[Federal Register Volume 59, Number 146 (Monday, August 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15630]


[[Page Unknown]]

[Federal Register: August 1, 1994]


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COMMODITY FUTURES TRADING COMMISSION

 

Adverse Registration Actions by National Futures Association With 
Respect to Floor Brokers, Floor Traders, and Applicants for 
Registration in Either Category

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice and Order.

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SUMMARY: The Commodity Futures Trading Commission (Commission) is 
authorizing National Futures Association (NFA) to deny, condition, 
suspend, modify, restrict or revoke the registration of any floor 
broker (FB), floor trader (FT), or an applicant for registration in 
either category. The Commission has previously authorized NFA to 
perform various functions with respect to processing registration 
records of FBs, FTs and applicants therefor, including, among other 
things, granting such registrations where appropriate and serving as 
the official custodian of those Commission records. This Order does not 
authorize NFA to accept or act upon requests for exemption or to render 
``no-action'' opinions with respect to applicable registration 
requirements. This Order generally will conform NFA's authority 
regarding the FB and FT registration categories to the authority 
delegated by the Commission to NFA concerning the other categories of 
registration under the Commodity Exchange Act (Act).1

    \1\7 U.S.C. 1 et seq. (1988 & Supp. IV 1992).
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EFFECTIVE DATE: August 1, 1994.

FOR FURTHER INFORMATION CONTACT: Lawrence B. Patent, Associate Chief 
Counsel, or Robert P. Shiner, Assistant Director, Division of Trading 
and Markets, Commodity Futures Trading Commission, 2033 K Street NW., 
Washington, DC 20581. Telephone: (202) 254-8955 or 254-3688, 
respectively.

SUPPLEMENTARY INFORMATION:

Introduction

    The Commission has previously issued Orders authorizing NFA to 
perform registration processing functions with respect to FBs and FTs. 
These functions have included: (1) processing and, where appropriate, 
granting applications for registration under the Act; (2) issuing and 
terminating, where appropriate, temporary licenses; (3) processing the 
triennial review of registration information, periodic updates, 
terminations of trading privileges and requests for withdrawal from 
registration; and (4) establishing and maintaining systems of records 
regarding FBs and FTs and serving as the official custodian of those 
Commission records.2 However, the Commission has not previously 
authorized NFA to take adverse actions against FBs, FTs or persons 
applying for registration in either category, or to accept or act upon 
requests for exemption or to render ``no-action'' opinions with respect 
to applicable registration requirements.3 By the Order below 
issued on this date, the Commission is authorizing NFA to assume the 
performance of additional registration functions on behalf of the 
Commission, specifically, to deny, condition, suspend, modify, restrict 
or revoke the registration of any FB, FT or applicant for registration 
in either category.4 However, the Commission will continue to 
handle any matter that has already been referred to it by NFA.
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    \2\51 FR 25929 (July 7, 1986); 51 FR 34490 (September 29, 1986); 
58 FR 19657 (April 15, 1993).
    \3\When the Commission issued its most recent delegation Order, 
it noted that:
    Certain commenters on the Commission's proposed rules concerning 
FT registration suggested that authority to take adverse action 
against FTs and FBs should be delegated to NFA. The Commission will 
take the matter under advisement and may consider authorizing NFA to 
perform such functions at a subsequent date when it has more 
experience with the FT registration process. 58 FR 19657, 19658 
(footnote omitted).
    \4\See Sections 8a(2), 8a(3), 8a(4) and 8a(11) of the Act, 7 
U.S.C. 12a(2), 12a(3), 12a(4) and 12a(11) (1988 & Supp. IV 1992).
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    The Commission's order also provides that, until the Commission 
orders otherwise, with respect to an application for registration as an 
FB or an FT that NFA previously would have forwarded to the Commission 
for review of disciplinary history, if NFA determines that registration 
should be granted in such a case, either with or without conditions, 
NFA shall transmit the file to the Commission and stay the granting of 
registration until the Commission has had an opportunity to object to 
such granting of registration.\5\
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    \5\See 58 FR 19657, 19659. The same treatment will apply in the 
case of a registered FB or FT with new disciplinary history where 
NFA determines to maintain registration, either with or without 
restrictions. NFA need not, however, forward to the Commission any 
matter related to an FB, FT or applicant for registration in either 
category where the only ``yes'' answer to a disciplinary history 
question relates to a single arrest where there was no subsequent 
conviction, guilty plea or plea of nolo contendere, or a single 
misdemeanor conviction based on conduct unrelated to financial 
market activity that predates the application for registration by at 
least five years, provided such matter is disclosed on the 
registration application or any update thereto. If a person 
willfully makes any materially false or misleading statement or 
omits to state any material fact in his registration application or 
any update thereto, that is a separate ground for statutory 
disqualification from registration. Sections 8a(2)(G) and 8a(3)(G) 
of the Act, 7 U.S.C. 12a(2)(G) and 12a(3)(G) (1988 & Supp. IV 1992).
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    Further, this Order does not authorize NFA to accept or act upon 
requests for exemption or to render ``no-action'' opinions with respect 
to applicable registration requirements. This Order will conform NFA's 
authority concerning the FB and FT registration categories to the 
authority delegated by the Commission to NFA concerning the other 
categories of registration under the Act, except with respect to the 
temporary requirement for forwarding certain matters to the Commission 
referred to above.\6\
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    \6\The Commission has previously authorized NFA to perform 
registration processing functions, and to take adverse registration 
actions, with respect to futures commission merchants, introducing 
brokers, commodity pool operators, commodity trading advisors, 
leverage transactions merchants and associated persons of such 
entities, as well as applicants for registration in any of the 
aforementioned categories. See 48 FR 15940 (April 13, 1983); 48 FR 
35158 (August 3, 1983); 48 FR 51809 (November 14, 1983); 49 FR 8226 
(March 5, 1984); 49 FR 39593 (October 9, 1984); 50 FR 34885 (August 
28, 1985); 54 FR 19594 (May 8, 1989); and 54 FR 41133 (October 5, 
1989). In performing Commission registration functions, NFA is 
required to monitor compliance with the conditions and restrictions 
imposed on conditioned and restricted registrants.
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    The Commission further notes that in enacting Section 227 of the 
Futures Trading Practices Act of 1992, Congress added Section 8a(11) to 
the Act, 7 U.S.C. 12a(11) (Supp. IV 1992), which provided rulemaking 
authority for the Commission to suspend the registration of any person 
charged with a felony if the Commission determines 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. The Commission adopted Rule 3.56 to implement this 
authority at the same time that it adopted rules to govern registration 
of FTs. 58 FR 19575, 19587-19588, 19595-19596 (April 15, 1993). The 
Commission expects that NFA will promptly notify the Commission when 
NFA becomes aware that any registrant has been charged with a felony.

United States of America Before the Commodity Futures Trading 
Commission Order Authorizing the Performance of Registration Processing 
Functions

I. Authority and Background

    Section 8a(10) of the Act (7 U.S.C. 12a(10) (1988 and Supp. IV 
1992)) provides that the Commission may authorize any person to perform 
any portion of the registration functions under the Act, 
notwithstanding any other provision of law, in accordance with rules 
adopted by such person and submitted to the Commission for approval or, 
if applicable, for review pursuant to Section 17(j) of the Act and 
subject to the provisions of the Act applicable to registrations 
granted by the Commission. Section 17(o)(2) of the Act provides that 
the Commission may authorize NFA, in performing Commission registration 
functions, to deny, condition, suspend, restrict or revoke any 
registration, subject to Commission review.7
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    \7\7 U.S.C. 21(o)(2) (1988).
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    NFA submitted under cover of a letter dated March 8, 1994 
amendments to its bylaws and rules to govern adverse actions against 
FTs, FBs and applicants for registration in either category. These 
amendments reflect actions taken by NFA's Board at meetings on May 20, 
1993 and February 24, 1994. NFA's rule amendments establish procedures 
for conducting adverse registration proceedings with respect to the FB 
and FT registration categories that closely track the Commission's Part 
3 rules in this regard. NFA's amended rules further provide that NFA's 
Membership Committee will conduct adverse proceedings regarding FB and 
FT registrations and applicants for registration in either category and 
that a Subcommittee conducting such a proceeding will consist of at 
least three persons, the majority of whom are members of the Membership 
Committee and the remainder of whom are FBs or FTs drawn from a list 
approved by NFA's Board. By letter dated June 17, 1994, NFA has 
indicated that, in composing such designated Subcommittees, it will 
utilize its best efforts to avoid having as Subcommittee members FBs 
and FTs who have trading privileges at the same exchange as the subject 
of the proceeding.8
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    \8\Letter from Michael J. Crowley, Associate General Counsel, 
NFA, to Lawrence B. Patent, Associate Chief Counsel, Division of 
Trading and Markets.
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    NFA has indicated that in carrying out the function of taking 
adverse registration action involving the FB and FT registration 
categories, it will be bound by restrictions in Commission rules 
regarding who may act as a supervisor. Therefore, if NFA determines to 
condition or restrict the registration of an FB or an FT, someone 
eligible to do so under Commission rules must sign a Supplemental 
Sponsor Certification Statement (SSCS) for the FB or FT and supervise 
compliance with any conditions or restrictions that may be imposed. In 
the case of an FB, the SSCS must be signed by his employer or, if he 
has no employer, by another floor broker;9 if an FT is involved, 
the SSCS must be 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 on behalf of each contract market that 
has granted trading privileges.10
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    \9\If the FB has no employer and another FB signs the SSCS, the 
Commission has required that the FB subject to conditions or 
restrictions receive customer orders only from the person who signed 
the SSCS or agents of that person. See In the Matter of John V. 
Piccolo, CFTC Docket No. SD-93-8 (July 20, 1993).
    \1\0Such a supervising employer or FB, supervising registrant or 
principal may not be subject to a pending adjudicatory proceeding 
under the Act or barred from service on self-regulatory organization 
governing boards or committees based on disciplinary history in 
accordance with Commission Rule 1.63, 17 CFR 1.63 (1993). See 
Commission Rule 3.60(b)(2)(i), 17 CFR Sec. 3.60(b)(2)(i) (1993); NFA 
letter dated June 17, 1994.
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    Upon consideration, the Commission has determined to authorize NFA, 
effective August 1, 1994, to deny, condition, suspend, modify, restrict 
or revoke the registration of any FB, FT or an applicant for 
registration in either category in accordance with the standards 
established by the Act and rules promulgated thereunder.11 
However, the Commission will continue to handle any matter that has 
already been referred to it by NFA. The Commission is also authorizing 
NFA to perform records custodianship functions with respect to such 
adverse registration actions.12 The Commission has separately 
approved on this date amendments to NFA Bylaws 305 and 708 and NFA 
Registration Rules 101, 201, 203, 501, 502, and 504-510 to authorize 
implementation of these grants of authority.
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    \1\1In conjunction with this authorization to take adverse 
action, the Commission is also directing that, until the Commission 
orders otherwise, with respect to the file of an FB, an FT or an 
applicant for registration in either category that NFA previously 
would have forwarded to the Commission for review of disciplinary 
history, if NFA determines that registration should be maintained or 
granted in such a case, either with or without restrictions or 
conditions, NFA shall transmit the file to the Commission and stay 
the maintenance or granting of registration until the Commission has 
had an opportunity to object to such maintenance or granting of 
registration. NFA need not, however, forward to the Commission any 
matter related to an FB, FT or applicant for registration in either 
category where the only ``yes'' answer to a disciplinary history 
question relates to a single arrest where there was no subsequent 
conviction, guilty plea or plea of nolo contendere, or a single 
misdemeanor conviction based on conduct unrelated to financial 
market activity that predates the application for registration by at 
least five years, provided such matter is disclosed on the 
registration application or any update thereto. See note 5, supra.
    \1\2In this connection, in a separate notice published elsewhere 
today in the Federal Register, the Commission is publishing a Notice 
under the Privacy Act of 1974 of modified descriptions of systems of 
records to incorporate records applicable to adverse registration 
actions against FBs, FTs or applicants for registration in either 
category.
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    By prior orders, the Commission has authorized NFA to maintain 
various other Commission registration records and certified NFA as the 
official custodian of such records for this agency.13 The 
Commission has now determined, in accordance with its authority under 
Section 8a(10) of the Act, to authorize NFA to maintain and serve as 
official custodian of the Commission's registration records with 
respect to adverse actions against FBs, FTs, and applicants for 
registration in either category from this time forward. This 
determination is based upon NFA's representations regarding the 
implementation of rules and procedures for maintaining and safeguarding 
all such records, as well as the need to facilitate NFA's assumption of 
responsibility for taking adverse registration action against FBs, FTs, 
and applicants for registration in either category.
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    \1\349 FR 39593; 50 FR 34885; 51 FR 25929; 54 FR 19594; 54 FR 
41133; 58 FR 19657.
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    In maintaining the Commission's registration records pursuant to 
this Order, NFA shall be subject to all other requirements and 
obligations imposed upon it by the Commission in existing or future 
Orders or regulations.14 In this regard, NFA shall also implement 
such additional procedures (or modify existing procedures) as are 
necessary and acceptable to the Commission to ensure the security and 
integrity of the FB, FT or applicant records in NFA's custody; to 
facilitate prompt access to those records by the Commission and its 
staff, particularly as described in other Commission Orders or rules; 
to facilitate disclosure of public or nonpublic information in those 
records when permitted by Commission Orders or rules and to keep logs 
as required by the Commission concerning disclosure of nonpublic 
information; and otherwise to safeguard the confidentiality of the 
records.
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    \1\4See, e.g., 49 FR 39593, 39595-97; 50 FR 34885, 34887.
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II. Conclusion and Order

    The Commission has determined, in accordance with the provisions of 
Section 8a(10) of the Act, to authorize NFA, effective August 1, 1994, 
to perform the following registration functions:
    (1) To deny, condition, suspend, modify, restrict or revoke 
registration under the Commodity Exchange Act as a floor broker, floor 
trader or applicant for registration in either category;
    (2) To establish and maintain a system of records regarding such 
adverse actions involving floor brokers, floor traders and applicants 
for registration in either category, and to serve as the official 
custodian of those Commission records.

NFA shall perform these functions in accordance with the standards 
established by the Act and the regulations promulgated thereunder.
    These determinations are based upon the Congressional intent 
expressed in Sections 8a(10) and 17(o) of the Act that the Commission 
be allowed to authorize NFA to perform any portion of the Commission's 
registration responsibilities under the Act for purposes of carrying 
out these responsibilities in the most efficient and cost-effective 
manner, and NFA's representations concerning standards and procedures 
to be followed in administering these functions.
    This Order does not, however, authorize NFA to accept or act upon 
requests for exemption from registration or to render ``no-action'' 
opinions or interpretations with respect to applicable registration 
requirements.
    Nothing in this Order or in Sections 8a(10) or 17 of the Act shall 
affect the Commission's authority to review the granting of a 
registration application by NFA in the performance of Commission 
registration functions, or to review any adverse registration action 
taken by NFA. See also Sections 17(o)(3) and (4) of the Act, 7 U.S.C. 
21(o)(3) and (4) (1988 and Supp. IV 1992), and 17 CFR Part 171.

    Issued in Washington, D.C. on July 26, 1994 by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 94-15630 Filed 7-29-94; 8:45 am]
BILLING CODE 6351-01-P