[Federal Register Volume 69, Number 191 (Monday, October 4, 2004)]
[Notices]
[Pages 59286-59287]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2467]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50461; File No. SR-NFA-2004-01]


Self-Regulatory Organizations; National Futures Association; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
and Amendment No. 1 Thereto Adopting Bylaw 1508 Regarding Security 
Futures Agreements

September 28, 2004
    Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-7 thereunder,\2\ notice is hereby given that 
on September 7, 2004, the National Futures Association (``NFA'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by NFA. The Commission is publishing this 
notice to solicit comments on the proposed rule change, as amended, 
from interested persons. On September 3, 2004, the NFA filed the 
proposed rule change with the Commodity Futures Trading Commission 
(``CFTC'') for approval and invoked the ``ten-day'' provision of 
Section 21(j) of the Commodity Exchange Act \3\ (``CEA''). On September 
17, 2004, the CFTC determined not to review the proposed rule change 
and permitted NFA to make the proposed rule change effective on 
September 17, 2004.\4\ On September 27, 2004, NFA filed Amendment No. 1 
to the proposed rule change.\5\
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    \1\ 15 U.S.C. 78s(b)(7).
    \2\ 17 CFR 240.19b-7.
    \3\ 7 U.S.C. 21(j).
    \4\ See letter from Lawrence B. Patent, Deputy Director, 
Compliance and Registration Section, Division of Clearing and 
Intermediary Oversight, CFTC to Thomas W. Sexton, III, General 
Counsel, NFA, dated September 17, 2004.
    \5\ See letter from Kathryn Page Camp, Associate General 
Counsel, NFA, to John C. Roeser, Assistant Director, Division of 
Market Regulation (``Division''), Commission, dated September 27, 
2004. Amendment No. 1 clarifies the proposal. Amendment No. 1 is 
incorporated into this notice.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NFA proposes to adopt NFA Bylaw 1508 regarding securities futures 
agreements. The text of the proposed rule change appears below. New 
language is in italics.
* * * * *

Bylaws

* * * * *

Bylaw 1508. Security Futures Agreements.

    Staff may, with the approval of the Executive Committee, enter into 
one or more agreements with one or more designated contract markets to 
provide regulatory services to NFA to assist NFA in discharging its 
obligations under Sections 15A(k) and 19(g) of the Securities Exchange 
Act of 1934. Any action taken by a designated contract market, or its 
employees or authorized agents, acting on behalf of NFA pursuant to a 
regulatory services agreement shall be deemed to be an action taken by 
NFA; provided, however, that nothing in this provision shall affect the 
oversight of the designated contract market by the Commodity Futures 
Trading

[[Page 59287]]

Commission. Notwithstanding the fact that NFA may enter into one or 
more regulatory services agreements regarding security futures, NFA 
shall retain ultimate legal responsibility for, and control of, its 
self-regulatory responsibilities under the Securities Exchange Act of 
1934, and any such regulatory services agreement shall so provide.
* * * * *

 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. 
NFA has prepared summaries, set forth in Sections A, B, and C below, of 
the most significant aspects of such statements.

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

1. Purpose
    Under the Act, NFA is required, as a limited purpose national 
securities association, to adopt and enforce SFP sales practice rules 
for notice-registered broker-dealers. Pursuant to CFTC Regulation 
1.52(b),\6\ NFA and the futures exchanges have entered into a plan that 
delegates auditing responsibilities for joint members to a designated 
futures self-regulatory organization (``DSRO''). NFA is not the DSRO 
for twenty-one exchange-member FCMs that are notice-registered as 
broker-dealers and, therefore, NFA is not responsible for auditing the 
futures activities of these firms.
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    \6\ 17 CFR 1.52(b).
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    NFA is, however, responsible under the Act for auditing the 
security futures activities of these notice-registered broker-dealers. 
In order to minimize the number of audits these firms are subject to, 
NFA Bylaw 1508 authorizes the NFA to enter into a regulatory services 
agreement with the futures exchanges that audit them. The bylaw also 
provides that NFA retains full responsibility for its obligations under 
the Exchange Act. If the futures exchanges do not conduct the 
appropriate audit steps or report potential violations to NFA, then NFA 
will be responsible to the Commission for those failures.
2. Statutory Basis
    The rule change is authorized by, and consistent with Section 
15A(k) of the Act.\7\
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    \7\ 15 U.S.C. 78o-3(k).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NFA believes that the proposed 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 CEA. In fact, NFA 
believes that the rule change will lessen the burdens on competition by 
avoiding duplicative examinations of notice-registered broker-dealers.

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

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

    The proposed rule change became effective on September 17, 2004. 
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.\8\
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    \8\ 15 U.S.C. 78s(b)(1). For purposes of calculating the 60-day 
abrogation period, the Commission considers the period to commence 
on September 27, 2004, the date NFA filed Amendment No. 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 is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml);
     Send an e-mail to [email protected]. Please include 
File Number SR-NFA-2004-01 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-NFA-2004-01. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 such 
filing also will be available for inspection and copying at the 
principal office of NFA. All comments received will be posted without 
change; the Commission does not edit personal identifying information 
from submissions. You should submit only information that you wish to 
make available publicly. All submissions should refer to File Number 
SR-NFA-2004-01 and should be submitted on or before October 25, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(75).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-2467 Filed 10-1-04; 8:45 am]
BILLING CODE 8010-01-P