[Federal Register Volume 79, Number 131 (Wednesday, July 9, 2014)]
[Notices]
[Pages 39046-39048]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-15960]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72514; File No. SR-NFA-2014-05]
Self-Regulatory Organizations; National Futures Association;
Notice of Filing of Proposed Rule Change Relating to the NFA
Interpretive Notice Entitled ``NFA Compliance Rule 2-9: Enhanced
Supervisory Requirements''
July 2, 2014.
Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-7 thereunder,\2\ notice is hereby
given that on June 18, 2014, National Futures Association (``NFA'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been substantially prepared by NFA. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.\3\
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\1\ 15 U.S.C. 78s(b)(7).
\2\ 17 CFR 240.19b-7.
\3\ NFA previously filed amendments to the Notice regarding Rule
2-9(b) with the Commission. See Exchange Act Release No. 47533 (Mar.
19, 2003), 68 FR 14733 (Mar. 26, 2003) (SR-NFA-2003-01); Exchange
Act Release No. 52808 (Nov. 18, 2005), 70 FR 71347 (Nov. 28, 2005)
(SR-NFA-2005-01); Exchange Act Release No. 53568 (Mar. 29, 2006), 71
FR 16850 (Apr. 4, 2006) (SR-NFA-2006-01); Exchange Act Release No.
55710 (May 4, 2007), 72 FR 26858 (May 11, 2007) (SR-NFA-2007-03);
Exchange Act Release No. 57142 (Jan. 14, 2008), 73 FR 3502 (Jan. 18,
2008) (SR-NFA-2007-07); Exchange Act Release No. 57640 (Apr. 9,
2008), 73 FR 20341 (Apr. 15, 2008) (SR-NFA-2008-01); and Exchange
Act Release No. 63602 (Dec. 22, 2010), 76 FR 202 (Jan. 3, 2011) (SR-
NFA-2010-04).
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On June 18, 2014, NFA also filed the proposed rule change with the
Commodity Futures Trading Commission (``CFTC'') and requested that the
CFTC make a determination
[[Page 39047]]
that review of the proposed rule change of NFA is not necessary. The
CFTC has not yet made such determination.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NFA Compliance Rule 2-9(b) (``Rule 2-9(b)'') and its related
Interpretive Notice entitled ``NFA Compliance Rule 2-9: Enhanced
Supervisory Requirements'' (``Notice'') require NFA member firms
(``Members'') that meet certain criteria identified by NFA's Board of
Directors (``Board'') to comply with specific enhanced supervisory
requirements that are designed to prevent abusive sales practices. One
way a Member firm triggers the enhanced supervisory requirements is to
employ a certain specified number or percentage of associated persons
(APs) that have previously been associated with another firm that was a
``Disciplined Firm'' (as defined in the Notice). The Notice, however,
permits a Member firm to exclude certain of those APs and principals
who meet very specific criteria identified by the Board from its
determination of whether it triggers the enhanced supervisory
requirements. The amendment to the Notice revises this criterion to
provide limited additional relief to a few individual principals who
would currently not be excluded from a Member firm's determination of
whether it triggers the enhanced supervisory requirements.
The text of the proposed rule change is available at the principal
office of NFA, on NFA's Web site at http://www.nfa.futures.org, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NFA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Section 15A(k) of the Exchange Act \4\ 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 Exchange
Act.\5\ The Notice entitled: ``NFA Compliance Rule 2-9: Enhanced
Supervisory Requirements'' applies to all Members who meet the criteria
in the Notice and could apply to Members registered as security futures
brokers or dealers under Section 15(b)(11) of the Exchange Act.
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\4\ 15 U.S.C. 78o-3(k).
\5\ 15 U.S.C. 78o(b)(11).
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Rule 2-9(b) authorizes NFA's Board to require Members that meet
certain criteria established by the Board to comply with specific
enhanced supervisory requirements designed to prevent abusive sales
practices. The related Notice specifies the criteria that subject a
Member firm to the enhanced supervisory requirements and the enhanced
supervisory requirements that must be followed.\6\ Rule 2-9(b) and the
Notice \7\ also provide that a Member may seek a waiver from the
requirements from NFA's Telemarketing Procedures Waiver Committee
(``Waiver Committee''), a Board-appointed panel consisting of three
members of NFA's Business Conduct Committee or Hearing Committee.
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\6\ See Notice at II (Obligations of Members Subject to Enhanced
Supervisory Requirements).
\7\ See Notice at IV (Waiver Procedure).
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As stated above, under Rule 2-9(b) and the Notice, a Member firm
with a certain number or percentage of APs who were previously employed
or associated with a Disciplined Firm is required to comply with the
enhanced supervisory requirements. The Notice also provides that any
Member with a principal who is or was a principal at another Member
that was required to comply with the enhanced supervisory requirements
must itself adopt the enhanced supervisory requirements or seek a
waiver. The Notice further provides, however, that if the principal
satisfies certain criteria in the Notice, the principal will not cause
the Member to comply with the enhanced supervisory requirements.
NFA's Waiver Committee suggested that NFA make a minor modification
to the Notice to provide limited additional relief to a few individual
principals who the Waiver Committee believes are similarly situated to
the current exempt group of principals but who do not benefit from the
relief contemplated in creating the exemption because the principal
does not satisfy the criteria that he/she was a principal at only one
firm that was subject to the enhanced supervisory requirements. The
Waiver Committee is concerned with respect to situations where a Member
firm becomes subject to the enhanced supervisory requirements by virtue
of having a significant percentage of APs who had formerly worked at
Disciplined Firms. If a principal of that firm is also a principal of
another Member firm, then the second Member firm automatically is
subject to the enhanced supervisory requirements simultaneously with
the original firm because the second Member firm now has a principal
who is a principal of another Member (i.e., the first Member) that is
subject to the enhanced supervisory requirements. There have been
several instances where both Members have successfully petitioned the
Waiver Committee for full waivers; however, the principals of those
Members do not qualify for the current exemption because they have been
principals of more than one such Member subject to the enhanced
supervisory requirements.
The Waiver Committee requested that NFA modify the exemption to
eliminate the requirement that the principal could only have been a
principal of one firm that has been subject to the enhanced supervisory
requirements and replace it with the requirement that the most recent
firm in the principal's history that was subject to the enhanced
supervisory requirements either had received a full waiver from those
requirements or had abided by the requirements for two years and is no
longer subject to the requirements. The proposed amendments do not
eliminate any of the other requirements including that the individual
principal must never have been personally subject to CFTC or NFA
disciplinary action or a principal or an AP of a current Disciplined
Firm; and that no firm in the principal's history that was subject to
the enhanced supervisory requirements has become subject to a sales
practice or promotional material based disciplinary action by NFA or
the CFTC since becoming subject to the enhanced supervisory
requirements.
2. Statutory Basis
NFA believes that the proposed rule change is authorized by, and
consistent with, Section 15A(k)(2)(B) of the Exchange Act. That section
sets out requirements for rules of a futures
[[Page 39048]]
association, registered under Section 17 of the Commodity Exchange Act,
that is a registered 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 Exchange Act. Under Section 15A(k)(2)(B), the rules of such a
limited purpose national securities association must be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, and, in general, to protect
investors and the public interest in connection with security futures
products in a manner reasonably comparable to the rules of a registered
national securities association applicable to securities futures
products. NFA believes Rule 2-9(b) and the Notice meet these
requirements by imposing enhanced supervisory requirements on Members
that meet criteria that NFA's Board has determined indicates a greater
potential for sales practice fraud to occur. The proposed rule change
does not diminish the effectiveness of Rule 2-9(b) and the Notice but
merely extends relief to certain principals whose background the Board
has determined do not raise the supervisory concerns that Rule 2-9(b)
and the Notice were intended to address.
B. Self-Regulatory Organization's Statement on Burden on Competition
NFA does not believe that the proposed rule change would impose any
burden on competition. The amendments merely extend existing relief to
certain individual principals whose backgrounds the Board has
determined do not raise the supervisory concerns that Rule 2-9(b) and
the Notice were intended to address.
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 its 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
The proposed rule change is not effective because the CFTC has not
yet determined that review of the proposed rule change is not
necessary.
At any time 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 Exchange Act.
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); or
Send an email to [email protected]. Please include
File Number SR-NFA-2014-05 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NFA-2014-05. This file
number should be included on the subject line if email 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 Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. 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 publicly available. All
submissions should refer to File Number SR-NFA-2014-05 and should be
submitted on or before July 30, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(73).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-15960 Filed 7-8-14; 8:45 am]
BILLING CODE 8011-01-P