[Federal Register Volume 63, Number 221 (Tuesday, November 17, 1998)]
[Notices]
[Pages 63913-63915]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-30647]


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COMMODITY FUTURES TRADING COMMISSION


Adverse Registration Actions by the National Futures Association 
With Respect to Agricultural Trade Option Merchants and Their 
Associated Persons 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 the National Futures Association (NFA) to deny, condition, 
suspend, modify, restrict or revoke the registration of any 
agricultural trade option merchant (ATOM) or any associated person (AP) 
of an ATOM or to deny or condition an application for registration in 
either category. In addition, the Commission is authorizing NFA to 
perform record custodianship functions with respect to such adverse 
registration actions. The Commission has previously authorized NFA to 
perform various functions with respect to processing registration 
records for ATOMs and their APs, and applicants therefore, including 
granting such registrations where appropriate and serving as the 
official custodian of those Commission records. 63 FR 18821 (April 16, 
1998). This Order does not authorize NFA to accept or act upon requests 
for exemption or to render ``no-

[[Page 63914]]

action'' opinions with respect to applicable registration requirements. 
This Order generally will confirm NFA's authority regarding the ATOM 
and ATOM AP registration categories to the authority delegated by the 
Commission to NFA concerning the other categories of registration under 
the Commodity Exchange Act (Act).\1\
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    \1\ 7 U.S.C. 1 et seq. (1994).
    Although ``agricultural trade option merchant'' and ``associated 
person of an agricultural trade option merchant'' are not 
registration categories defined by the Act, they are, nevertheless, 
registration categories ``under the Act'' by virtue of the 
Commission's promulgation of rules creating these registration 
categories under Section 4c(b) of the Act (its plenary authority 
over the regulation of options) and under Section 8a(5) of the Act 
(its general rulemaking authority). 62 FR 18821, 18825, n. 20.

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EFFECTIVE DATE: November 17, 1998.

FOR FURTHER INFORMATION CONTACT:
Kimberly A. Browning, Attorney/Advisor, Division of Economic Analysis, 
or Lawrence B. Patent, Associate Chief Counsel, Division of Trading and 
Markets, Commodity Futures Trading Commission, Three Lafayette Centre, 
1155 21st Street, NW., Washington, DC 20581, (202) 418-5000, or 
electronically at [[email protected]] or [[email protected]].

SUPPLEMENTARY INFORMATION:

Introduction

    On April 16, 1998, the Commission published interim final rules in 
the Federal Register authorizing NFA to perform registration processing 
functions with respect to ATOMs and their APs.\2\ These functions 
include: (1) processing and, where appropriate, granting applications 
for registration for ATOMs and their APs; and (2) establishing and 
maintaining systems of records regarding ATOMs and their APs and 
serving as the official custodian of those Commission records.\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 ATOM or any ATOM AP 
or to deny or condition an application for registration in either 
category. In addition, the Commission is authorizing NFA to perform 
record custodianship functions with respect to such adverse 
registration actions.
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    \2\ 63 FR 18821. These interim final rules became effective on 
June 15, 1998. Id.
    \3\ Under cover of a letter dated June 18, 1998, NFA submitted 
to the Commission amendments to its bylaws and rules to govern these 
two registration processing functions.
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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 ATOM and ATOM AP registration categories to 
the authority delegated by the Commission to NFA concerning the other 
categories of registration under the Act.\4\
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    \4\ 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, associated persons of any of the 
foregoing entities, floor brokers and floor traders, as well as 
applicants for registration in any of the aforementioned categories. 
See 49 FR 15940 (April 13, 1983); 49 FR 35158 (August 3, 1983); 48 
FR 51809 (November 14, 1983); 48 FR 8226 (March 5, 1984); 49 FR 
39593 (October 9, 1984); 50 FR 34885 (August 28, 1985); 54 FR 19594 
(May 8, 1989); 54 FR 41133 (October 5, 1989); 59 FR 38957 (August 1, 
1994); and 62 FR 36050 (July 3, 1997).
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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 modify or 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. The Commission expects that NFA will promptly 
notify the Commission when NFA becomes aware that any registrant has 
been charged with a felony.\5\
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    \5\ In this regard, the Commission notes that ATOMs and their 
APs, as well as applicants for registration in either category, are 
required to supplement their respective registration applications to 
include any changes to the information provided thereon and report 
such changes to the NFA. See Commission Rule 3.13(e)(4).
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United States of America Before the Commodity Futures Trading 
Commission Order Authorizing the Performance of Registration Functions

I. Authority and Background

    Section 8a(10) of the Act (7 U.S.C. 12a(10) (1994)) 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 provision of 
the Act applicable to registrations granted by the Commission. Section 
17(o)(2) of the Act provides that the Commission may authorize any 
registered futures association, in this case NFA, in performing 
Commission registration functions, to deny, condition, suspend, 
restrict or revoke any registration, subject to Commission review.\6\
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    \6\ 7 U.S.C. 21(o)(2) (1994).
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    NFA submitted under cover of a letter dated August 27, 1998, 
amendments to its rules to govern adverse actions against ATOMs, ATOM 
APs and applicants for registration in either category. These 
amendments reflect actions taken by NFA's Board of Directors at a 
meeting on August 20, 1998. NFA's rule amendments establish procedures 
for conducting adverse registration actions with respect to the ATOM 
and ATOM AP registration categories. In particular, NFA will conduct a 
fitness review of each ATOM and ATOM AP registration applicant. In 
appropriate circumstances, NFA will institute adverse registration 
actions against ATOMs, their APs or applicants for registration in 
either category based on the statutory disqualifications provided under 
Sections 8a(2) and 8a(3) of the Act. NFA also will review the financial 
statements submitted by prospective ATOMs with their registration 
applications to determine whether such statements demonstrate 
compliance with the $50,000 minimum net worth requirement provided 
under Commission Rule 3.13(d)(i). In those instances where the listed 
financial data fail to satisfy this requirement, NFA will institute 
adverse registration actions.
    Upon consideration, the Commission has determined to authorize NFA, 
effective, November 17, 1998, to deny, condition, suspend, modify, 
restrict or revoke the registration of any ATOM, any ATOM AP or an 
applicant for registration in either category in accordance with the 
standards established by the Act and rules promulgated thereunder. In 
addition, the Commission is authorizing NFA to perform record 
custodianship functions with respect to such adverse registration 
actions. Separately, by letter dated September 10, 1998, the 
Commission's Division of Trading and Markets permitted amendments to 
NFA bylaws and NFA Registration Rules 201 and 501(a) to become 
effective without Commission approval in order to implement these 
grants of authority.
    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

[[Page 63915]]

agency.\7\ The Commission has now determined, in accordance with its 
authority under Section 8a(10) of the Act, to authorize NFA to 
maintain, and to serve as official custodian of, the Commission's 
registration records with respect to adverse actions against ATOMs, 
their APs 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.
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    \7\ 49 FR 39593 (October 9, 1984); 50 FR 34885 (August 28, 
1985); 51 FR 25929 (July 7, 1986); 54 FR 19594 (May 8, 1989); 54 FR 
41133 (October 5, 1989); 58 FR 19657 (April 15, 1993); and 59 FR 
38957 (August 1, 1994).
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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. 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 ATOM, ATOM AP 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.

II. Conclusion and Order

    The Commission has determined, in accordance with the provisions of 
Section 8a(10) of the Act, to authorize NFA, effective November 17, 
1998, to perform the following registration functions:
    (1) To deny, condition, suspend, modify, restrict or revoke 
registration under the Commodity Exchange Act as an agricultural trade 
option merchant, an associated person of an agricultural trade option 
merchant or an applicant for registration in either category; and
    (2) To establish and to maintain a system of records regarding such 
adverse actions involving agricultural trade option merchants, 
associated persons of agricultural trade option merchants 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 upon 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 Section 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) (1994), and 17 CFR Part 171.

    Issued in Washington, DC on November 10, 1998 by the Commission.
Catherine D. Dixon,
Assistant Secretary of the Commission.
[FR Doc. 98-30647 Filed 11-16-98; 8:45 am]
BILLING CODE 6351-01-M