[Federal Register Volume 60, Number 239 (Wednesday, December 13, 1995)]
[Rules and Regulations]
[Pages 63907-63913]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30358]



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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 3


Ethics Training for Registrants

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: On July 22, 1994, the Commodity Futures Trading Commission 
(Commission) published for comment proposed amendments to Rule 3.34, 
which governs ethics training for Commission registrants. 59 FR 37446. 
Based upon its review of the comments received and its own 
reconsideration of the proposed amendments, the Commission has 
determined to adopt the rule amendments as proposed, with certain 
modifications discussed herein.

EFFECTIVE DATE: These rule amendments will become effective January 12, 
1996. However, with respect to existing ethics training providers, the 
provision of Sec. 3.34(b)(5) relating to promotional and instructional 
materials, including videotape and computer presentations, will become 
applicable March 12, 1996.

FOR FURTHER INFORMATION CONTACT: Lawrence B. Patent, Associate Chief 
Counsel, or Myra R. Silberstein, 

[[Page 63908]]
Attorney-Advisor, Division of Trading and Markets, Commodity Futures 
Trading Commission, 1155 21st Street, N.W., Washington, D.C. 20581. 
Telephone (202) 418-5450.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 210 of the Futures Trading Practices Act of 1992 added a 
new paragraph (b) to Section 4p of the Commodity Exchange Act (Act), 
mandating ethics training for all persons registered under the Act.\1\ 
On April 15, 1993, the Commission adopted Rule 3.34 to implement this 
Congressional mandate.\2\ By Federal Register release issued on 
September 13, 1993, the Commission provided further guidance with 
respect to the contents of applications to be submitted by persons 
seeking to provide ethics training to registrants.\3\

    \1\ This provision of the Act is codified at 7 U.S.C. 
6p(b)(1994) and states that:
    The Commission shall issue regulations to require new 
registrants, within 6 months after receiving such registration, to 
attend a training session, and all other registrants to attend 
periodic training sessions, to ensure that registrants understand 
their responsibilities to the public under this Act, including 
responsibilities to observe just and equitable principles of trade, 
any rule or regulation of the Commission, any rule of any 
appropriate contract market, registered futures association, or 
other self-regulatory organization, or any other applicable Federal 
or state law, rule or regulation.
    \2\ 58 FR 19575, 19584-19587, 19593-19594 (April 15, 1993).
    \3\ 58 FR 47890 (September 13, 1993). The Commission has 
reviewed applications from more than twenty-five persons seeking to 
provide ethics training to registrants.
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    Proposed amendments to Rule 3.34, published in July 1994, would: 
(1) require a certification by persons seeking to provide ethics 
training that they would not be disqualified from registration under 
the Act; (2) limit certain representations that ethics training 
providers may make concerning their status as such; (3) facilitate the 
use of videotape and electronic presentations; and (4) enhance the 
ability of a registered futures association to track the ethics 
training attendance dates of registrants. The Commission received four 
comment letters on the proposed rule amendments. The commenters 
included a registered futures association, a computer-based ethics 
training provider and two other ethics training providers. The 
commenters generally supported, or acknowledged their understanding of, 
the objectives of the proposed rule amendments. Some commenters, 
however, criticized the scope of the proposed rule amendments. Further, 
one of the ethics training providers who submitted comments requested 
additional time to update its program materials to comply with the 
changes that would be required by the rule amendments. Comments 
addressed to specific provisions of the proposed rule amendments and 
the Commission's resolution of the issues raised therein are discussed 
below in the context of the relevant rule provision.
    Based upon its review of the comments received on the proposed 
amendments and in light of its experience in administering this 
program, the Commission has adopted amendments to Rule 3.34 regarding 
ethics training providers. The provisions of Rule 3.34 relating to the 
topics to be covered in ethics training and the minimum requirements 
for attendance at such training remain unchanged. The amendments 
adopted herein will, subject to proposed amendments to Rule 3.34 
published in this edition of the Federal Register, permit a person to 
be included by a registered futures association on a list of authorized 
providers of such training upon filing of a notice with a registered 
futures association certifying that: (1) he is not subject to a 
statutory disqualification from registration under the Act; \4\ (2) 
barred from service on self-regulatory organization (SRO) governing 
boards or committees pursuant to Commission Rule 1.63 or SRO rules; or 
(3) subject to a pending proceeding with respect to possible violations 
of the Act or rules or orders promulgated thereunder. These amendments 
will also prohibit certain representations with respect to a person's 
status as an ethics training provider; allow wider use of ethics 
training presentations by videotape and computer; and require ethics 
training providers to furnish records of attendees to a registered 
futures association upon request.

    \4\ Sections 8a (2) and (3) of the Act, 7 U.S.C. 12a (2) and (3) 
(1994).
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    By separate release published in this edition of the Federal 
Register, the Commission is proposing several additional amendments to 
Rule 3.34 to address certain further issues relating to ethics training 
providers. These amendments would require ethics training providers 
other than SROs: (1) To satisfy the same proficiency testing 
requirements as registrants; and (2) have at least three years of 
pedagogical or relevant industry experience.

II. Amendments to Commission Rule 3.34

A. Required Certifications by Applicants to Become Ethics Training 
Providers

    Currently, three categories of persons may provide ethics training 
to Commission registrants pursuant to Rule 3.34: (1) SROs; (2) entities 
accredited to conduct continuing education programs by a state 
professional licensing authority in the fields of law, finance, 
accounting or economics; or (3) any other person whose program ``is 
approved by the Commission for this purpose.'' \5\ The amendments to 
Rule 3.34 proposed in July 1994 would have continued to permit SROs and 
state-accredited continuing education providers to act as ethics 
training providers without compliance with any additional requirements. 
With respect to persons other than SROs or state-accredited entities, 
the proposed amendments would permit such persons to provide ethics 
training upon filing of a notice with a registered futures association 
certifying that the person, all principals thereof (as defined in 
Commission Rule 3.1(a)) \6\ and any individuals who, on behalf of such 
person, conduct in-person ethics training sessions or prepare ethics 
training videotape or electronic presentations,\7\ are not subject to: 
(1) any statutory disqualification from registration under Sections 
8a(2) or (3) of the Act; \8\ (2) a bar from service on SRO governing 
boards or committees arising from relevant disciplinary history, as 
specified in Commission Rule 1.63 \9\ or any SRO rule adopted 
thereunder; or (3) a pending adjudicatory proceeding under Sections 
6(c), 6(d), 6c, 6d, 8a or 9 of the Act or 

[[Page 63909]]
Commission Rules 3.55, 3.56 or 3.60.\10\ This certification procedure 
will replace the existing application procedure for entities that are 
not SROs or state-accredited providers of continuing education in the 
fields of law, finance, accounting or economics.

    \5\ 17 CFR 3.34(b)(3)(1995).
    \6\ 17 CFR 3.1(a)(1995).
    \7\ Thus, if an entity organizes a corporation to offer ethics 
training and hires an instructor to conduct the lectures, the notice 
must include within its coverage the entity, the corporation and the 
instructor. Such notice must also be amended as necessary to cover 
any additional instructors required to handle the number of persons 
enrolling in the ethics training program.
    \8\ 7 U.S.C. 12a(2) or (3)(1994). The Act specifies several 
grounds for disqualification from registration including, among 
others, a prior revocation of registration, felony conviction, and 
an injunction relating to futures or securities activities.
    \9\ Pursuant to Rule 1.63, each SRO must maintain in effect 
rules which render a person ineligible to serve on its governing 
boards, disciplinary committees, or arbitration panels who, among 
other things, has been found within the prior three years to have 
committed a disciplinary offense or entered into a settlement 
agreement where the charge involved a ``disciplinary offense,'' is 
currently suspended from trading on any contract market, is 
suspended or expelled from membership in any SRO, or is currently 
subject to an agreement with the Commission or an SRO not to apply 
for registration or membership. A ``disciplinary offense'' for these 
purposes means any violation of the Act or the rules promulgated 
thereunder or SRO rules other than those relating to (1) decorum or 
attire, (2) financial requirements, or (3) reporting or 
recordkeeping, unless resulting in fines aggregating more than 
$5,000 in a calendar year, provided such SRO rule violations did not 
involve fraud, deceit or conversion, or result in a suspension or 
expulsion. 17 CFR 1.63 (1995).
    \10\ A pending proceeding is a basis to bar a person whose 
registration has expired within the preceding sixty days from 
obtaining a temporary license upon mailing a new registration 
application (see 17 CFR 3.11(c)(1)(i)(B), 3.11(c)(1)(ii)(B), 
3.12(d)(1)(iv), and 3.12(i)(1)(iv)(1995)), to bar a person from 
serving as a sponsor or special supervisor of a conditioned or 
restricted registrant (see 17 CFR 3.60(b)(2)(i)(A)(1995)), and to 
prevent withdrawal from registration (see 17 CFR 3.33(f)(1) (1995)).
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    The Commission believes that it is appropriate to require persons 
seeking to act as ethics trainers to provide a certification of the 
nature outlined above in order to assure a minimum level of fitness to 
act as ethics trainers.\11\ The statutory requirement for ethics 
training is intended ``to ensure that registrants understand their 
responsibilities to the public under [the] Act, including 
responsibilities to observe just and equitable principles of trade, any 
rule or regulation of the Commission, any rules of any appropriate 
contract market, registered futures association, or other self-
regulatory organization or any other applicable Federal or State law, 
rule or regulation.'' \12\ The Commission believes that, generally, it 
would be inconsistent with this Congressional mandate and contrary to 
the public interest for a person to instruct others about their 
responsibilities under the Act and other applicable requirements if 
such person has a disciplinary history that reflects a failure to 
comply with such provisions.

    \11\ The requirements discussed above apply to a certification 
from any ethics training provider. As discussed below, if the ethics 
training provider will offer training by means of videotape or 
electronic presentation, the provider's certification would also be 
required to include a statement with respect to verification of 
registrants' attendance.
    \12\ Section 4p(b) of the Act.
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    The Commission has used several objective, established benchmarks 
to identify persons with disciplinary histories that call into question 
their suitability to provide ethics training. Disqualifying 
disciplinary histories for this purpose would be those which constitute 
disqualifications from registration under the Act or bars from service 
on SRO governing boards or committees, pending adjudicatory 
proceedings, including disqualification proceedings relating to 
possible violations of the Act or Commission rules. The Commission has 
also provided in the final rules, as in the proposed rules, that the 
certification requirement imposes a continuing duty; consequently, if 
the certification becomes inaccurate, the provider must so inform the 
registered futures association, which shall then refuse to include such 
person on, or remove such person from, the list of ethics training 
providers.13

    \13\ However, if a firm is subject to a pending adjudicatory 
proceeding as described above, the firm may submit a certification 
to a registered futures association with an explanation describing 
the circumstances of the proceeding, particularly with respect to 
the scope and nature of the proceeding in relation to the size of 
the firm. For example, a proceeding that is limited to a single 
branch office of a firm and that does not involve fraud or failure 
to supervise might be treated differently than a proceeding 
involving allegations extending to the overall operations of the 
firm or making claims of fraud. The Commission would expect the 
registered futures association to consult the Commission concerning 
specific certifications in cases involving an ethics provider that 
is or becomes subject to a proceeding.
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    One effect of these amendments is to permit the National Futures 
Association (NFA), currently the only registered futures association, 
to maintain a list of eligible ethics training providers for purposes 
of Commission Rule 3.34. In its comment letter on the proposed 
amendments, NFA recommended that the rule amendments provide procedural 
protection for ethics training providers who are either rejected or 
removed from the list by NFA. In particular, NFA recommended that 
providers rejected or removed from the list be afforded a hearing 
before NFA with an opportunity to appeal to the Commission. The 
Commission believes such a procedure to be appropriate and, 
accordingly, has incorporated it in the final rules as subparagraph 
3.34(b)(3)(v). The Commission contemplates that the hearing before NFA 
in these circumstances could be limited to written submissions and that 
any subsequent appeal to the Commission would be based on the record 
before NFA.
    NFA also stated in its comment letter that it was uncertain how 
information regarding statutory disqualifications could be verified, 
particularly if it could not require that fingerprints be provided and 
thus would be unable to access the Federal Bureau of Investigations 
criminal records database. Although cognizant of this limitation, the 
Commission believes that, in the first instance, NFA should employ the 
other existing databases that it uses to verify applications of 
registrants, including the Clearinghouse of Disciplinary Information 
which NFA maintains with respect to futures industry data and the 
Securities and Exchange Commission database on securities industry 
violations.
    Another commenter stated that all ethics training providers, 
including state-accredited continuing education entities and SROs, 
should be subject to prior approval by the Commission. The Commission's 
ethics training rule has not previously required state-accredited 
entities and SROs to file an application before providing ethics 
training to registrants. When the Commission originally adopted Rule 
3.34(b), it did not require applications for authorization to provide 
ethics training by SROs and state-accredited entities because SROs are 
subject to the Commission's regulatory framework and oversight, while 
state-accredited entities are subject to certification and review by 
the relevant state. However, in the proposed rule amendments published 
elsewhere in this edition of the Federal Register, the Commission is 
now proposing that state-accredited entities be subject to 
certification and monitoring applicable to other ethics training 
providers, as discussed above. The Commission believes that in the 
absence of such compliance, given the lack of uniformity in state 
continuing education accreditation requirements, it will not have 
sufficient assurance that such providers have a minimum level of 
knowledge of relevant statutory and regulatory requirements or of 
fitness to provide ethics training.14

    \14\ In the proposing release, the Commission also is inviting 
comments concerning the continued appropriateness of permitting SROs 
to offer ethics training without qualifying to do so in the same 
manner as other providers.
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    One commenter stated that those ethics training providers whose 
applications to provide ethics training have already been granted by 
the Commission should be exempt from the certification process set 
forth in the proposed amendments to Rule 3.34. The Commission agrees 
with this view and will provide NFA with the current list of authorized 
ethics training providers for inclusion in the list of authorized 
providers. However, NFA will be expected to monitor existing providers 
as well as new providers and may remove any provider for cause as 
contemplated by subparagraph (b)(3)(iv). As noted above, if 
circumstances change such that an ethics provider's certification 
becomes inaccurate, the provider must so inform the NFA. Upon such 
notice from the provider (or otherwise), NFA shall refuse to include 
such person on or remove such person from the list of authorized 
providers.

B. Delegation of Authority

    The purposes of subparagraphs (b)(3)(iii) through (b)(3)(v) of Rule 
3.34 are to permit NFA to maintain a list of eligible ethics training 
providers. 

[[Page 63910]]
Therefore, the Commission hereby delegates authority to NFA: (1) To 
maintain the list of eligible ethics training providers for purposes of 
Commission Rule 3.34, including the authority to refuse to include 
persons on such list pursuant to the criteria set forth in Rule 
3.34(b)(3)(iii) or criteria established by NFA and approved by the 
Commission; (2) to establish guidelines as to the required proficiency 
and experience of ethics training providers; (3) to receive and 
evaluate complaints concerning such providers and conduct other 
appropriate reviews of providers' operations, subject to Commission 
oversight; (4) to develop appropriate procedures to verify 
certifications filed by potential ethics training providers; and (5) to 
require that such certifications be updated periodically. NFA's 
procedures must be submitted to the Commission for review pursuant to 
Section 17(j) of the Act,15 which governs Commission review and 
approval of registered futures association rules.

    \15\ 7 U.S.C. 21(j)(1994).
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    In its comment letter on the proposed amendments to Rule 3.34, NFA 
supported the Commission's proposal to delegate responsibility to NFA 
for the processing and review of applications of prospective ethics 
training providers and confirmed its willingness to assume this 
responsibility. However, NFA suggested that the Commission establish 
objective standards for NFA to follow in discharging these 
responsibilities. NFA expressed the view that ethics training providers 
should satisfy a proficiency standard that is objective, readily 
measurable and would assure that providers possess a working knowledge 
of the industry and its regulations.
    As noted above, the Commission is proposing, by separate Federal 
Register release, certain minimum requirements with respect to 
proficiency testing and experience to be applicable to ethics training 
providers other than SROs. These proposals include a requirement that 
ethics training providers be subject to the same proficiency testing 
requirements as the registrants they propose to instruct. This 
proficiency test will generally be the National Commodity Futures 
Examination (Series 3 Exam).
    The Commission is also proposing to require that ethics training 
providers other than SROs demonstrate that they have at least three 
years of pedagogical or relevant industry experience. The Commission's 
delegation of authority to NFA includes authority to establish 
guidelines concerning the specific types of pro-ficiency tests and 
experience necessary to satisfy these requirements.16 Of course, 
NFA may submit to the Commission for decision any specific matters 
which have been delegated to it and Commission staff will be available 
to discuss with NFA staff issues relating to the implementation of 
these rules, including the review of operations of ethics training 
providers.

    \16\ In comparable areas, such as registration and review of 
promotional material, the Commission has delegated authority to NFA 
to develop and implement specific standards and, in those instances, 
NFA has established standards above the minimum levels previously 
established by the Commission or set forth in the Act. See, e.g., 
NFA Rule 2-8(d) (minimum experience requirements for an associated 
person to exercise discretion over an account).
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C. Permissible Representations

    To date, in granting the applications of persons seeking to provide 
ethics training, the Commission has made clear that it is not approving 
the specific content of the proposed ethics training program or 
expressing any opinion as to the program's quality or accuracy. The 
Commission believes that it is appropriate to clarify by rule the 
effect of authorization to provide ethics training under Rule 3.34 for 
all providers. Accordingly, the Commission proposed in Rule 3.34(b)(5) 
to prohibit any representation or implication that an ethics training 
provider has been sponsored, recommended or approved, or the provider's 
abilities or qualifications or the content, quality or accuracy of the 
training program provided, has in any respect been passed upon or 
endorsed by the Commission, a registered futures association, or any 
representative thereof.
    The commenters voiced no objections to this proposed provision. 
However, one commenter requested that the effective date of these rule 
amendments be delayed for ninety days for existing ethics training 
providers to enable them to modify their presentations and materials to 
comply with the adopted changes. The Commission believes that all 
providers should be given ninety days in which to comply with the 
requirement to include the specified statement in promotional and 
instructional material. Therefore, the effective date of Rule 
3.34(b)(5) will be ninety days following publication, rather than 
thirty days following publication, which is the effective date for all 
other provisions.
    Accordingly, the Commission has adopted Rule 3.34(b)(5) to provide 
that no SRO, state-accredited continuing education entity or other 
person included on a list of ethics training providers ``may represent 
or imply in any manner whatsoever that such person has been sponsored, 
recommended or approved, or that such person's abilities or 
qualifications, the content, quality or accuracy of his training 
program, or the positions taken in the course of resolving any actual 
or hypothetical situations presenting ethical or legal issues,17 
have in any respect been passed upon or endorsed, by the Commission or 
a registered futures association.'' Rule 3.34(b)(5) further provides 
that any promotional or instructional material used in connection with 
ethics training ``must prominently state that the Commission and any 
registered futures association have not reviewed or approved the 
specific content of the training program and do not recommend the 
provider of such training.'' 18

    \17\ This additional language has been added to clarify the 
proposal and is consistent with the intent of Rule 3.34.
    \18\ Rule 3.34(b)(5) also contains a proviso that it ``shall not 
be construed to prohibit a statement that a person is included on a 
list of ethics training providers maintained by a registered futures 
association if such statement is true in fact and if the effect of 
such a listing is not misrepresented.''
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    In the July 1994 release, the Commission also proposed to limit the 
use an ethics training provider may make of that status in certain 
adjudicatory proceedings. As stated in the proposing release, the 
Commission did not believe that a person should be able to use his or 
her status as an ethics training provider to qualify as an expert 
witness or to present expert testimony in an adjudicatory proceeding 
before the Commission or to which the Commission is a party. While the 
commenters voiced no objections to this provision, the Commission, upon 
reconsideration of this issue, has determined that the prohibitions of 
the representations specified in paragraph (b)(5) should suffice to bar 
inappropriate use of status as an ethics training provider. Therefore, 
the Commission has not adopted proposed paragraphs (b)(5)(ii) and 
(b)(5)(iii) of Rule 3.34, which would have limited certain uses of 
status as an ethics training provider. However, the Commission 
emphasizes that inclusion on the list of authorized ethics training 
providers should not be viewed as a warranty of expertise and that in 
its view such status should not be accorded weight in determinations of 
the provider's qualifications as an expert witness.

D. Videotape and Electronic Presentations

    Commission Rule 3.34(b)(3) provides that a program of ethics 
training may be 

[[Page 63911]]
offered by videotape or electronic presentation. In adopting Rule 3.34, 
the Commission initially provided that videotape or computer training, 
in lieu of in-person ethics training, should only be available when 
geographical inconven-ience or other factors made in-person training 
impracticable.19 However, in proposing amendments to Rule 3.34 in 
July 1994, the Commission indicated that any registrant may meet his 
ethics training requirement through in-person courses or through the 
use of videotape or computer presentations regardless of 
circumstances.20

    \19\ 58 FR 19575, 19586-19587.
    \20\ 59 FR 37446, 37448.
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    The Commission also wishes to make clear, however, that if 
videotape or electronic training is offered, the provider must be able 
to verify that the video has been viewed or the electronic training 
completed by the registrant before the provider issues a certificate of 
attendance to the registrant.21 Therefore, Rule 
3.34(b)(3)(iii)(B), as revised by the amendments adopted herein, 
requires that, if a provider will conduct training by means of 
videotape or electronic presentations, either exclusively or in 
addition to in-person training, the provider's certification required 
under Rule 3.34(b)(3)(iii) must be supplemented to include a 
representation that the provider will maintain documentation reasonably 
designed to verify that registrants have properly completed ethics 
training for the minimum time required (one, two or four hours).

    \21\ 58 FR 19575, 19586-19587.
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    The Commission envisages that an appropriate verification regime 
for a provider would include procedures such as the following. The 
provider would maintain a list of the computer-based ethics program 
purchasers and match each completed program with a record of purchase. 
Registrants would be required to enter identifying information, such as 
name, firm's name, business address, telephone number, date of birth, 
NFA and/or Social Security number, on the control disk and return a 
signed statement with the completed computer disk certifying that he 
did in fact complete the ethics training course in the manner set out 
in the instructions.
    With respect to the fulfillment of the minimum time requirements 
and verification of the registrants' participation in the program, the 
ethics training provider could use a computer-based test to assure that 
the registrant has attained a minimum level of understanding of the 
materials covered, drawing upon matters covered in video and written 
materials, as well as the computer program, to the extent applicable. 
To assure that each section of the program is completed, registrants 
would be required to pass each section of the test prior to answering 
questions in later sections of the test. While those who fail the test 
would be required to retake it until it is successfully completed, only 
the time spent on the first test could be credited toward the ethics 
training time required by Rule 3.34. Registrants answering quickly 
would be given additional questions to answer, and the program would 
cease recording elapsed time for those slow to answer questions. Thus, 
registrants would be monitored both as to time spent and material 
covered. If a provider wished to follow a different verification 
regime, he could do so if such steps had been submitted to and not 
found objectionable by a registered futures association.
    The Commission contemplates that an ethics training provider would 
be able to document that a registrant had undertaken the various steps 
required for the provider to verify completion. The provider would be 
required under revised Rule 3.34(b)(4) to maintain documentation 
substantiating its determination that ethics training has been properly 
completed by a registrant and to support its issuance of a certificate 
of attendance.22

    \22\ Revised Rule 3.34(b)(4) also requires that records of 
trainer evaluations be maintained.
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    As noted above with respect to the limitations upon representations 
concerning authorization to provide ethics training, certain commenters 
requested that the effective date of the rule amendments be delayed for 
ninety days for existing ethics training providers to enable the 
providers to modify their video or electronic presentations and 
materials to comply with the rule amendments. Since new paragraph 
(b)(5) of Rule 3.34 concerning permissible representations applies to 
all promotional or instructional materials, that provision encompasses 
videotape and electronic presentations. Accordingly, the deferred 
effective date for the provision discussed above should accommodate any 
concerns of these commenters with respect to videotape or electronic 
presentations and materials.

E. Recordkeeping

    Rule 3.34(b)(4), which governs recordkeeping by an ethics training 
provider, requires ethics training providers to maintain records of 
materials used in and attendees at such training in accordance with 
Commission Rule 1.31, i.e., for a five-year period.23 The 
Commission proposed to add a provision to these recordkeeping 
requirements to require providers of ethics training to furnish records 
of attendees at such training to a registered futures association in 
such format as the registered futures association may request. As noted 
in the proposing release, NFA is willing to compile information on 
ethics training attendance for inclusion in the registration database 
and believes that ethics training providers should cooperate with NFA 
requests for the information which providers are already required to 
maintain. In its comment letter, NFA stated that it was confident that 
the Commission's amendment to Rule 3.34(b), requiring providers to 
furnish a list of ethics training attendees to NFA, will streamline the 
recordkeeping needed in this area. Further, NFA believes that this 
requirement will reduce the burden borne by registrant firms in 
determining whether a prospective employee has satisfied his ethics 
training requirement. The Commission believes compilation of ethics 
training attendance data by NFA (or other registered futures 
associations) will produce a central repository of such information, 
which should benefit all registrants and facilitate oversight of 
compliance with the ethics training requirement. To facilitate NFA's 
incorporation of this data in the registration database, ethics 
training providers should include appropriate identifiers of 
registrants, such as NFA identification number, and follow other format 
conventions requested by NFA.

    \23\ 17 CFR 1.31 (1995). When the Commission adopted Rule 3.34, 
it stated that it would monitor the effectiveness of the requirement 
for maintaining a record of ethics training attendance and might 
reconsider the issue at a later date if appropriate. 58 FR 19575, 
19587.
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    One commenter requested that ethics training providers be permitted 
to use identifiers other than NFA identification numbers, e.g., name, 
date of birth or social security number, in reporting attendees to NFA. 
While this comment may have merit, the final rule amendments require 
providers to respond to NFA requests for information and to furnish to 
NFA the information that providers are already required to maintain. 
The specific data needed by NFA to maintain and compile its database 
may be decided by NFA. The Commission does not believe that it should 
be unduly burdensome for ethics training providers to obtain NFA 
identification numbers from attendees, unless such persons have not yet 
registered or filed an application for 

[[Page 63912]]
registration.24 However, NFA should arrange with providers to 
accomplish this task by the most efficient means for all concerned.

    \24\ Ethics training may be taken up to six months prior to the 
date of application for registration. See 58 FR 19575, 19585.
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III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601-611 (1988), 
requires that agencies, in proposing rules, consider the impact of 
those rules on small businesses. The rule amendments discussed herein 
will affect only those ethics training providers that are not SROs or 
entities accredited to conduct continuing education programs by a state 
professional licensing authority in the fields of law, finance, 
accounting or economics. The Commission believes that the impact of 
these rule amendments on other providers of ethics training or persons 
seeking to become providers of ethics training should be minimal. The 
procedure for becoming an ethics training provider will be simplified. 
The restrictions upon permissible representations by ethics training 
providers concerning their status as such essentially codify conditions 
already imposed by the Commission to date in granting applications of 
individual ethics training providers. Finally, since ethics training 
providers are already required to maintain records of attendees, 
furnishing such information to NFA upon request should not be unduly 
burdensome. Therefore, these rules will not have significant economic 
impact on a substantial number of small entities.

B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1980 (PRA), 44 U.S.C. 3501 et seq., 
imposes certain requirements on federal agencies (including the 
Commission) in connection with their conducting or sponsoring any 
collection of information as defined by the PRA. In compliance with the 
PRA, the Commission has previously submitted this rule and its 
associated information collection requirements to the Office of 
Management and Budget. While the amendments adopted herein have no 
burden, Rule 3.34 is a part of a group of rules which has the following 
burden:
    Rules 3.16, 3.32 and 3.34 (3038-0023, approved June 2, 1993):

Average Burden Hours Per Response--1.13
Number of Respondents--60,980
Frequency of Response--On Occasion and Triennially

    Persons wishing to comment on the information which will be 
required by these rules as amended should contact Jeff Hill, Office of 
Management and Budget, room 3228, NEOB, Washington, D.C. 20503, (202) 
395-7340. Copies of the information collection submission to OMB are 
available from Joe F. Mink, CFTC Clearance Officer, 1155 21st St. N.W., 
Washington, D.C. 20581, (202) 418-5170.

List of Subjects in 17 CFR Part 3

Registration, Ethics training

    Accordingly, the Commission, pursuant to the authority contained in 
the Commodity Exchange Act and, in particular, Sections 1a, 4d, 4e, 4g, 
4m, 4p, 8a and 17 thereof (7 U.S.C. 1a, 6d, 6e, 6g, 6m, 6p, 12a and 21 
(1994)), hereby amends Part 3 of Chapter I of Title 17 of the Code of 
Federal Regulations as follows:

PART 3--REGISTRATION

    1. The authority citation for Part 3 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 4, 4a, 6, 6b, 6d, 6e, 6f, 6g, 6h, 6i, 
6k, 6m, 6o, 6p, 8, 9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21 and 23; 
5 U.S.C. 552, 552b.

    2. Section 3.34 is amended by revising paragraphs (b)(3) and (b)(4) 
and by adding paragraph (b)(5) to read as follows:


Sec. 3.34  Mandatory ethics training for registrants.

* * * * *
    (b) * * *
    (3) The training required by this section must be provided by or 
pursuant to a program of training (including videotape or electronic 
presentation) sponsored by:
    (i) A self-regulatory organization;
    (ii) An entity accredited to conduct continuing education programs 
by a state professional licensing authority in the fields of law, 
finance, accounting or economics; or,
    (iii) A person included on a list maintained by a registered 
futures association who has filed a notice with the registered futures 
association certifying that:
    (A) Such person, any principals thereof (as defined in Sec. 3.1(a)) 
and any individuals, on behalf of such person, who present ethics 
training or who prepare an ethics training videotape or electronic 
presentation are not subject to:
    (1) Statutory disqualification from registration under Sections 
8a(2) or (3) of the Act;
    (2) A bar from service on self-regulatory organization governing 
boards or committees based on disciplinary histories pursuant to 
Sec. 1.63 of this chapter or any self-regulatory organization rule 
adopted thereunder; or
    (3) A pending adjudicatory proceeding under Sections 6(c), 6(d), 
6c, 6d, 8a or 9 of the Act, or Secs. 3.55, 3.56 or 3.60; and
    (B) If the person will conduct training via videotape or electronic 
presentation, either exclusively or in addition to in-person training, 
he will maintain documentation reasonably designed to verify the 
attendance of registrants at such videotape or electronic presentation 
for the minimum time required.
    (iv) The certification required by paragraph (b)(3)(iii) of this 
section is continuous and if circumstances change which result in the 
certification becoming inaccurate, the person must promptly so inform 
the registered futures association. Upon notice of such inaccuracy, the 
registered futures association shall refuse to include such person on 
or remove such person from the list referred to in paragraph 
(b)(3)(iii) of this section.
    (v) The registered futures association shall develop and submit to 
the Commission in accordance with Section 17(j) of the Act rules to 
provide reasonable procedures for making determinations not to include 
or to remove persons from the list referred to in paragraph (b)(3)(iii) 
of this section. Such rules shall permit a hearing before the 
registered futures association with an opportunity for appeal to the 
Commission. Such appeal shall consist solely of consideration of the 
record before the registered futures association and the opportunity 
for the presentation of supporting reasons to affirm, modify, or set 
aside the decision of the registered futures association.
    (4) Any person providing ethics training under this section must 
maintain records of the materials used in such training, and of the 
attendees at such training, documentation to verify completion by a 
registrant of training through videotape or electronic presentation and 
evaluations of trainers in accordance with Sec. 1.31 of this chapter. 
All such books and records shall be open to inspection by any 
representative of the Commission or the U.S. Department of Justice and 
persons providing ethics training shall be subject to audit by any 
representative of the Commission. Records of attendees at such training 
shall be provided upon request to a registered futures association in 
such format as specified by the registered futures association.
    (5) No person referred to in paragraph (b)(3) of this section may 
represent or 

[[Page 63913]]
imply in any manner whatsoever that such person has been sponsored, 
recommended or approved, or that such person's abilities or 
qualifications, the content, quality or accuracy of his training 
program, or the positions taken in the course of resolving any actual 
or hypothetical situations presenting ethical or legal issues, have in 
any respect been passed upon or endorsed, by the Commission, a 
registered futures association, or any representative thereof. Any 
promotional or instructional material used in connection with the 
training required by this section must prominently state that the 
Commission and any registered futures association have not reviewed or 
approved the specific content of the training program and do not 
recommend the provider of such training: Provided, however, that this 
paragraph shall not be construed to prohibit a statement that a person 
is included on a list of ethics training providers maintained by a 
registered futures association if such statement is true in fact and if 
the effect of such a listing is not misrepresented.
* * * * *
    Issued in Washington, D.C. on December 7, 1995, by the 
Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 95-30358 Filed 12-12-95; 8:45 am]
BILLING CODE 6351-01-P