[Federal Register Volume 73, Number 177 (Thursday, September 11, 2008)]
[Notices]
[Pages 52832-52833]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-21114]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
Joint Audit Committee Operating Agreement
AGENCY: Commodity Futures Trading Commission.
ACTION: Request for comment.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is publishing for public comment an agreement submitted by
the Joint Audit Committee (``JAC'') for approval pursuant to Commission
Regulation 1.52.\1\ The JAC is a voluntary, cooperative organization
comprised of representatives of the financial surveillance staff of
designated contract markets (``DCMs'') and the National Futures
Association (``NFA'') and was formed for the purpose of coordinating
the monitoring and examination of common futures commission merchant
(``FCM'') members of such entities. The agreement governs the operation
of the JAC and the manner by which the JAC will coordinate and
cooperate in examining and monitoring FCMs for compliance with
Commission and self-regulatory organization (``SRO'') minimum financial
and related reporting requirements. The JAC is submitting the agreement
to replace the current operating agreement, which has been in effect
since 1984.
---------------------------------------------------------------------------
\1\ Commission regulations may be found at 17 CFR Ch. 1 (2008).
---------------------------------------------------------------------------
DATE: Comments must be received on or before October 14, 2008.
ADDRESSES: Interested persons should submit their views and comments to
David Stawick, Secretary, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. In
addition, comments may be sent by facsimile transmission to (202) 418-
5521, or by electronic mail to [email protected]. Reference should be
made to ``Joint Audit Committee''. This document also will be available
for comment at http://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Thomas J. Smith, Deputy Director and
Chief Accountant, or Jennifer Bauer, Special Counsel, Division of
Clearing and Intermediary Oversight, Commodity Futures Trading
Commission, [email protected], Three Lafayette Centre, 1155 21st Street,
NW., Washington, DC 20581. Telephone (202) 418-5472.
SUPPLEMENTARY INFORMATION:
The Commodity Exchange Act \2\ (``Act'') authorizes the Commission
to adopt regulations imposing minimum financial and related reporting
requirements upon FCMs. In this regard, Section 4f(b) of the Act
authorizes the Commission to adopt regulations imposing minimum capital
requirements upon FCMs. In addition, Section 4d of the Act requires
FCMs to segregate from their own assets all money, securities, and
property deposited by customers to margin, guarantee, or secure futures
positions, and Section 4f(a)(1) of the Act authorizes the Commission to
establish financial reporting requirements upon FCMs. Consistent with
this authority, the Commission has adopted regulations addressing
minimum financial and related reporting requirements for FCMs.\3\
---------------------------------------------------------------------------
\2\ 7 U.S.C. 1 et seq.
\3\ For example, see Commission Regulation 1.17 for the minimum
financial requirements for FCMs and introducing brokers (``IBs'')
adopted by the Commission, and Commission Regulations 1.10 and 1.12
for monthly and annual financial reporting requirements and notice
requirements, respectively.
---------------------------------------------------------------------------
The Act further imposes obligations upon DCMs and NFA to monitor
FCMs for compliance with the minimum financial and related reporting
requirements. Specifically, DCM Core Principle 11 requires a board of
trade to establish and to enforce rules addressing the financial
integrity of FCMs.\4\ In addition, Section 17(p)(2) of the Act requires
NFA to establish minimum capital, segregation, and other financial
requirements for member FCMs and to implement a program to audit and to
enforce compliance with such requirements. Minimum standards for an
effective financial surveillance program are further set forth in
interpretations issued by the Commission's Division of Trading and
Markets.\5\
---------------------------------------------------------------------------
\4\ 7 U.S.C. 7(d)(11).
\5\ See Division of Trading and Markets Financial and
Segregation Interpretation No. 4-1--Advisory Interpretation for
Self-Regulatory Organization Surveillance over Members' Compliance
with Minimum Financial, Segregation, Reporting, and Related
Recordkeeping Requirements, Comm. Fut. L. Rep. (CCH) ] 7114A (Jul.
29, 1985); and Division of Trading and Markets Financial and
Segregation Interpretation No. 4-2--Risk-Based Auditing, Com. Fut.
L. Rep. (CCH) ] 7114E (August 20, 1999).
---------------------------------------------------------------------------
In 1984, a number of futures exchanges (now, DCMs) and NFA
(collectively referred to as SROs) entered into a Joint Audit Agreement
(``1984 Agreement''). The 1984 Agreement generally provides that an FCM
that is a member of more than one SRO would have a single designated
SRO (``DSRO''). The DSRO is primarily responsible for conducting
periodic financial examinations, the results of which are shared with
the other SROs of which the FCM is a member. The DSRO process is
intended to enhance the effectiveness and efficiency of the SROs'
financial surveillance function by avoiding unnecessary duplicative
financial examinations of FCMs that are members of more than one SRO.
This regulatory approach was endorsed by the Commission when it adopted
Regulation 1.52, which permits DSROs to enter into cooperative
agreements sharing financial surveillance oversight responsibilities
for FCMs that are members of more than one SRO, provided that the
oversight agreement is approved by the Commission after public notice
and comment.\6\
---------------------------------------------------------------------------
\6\ Regulation 1.52(g) states:
``After appropriate notice and opportunity for comment, the
Commission may, by written notice, approve such a plan, or any part
of the plan, if it finds that the plan, or any part of it: (1) Is
necessary or appropriate to serve the public interest; (2) Is for
the protection and in the interest of customers; (3) Reduces
multiple monitoring and auditing for compliance with the minimum
financial rules of the [SROs] submitting the plan for any [FCM or IB
that] is a member of more than one [SRO]; (4) Reduces multiple
reporting of the financial information necessitated by such minimum
financial and related reporting requirements by any [FCM or IB that]
is a member of more than one [SRO]; (5) Fosters cooperation and
coordination among the contract markets; and (6) Does not hinder the
development of a registered futures association under [S]ection 17
of the Act.''
---------------------------------------------------------------------------
[[Page 52833]]
In 2004, the SROs, through the JAC, submitted proposed amendments
to the 1984 agreement to the Commission for approval. The Commission
published the proposed amendments for public comment on April 12, 2004.
The proposal, however, became linked to the Commission's study on the
SRO process, which encompassed the topic of the general governance of
SROs and the role of industry self-regulation.\7\ The Commission
completed its SRO governance study in 2007 with the adoption of a
regulation providing acceptable practices under core principles for the
composition of boards of directors of SROs.\8\ However, the
effectiveness of this regulation has been stayed,\9\ and no final
action was taken by the Commission with respect to the amendments
proposed in 2004. The 1984 Agreement has remained in effect, and the
JAC has continued its role of enabling the cooperative examination of
member firms in the intervening time period.
---------------------------------------------------------------------------
\7\ One of the comments received with respect to the proposed
amendments published in 2004 was from the Futures Industry
Association (``FIA''), dated June 18, 2004, which stated that the
FIA's comments may change based on the results of the Commission's
SRO study and that any action taken with respect to the proposed
amendments to the JAC agreement should be deferred until the
completion of the SRO study.
\8\ 72 FR 6936 (February 14, 2007).
\9\ See 72 FR 65658 (November 23, 2007).
---------------------------------------------------------------------------
The Commission has now received from the JAC a revised series of
proposed amendments to the 1984 Agreement (``Proposed Agreement'') for
which approval has been requested. In accordance with Regulation
1.52(g), the Commission is publishing this notice to request public
comment on the Proposed Agreement before taking action to approve or to
deny approval of the Proposed Agreement.
The Proposed Agreement includes provisions addressing JAC
governance procedures and voting rights, membership criteria,
information sharing arrangements, and DSRO designation criteria. The
Proposed Agreement differs in several material respects from the
revisions published for comment in 2004, and many comments received in
2004 were related to provisions which are no longer applicable in the
Proposed Agreement. In addition, in the intervening period of four
years commenters may have changed their positions from those previously
communicated. Therefore, the Commission will not consider the comments
submitted in response to the 2004 request for comments in assessing
whether the Proposed Agreement satisfies the requirements of Regulation
1.52(g). Accordingly, any person wishing to comment on the Proposed
Agreement should submit a comment letter.
The Commission invites comment on the Proposed Agreement,
particularly with respect to the ability of the DSRO system to continue
to serve the public interest, reduce duplicative reporting and
examination burdens on FCMs, strengthen customer protections, and
foster cooperation and coordination among DCMs.
The 1984 Agreement, Commission letter approving the 1984 Agreement,
and the Proposed Agreement are available on the Commission's Web site
at http://www.cftc.gov upon the issuance of this notice by the
Commission. Copies of these documents also may be obtained from the
Office of the Secretariat, Commodity Futures Trading Commission, 1155
21st Street, NW., Washington, DC 20581.
Issued in Washington, DC on September 8, 2008, by the
Commission.
David Stawick,
Secretary of the Commission.
[FR Doc. E8-21114 Filed 9-10-08; 8:45 am]
BILLING CODE 6351-01-P