[Federal Register Volume 59, Number 114 (Wednesday, June 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14478]


[[Page Unknown]]

[Federal Register: June 15, 1994]


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COMMODITY FUTURES TRADING COMMISSION
 

The National Futures Association's Proposed Restriction on the 
Use of Hypothetical Trading Results in Promotional Materials

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed registered futures association rule change.

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SUMMARY: The National Futures Association (``NFA'') has submitted to 
the Commodity Futures Trading Commission (``Commission'') for its 
approval, pursuant to Section 17(j) of the Commodity Exchange Act 
(``Act''), a proposed amendment to NFA Compliance Rule 2-29. The 
proposal would establish various restrictions on the usage of 
hypothetical trading results in promotional materials. The Commission 
has determined that publication of the NFA's proposal is in the public 
interest, will assist the Commission in considering the views of 
interested persons and is consistent with the purposes of the Act.

DATES: Comments must be received by July 15, 1994.

ADDRESSES: Interested persons should submit their views and comments to 
Jean A. Webb, Secretary, Commodity Futures Trading Commission, 2033 K 
Street, NW., Washington, DC 20581. Telephone: (202) 254-6314.

FOR FURTHER INFORMATION CONTACT: David P. Van Wagner, Special Counsel, 
Division of Trading and Markets, Commodity Futures Trading Commission, 
2033 K Street, NW., Washington, DC 20581. Telephone: (202) 254-8955.

SUPPLEMENTARY INFORMATION:

I. Introduction

    By letter dated March 15, 1994, and received by the Commission on 
March 17, 1994, the NFA submitted to the Commission for its approval, 
pursuant to Section 17(j) of the Act, a proposed amendment to NFA 
Compliance Rule 2-29. NFA's submission indicated that it intended to 
make the proposed amendment effective upon receipt of notice of 
Commission approval.

II. Description of NFA's Proposal

    NFA's proposed amendment to Compliance Rule 2-29 would establish 
various requirements on the use of hypothetical trading results in 
promotional materials. NFA members often use hypothetical trading 
results in their promotional materials to describe how their trading 
programs would have performed in the past based upon historical price 
movements. Current NFA Compliance Rule 2-29(b)(4) specifies that 
members who use hypothetical trading results in their promotional 
material must include the disclaimer language of Commission Regulation 
4.41(b)(1),1 NFA's Compliance Rules do not otherwise establish any 
specific content requirements or restrictions with respect to 
hypothetical results.
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    \1\Commission Regulation 4.41(b)(1)'s required disclaimer 
states: Hypothetical or simulated performance results have certain 
inherent limitations. Unlike an actual performance record, simulated 
results do not represent actual trading. Also, since the trades have 
not actually been executed, the results may have under-or-over 
compensated for the impact, if any, of certain market factors, such 
as lack of liquidity. Simulated 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 those shown.
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    The NFA contends that hypothetical trading results in promotional 
material can be misleading to customers and in many cases a vehicle for 
customer abuse. Accordingly, the NFA has proposed to amend its 
Compliance Rule 2-29 to establish various restrictions on the use of 
such hypothetical results.
    Under the proposal, NFA members who referred to hypothetical 
trading results in their promotional materials would be required to 
include comparable information regarding their actual trading results. 
Advertising members with over a year's experience directing customer 
accounts would have to include the prior performance results for all 
such accounts over the past five years or the entire performance 
history, whichever was less. If a member using hypothetical results in 
his promotional material had less than one year's experience directing 
customer accounts, the advertising member would have to include, in 
addition to the entire performance history for customer accounts, the 
past performance results of his proprietary trading over the prior five 
years or the entire performance history, whichever was less.
    Under the NFA's proposal, amended Compliance Rule 2-29 would 
continue to require that promotional material containing hypothetical 
trading results include the disclaimer language required by Commission 
Regulation 4.41(b)(1). The proposal's restrictions would not apply to 
promotional material which was directed exclusively to persons who were 
Qualified Eligible Participants under Commission Regulation 4.7.
    The NFA believes that its proposed amendment would ensure that 
customers will be provided with practical information with which to 
assess hypothetical trading results as customers would be able to take 
into account a member's actual trading results when evaluating a 
member's preferred hypothetical results.

III. Request for Comments

    The Commission requests public comment on NFA's proposed amendment 
to Compliance Rule 2-29. Copies of NFA's proposed rule amendment will 
be available for inspection at the Office of the Secretariat, Commodity 
Futures Trading Commission, 2033 K Street, NW., Washington, DC 20581, 
except to the extent that the proposal may be entitled to confidential 
treatment as set forth in 17 C.F.R. 145.5 and 145.9. Copies also may be 
obtained through the Office of the Secretariat at the above address or 
by telephoning (202) 254-6314.
    Any person interested in submitting written data, views or 
arguments on NFA's proposed rule amendment or with respect to other 
materials submitted by the NFA in support of the proposal should send 
such comments to Jean A. Webb, Secretary, Commodity Futures Trading 
Commission, 2033 K Street, NW., Washington, DC 20581, by the specified 
date.

    Issued in Washington, DC on June 9, 1994.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 94-14478 Filed 6-14-94; 8:45 am]
Billing Code 6351-01-P