[Federal Register Volume 59, Number 40 (Tuesday, March 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4574]


[[Page Unknown]]

[Federal Register: March 1, 1994]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 12

 

Rules Relating to Reparation Proceedings

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: Pursuant to the Futures Trading Practices Act of 1992, the 
Commodity Futures Trading Commission (``Commission'' or ``CFTC'') 
published for comment a notice of proposed rulemaking setting forth new 
regulations (the ``Class Action Proposal''),1 to implement class 
action suits against registered persons. The Commission also invited 
the public to respond to specific questions. Upon consideration of the 
comments received and the Commission's own review of the proposed rule, 
it has determined not to adopt the Class Action Proposal.
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    \1\58 FR 17369 (April 2, 1993).
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    In order to update and streamline Commission procedures in light of 
its experience, the Commission published for comment a notice of 
proposed rulemaking to amend and correct its rules relating to 
reparation proceedings (the ``Reparation Rules Proposal'').2 This 
notice sets forth the regulations in final form.
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    \2\58 FR 44623 (August 24, 1993).
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    Additionally, the Commission has received inquiries about punitive 
damages which suggest that the current regulations need to be 
clarified. Consequently, the Commission clarified the regulations to 
reflect Section 222 of the Futures Trading Practices Act of 1992.

EFFECTIVE DATE: The effective date of the regulations is May 2, 1994 
and the revised regulations apply only to cases filed on and after that 
date. The Commission will consider comments from the public about the 
revisions of the regulations concerning punitive damages until the 
effective date.

ADDRESSES: Comments should be sent to Jean A. Webb, Secretary of the 
Commission, Commodity Futures Trading Commission, 2033 K Street NW., 
Washington, DC 20581.

FOR FURTHER INFORMATION CONTACT: Merry Lymn, Assistant General Counsel, 
Office of the General Counsel, Commodity Futures Trading Commission, 
2033 K Street NW., Washington, DC 20581. Telephone: (202) 254-9880.

SUPPLEMENTARY INFORMATION:

I. Background

    In reviewing the reparations proposals, the Commission carefully 
considered all of the comments and the pertinent regulatory and 
legislative history. In addition, the Commission evaluated the 
proposals in light of the National Performance Review (``NPR''), which 
among other things, requires government agencies to develop a clear 
sense of mission, inject competition into the conduct of government 
business, and to measure success by customer satisfaction. To further 
the goals of NPR, the Commission has engaged in an effort to streamline 
its bureaucracy, to cut costs, and serve the public in the best way 
possible. As a part of this effort, the Commission identified the 
reparations program as one area of review. With the promulgation of 
these rules, the Commission's purpose is to improve the rules so as to 
facilitate efficient and just deliberations of reparations complaints 
in accordance with the Commission's regulatory mission to protect the 
public and the markets from price manipulation and fraud.

A. The Class Action Proposal

1. Proposed Rules
    Section 224 of the Futures Trading Practices Act of 1992 (102 
Cong., 2d Sess., Pub. L. 102-546) authorizes an action in reparations 
to be brought by any one or more persons for and in behalf of such 
person or persons and other persons similarly situated, if the 
Commission permits such actions pursuant to a final rule issued by the 
Commission.
    The Futures Trading Practices Act does not mandate that the 
Commission adopt final rules providing for class actions unless the 
Commission decides such a rule should be permitted after considering 
``the potential impact of such actions on resources available to the 
reparations system * * * and the relative merits of bringing such 
actions in Federal court.'' Because the Commission was unsure of the 
desirability and need for class action suits in reparations it sought 
comments on the Class Action Proposal and raised several questions to 
which it requested responses.
2. Comments Received
    The Commission received six written comments in response to the 
Class Action Proposal. The commenters included futures industry 
associations, bar associations, a law firm, and a futures commission 
merchant. None of the participants favor the implementation of class 
action suits in reparations, although their reasons differ.
    Overall, the commenters agree that given the ability to pursue 
class actions in federal court, there would be no benefit to the public 
by the adoption of procedures to implement class actions before the 
Commission. While the parties agree that the Commission has more 
expertise in administering the Commodity Exchange Act than do federal 
courts, this advantage is considered insignificant compared to the 
resources and procedural advantages available in the federal courts.
    Some parties point out that the highly individualized, fact-
intensive cases in reparations are the type of case which courts have 
often refused to certify for class actions. One commenter notes that 
because class action suits settle only liability issues and individual 
hearings would still be required for each class member, judicial 
economy would not be furthered. Other participants contend that the 
procedural and administrative requirements of class action suits would 
increase both the costs to the Commission and the time necessary for 
resolution of such cases. The parties consider class actions out of 
place in the reparation forum because it was designed for quick and 
inexpensive resolution of disputes whereas class action litigation must 
be conducted with formality and strict attention to procedural issues 
and is often lengthy.
3. Disposition
    The Commission has carefully considered all the comments received 
in response to the Class Action Proposal and the issues involved. The 
Commission finds that it should not implement class action suits in 
reparations at this time because its resources would be used more 
effectively elsewhere and because the Commission cannot offer a useful 
alternative to the federal courts. Further, this result is consistent 
with the NPR because it appears that class actions would not improve 
service to futures customers and would result in unnecessary spending 
by the Commission and litigants. Accordingly, the Commission has 
decided not to adopt the proposed rules implementing class action suits 
against registered persons.

B. The Reparation Rules Proposal

1. Introduction
    In light of the passage of the Futures Trading Practices Act of 
1992 and its experience with the reparation rules since they were last 
amended in 1984, the Commission reexamined the regulations governing 
reparation proceedings and found a need for certain corrections. Some 
references are outdated and need to be deleted or updated. Commission 
practice has disclosed that certain time limits can be compressed and 
procedures streamlined. Additionally, the Commission considered raising 
jurisdictional and fee levels and whether the voluntary decisional 
procedure should be retained. The Commission's notice of proposed 
rulemaking set forth the needed corrections and revisions and requested 
public comment.
2. Comments Received
    The Commission received 14 written comments in response to the 
Reparation Rules Proposal. Commenters included futures industry 
associations, an investor protection organization, two Commission 
Administrative Law Judges, a Commission Judgment Officer, a professor 
of law, attorneys representing both claimants and registrants in 
reparation cases, and registrants which have participated in reparation 
actions as respondents. The Commission has reviewed each of these 
comments and, based upon that review, is adopting the rules as proposed 
with certain modifications.
    The Commission is also modifying its rules to clarify any questions 
arising from implementation of section 222 of the Futures Trading 
Practices Act of 1992. That section amended Section 14 of the Commodity 
Exchange Act to provide for punitive damages in a limited class of 
reparation cases.

II. Reparation Rules

A. Corrections to Regulations

    The current regulations became applicable to matters filed on or 
after April 23, 1984. Since there are no matters pending before the 
Commission which date back to April 23, 1984, the date reference is 
unnecessary and is being deleted.
    The definitional section was not in alphabetical order. The 
Commission believes that re-ordering the definitions alphabetically 
will make it easier for the user and facilitate adding or deleting 
definitions in the future. Consequently, the definitional section is 
re-ordered alphabetically.
    The Office of Government Ethics established uniform standards of 
ethical conduct for officers and employees of the Federal Government 
(57 FR 35006, Aug. 7, 1992). These were published as new government-
wide regulations superseding certain individual agency regulations. 
Consequently, the reference in Sec. 12.7 to 17 CFR 140.735-3(b)(3) is 
updated to 5 CFR 2635.101(b).
    Additionally, the current regulations refer to the ``Chief of the 
Opinions Section.'' There is no longer an ``Opinions Section.'' 
Consequently, references to the ``Chief of the Opinions Section'' are 
changed to the ``Deputy General Counsel for Opinions'' and references 
to ``Opinions Section'' have been changed to ``Office of the General 
Counsel.''
    There were no comments regarding the proposed corrections. 
Accordingly, the Commission is making the corrections as indicated in 
its prior notice. Typographical errors also have been corrected.

B. Revision of Rules

1. Response to Complaint
    Rule 12.16 affords a respondent 45 days to respond to a reparation 
complaint and permits the Director of the Office of Proceedings to 
extend the filing deadline for an additional 15 days. In providing such 
a lengthy period, the Commission had expected parties to pursue early 
settlement discussions. Unfortunately, this has not been the 
case.3
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    \3\See 41 FR 3994, 3995 (January 27, 1976).
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    In contrast to the 45 day period in the Commission rule, Rule 12(a) 
of the Federal Rules of Civil Procedure requires that an answer to a 
complaint be filed within 20 days after service of the summons and 
complaint. The Commission reviewed the relative generosity of the 
length of time for filing a response in its rules, and found that 
adjudicating reparation claims could be expedited. Thus, to further the 
express purpose of the reparation procedures ``to provide a just, 
speedy and inexpensive determination of the issues'' (Sec. 12.1(a)), 
the Commission proposed to reduce the time for filing the response to 
the complaint set forth in Sec. 12.16 to 25 days, and the additional 
time that the Director of the Office of Proceedings could extend that 
deadline to ten days. The Commission believed that this would reduce 
the amount of total time in which to file a response from a maximum of 
60 days to about half that time without infringing on the ability of 
the parties to present their cases. Moreover, this reduction also would 
shorten the total time for adjudicating claims. The Commission proposed 
to revise Sec. 12.16 to compress the filing deadlines accordingly.
    a. Comments received. Only two parties commented on this issue. 
They disagree as to whether reducing the time for response to a 
complaint afforded by Rule 12.16 would infringe upon a respondent's 
ability to defend an action.
    b. Disposition. The Commission has considered the comments and has 
determined that since defendants in federal court are required to 
respond in 20 days, affording respondents in reparations 25 days to 
respond is not onerous, especially since an extension of ten days is 
available. Consequently, for the reasons set forth in the Reparation 
Rules Proposal, and because it should improve service by compressing 
overall time for adjudicating complaints, the Commission has decided to 
adopt the time frame proposed.
2. Discovery
    Section 12.30(d) provides that all discovery notices and requests 
be served within 40 days after the Proceedings Clerk notifies the 
parties of the commencement of a proceeding. Because the Commission 
believes that the disposition of proceedings can be expedited by 
compressing the discovery period, it proposed to amend Sec. 12.30(d) to 
reduce the time for serving discovery notices and requests to 20 days 
after notification by the Proceedings Clerk of the commencement of a 
proceeding.
    a. Comments received. Only three persons expressed an opinion. One 
contends that the present rules do not cause significant delays and 
another points out that extra time is needed when respondents and their 
attorneys reside in different states and rely on the postal system. The 
parties point out that defendants, who do not know beforehand that a 
complaint will be filed, will be disadvantaged if there is too little 
time to prepare discovery requests. The third commenter argues that the 
reduction in time is too drastic and would invite an increase in 
motions for extensions of time and untimely discovery requests. It 
suggests reducing the time for serving discovery notices and requests 
to 30 days.
    b. Disposition. The Commission has reconsidered its proposal to 
reduce the time for serving discovery requests from 40 days to 20 days 
after notification by the Proceedings Clerk of the commencement of a 
proceeding and has decided to amend Rule 12.30(d) to reduce that period 
to 30 days. The Commission believes that this compromise responds to 
the needs of the public as expressed in the comments and will reduce 
the total time to adjudicate a significant number of cases without 
inviting an increase in the number of motions for extensions of time.
3. The Voluntary Decisional Procedure
    At the time it was instituted, the voluntary procedure was seen as 
meeting the desires of customers for an arbitration style forum. In the 
Reparation Rules Proposal, the Commission discussed the voluntary 
procedure at length. It pointed out the advantages of the voluntary 
procedure and compared it to the arbitration programs of NFA, the 
exchanges, and other private forums. At the same time, the Commission 
questioned the continuing need for the voluntary procedure and sought 
public comment as to its usefulness.
    The public was encouraged to focus attention on the general nature 
of the reparation program as one of the significant antifraud tools and 
customer protections created by Congress in the Commodity Exchange Act. 
The Commission also invited comment on whether the elimination of 
voluntary proceedings as an option in reparations would shift cases 
away from the public record to private decisionmakers, and if so, what 
the impact would be on the benefits and costs of these proceedings.
    a. Comments received. Virtually all of the parties addressed this 
issue: about half favor retention of the voluntary procedure and half 
are opposed. Several of the parties who favor elimination of the 
voluntary procedure also question the continuing need for the entire 
reparations program.
    Those who favor retention of the program are primarily those who 
use it. A respondent with experience in several voluntary proceedings 
asserts that proceedings before Judgment Officers compare favorably to 
private arbitrations. The parties who favor retention of the program 
contend that the voluntary procedure is vital to preserving the 
confidence of small investors who harbor doubts about the fairness of 
industry-sponsored arbitration. Others note that reparation proceedings 
in general as well as voluntary proceedings are an effective tool for 
monitoring registrants' behavior and keeping complaints about the 
industry in the public eye.
    Several parties contend that industry sponsored arbitration is fair 
and at least as efficient as the voluntary procedure. These parties 
assert that the Commission resources invested in the voluntary 
procedure could be put to better use without harming customers. They 
point to statistics which, they argue, show that complainants have as 
good a chance, if not better, of prevailing before industry arbitration 
as before the Commission. These parties also suggest that the 
Commission evaluate the continuing need for the entire reparations 
program in light of the alternative fora available to customers.
    b. Disposition. The Commission reviewed all the comments carefully 
and has decided to retain the voluntary procedure. In the Commission's 
view retention of the program is consistent with the goals of NPR. 
Members of the public who use the voluntary procedure appear pleased 
with it and are not in favor of being forced to rely on the private 
sector for redress of their complaints. Thus, the goal of customer 
satisfaction would be furthered by retention of the voluntary 
procedure.
    In addition, the Commission's Mission Statement includes oversight 
of the commodity futures industry and protection of the public and the 
markets from price manipulation and fraud. The reparation program and 
the voluntary procedure specifically address fraud committed upon 
futures customers. Consequently, retention of the program is important 
to carry out this mandate. Moreover, industry proceedings are 
confidential whereas complaints brought before the Commission and its 
decisions are on the public record. Accordingly, the Commission is able 
to influence industry behavior and thereby further its mandate to 
oversee the industry. For all of these reasons, the Commission has 
determined to retain the voluntary procedure.
4. Filing Fees
    Filing fees of $25 for the voluntary decisional procedure, $100 for 
the summary decisional procedure, and $200 for the formal decisional 
procedure were set in 1984 (49 FR 6602, February 22, 1984). In the 
Reparation Rules Proposal, the Commission proposed raising the filing 
fees for the voluntary decisional procedure to $50, for the summary 
decisional procedure to $125, and to $250 for the formal decisional 
procedure and to amend Sec. 12.25 accordingly. Additionally, the 
Commission proposed to amend Sec. 12.106 to authorize Judgment Officers 
to assess the cost of the filing fee as part of the damage award in 
voluntary proceedings.
    a. Comments received. Only a few parties addressed this proposal. 
These parties contend that the fees should be raised even higher in 
order to discourage frivolous claims. One party urges the Commission to 
adopt fees more commensurate with the cost of administering the 
reparation program.
    b. Disposition. The purpose of the reparation program is to provide 
a service to commodity futures customers and, at the same time, to 
exercise oversight of the industry. Thus, it is in the Commission's 
interest to assess fees which reimburse costs to some extent. However, 
the Commission recognizes that if fees are too high they may discourage 
customers from seeking redress with the Commission, thereby impeding 
its important oversight mission. The Commission believes that the 
proposed fee structure will address its twin goals of service and 
oversight. Accordingly, the Commission is adopting the fees as 
proposed.
5. Summary Decisional Procedure
    The summary decisional procedure was created by the Commission 
based upon the belief that parties with smaller claims should be 
entitled to a less expensive, more expeditious procedure which offers a 
greater likelihood of an early damage award and recovery. The 
Reparation Rules Proposal sets forth a brief history of the ceiling for 
damage claims eligible for summary proceedings. In short, the ceiling 
was originally $2,500, was raised to $5,000, and is now $10,000.
    Upon examination of the workload of the Office of Proceedings, the 
Commission proposed raising the ceiling from $10,000 to $30,000 in 
order to increase the efficiency of that office. In its notice, the 
Commission stated: ``Allowing Judgment Officers to hear a greater 
number of cases will free the Administrative Law Judges to concentrate 
on enforcement proceedings and cases in which the damages claimed are 
greater than $30,000. Should the Judgment Officers become overburdened, 
ALJ's can be assigned cases below $30,000.'' 58 FR 44623, 44625.
    Cases under the summary decisional procedure are usually decided 
based upon the written submissions of the parties. The current rules 
allow a Judgment Officer to order a hearing only upon motion of a 
party. The Commission proposed modifying the rules to authorize 
Judgment Officers to order oral hearings on their own motion. Hearings 
are conducted by telephone unless the parties agree to a hearing in 
Washington, DC.
    Currently, the rules require that the parties be given 60 days 
notice prior to a hearing. The proposed rules require that the Judgment 
Officers schedule the hearing with consideration for the convenience of 
the parties and allow for 15 days notice for telephonic hearings and 30 
days notice for in-person hearings. The proposed rules also make it 
clear that failure to appear at telephonic and in-person hearings or to 
provide correct telephone numbers is subject to sanctions, including 
possible default or dismissal.
    a. Comments received. Only the proposal to raise the ceiling from 
$10,000 to $30,000 inspired comments. Both Administrative Law Judges 
object. One party even suggests lowering the ceiling to $2,500.
    Some parties express the opinion that raising the ceiling will have 
a significant detrimental impact on the ability of a respondent to 
adequately defend an action. They argue that parties to a proceeding 
are entitled to the greatest procedural protection which includes an 
in-person hearing.
    On the other hand, one commenter contends that it is unlikely that 
there will be any significant negative impact on affected claimants and 
respondents because the continued availability of an oral hearing will 
safeguard against any infringement on a fair fact-finding process.
    b. Disposition. Since there were no objections to the proposal to 
improve telephonic hearings under the summary decisional procedure by 
authorizing Judgment Officers to order a telephonic hearing on their 
own motion, compressing the notice period, and providing for sanctions, 
these modifications are adopted as proposed. As explained in the 
Reparation Rules Proposal, the modifications will give the Judgment 
Officers needed flexibility and accelerate the disposition of 
proceedings. Because the new rules provide for telephonic hearings upon 
the initiation of the Judgment Officer, the Commission believes that 
summary proceedings will provide due process more efficiently than in 
the past. The Commission anticipates some cost savings from this. 
Further, telephonic hearings save money for the litigants since no one 
has to travel to the hearing site. Thus, consistent with NPR, the 
Judgment Officers are given enhanced powers, customers are better 
served, and efficiency is promoted.
    The parties which oppose raising the ceiling do not address the 
matter directly. Rather, they generally call into question the adequacy 
of the procedural protections available in a summary decisional 
proceeding. The Commission determined that telephonic hearings are 
consistent with the requirements of fundamental fairness when it 
instituted this procedure in 1984. See 49 FR 6602, 6614 (February 22, 
1984). As the Commission explained in adopting this regulation (id.):

    * * * The Commission is confident that a Judgment Officer will 
be able to assess the demeanor of witnesses from listening to their 
voices. Because the Judgment Officer can be expected to hold doubts 
about the credibility of any telephone witness whose testimony does 
not sound genuine, because he has the authority to conduct his own 
examination of such witnesses to confirm or dispel those doubts, and 
because telephone assertions can be measured against the documentary 
evidence of record, the Commission does not believe that the 
potential for the coaching of witnesses will have any effect on the 
Judgment Officer's ability to discern the truth.

    The Commission recognizes that fundamental fairness requires a 
process that safeguards the reliability of the fact-finding process. 
Telephonic hearings include representation by counsel and cross-
examination. Frequently the presiding officers clarify the factual 
record through their examination of witnesses. The Commission's 
experience has shown that telephonic hearings provide for fair and 
reliable fact-finding and an adequate and appropriate basis for a 
credibility determination. Compare, Sterling v. District of Columbia 
Department of Social Services, 513 A. 2d 253, 255 (D.C. 1986) (``[W]e 
believe that telephone hearings are a reasonable means of conserving 
fiscal and administrative resources.''). See also, Casey v. O'Bannon, 
536 F. Supp. 350, 353 (E.D. Pa. 1982) (refusing to enjoin a telephonic 
hearing program on due process grounds and holding that ``hearing 
officers can effectively judge credibility over the phone by noting 
voice responses, pauses, levels of irritation and other factors'').
    As the Commission said in 1984 (49 FR 6602, 6614 supra):

    * * * [T]he Commission believes that its Judgment Officers will 
possess the ability to comprehend the often complex factual contexts 
of commodity-related disputes, to recognize critical issues of fact 
and law in the proceeding, to evaluate oral testimony and to conduct 
oral examination, and to render a well-considered initial decision 
in the proceeding. Accordingly, the Commission believes that there 
is no basis for precluding Judgment Officers from exercising any 
functions performed by Administrative Law Judges.

    Since the Judgment Officers have demonstrated their competence to 
decide cases from the time the summary procedure was instituted, 
neither the Commission nor the parties should be deprived of the 
savings in both cost and time which will inure to their benefit by 
raising the ceiling from $10,000 to $30,000.
    Accordingly, in order to increase the efficiency of the Office of 
Proceedings, the Commission is raising the ceiling from $10,000 to 
$30,000.

C. Clarification

    Section 222 of the Futures Trading Practices Act of 1992 amended 
Section 14 of the Commodity Exchange Act to provide for punitive 
damages in reparation cases. Section 14 of the Commodity Exchange Act, 
as amended, provides that any person complaining of any violation of 
any provision of this Act or any rule, regulation, or order issued 
pursuant to this Act by any person who is registered under this Act 
may, at any time within two years after the cause of action accrues, 
apply to the Commission for an order awarding--(A) actual damages 
proximately caused by such violation. If an award of actual damages is 
made against a floor broker in connection with the execution of a 
customer order, and the futures commission merchant which selected the 
floor broker for the execution of the customer order is held to be 
responsible under section 2(a)(1) for the floor broker's violation, 
such futures commission merchant may be required to satisfy such award; 
and (B) 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, punitive or exemplary damages equal to no more than 
two times the amount of such actual damages. If an award of punitive or 
exemplary damages is made against a floor broker in connection with the 
execution of a customer order, and the futures commission merchant 
which selected the floor broker for the execution of the customer order 
is held to be responsible under section 2(a)(1) for the floor broker's 
violation, such futures commission merchant may be required to satisfy 
such award if the floor broker fails to do so, except that such 
requirement shall apply to the futures commission merchant only if it 
willfully and intentionally selected the floor broker with the intent 
to assist or facilitate the floor broker's violation.
    On its face, this statutory provision appears to be self-executing. 
However, some questions have arisen regarding its implementation. 
Consequently, the Commission has determined that it should clarify its 
regulations in order to notify the public as to how it intends to 
administer this provision.4
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    \4\In this connection, the Commission wishes to make clear that 
it does not view this provision as requiring actual execution of an 
order before punitive damages may be awarded.
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    The first question is whether punitive damages will affect the type 
of proceeding accorded under the regulations. For example, in a case 
with claimed actual damages of $20,000 and claimed punitive damages of 
$40,000, which level of proceeding would be instituted? The Commission 
has determined that the governing factor in all cases should be total 
damages claimed; therefore, in the example above, the case would be 
assigned to the formal decisional procedure. Sections 12.2, 12.13, 
12.18, 12.25, 12.204, 12.210, and 12.314 have been revised accordingly.
    Second, in order to put a claimant on notice as to the 
prerequisites for such an award, and assure that respondents have 
requisite notice to defend claims for punitive damages, the Commission 
has revised sections 12.2 and 12.13. 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. Claimants will thus be on notice as to the requirements; 
respondents will have requisite notice to defend claims for punitive 
damages.
    The Administrative Procedure Act, 5 U.S.C. 553(b) requires in most 
instances that a notice of proposed rulemaking be published in the 
Federal Register and that opportunity for comment be provided when an 
agency promulgates new regulations or changes to existing regulations. 
Section 553(b) sets forth an exception, however, for rules of agency 
organization, procedure, or practice. The Commission has determined 
that these revisions to its reparation rules to clarify its 
interpretation of the punitive damage provision of the Act constitute 
rules of agency practice or procedure and, accordingly, that notice and 
comment procedures are not required.

III. Related Matters

Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq. 
(1988), requires that agencies, in adopting rules, consider the impact 
of those rules on small businesses. The Commission has previously 
determined that part 12 reparation rules are not subject to the 
provisions of RFA because they relate solely to agency organization, 
procedure, and practice.5 Nevertheless, because they do not impose 
regulatory obligations on commodity professionals and small commodity 
firms, and because the corrections and amendments will expedite and 
improve the reparation procedures, the Commission does not expect the 
rule to have a significant economic impact on a substantial number of 
small business entities.
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    \5\49 FR 6602, 6621 (February 22, 1984).
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    Accordingly, pursuant to Rule 3(a) of the RFA (5 U.S.C. 605(b)), 
the Acting Chairman, on behalf of the Commission, certifies that this 
rule will not have a significant economic impact on a substantial 
number of small entities. The Commission received no comments 
concerning its determination in this regard.

List of Subjects in 17 CFR Part 12

    Administrative practice and procedure, Commodity exchanges, 
Commodity futures, Reparations

PART 12--RULES RELATING TO REPARATIONS

    Part 12 of chapter I of title 17 of the Code of Federal Regulations 
is amended as follows:
    1. The authority citation for part 12 is revised to read as 
follows:

    Authority: 7 U.S.C. 4a(j), 12(a)(5), and 18.


Sec. 12.1  [Corrected]

    2. In the first sentence of Sec. 12.1(c) the comma after 
``complaints'' is removed; the comma after ``thereto'' is removed and a 
period is added in its place. The rest of the paragraph is removed.
    3. Section 12.2 is revised to read as follows:


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 
Secs. 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 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.


Sec. 12.6  [Corrected]

    4. In Sec. 12.6(b) the word ``the'' is added between ``expiration 
of'' and ``time''.


Sec. 12.7  [Corrected]

    5. In Sec. 12.7(b) introductory text, the phrase ``communication 
prohibited by paragraph (b)'' is revised to read ``communication 
prohibited by paragraph (a)''.
    6. In Sec. 12.7(c)(3) the reference to ``17 CFR 140.735-3(b)(3).'' 
is revised to read ``5 CFR 2635.101(b).''.


Sec. 12.10  [Corrected]

    7. In Sec. 12.10(a)(1) add ``a'' between ``course of'' and 
``proceeding''.
    8. In Sec. 12.10(a)(3) the phrase ``Chief of the Opinions Section'' 
is revised to read ``Deputy General Counsel for Opinions''.


Sec. 12.13  [Corrected and Amended]

    9. In Sec. 12.13(a) the phrase ``(as defined in Sec. 12.2(y))'' is 
revised to read ``(as defined in Sec. 12.2)''.
    10. Sec. 12.13(b)(1)(v) and (viii) are revised to read as follows:


Sec. 12.13  Complaint; election of procedure.

* * * * *
    (b) * * *
    (1) * * *
    (v) The amount of damages the complainant claims to have suffered 
and 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;
* * * * *
    (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
* * * * *
    11. In Sec. 12.13(b)(2) the phrase ``believes that'' is revised to 
read ``believes the''.
    12. Sec. 12.16 is revised to read as follows:


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.
    13. Sec. 12.18(a)(7) is revised to read as follows:


Sec. 12.18  Answer; election of procedure.

* * * * *
    (a) * * *
    (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;
* * * * *


Sec. 12.25  [Amended]

    14. In Sec. 12.25(a)(1) ``$25.00;'' is revised to read ``$50.00;''.
    15. In Sec. 12.25(a)(2) ``$10,000,'' is revised to read 
``$30,000,'' and ``$100.00.'' is revised to read ``$125.00.''.
    16. In Sec. 12.25(a)(3) ``$10,000,'' is revised to read 
``$30,000,'' and ``$200.00.'' is revised to read ``$250.00.''
    17. In Sec. 12.25(b)(1) ``$10,000'' is revised to read ``$30,000''.
    18. In Sec. 12.25(b)(2) ``$10,000'' is revised to read ``$30,000'', 
and ``$175.00.'' is revised to read ``$200.00.''.
    19. In Sec. 12.25(c) ``$175.00'' is revised to read ``$200.00''.


Sec. 12.26  [Amended]

    20. In Sec. 12.26(a) ``within 60 days thereafter.'' is revised to 
read ``within 50 days thereafter.''.
    21. In Sec. 12.26(b) ``$10,000,'' is revised to read ``$30,000,'', 
and ``within 60 days thereafter.'' is revised to read ``within 50 days 
thereafter.''.
    22. In Sec. 12.26(c) ``$10,000,'' is revised to read ``$30,000'', 
``within 60 days thereafter.'' is revised to read ``within 50 days 
thereafter.'', and the words ``forward the pleadings and materials of 
record to a Proceedings Officer for discovery purposes, and'' are 
removed.


Sec. 12.30  [Amended]

    23. In Sec. 12.30(d) the phrase ``within forty (40) days (and all 
discovery shall be completed within sixty (60) days'' is revised to 
read ``within 30 days (and all discovery shall be completed within 50 
days)'' and the last sentence is removed.


Sec. 12.106  [Amended]

    24. In Sec. 12.106(c) the phrase ``(other than costs assessed as a 
sanction for abuse of discovery)'' is revised to read ``(other than the 
filing fee and costs assessed as a sanction for abuse of discovery)''.
    25. Section 12.201(g) is revised to read as follows:


Sec. 12.201  Functions and responsibilities of the Judgment Officer.

* * * * *
    (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;
* * * * *


Sec. 12.204  [Amended]

    26. In Sec. 12.204(a) ``$10,000'' is revised to read ``$30,000''.
    27. In Sec. 12.204(b) ``$10,000'' is revised to read ``$30,000''.
    28. Section 12.208(b) is revised to read as follows:


Sec. 12.208  Submissions of proof.

* * * * *
    (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, D.C., under 
the circumstances set forth in Sec. 12.209(c).
    29. Sec. 12.209 is revised to read as follows:


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, D.C., 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 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, D.C. 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, D.C. 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, D.C., 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, D.C. 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, D.C., 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.


Sec. 12.210  [Corrected and Amended]

    30. In Sec. 12.210(a) the phrase ``pay reparation award'' is 
revised to read ``pay a reparation award''.
    31. In Sec. 12.210(b)(4) ``respondent's violations, which'' is 
revised to read ``respondent's violations, the amount of punitive 
damages, if any, for which respondent is liable to complainant, which'' 
and ``$10,000,'' is revised to read ``$30,000,'' both times that it 
appears.


Sec. 12.314  [Amended]

    32. In Sec. 12.314(b)(4) ``violations, and the amount,'' is revised 
to read ``violations, the amount of punitive damages if warranted, and 
the amount,''


Sec. 12.315  [Amended]

    33. In the heading of Sec. 12.315 ``$10,000.'' is revised to read 
``$30.000.''.
    34. In Sec. 12.315 ``$10,000,'' is revised to read ``$30,000,'' 
both times that it appears.


Sec. 12.404  [Corrected]

    35. In Sec. 12.404 the phrase ``of proceeding on appeal of review 
before'' is revised to read ``of proceedings on appeal before''.


Sec. 12.408  [Corrected]

    36. The heading of Sec. 12.408 is revised to read ``Delegation of 
authority to the Deputy General Counsel for Opinions.''
    37. In the first sentence of Sec. 12.408 revise the phrase ``Chief 
of the Opinions Section'' to read ``Deputy General Counsel for 
Opinions''.
    38. In Sec. 12.408(b) revise the phrase ``Chief of the Opinions 
Section'' to read ``Deputy General Counsel for Opinions''.
    Issued by Order of the Commission.

    Dated: February 23, 1994.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 94-4574 Filed 2-28-94; 8:45 am]
BILLING CODE 6351-01-P