[Federal Register Volume 68, Number 11 (Thursday, January 16, 2003)]
[Notices]
[Pages 2381-2382]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-913]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47150; File No. SR-NFA-2002-06]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Futures 
Association Concerning Delivery of the Risk Disclosure Statement for 
Security Futures Contracts by Commodity Trading Advisors

January 9, 2003.
    Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-7 under the Act,\2\ notice is hereby given 
that on November 29, 2002, the National Futures Association (``NFA'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule changes described in Items I, II, and 
III below, which Items have been prepared by the NFA. The Commission is 
publishing this notice to solicit comments on the proposed rule changes 
from interested persons. NFA also has filed the proposed rule change 
with the Commodity Futures Trading Commission (``CFTC'').
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    \1\ 15 U.S.C. 78s(b)(7).
    \2\ 17 CFR 240.19b-7.
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    On November 27, 2002, NFA requested that the CFTC make a 
determination that review of the proposed rule change is not necessary. 
The CFTC made such a determination on December 9, 2002.

I. Self-Regulatory Organization's Description of the Proposed Rule 
Change

    Section 15A(k) of the Act \3\ makes NFA a national securities 
association for the limited purpose of regulating the activities of 
members who are registered as brokers or dealers in security futures 
products under Section 15(b)(11) of the Act.\4\ Where security futures 
accounts are solicited by commodity trading advisors (CTAs), the 
proposed rule changes shift responsibility for providing the risk 
disclosure for those products from the CTA to the firms carrying the 
account, which could be a broker-dealer registered under Section 
15(b)(11).
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    \3\ 15 U.S.C. 78o-3(k).
    \4\ 15 U.S.C. 78o(b)(11).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    NFA has prepared statements concerning the purpose of, and basis 
for, the proposed rule change, burdens on competition, and comments 
received from members, participants, and others. The text of these 
statements may be examined at the places specified in Item IV below. 
These statements are set forth in Sections A, B, and C below.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Managed Funds Association (MFA) recently raised an issue 
regarding the security futures risk disclosure statement. The Commodity 
Futures Modernization Act of 2000 provides that, with respect to 
security futures products, CTAs, as well as other registrants, must be 
subject to suitability rules comparable to those that apply to NASD 
members. The ``Know Your Customer'' requirements in NFA Compliance Rule 
2-30 include the requirement to provide appropriate risk disclosure, so 
when that rule was amended to include suitability requirements for 
security futures products, CTAs were included in the provisions of that 
rule relating to the disclosure statement. As Compliance Rule 2-30 and 
the related Interpretive Notice currently read, a CTA is required to 
provide the disclosure statement to the customer in the relatively rare 
instance where the CTA is the Member soliciting the account.
    MFA has questioned this requirement for CTAs, pointing out that 
investment advisers have no similar requirement. Although someone must 
provide the disclosure statement to the customer, the Board agrees that 
the CTA does not have to be the source of that document. In fact, if 
the account is carried by an NASD member that is itself required by 
NASD rules to provide the document, NFA's current rule could result in 
both the CTA and the Futures Commission Merchant (FCM) delivering the 
document. Therefore, the Board amended NFA Compliance Rule 2-30 and the 
related Interpretive Notice to remove CTAs from the special risk 
disclosure requirements for security futures products and to place the 
obligation to provide the statement on the Member carrying an account 
solicited by the CTA. The CTA must still, of course, consider how well 
a customer understands the risks when determining if it is appropriate 
for the customer to trade security futures products or to use the CTA's 
trading program for that purpose.

[[Page 2382]]

2. Statutory Basis

    The rule change is authorized by, and consistent with, Section 
15A(k) of the Act.\5\
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    \5\ 15 U.S.C. 78o-3(k).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The rule change will not impose any burden on competition that is 
not necessary or appropriate in furtherance of the purposes of the Act 
and the Commodity Exchange Act. In fact, the rule change will level the 
playing field for CTAs and investment advisers with little, if any, 
competitive impact on carrying firms.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    NFA did not publish the rule changes to the membership for comment. 
NFA did not receive comment letters concerning the rule changes.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Pursuant to Section 19(b)(7)(B) of the Act,\6\ the proposed rule 
change became effective on December 9, 2002.
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    \6\ 15 U.S.C. 78s(b)(7)(B).
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    Within 60 days of the date of effectiveness of the proposed rule 
change, the Commission, after consultation with the CFTC, may summarily 
abrogate the proposed rule change and require that the proposed rule 
change be refiled in accordance with the provisions of Section 19(b)(1) 
of the Act.\7\
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    \7\ 15 U.S.C. 78s(b)(1).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change conflicts with the Act. Persons making written submissions 
should file nine copies of the submission with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549-0609. Comments also may be submitted electronically to the 
following e-mail address: [email protected]. Copies of the 
submission, all subsequent amendments, all written statements with 
respect to the proposed rule change that are filed with the Commission, 
and all written communications relating to the proposed rule change 
between the Commission and any person, other than those that may be 
withheld from the public in accordance with the provisions of 5 U.S.C. 
552, will be available for inspection and copying in the Commission's 
Public Reference Room. Copies of these filings also will be available 
for inspection and copying at the principal office of NFA.
    Electronically submitted comments will be posted on the 
Commission's Web site (http://www.sec.gov). All submissions should 
refer to File No. SR-NFA-2002-06 and should be submitted by February 6, 
2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(75).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 03-913 Filed 1-15-03; 8:45 am]
BILLING CODE 8010-01-P