[Federal Register Volume 64, Number 167 (Monday, August 30, 1999)]
[Proposed Rules]
[Pages 47151-47156]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-22461]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1


Use of Electronic Signatures by Customers, Participants and 
Clients of Registrants

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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SUMMARY: As part of its ongoing efforts to facilitate the use of 
electronic technology and media in the futures industry, the Commodity 
Futures Trading Commission (``Commission'' or ``CFTC'') is proposing to 
adopt new rules allowing the use of electronic signatures in lieu of 
handwritten signatures for certain purposes under the Commission's 
regulations.\1\ The Commission seeks comment on these rules and on 
issues relating generally to the use of electronic media for 
communications necessary to establish an account for trading commodity 
interests.
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    \1\ Commission regulations referred to herein are found at 17 
CFR Ch. 1 et seq. (1999).

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DATES: Comments must be received on or before October 29, 1999.

ADDRESSES: Comments should be mailed to Jean A. Webb, Secretary, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW, Washington, DC 20581; transmitted by facsimile to (202) 
418-5521; or transmitted electronically to ([email protected]). 
Reference should be made to ``Internet Account-Opening Process.''

FOR FURTHER INFORMATION CONTACT: Lawrence B. Patent, Associate Chief 
Counsel, or Christopher W. Cummings, Special Counsel, Division of 
Trading and Markets, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581. Telephone 
(202) 418-5430.

SUPPLEMENTARY INFORMATION:

I. Introduction

A. Background

    Notwithstanding the rapid pace at which business transactions of 
all kinds are being converted from paper-based to electronic formats, 
the opening of accounts to trade investment products in the commodity 
futures and option markets continues to involve exchange of paperwork 
between the broker and the customer. Strictly speaking, there is 
nothing in the Commodity Exchange Act (the ``Act'') \2\ and the 
Commission's regulations issued thereunder that prevents a futures 
commission merchant (``FCM'') or introducing broker (``IB'') from 
opening electronically a customer account. There are ancillary rules, 
however, that effectively require the parties to exchange paper, such 
as the requirement that the FCM or IB obtain a signed acknowledgment 
that the customer has received the required risk disclosure 
statement,\3\ or the requirement that an agreement to arbitrate 
disputes be entered into by a separate signature from that which 
executes the account agreement.\4\ In the current session of Congress, 
several bills have been introduced to authorize the use of electronic 
signatures.\5\ In addition, the National Conference of Commissioners on 
Uniform State Laws has prepared a ``Uniform Electronic Transactions 
Act'' (``UETA'') with the goal that it will be adopted by the States, 
giving legal certainty to

[[Page 47152]]

electronic commerce, particularly from the perspective of contract law.
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    \2\ 7 U.S.C. 1 et seq. (1994).
    \3\ See Rule 1.55(a)(1).
    \4\ See Rule 180.3(b)(6).
    \5\See Senate Bills 761 (``Millennium Digital Commerce Act'') 
and 921 (``Electronic Securities Transactions Act'') and House 
Resolutions 1572 (``Digital Signature Act of 1999''), 1685 
(``Internet Growth and Development Act of 1999'') and 1714 
(``Electronic Signatures in Global and National Commerce Act'').
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    Over the past several years, the Commission has modified or made 
exception to rule provisions that were adopted originally with paper-
based transactions in mind in order to permit registrants to comply 
with those provisions in the context of electronic commerce. For 
example, as a result of such actions, the Commission now permits 
commodity pool operators (``CPOs'') and commodity trading advisors 
(``CTAs'') who deliver their prescribed Disclosure Documents by 
electronic means to obtain the required acknowledgment of receipt by 
electronic means that use a unique identifier to confirm the identity 
of the recipient, including such means as a personal identification 
number, or ``PIN.'' \6\ The Commission has accepted the use of PINs in 
other contexts as well, such as in the attestation of financial reports 
that FCMs are required to file with self-regulatory organizations.\7\
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    \6\ See Rules 4.21(b) and 4.31(b), and 62 FR 39104, 39110 (July 
22, 1997).
    \7\ Rule 1.10(d)(4). See 62 FR 10441 (March 7, 1997).
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    Recently, the Division was asked to interpret Commission rules to 
permit an FCM to accept, in lieu of a prospective customer's manually 
signed, paper acknowledgment that he received and understood the risk 
disclosure statement specified in Rule 1.55, an electronic mail message 
to that effect on which the customer has typed his name. The Commission 
believes that customers of FCMs and IBs, as well as commodity pool 
participants and clients of CTAs, should be permitted to use electronic 
signatures in those instances where Commission regulations require the 
customer's (or participant's or client's) manual signature. In 
furtherance of this belief, the Commission is proposing Rule 1.4, ``Use 
of electronic signatures.'' \8\
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    \8\ As is discussed more fully below, the Commission also is 
proposing to define in new Rule 1.3(tt) the term ``electronic 
signature.''
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B. Current Regulatory Requirements Affecting the Account-Opening 
Process

    The process by which an FCM or IB actually establishes a customer 
account to trade commodity interests primarily is governed by state 
contract law. Neither the Act, the Commission's regulations nor the 
rules adopted by commodity industry self-regulatory organizations 
directly specify the steps to be taken to establish an account or the 
manner in which those steps are to be taken, although certain 
provisions of the Commission's regulations affect matters that are 
pendant to the account opening process. The following discussion 
highlights the CFTC rule provisions that may be implicated regarding 
customer authorizations and endorsements necessary for opening and 
maintaining a commodity interest trading account.
Rules 1.36 and 1.37
    Rule 1.37(a) requires FCMs and IBs to keep permanent records, for 
each commodity futures or option account, of the customer's true name, 
address and principal occupation or business, as well as the name of 
any person guaranteeing the account or exercising any trading control 
with respect to the account. Rule 1.36 requires an FCM who receives 
property other than cash to margin or secure futures or commodity 
option transactions to keep a record of all such property and the name 
and address of the customer (as well as information regarding the 
segregation and ultimate disposition of the property).
Rules 1.55(a), (b), (c) and (f), and Rule 30.6
    Rule 1.55(a) provides that prior to opening a commodity futures 
account an FCM or IB must: (1) furnish the customer with a written 
disclosure statement containing language specified in rule 1.55 (b) or 
(c); and (2) obtain the customer's signed and dated acknowledgement 
that he has received and understands the disclosure statement. Rule 
30.6 extends a similar requirement to FCMs or IBs seeking to open 
foreign futures trading accounts for customers. Rule 1.55(f) provides 
that the FCM or IB may open a commodity interest account without 
furnishing the customer with the disclosure statements required by 
Rules 1.55(a), 30.6(a), 33.7(a) and 190.10(c) if the customer is among 
a specified category of sophisticated customers.\9\
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    \9\ A customer is considered sophisticated for purposes of Rule 
1.55(f) if it is: a bank or trust company; a savings association or 
credit union; an insurance company; an SEC-registered investment 
company or a foreign investment company with total assets in excess 
of $5 million; a pool operated by a registered (or foreign 
registered) or exempt CPO; a corporation or other entity with total 
assets in excess of $10 million or a net worth of $1 million; an 
employee benefit plan subject to ERISA (or foreign person performing 
similar functions and subject to foreign regulation) with assets in 
excess of $5 million; a registered broker-dealer; a registered FCM, 
floor broker or floor trader; or a natural person with total assets 
exceeding $10 million.
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Rule 33.7
    Where an FCM or IB seeks to open a commodity option account for a 
customer, Rule 33.7 imposes requirements similar to those imposed by 
Rule 1.55 for commodity futures accounts. As with Rule 1.55, the FCM or 
IB must obtain a signed and dated acknowledgement that the required 
disclosure statement was received and understood by the customer. As is 
true for Rule 1.55(a), Rule 30.6 and Rule 190.10(c), this requirement 
does not apply where the customer is one of the types of sophisticated 
customers identified in rule 1.55(f).
Rule 190.10(c)
    Rule 190.10(c) requires a commodity broker (other than a clearing 
organization), before accepting property other than cash to margin or 
secure a commodity contract, to furnish to the customer the bankruptcy 
risk disclosure statement specified in Rule 190.10(c)(2). As is true of 
Rule 1.55(a), Rule 30.6 and Rule 33.7, this requirement does not apply 
where the customer is one of the types of sophisticated customers 
identified in Rule 1.55(f).
Rule 190.06
    Rule 190.06(d) requires that a commodity broker must provide an 
opportunity for each customer to specify when undertaking the 
customer's first hedging contract whether, in the event of the broker's 
bankruptcy, the customer prefers that open commodity contracts held in 
a hedging account be liquidated by the trustee in bankruptcy without 
seeking instructions from the customer.
Rule 1.55(d)
    Rule 1.55(d) provides that an FCM or IB may obtain the 
acknowledgments required by rules 1.55, 33.7 and 190.06 by having the 
customer sign once, provided that the customer has acknowledged on the 
document he signs, by check or other indication, next to a description 
of each required disclosure statement (or election) that the customer 
has received and understood the disclosure statement (or made the 
election).
Rule 180.3
    Rule 180.3 regulates conditions under which FCMs and IBs \10\ may 
enter agreements with customers requiring that disputes be submitted to 
a settlement procedure, such as binding arbitration. Signing the 
agreement to use the specified settlement procedure must not be made a 
condition for the customer to utilize the services offered by the 
registrant. The rule also provides that if the agreement is contained 
as a clause or group of clauses in a broader agreement (e.g., an FCM's 
customer agreement), the customer must

[[Page 47153]]

separately endorse the clause or clauses containing the prescribed 
language regarding available dispute resolution fora and other 
cautionary material specified in rule 180.3.
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    \10\ Rule 180.3 also applies to registered floor brokers, CPOs 
and CTAs and their respective associated persons (``APs'').
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Rule 166.2
    Rule 166.2 requires that before an FCM, an IB or one of their APs 
effects a transaction in a customer's commodity interest account the 
customer (or the person designated by the customer to control the 
account) must specifically authorize the transaction or the customer 
must have authorized the FCM, IB or AP in writing to effect 
transactions in the account without specific authorization. Under the 
rule, any such authorization to effect transactions without specific 
further authorization must be expressly documented.
    Several other rule provisions may, but do not necessarily, affect 
the account opening process:
Rule 1.65
    Rule 1.65 applies to bulk transfers of customer accounts to another 
FCM or IB under circumstances other than at the request of the customer 
(an event that generally occurs subsequent to the opening of an 
account). The transferor FCM or IB must first obtain the customer's 
specific consent to the transfer. If the customer agreement contains a 
valid consent by the customer to prospective transfers of the account, 
the customer must nevertheless be provided with written notice of the 
transfer and must be given a reasonable opportunity to object to the 
transfer. The transferee FCM or IB must provide the risk disclosure 
statements required by rules 1.55, 33.7 and 190.10(c) unless: (1) The 
FCM or IB has clear written evidence that the customer has received and 
acknowledged the required disclosure statements; (2) the FCM or IB has 
clear written evidence that at the time the account was opened the 
customer was one of the sophisticated customers identified in rule 
1.55(f); or (3) the transferor IB and the transferee IB are both 
guaranteed by the same FCM, and that FCM maintains the relevant 
acknowledgments required by Rules 1.55(a)(1)(ii) and 33.7(a)(1)(ii) and 
can establish compliance with Rule 190.10(c).
Rule 155.3
    Rule 155.3(b)(2) prohibits an FCM or any of its affiliated persons 
from knowingly taking the other side of any order of another person 
revealed to the FCM or affiliated person by reason of their 
relationship to such person except with the other person's prior 
consent and in accordance with Commission-approved contract market 
rules.
Rule 1.20(a)
    An FCM may not remove funds from a customer's segregated account 
and transfer those funds to another non-segregated account (such as a 
securities account) without a separate writing clearly evidencing the 
customer's authorization for the removal of those funds. The Commission 
has consistently declined to permit FCMs to include in the customer 
account agreement the requisite authorization to transfer funds from a 
customer's segregated account to another account of that customer 
carried by the FCM.\11\
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    \11\ See Protection of Commodity Customers; Risk Disclosure by 
Futures Commission Merchants and Introducing Brokers to Customers; 
Bankruptcy Disclosure. 63 FR 17495 (April 5, 1993) at 17499 n.18 and 
Staff Letters referenced there.
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II. Proposed New Rules

A. Rule 1.3(tt)

    Rule 1.3 contains definitions of various terms used in the Act and 
the Commission's regulations. The Commission is proposing to add a new 
paragraph (tt) to the rule, which would define the term ``electronic 
signature'' as ``an electronic sound, symbol, or process attached to or 
logically associated with a record and executed or adopted by a person 
with the intent of signing the record.'' The proposed definition is 
taken from the Uniform Electronic Transactions Act (``UETA'') approved 
and recommended for enactment in all the States by the National 
Conference of Commissioners of Uniform State Laws during that 
Conference's July 23-30, 1999 annual meeting.\12\
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    \12\ The UETA definition is a broad one and is likely to be 
generally consistent with state and Federal laws adopted in the 
future.
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    The wording of the proposed definition is intended to be broad 
enough to encompass electronic signatures created under a variety of 
current and future technologies, while requiring that the person 
employing an electronic signature does so with the intent to accomplish 
the signing of a particular electronic document or record. The 
definition also expressly provides that the ``sound, signal or 
process'' that will constitute the electronic signature be attached to 
or logically associated with an electronic record. As the drafters of 
the UETA noted:

    A key aspect of this definition lies in the necessity that the 
electronic signature be linked or logically associated with the 
electronic record. For example, in the paper world, it is assumed 
that the symbol adopted by a party is attached to or located 
somewhere in the same paper that is intended to be authenticated. 
These tangible manifestations do not exist in the electronic 
environment, and accordingly, this definition expressly provides 
that the symbol must in some way be linked to or connected with, the 
electronic record being signed.\13\

    \13\ National Conference of Commissioners on Uniform State Laws 
Uniform Electronic Transactions Act, Draft prepared for the July 23-
30, 1999 meeting (the ``Annual Meeting Draft'') at page 15. The 
Annual Meeting Draft is available online at the following URL: 
http://www.law.upenn.edu/library/ulc/uecicta/etaam99.htm The text of 
the UETA as approved is available online at the following URL: 
http://www.law.upenn.edu/bll/ulc/fnact99/1990s/ueta.htm.
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    Thus, where a futures customer is required to sign or adopt a 
particular phrase or statement (e.g., a specific disclosure statement 
or portion thereof), the electronic signature must be linked or 
associated in a logical way with that phrase or statement.

B. Rule 1.4

    Proposed rule 1.4(a) would permit the customer of an FCM or IB, a 
pool participant, or a client of a CTA to use an electronic signature 
in lieu of a written signature in any situation in which a provision of 
the Act or Commission regulations requires that person's signature. The 
broad permission to use electronic signatures would be subject to 
compliance with applicable Federal law and any standards regarding 
electronic signatures that the Commission may later adopt and guidance 
that Commission staff may provide.\14\ It would also be subject to the 
futures commission merchant, introducing broker, commodity pool 
operator or commodity trading advisor utilizing reasonable safeguards 
regarding the use of electronic signatures (including, at a minimum, 
measures to verify that the electronic signature belongs to the person 
using it, procedures to prevent alteration of an electronically-signed 
record, and procedures to detect changes or errors in an electronic 
signature). The Commission continues to believe that it generally is 
unwise to attempt to impose specific technological mandates or specific 
system design criteria on registrants, and that requiring instead the 
use of reasonable safeguards,

[[Page 47154]]

to be identified and implemented by the registrant itself, is the 
better approach.\15\
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    \14\ Although the Commission presently is not proposing to adopt 
specific standards regarding electronic signatures, it is possible 
that legislation pending in Congress may require Federal agencies to 
adopt such standards. For example, House Resolution 1572 would 
direct the National Institute of Standards and Technology to 
establish minimum technical criteria for the use by Federal agencies 
of electronic certification and management systems and to 
participate in a national policy panel intended to develop a 
national digital signature infrastructure based on uniform 
standards.
    \15\ Among the potential security procedures for electronic 
signatures identified in the UETA are ``the use of algorithms or 
other codes, identifying words or numbers, encryption, or callback 
or other acknowledgement procedures.'' See UETA Section 2(14).
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    As is clear from the rule, it is not the Commission's intention 
that registrants (particularly small businesses) be required to 
implement electronic signature technology. Rather, if a registrant 
elects generally to accept electronically signed documents, proposed 
Rule 1.4 eliminates any uncertainty under the Act or Commission rules 
or regulations regarding the validity of the signatures.
    Until such time as the Congress and State legislatures enact 
definitive legislation, there will be some question as to the 
sufficiency of electronic signatures in various contexts, and persons 
desiring to use them should know that this question exists and 
consequently that they should use electronic signatures with care. In 
particular, although the proposed rules will make clear that electronic 
signatures provided pursuant to the rules will comply with Commission 
regulations, the validity of such signatures under state contract law 
will vary depending on the relevant jurisdiction (i.e., these proposed 
rules do not purport to preempt state law). In light of the foregoing, 
an FCM, IB, CPO or CTA who elects to receive, handle and store 
documents or records that have been signed by means of an electronic 
signature would be required by proposed Rule 1.4(b) to disclose to the 
customer, participant or client that although an electronic signature 
is sufficient for purposes of the Act and Commission regulations, it 
may be insufficient for purposes of other Federal or State laws or 
regulations (such as common law of contracts). For their own protection 
and the protection of their customers, registrants obviously should 
take reasonable care to determine whether an electronic signature 
intended to consummate a binding contract will be valid in a particular 
jurisdiction.
    It should be noted that proposed Rule 1.4 would not relieve a 
registrant from any other applicable requirement under the Act or the 
Commission's rules--e.g., applicable requirements to maintain records 
of certain signed documents (whether signed with pen and ink or with an 
electronic signature) in a manner consistent with Commission Rule 
1.31.\16\ Similarly, proposed Rule 1.4 would not relieve a registrant 
from requirements regarding the scope or type of customer information 
required to be kept--e.g., Rule 1.37's requirement that FCMs and IBs 
keep permanent records, for each commodity futures or option account, 
of the customer's true name, address and principal occupation or 
business, as well as the name of any person guaranteeing the account or 
exercising any trading control with respect to the account. Lastly, 
registrants should be cognizant of their obligations, among other 
things, to report material inadequacies in their accounting and 
internal controls in accordance with Rule 1.16(e) and their duties 
diligently to supervise the handling of all commodity interest accounts 
they carry, operate, advise or introduce in accordance with Rule 166.3 
when they determine the manner in which they will accept electronic 
signatures and the procedures and safeguards that they establish and 
use in connection with electronic signatures.
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    \16\ Regardless of the form that an electronic signature takes, 
where a registrant is required by Commission regulations to retain a 
signed record in accordance with Rule 1.31, the registrant must be 
able to make the record available (as a signed record) to Commission 
representatives at any time during the retention period specified in 
Rule 1.31. Under Rule 1.31, as recently amended (64 FR 28735 (May 
27, 1999)) persons who store required records electronically must 
provide facilities for immediate production or projection of those 
records for examination by representatives of the Commission or the 
Department of Justice upon request.
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III. Issues on Which the Commission Requests Comment

General

    As noted previously, for the past several years the Commission has 
been engaged in a process of reviewing its regulatory scheme and 
modernizing and streamlining its regulations to adapt to developments 
in the marketplace (including developments in technology and screen-
based trading). As part of this process, the Commission believes that 
allowing for the use of electronic signatures will reduce paperwork and 
promote efficient access to futures markets. These proposed rules have 
been structured to be consistent with any future action by Congress or 
various states in this area. Should the Commission issue rules in this 
area now? Should the Commission defer rulemaking on electronic 
signatures pending possible legislation by Congress?

Security

    As indicated above, Commission rules require that an FCM or IB 
obtain information (such as name, address and occupation) and signed 
acknowledgments (such as an acknowledgment of receipt of the Risk 
Disclosure Statement) from a new customer. Wholly-electronic 
communications such as interactive transactions over the Internet lend 
themselves to anonymous dealings and permit persons to adopt assumed 
identities. Is opening a commodity interest trading account entirely by 
electronic means inherently less conducive to establishing that a 
customer is who he or she claims to be than current practice involving 
exchange of paper documents and/or face-to-face dealings? What 
safeguards, if any, are appropriate to counteract any loss of security 
that may result from elimination of such vestiges of non-electronic 
commerce as manual signatures on acknowledgments, exchange of paper 
documents and face-to-face transactions? How and to what extent might 
encryption, personal identification numbers, callbacks or other 
security measures be employed to safeguard the integrity of information 
provided to or received from customers of FCMs and IBs, pool 
participants or clients of CTAs?
    Much has been written on the development of so-called digital 
signatures and other electronic identification procedures. But each 
such method depends upon unambiguous establishment at the outset of the 
identity of the person who will use the identification procedure. If a 
digital signature or a personal identification number is assigned to a 
person who is using a false identity in the first place, the purpose of 
the process has been defeated. Would digital signatures or other 
electronic identification procedures be any less safe than is the case 
in the current ``paper world?'' Is the language of the proposed rules 
contained in this release adequate for purposes of permitting FCMs, 
IBs, CPOs and CTAs to accept electronic signatures from their customers 
or clients? Are any additional safeguards warranted?

Customer Protection

    Under current practice, a customer who wants to trade commodity 
interests electronically must generally download and print out an 
account agreement and perhaps other documents, to be signed and 
returned before trading can commence. Does this built-in delay operate 
as a beneficial safeguard against high-pressure sales tactics or ill-
considered entry into potentially risky markets? If a customer is able 
to log on to his computer, sign up electronically for a commodity 
interest trading account and immediately begin trading, does that make 
the customer more

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susceptible to unscrupulous and deceptive sales tactics? Would there be 
a benefit to customers if the Commission imposed a specific waiting 
period (e.g., twenty-four hours) before trading can commence in an 
electronically-opened account? Would a customer's ability to begin 
trading almost immediately upon electronically opening an account 
subject the FCM to new risks (e.g., would it be more difficult or 
impossible for the FCM to run credit checks that may currently be part 
of the account opening process)?

Contract law issues

    The Commission is aware that in spite of the fact that under 
Federal securities laws and regulations securities broker-dealers may 
be able to open and trade accounts electronically, broker-dealers have 
generally continued to require some exchange of signed paper documents 
in connection with opening trading accounts, largely because of the 
existing variations in state contract laws. Agreements to submit 
disputes to arbitration, for example, must be executed in such a way as 
to survive a court challenge, and to date, most broker-dealers have 
been reluctant to accept an electronic signature for this purpose. The 
Commission has elected in these proposed rules to allow electronic 
signatures, but to require disclosure to customers to the effect that 
an electronically executed arbitration agreement may be unenforceable 
in certain states. Are there any other legal issues besides questions 
of contract enforceability or issues concerning provisions of the Act 
or the Commission's regulations that may be raised if registrants open 
customer accounts electronically?

Coordination with self-regulatory organizations

    To the extent that self-regulatory organizations (``SROs'') 
overseen by the Commission (including the National Futures Association 
and the designated contract markets) propose or adopt rules regarding 
electronic signatures, conflicts may arise between the proposed rule 
and such SRO rules. Should the Commission expressly provide that SRO 
rules must be consistent with the proposed rule? Is this matter better 
handled in the context of the process pursuant to which the Commission 
reviews and approves SRO rule changes?

IV. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-611, 
requires that agencies, in proposing rules, consider the impact of 
those rules on small businesses. The Commission has previously 
established certain definitions of ``small entities'' to be used by the 
Commission in evaluating the impact of its rules on such entities in 
accordance with the RFA.\17\ The Commission has previously determined 
that FCMs and CPOs are not small entities for the purpose of the 
RFA.\18\ With respect to CTAs and IBs, the Commission has stated that 
it would evaluate within the context of a particular rule proposal 
whether all or some affected CTAs and IBs would be considered to be 
small entities and, if so, the economic impact on them of any rule.\19\ 
In this regard the Commission notes that the regulations being proposed 
herein do not change the obligations of CTAs and IBs under the Act and 
Commission regulations, but permit CTAs and IBs to comply with certain 
existing obligations by using electronic means as an acceptable 
alternative to paper-based compliance. The Chair, on behalf of the 
Commission hereby certifies, pursuant to 5 U.S.C. 605(b), that these 
proposed regulations will not have a significant economic impact on a 
substantial number of small entities. Nonetheless, the Commission 
specifically requests comment on the impact these proposed rules may 
have on small entities.
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    \17\47 FR 18618-18621 (April 30, 1982).
    \18\ 47 FR 18619-18620.
    \19\ 47 FR 18618-18620.
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B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq. 
(Supp. I 1995)) 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.
    The Office of Management and Budget (OMB) approved the collection 
of information associated with this proposed rule (3038-0022, Rules 
Pertaining to Contract Markets and Their Members) on October 24, 1998. 
While the proposed rule discussed herein has no burden, the group of 
rules (3038-0022) of which it is a part has the following burden:
    Average Burden Hours Per Response: 3,609.89.
    Number of Respondents: 15,893.
    Frequency of Response: Annually and On Occasion.
    Copies of the OMB-approved information collection submission are 
available from the CFTC Clearance Officer, 1155 21st Street, NW, 
Washington, DC 20581 (202) 418-5116.

List of Subjects in 17 CFR Part 1

    Signatures, Commodity futures, Commodity brokers.

    Accordingly, 17 CFR part 1 is proposed to be amended as follows:

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

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

    Authority: 7 U.S.C. 1a, 2, 2a, 4, 4a, 6, 6a, 6b, 6c, 6d, 6e, 6f, 
6g, 6h, 6i, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a, 
12c, 13a, 13a-1, 16, 16a, 19, 21, 23, 24.

    2. Section 1.3 is proposed to be amended by adding new paragraph 
(tt) to read as follows:


Sec. 1.3  Definitions.

* * * * *
    (tt) Electronic signature means an electronic sound, symbol, or 
process attached to or logically associated with a record and executed 
or adopted by a person with the intent of signing the record.
    3. Section 1.4 is proposed to be added to read as follows:


Sec. 1.4  Use of electronic signatures.

    (a) For purposes of complying with any provision in the Commodity 
Exchange Act or the rules or regulations in this Chapter I that 
requires a document to be signed by a customer of a futures commission 
merchant or introducing broker, a pool participant or a client of a 
commodity trading advisor, an electronic signature executed by the 
customer, participant or client will be sufficient, if the futures 
commission merchant, introducing broker, commodity pool operator or 
commodity trading advisor elects generally to accept electronic 
signatures; Provided, however, That:
    (i) The electronic signature must comply with applicable Federal 
laws and such standards as the Commission may adopt and such guidance 
as the Commission's staff may provide; and
    (ii) The futures commission merchant, introducing broker, commodity 
pool operator or commodity trading advisor must adopt and utilize 
reasonable safeguards regarding the use of electronic signatures, 
including at a minimum:
    (A) Safeguards employed for the purpose of verifying that an 
electronic signature is that of the person purporting to use it;
    (B) Safeguards employed to prevent alteration of the electronic 
record with which the electronic signature is associated, after such 
record has been electronically signed; and

[[Page 47156]]

    (C) Safeguards employed for detecting changes or errors in a 
person's electronic signature.
    (b) Any futures commission merchant, introducing broker, commodity 
pool operator or commodity trading advisor who elects to accept 
documents that are executed by means of an electronic signature must 
clearly disclose to the customer, participant or client using an 
electronic signature that although an electronic signature is 
sufficient for purposes of the Commodity Exchange Act and the rules or 
regulations of this chapter, it may not be sufficient for purposes of 
other Federal or State laws or regulations.

    Issued in Washington D.C. on August 24, 1999.
Catherine D. Dixon,
Assistant Secretary of the Commission.
[FR Doc. 99-22461 Filed 8-27-99; 8:45 am]
BILLING CODE 6351-01-P