i)(A) revised; (k)(2)(i)(B) through (F), (w)(2), 
        (3) and (4) redesignated as (k)(2)(i)(C) through (G), 
        (w)(3), (4) and (5); new (k)(2)(i)(B), new (w)(2) and (x) 
        added......................................................55450
160.4 (c)(2)(ii) and (e)(1)(iv) revised............................55451
160.30 Introductory text revised...................................55451
166.2 Revised......................................................55451
166.5 (a)(1)(i), (ii) and (iii) redesignated as (a)(1)(i)(A), (B) 
        and (C); new (a)(1)(ii) added; (a)(1)(iv) removed; (a)(2), 
        (3), (c)(5)(1)(A) and (C) revised..........................55451
190.01 (a) revised; (oo) added.....................................17302
190.04 (d)(3) added................................................44893
190.07 (b)(2)(viii) revised........................................17303
190 Appendix A amended.............................................17303

                                  2011

 (No regulations published from January 1, 2010, through April 1, 2010)


                                  [all]