[Federal Register Volume 62, Number 111 (Tuesday, June 10, 1997)]
[Rules and Regulations]
[Pages 31507-31510]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15071]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1


Alternative Method of Compliance With Requirements for Delivery 
and Retention of Monthly, Confirmation and Purchase-and-Sale Statements

AGENCY: Commodity Futures Trading Commission.

ACTION: Advisory; alternative method of compliance.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is 
issuing guidance concerning compliance with the requirements of 
Commission Rules 1.33 and 1.46 for the delivery of confirmation, 
purchase-and-sale and monthly statements, and Commission rule 1.31 for 
related recordkeeping requirements. A futures commission merchant 
(``FCM'') may deliver such statements to any customer solely by means 
of electronic media, once the FCM obtains the revocable consent of the 
customer to receipt of electronic delivery. An FCM also may maintain 
related records either pursuant to Rule 1.31 or as allowed by 
Securities and Exchange Commission (``SEC'') regulations.

EFFECTIVE DATE: June 10, 1997.

FOR FURTHER INFORMATION CONTACT:
Susan C. Ervin, Deputy Director/Chief Counsel; Lawrence B. Patent, 
Associate Chief Counsel; or Natalie A. Markman, Attorney-Advisor, 
Division of Trading and Markets, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21 St. Street, NW., Washington, DC 20581. 
Telephone: (202) 418-5450.

SUPPLEMENTARY INFORMATION: 

I. Introduction

    By this release, the Commission is issuing guidance to FCMs 
concerning alternative methods of compliance by FCMs with requirements 
pertaining to the delivery of specified customer account documents and 
related recordkeeping requirements. Commission Rules 1.33 and 1.46 
require an FCM to provide certain statements to customers in connection 
with their accounts.\1\ Specifically, rule 1.33(a) requires an FCM to 
furnish promptly to each customer a written monthly account statement, 
or a quarterly statement where an account has no open positions at the 
end of the statement period and there have been no changes to the 
account balance since the prior statement period.\2\ rule 1.33(b) 
requires an FCM to provide to each customer a

[[Page 31508]]

written conformation of each commodity interest transaction executed on 
the customer's behalf not later than the business day following the 
transaction.\3\ Rule 1.46(a) requires an FCM to furnish promptly to 
each customer a purchase-and-sale statement when commodity interest 
contracts are closed out by an offsetting transaction.\4\ Rule 1.31, 
the Commission's general recordkeeping rule, requires an FCM to retain 
copies of these statements for a period of five years.
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    \1\ Commission rules referred to herein are found at 17 CFR Ch. 
I (1996).
    \2\ Commission Rule 1.33(a) states, among other things, that 
each FCM must promptly furnish in writing to each commodity, option, 
foreign futures and foreign options customer, as of the close of the 
last business day of each month or as of any regular monthly date 
selected, except for accounts in which there are neither open 
positions at the end of the statement period nor any changes to the 
account balance since the prior statement period, but in any event 
not less frequently than once every three months, a statement that 
clearly shows:
    (1) For each commodity customer and foreign futures customer--
(i) The open contracts with prices at which acquired; (ii) The net 
unrealized profits or losses in all open contracts marked to the 
market; . . . (iii) Any customer funds carried with the [FCM]; and 
(iv) A detailed accounting of all financial charges and credits to 
such customer accounts during the monthly reporting period * * * and
    (2) For each option customer and foreign options customer--(i) 
All commodity options and foreign options purchased, sold, 
exercised, or expired during the monthly reporting period, 
identified by underlying futures contract or underlying physical, 
strike price, transaction date, and expiration date; (ii) The open 
commodity option and foreign option positions carried for such 
customer as of the end of the monthly reporting period identified by 
underlying futures contract or underlying physical, strike price, 
transactions date, and expiration date; (iii) All open commodity 
option and foreign option positions marked to the market and the 
amount each position is in the money, if any; (iv) Any customer 
funds carried in such customer's account(s); and (v) A detailed 
accounting of all financial charges and credits to such customer's 
account(s) during the monthly reporting period * * *.
    \3\ Commission Rule 1.33(b) states, among other things, that 
each FCM must, not later than the next business day after any 
commodity futures or commodity option transaction, including any 
foreign futures or foreign options transactions, furnish;
    (1) To each commodity customer, a written confirmation of each 
commodity futures transaction caused to be executed by it for the 
customer [;]
    (2) To each option customer, a written conformation of each 
commodity option transaction, containing [certain] information [; 
and]
    (3) To each option customer, upon the expiration or exercise of 
any commodity option, a written confirmation statement thereof, 
which statement shall include the date of such occurrence, a 
description of the option involved, and, in the case of exercise, 
the details of the futures or physical position which resulted 
therefrom including, if applicable, the final trading date of the 
contract for future delivery underlying the option. Notwithstanding 
the above provisions of Rule 1.33(b) (1)-(3), a commodity futures or 
commodity option transaction that is caused to be executed for a 
commodity pool need be confirmed only to the operator of the 
commodity pool.
    \4\ Commission Rule 1.46(a) states that, except with respect to 
purchases or sales that are for omnibus accounts, any FCM who, on or 
subject to the rules of a contract market:
    (1) Purchases any commodity for future delivery for the account 
of any customer when the account of such customer at the time of 
such purchase has a short position in the same future of the same 
commodity on the same market;
    (2) Sells any commodity for future delivery for the account of 
any customer when the account of such customer at the time of such 
sale has a long position in the same future of the same commodity on 
the same market;
    (3) Purchases a put or call option for the account of any option 
customer when the account of such option customer at the time of 
such purchase has a short put or call option position with the same 
underlying futures contract or same underlying physical, strike 
price, expiration date and contract market as that purchased; or
    (4) Sells a put or call option for the account of any option 
customer when the account of such option customer at the time of 
such sale has a long put or call option position with the same 
underlying futures contract or same underlying physical, strike 
price, expiration date and contract market as that sold--shall on 
the same day apply such purchase or sale against such previously 
held short or long futures or option position, as the case may be, 
and shall, for futures transactions, promptly furnish such customer 
a statement showing the financial result of the transactions 
involved and, if applicable, that the account was introduced to the 
[FCM] by an introducing broker [(``IB'')] and the names of the [FCM] 
and [IB]. Commission rules 1.46 (c), (d) and (e) provided for 
certain exceptions to this requirement.
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    On May 2, 1996, the Division of Trading and Markets (``Division'') 
issued Advisory 22-96 to provide guidance to registered FCMs concerning 
the delivery of daily confirmation statements by facsimile 
transmission.\5\ The Division stated that FCMs were permitted to 
fulfill their obligations under Rule 1.33(b) by sending daily 
confirmation statements solely by means of facsimile transmission to 
customers who were either: (1) ``eligible swap participants,'' as 
defined by Commission Rule 35.1(b)(2); \6\ or (2) ``institutional 
customers,'' as defined by Federal Reserve Board (``FRB'') Rule 
225.2(g).\7\ The relief was subject to the following conditions: (1) 
FCMs were required to obtain the written, hard copy, revocable consent 
of eligible customers to receipt of confirmation statements solely by 
facsimile transmission; and (2) FMCs were required to continue to 
furnish monthly account statements to such customers in hard copy form 
and to maintain the confirmation statements in accordance with the 
standards set forth in Commission Rule 1.31.\8\
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    \5\ CFTC Advisory No. 22-96, [1994-1996 Transfer Binder] Comm. 
Fut. L. Rep. (CCH) para. 26,679 (May 2, 1996). Previously, on 
February 28, 1996, the Division has issued a no-action letter 
permitting an FCM to deliver confirmation statements by facsimile 
transmission to institutional customers without mailing such 
statements in hard copy form, subject to certain conditions. CFTC 
Interpretative Letter No. 96-18, [1994-1996 Transfer Binder] Comm. 
Fut. L. Rep. (CCH) para. 26,630 (February 28, 1996).
    \6\ The following are eligible swap participants under 
Commission Rule 35.1(b)(2):
    (1) a bank or trust company (acting on its own behalf or on 
behalf of another eligible swap participant);
    (2) a savings association or credit union;
    (3) an insurance company;
    (4) an investment company subject to regulation under the 
Investment Company Act of 1940 (``ICA'') or a foreign person 
performing a similar role or function subject as such to foreign 
regulation;
    (5) a commodity pool, formed and operated by a person subject to 
regulation under the Commodity Exchange Act (``Act'') or a foreign 
person performing a similar role or function subject as such to 
foreign regulation, that has assets exceeding $5,000,000;
    (6) a corporation, partnership, proprietorship, organization, 
trust or other entity (a) with assets exceeding $10,000,000, (b) 
with a net worth of $1,000,000 that enters into the swap agreement 
in connection with its business, or (c) whose obligations under the 
swap agreements are guaranteed by another eligible swap participant 
listed above or under item (8) below;
    (7) an employee benefit plan subject to the Employee Retirement 
Income Security Act of 1974 or a foreign person performing a similar 
role or function subject as such to foreign regulation, with assets 
exceeding $5,000,000, or whose investment decisions are made by a 
bank, trust company or insurance company, or investment adviser or 
commodity trading advisor (``CTA'') subject to regulation;
    (8) any governmental entity or political subdivision thereof, or 
any multinational or supranational entity, or any instrumentality, 
agency or department of any of the foregoing;
    (9) a broker-dealer subject to regulation under the Securities 
Exchange Act of 1934 (``SEA'') or a foreign person performing a 
similar role or function subject as such to foreign regulation;
    (10) an FCM, floor broker or floor trader subject to regulation 
under the Act or a foreign person performing a similar role or 
function subject as such to foreign regulation; or
    (11) a natural person with assets exceeding $10,000,000.
     An investment company, commodity pool or other entity is not an 
eligible swap participant if it is formed solely for the purpose of 
constituting an eligible swap participant. A broker-dealer, FCM, 
floor broker or floor trader that is a natural person or 
proprietorship also must meet the requirements of either item (6) or 
(11).
    \7\ 12 CFR 225.2(g) (1996). The following are institutional 
customers under this FRB rule:
    (1) a bank (acting in an individual or fiduciary capacity), 
savings and loan association, insurance company, investment company 
registered under the ICA, or corporation, partnership, 
proprietorship, organization or institutional entity with a net 
worth exceeding $1,000,000;
    (2) an employee benefit plan with assets exceeding $1,000,000, 
or whose investment decisions are made by a bank, insurance company 
or investment adviser registered under the Investment Advisers Act 
of 1940;
    (3) a natural person whose net worth (or joint net worth with a 
spouse) exceeds $1,000,000;
    (4) a broker-dealer or option trader registered under the SEA, 
or other securities, investment or banking professional; or
    (5) an entity whose equity owners are institutional customers.
    \8\ In Advisory 22-96, the Division also confirmed that FCMs 
would be permitted to fulfill their obligations under Rule 1.33(d) 
with respect to furnishing confirmation and purchase-and-sale 
statements to account controllers by transmitting such statements 
solely by facsimile, irrespective of whether the customer met the 
criteria for eligible swap participants or institutional customers 
or had elected to receive confirmation statements by facsimile. This 
aspect of the relief was subject to the following conditions. (1) 
FCMs were required to continue to furnish monthly account statements 
to the account controllers in hard copy form and obtain the account 
controllers' written, hard copy, revocable consent to receive 
confirmation and purchase-and-sale statements solely by facsimile 
transmission; and (2) account controllers were required to maintain 
the confirmation and purchase-and-sale statements in accordance with 
the standards set forth in Commission Rule 1.31. The Division noted, 
however, that the relief granted under Rule 1.33(d) with regard to 
account controllers did not affect FMCs' obligations to provide 
confirmation and purchase-and-sale statements to their customers 
under Rule 1.33(b).
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    In response to recent requests from the Futures Industry 
Association (``FIA''),\9\ the Commission is issuing this Advisory to 
facilitate further the use by FCMs of electronic media to deliver 
confirmation, purchase-and-sale and monthly statements (collectively, 
``Statements'') to customers, and to provide guidance concerning FCMs' 
recordkeeping obligations with respect to such Statements. For purposes 
of this release, the term ``electronic'' media encompasses facsimiles, 
electronic mail, Internet World Wide Web sites and computer networks 
(e.g., local area networks and commercial on-line

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services). FCMs who choose to provide Statements electronically should 
consider several factors in determining whether a particular electronic 
medium is appropriate: (1) The medium should convey the same 
information and achieve the same objectives as a paper-based medium; 
\10\ (2) the customer should have adequate notice that Statements are 
available electronically; \11\ (3) delivery should not be unduly 
burdensome to customers; and (4) the accessibility of Statements should 
be comparable to that of documents in hard copy form, which can be read 
and re-read.
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    \9\ The FIA is a trade association whose membership consists 
primarily of FCMs.
    \10\ Statements delivered electronically must satisfy the 
requirements of Commission Rules 1.33 and 1.46.
    \11\ Unlike postal mail to a business or residential address, 
which accomplishes delivery and notice of delivery simultaneously, 
electronic delivery of a document may result in availability of a 
document to a particular recipient in a medium that the recipient 
must take affirmative steps to access in order to receive notice 
that the document is available and to view or download the document. 
Consequently, in establishing procedures for electronic delivery and 
obtaining the customer's consent to electronic delivery, firms must 
assure that customers understand and consent to the particular 
electronic delivery procedure to be used, e.g., electronic mail 
delivered on a specified schedule.
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    The Commission believes that the alternative method of compliance 
discussed herein will benefit both customers and FCMs by providing for 
more expeditious receipt of the Statements by customers and more cost-
effective methods of transmission and storage for FCMs.\12\ This action 
constitutes the latest in a series of measures the Commission has taken 
to recognize advances in computers and related electronic media 
technology and to facilitate the use of such technology where adequate 
measures exist to safeguard customer interests.\13\
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    \12\ According to the FIA, FCMs already are supplying Statements 
electronically in response to customer demand for rapid 
dissemination of information. In order to comply with Commission 
regulations, however, the FCMs also are mailing duplicate Statements 
in hard copy form. The Commission notes that some customers may wish 
to receive Statements (or some categories of Statements) by means of 
electronic delivery and in hard copy form. In such instances, FCMs 
must deliver Statements in hard copy form and may choose to enter 
into an agreement to provide Statements by means of electronic media 
as well.
    \13\ See, e.g., 62 FR 18265 (April 15, 1997) (adopting a program 
for commodity pool operators (``CPOs'') and CTAs to file Disclosure 
Documents with the Commission electronically on a voluntary basis); 
62 FR 10441 (March 7, 1997) (providing for the use of personal 
identification numbers by FCMs and IBs in making attestations in 
financial reports that are permitted to be filed with the Commission 
electronically); 62 FR 7675 (February 20, 1997) (permitting the use 
of electronic records of customer orders generated through 
electronic order-routing systems); 61 FR 42146 (August 14, 1996) 
(publishing Commission views with respect to the use of electronic 
media for the transmission and delivery of Disclosure Documents, 
reports and other information by CPOs, CTAs and associated persons 
thereof).
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II. Delivery of Statements

    Under this Advisory, a registered FCM is permitted to fulfill its 
obligations under Rules 1.33 and 1.46 by sending Statements solely by 
means of electronic media to any customer who consents to delivery by 
that method, subject to certain conditions. In order for a customer to 
receive Statements (or some types of Statements) electronically, the 
customer must consent to transmission of Statements through such 
electronic media and the consent must reflect sufficient information 
about the manner and costs of delivery to constitute informed consent. 
Disclosures relevant to determining whether the consent obtained was 
sufficiently informed would include: (1) The electronic medium or 
source through which the Statements will be delivered; (2) the period 
during which the consent will be effective (which can be until further 
notice); (3) the information that will be delivered using such means (a 
customer might, for example, request that only daily confirmations and 
purchase-and-sale statements be delivered electronically and still wish 
to receive a monthly statement by mail); (4) the costs, if any, that 
will be charged to the customer specific to electronic delivery of the 
Statements; and (5) the customer's right to revoke at any time the 
consent to receive statements solely by means of electronic medium.\14\
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    \14\ See 61 FR 24643, 24647 and n.23 (May 15, 1996) (SEC release 
discussing use of electronic media by securities broker-dealers, 
transfer agents and investment advisers for delivery of 
information).
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    For customers who constitute ``eligible customers,'' as defined 
herein, the FCM may obtain the customer's informed consent orally, by 
means of electronic media or through hard copy documentation including 
the customer's signature. Such documentation also could be incorporated 
in the customer account agreement. If the customer consents orally or 
by electronic media to electronic delivery of Statements, the FCM 
should document the customer's consent by written confirmation in paper 
or electronic form of the customer's informed consent and retain this 
confirmation as part of its records.\15\ Absent subsequent action by 
the customer to revoke or to dispute the confirmation, the confirmation 
evidences that the customer received an explanation of the right to 
elect electronic delivery of the Statements and of the information 
pertinent to that election and has elected to receive the Statements 
(or some categories of Statements) electronically. Eligible customers, 
for purposes of this Advisory, include any person who:
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    \15\ Consistent with the Act and Commission regulations, FCMs 
maintain procedures to assure that consents obtained from customers 
are duly authorized.
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    (1) is an ``eligible swap participant,'' as defined by Commission 
Rule 35.1(b)(2);
    (2) is an ``institutional customer,'' as currently defined by FRB 
Rule 225.2(g); or
    (3) is a Commission registrant.\16\
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    \16\ This category likely includes a majority of account 
controllers. Although the account controller is not the customer for 
purposes of Rule 1.33, the Commission believes that an FCM may 
fulfill its obligations under Rule 1.33(d) with respect to 
furnishing Statements to registered account controllers via 
electronic media without first obtaining written and signed consent 
in hard copy form. With respect to unregistered account controllers 
who do not otherwise satisfy the above ``eligible customer'' 
definition, the FCM must obtain written, signed, hard copy, 
revocable consent from the unregistered account controller prior to 
the electronic transmission of nay Statement. Such unregistered 
account controllers could include CTAs who are not required to 
register as such under Section 4m(1) of the Act because they provide 
advice to 15 or fewer persons and do not hold themselves out 
generally to the public as CTAs. See 7 U.S.C. Sec. 6m(1) (1994). 
Unregistered account controllers also could include, for example, 
CPOs who are exempt from registration under Rule 4.13(a). The 
Division notes that the relief granted under Rule 1.33(d) with 
regard to account controllers does not affect FCMs' obligations to 
provide Statements to their customers under Rules 1.33(a), 1.33(b) 
and 1.46(a).
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    For a person who is not an eligible customer, the FCM must obtain 
the customer's signed, hard copy, revocable consent prior to the 
transmission of any Statement by means of electronic media.\17\ This 
consent could be obtained as part of the customer account agreement or 
in a subsequently executed document. Once the FCM assures itself that 
the customer has agreed to electronic delivery on an informed basis, 
the FCM may begin to send Statements (or some categories of Statements) 
to the customer by means of the agreed-upon electronic medium. 
Documentation of the customer's consent should clearly indicate whether 
the customer has agreed to electronic delivery of a Statement in lieu 
of hard copy or in addition to hard copy.
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    \17\ In order to effectuate electronic delivery of Statements 
more quickly, the customer may transmit the signed consent by 
facsimile transmission.
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    Under this Advisory, any customer or potential customer may consent 
to electronic delivery of Statements. The Commission envisions that 
this consent generally would be communicated in person when an account 
is opened or by subsequent telephone, facsimile or electronic 
communication. With respect

[[Page 31510]]

to ``eligible customers,'' as defined above, the FCM may rely upon its 
own contemporaneous confirming letter to the customer (which could 
itself be transmitted electronically) as evidence of the customer's 
consent, describing the method of electronic transmission of the 
Statements, the information to be transmitted, the effective period of 
the consent, any costs to the customer for such transmissions and a 
statement that such consent is revocable at any time. In order to 
employ electronic media to deliver Statements to persons who do not 
constitute eligible customers, the FCM must receive a signed 
authorization from the account owner before beginning electronic 
transmission of Statements.
    Since an FCM may only deliver Statements electronically upon 
receipt of customer consent,\18\ it need not obtain and retain evidence 
that the customer actually received the Statements, such as by an 
electronic mail return-receipt or by confirmation that the information 
was accessed, downloaded or printed. However, to ensure that Statements 
are delivered as intended, and FCM providing Statements using either 
electronic or paper media should take reasonable precautions to ensure 
the integrity and security of the Statements.\19\ In this regard, the 
FCM has a duty to supervise firm personnel \20\ to assure compliance 
with applicable requirements and prevent wrongdoing and should 
implement supervisory systems and procedures necessary to assure timely 
and appropriate delivery of Statements and to deter or detect 
misconduct in connection with the delivery of Statements. The FCM also 
has an obligation to maintain the confidentiality of customer orders 
\21\ and should take reasonable precautions tailored to the particular 
electronic medium being used to ensure the confidentiality of personal 
financial information. Self-regulatory organizations (``SROs'') \22\ 
whose member FCMs intend to deliver Statements solely by electronic 
means to customers so requesting should enhance their audit programs to 
review the procedures and precautions employed by FCMs in making such 
deliveries.
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    \18\ The FCM must retain evidence of the customer's consent as a 
record, in accordance with the recordkeeping requirements discussed 
infra.
    \19\ See 61 FR at 24647.
    \20\ See 17 CFR 166.3 (1996).
    \21\ See 17 CFR 155.3(b)(1) (1996).
    \22\ See 17 CFR 1.63(a)(1) (1996).
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III. Maintenance of Records

    Copies of Statements generally must be maintained in accordance 
with the standards set forth in Rule 1.31 which, among other things, 
requires that records be retained for a period of five years and be 
readily accessible during the first two years of the five-year period. 
Rule 1.31(b) provides that copies may be retained on microfilm, 
microfiche, or optical disk but must be maintained in accordance with 
the standards set forth in Rule 1.31 (c) and (d).\23\
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    \23\ Rule 1.31(d) states, among other things, that all records 
preserved on optical media pursuant to Rule 1.31(b) must be 
preserved on non-rewritable, write once read many (``WORM'') media. 
In addition, the technology must have write-verify capabilities that 
continuously and automatically verify the quality and accuracy of 
the information stored and automatically correct quality and 
accuracy defects. Rule 1.31(d)(1) states that the optical storage 
system must: (i) Use removable disks; (ii) serialize the disks; 
(iii) time-date all files of information placed on the disks, 
reflecting the computer run time of the file of information and 
using a permanent and non-erasable time-date; and (iv) write files 
in ASCII or EBCDIC format. As the Commission has noted, the ASCII 
and EBCDIC formats ``generally do not allow storage of paper records 
or electronic images, such as webpages, since such records images 
are normally not written in ASCII or EBCDIC format. Therefore, these 
records would be required to be retained in hard [] copy form.'' 61 
FR at 42162.
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    Concerning the storage and maintenance of records of Statements, 
the Commission understands that it may be difficult or impossible as a 
technical matter to store certain data in exactly the format in which 
it is transmitted to customers. The FCM must be able to store and 
maintain records of Statements in order that, upon request of any 
representative of the Commission or the United States Department of 
Justice, the FCM can reproduce the Statements in substantially the same 
form\24\ and containing the same account and trading information as was 
transmitted to customers.\25\ If the FCM provides continual, real-time 
updates to customers of activity throughout the day, the FCM would 
generate several different intraday ``screens'' as trades were placed 
and available to customers. For record retention purposes, an FCM need 
only retain the daily confirmation statement as of the end of the 
trading session, provided it reflects all trades made during the 
trading session. This would be consistent with the record provided to a 
customer and retained using a paper-based medium.
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    \24\ For example, FCM logos can be deleted.
    \25\ As mentioned supra, statements delivered electronically 
must satisfy the requirements of Commission Rules 1.33 and 1.46.
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    To facilitate FCMs' efforts to use electronic media when possible 
and to avoid imposing duplicative or inconsistent requirements on 
broker-dealer firms, the Commission hereby permits an FCM to use 
guidelines recently set forth by the SEC in its recent rulemaking in 
connection with recordkeeping requirements for broker-dealers.\26\ 
Accordingly, an FCM may maintain Statements pursuant to Commission Rule 
1.31 or as allowed by SEC regulations.\27\
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    \26\ 62 FR 6469 (February 12, 1997). The SEC amended its Rule 
17a-4(f) to provide for the production or reproduction of records by 
means of electronic storage media, with the limited exception of 
those records required for penny stocks. Rather than specify 
particular electronic storage media, the SEC provided that the 
particular medium chosen must meet certain criteria:
    (A) Preserve the records exclusively in a non-rewrit [] able, 
non-erasable format;
    (B) Verify automatically the quality and accuracy of the storage 
media recording process;
    (C) Serialize the original and, if applicable, duplicate units 
of storage media, and time-date for the required period of retention 
the information placed on such electronic storage media; and
    (D) Have the capacity to readily download indexes and records 
preserved on the electronic storage media to any medium acceptable 
under [Rule 17a-4(f)] as required by the [SEC] or the [SROs] of 
which the member, broker, or dealer is a member.
    17 CFR 240.17a4(f)(ii) (1997). If a broker-dealer chooses to use 
electronic storage media, it must notify its designated examining 
authority prior to using such media and, if the broker-dealer uses 
media other than optical disk technology or CD-ROM, it must provide 
notice of at least 90 days. The SEC also set forth, among other 
things, the following requirements: maintenance of duplicates of 
records, which can be stored on any medium satisfying the above 
criteria; organizing and indexing of both original and duplicate 
records; an audit system that can record both the entry and 
modification of records; a third-party download provider, whose name 
is provided to the SRO and who agrees to promptly furnish to the SEC 
and SRO(s) information necessary to access and download records; 
and, where a broker-dealer uses an outside service bureau to 
preserve records, and escrow agent who keeps a current copy of the 
information necessary to access and download records.
    \27\ As of March 31, 1997, 113 of 236 FCMs were registered with 
the SEC as broker-dealers. Therefore, the Commission has attempted, 
where possible, to coordinate its regulatory efforts with SEC 
requirements. For instance, Rule 1.10(h) permits and FCM to file 
reports concerning its financial condition by submitting a copy of 
its Financial and Operational Combined Uniform Single report filed 
with the SEC in lieu of the Commission's Form 1-FR-FCM, and Rules 
1.14 and 1.15, the Commission's risk assessment rules, attempt to 
avoid duplication of similar SEC rules with regard to recordkeeping 
and reporting.

    Issued in Washington, DC on June 4, 1997 by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 97-15071 Filed 6-9-97; 8:45 am]
BILLING CODE 6351-01-M