[Federal Register Volume 62, Number 159 (Monday, August 18, 1997)]
[Rules and Regulations]
[Page 43930]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-21829]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 12


Commission's Reparations Jurisdiction Over Commodity Trading 
Advisors Exempt From Registration Under Section 4m(1) of the Commodity 
Exchange Act

AGENCY: Commodity Futures Trading Commission.

ACTION: Advisory.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is 
clarifying its reparations jurisdiction over certain commercial 
agricultural cash market participations and nonprofit general farm 
organizations referred to in Section 4m(1) of the Commodity Exchange 
Act (``Act'').\1\ Provided that these persons furnish commodity trading 
advice that is solely incidental to the conduct of their business, 
these persons are exempt from registration as commodity trading 
advisors (``CTAs'') pursuant to Section 4m(1) of the Act, but are 
subject to reparations proceedings under Section 14 of the Act.
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    \1\ 7 U.S.C. Sec. 1 et seq. (1994).

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EFFECTIVE DATE: August 18, 1997.

FOR FURTHER INFORMATION CONTACT: Natalie A. Markman, Attorney-Advisor, 
Division of Trading and Markets, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st Street, N.W., Washington, DC 20581. 
Telephone: (202) 418-5450.

SUPPLEMENTARY INFORMATION: Section 4m(1) of the Act provides, among 
other things, that dealers, processors, brokers or sellers in cash 
market transactions in the agricultural commodities enumerated in 
Section 2 of the Act or the products thereof as well as certain 
nonprofit voluntary membership farm organizations (collectively, ``Cash 
Dealers'') are exempt from registration as CTAs but are subject to 
reparations proceedings under Section 14 of the Act.\2\ Section 
14(a)(1) of the Act, which generally addresses the Commission's 
reparations jurisdiction, provides that reparations claims may be filed 
by persons complaining of any violation of the Act or Commission rules 
against ``any person who is registered'' under the Act.\3\ No cross-
reference or other acknowledgment of the Section 4m(1) reparations 
provision is made in Section 14. However, the Commission's reparations 
rules, which implement Section 14 of the Act, expressly include the 
Section 4m(1) Cash Dealers as a category of permissible respondents in 
reparations proceedings.\4\
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    \2\ The second sentence of Section 4m(1) provides that:
    The [registration] provisions of this section shall not apply to 
any [CTA] who is a (1) dealer, processor, broker, or seller in cash 
market transactions of any commodity specifically set forth in 
[S]ection 2(a) of this Act prior to the enactment of the Commodity 
Futures Trading Commission Act of 1974 (or products thereof) or (2) 
nonprofit, voluntary membership, general farm organization, who 
provides advice on the sale or purchase of any commodity 
specifically set forth in [S]ection 2(a) of this Act prior to the 
enactment of the Commodity Futures Trading Commission Act of 1974; 
if the advice by the person described in clause (1) or (2) of this 
sentence as a [CTA] is solely incidental to the conduct of that 
person's business: Provided, That such person shall be subject to 
proceedings under [S]ection 14 of this Act.
    7 U.S.C. Sec. 6m(1) (1994) (emphasis added). Commission Rules 
4.14(a) (1) and (2) also provide that Cash Dealers are exempt from 
CTA registration but make no mention of reparations jurisdiction. 
Commission rules referred to herein are found at 17 CFR Ch. I 
(1997).
    This Advisory does not address the scope of the exemption from 
CTA registration under Section 4m(1) of the Act or under Rules 
4.14(a) (1) and (2).
    \3\ Section 14(a)(1) provides, in relevant part, that:
    Any person complaining of any violation of any provision of this 
Act or any rule, regulation, or order issued pursuant to this Act by 
any person who is registered under this Act may, at any time within 
two years after the cause of action accrues, apply to the Commission 
for an order awarding--(A) actual damages proximately caused by such 
violation. * * * and (B) in the case of any action arising from a 
willful and intentional violation in the execution of an order on 
the floor of a contract market, punitive or exemplary damages equal 
to no more than two times the amount of such actual damages * * *.
    7 U.S.C. Sec. 18(a)(1) (1994) (emphasis added). As amended by 
the Futures Trading Act of 1978, Section 14(a) provided that a 
reparations complaint could be filed with the Commission by ``[a]ny 
person complaining of any violation of any provision of this Act or 
any rule, regulation, or order thereunder by any person who is 
registered or required to be registered under [S]ection 4d, 4e, 4k, 
or 4m of this Act * * *.'' Pub. L. No. 95-405, Sec. 21, 92 Stat. 
865, 876-76 (1978) (emphasis added). The Futures Trading Act of 1982 
(``1982 Act'') subsequently amended Section 14(a) to eliminate 
reparations jurisdiction over persons ``required to be registered'' 
under the Act. Pub. L. No. 97-444, Sec. 231, 96 Stat. 2294, 2319 
(1983).
    \4\ In 1983, the Commission amended its reparations rules by 
promulgating interim reparations rules to implement the 1982 Act's 
amendment of Section 14(a), which eliminated reparations 
jurisdiction over persons ``required to be registered'' under the 
Act. 48 FR 21923 (May 16, 1983). In Rule 12.21 of the interim rules, 
the Commission retained reparations jurisdiction over registrants 
but eliminated those persons who were ``required to be registered'' 
under the Act as potential reparations respondents. The Commission 
also modified Rule 12.21 by adding, for the first time, persons 
``exempt from registration as [CTAs] by virtue of the second 
sentence of Section 4m'' as a class of potential reparations 
respondents. Id. at 21924. The Commission explained that under 
Section 4m:
    Certain dealers, processors, brokers, or sellers in cash market 
transactions in agricultural commodities and non-profit general farm 
organizations who provide advice on agricultural commodities are 
exempt from having to register as [CTAs]. Nevertheless Section 4m 
provides that such persons are subject to proceedings in 
reparations. Nothing in the 1982 amendments has affected this 
provision of the Act. Thus, * * * the Commission will continue to 
hear reparations claims filed against persons who, at the time of 
the violation, were exempt from registration pursuant to Section 4m 
of the Act.
    Id. (emphasis added).
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    The Part 12 rules, as promulgated in 1984 and continuing to the 
present, provide in Rule 12.13(a) that reparations complaints may be 
filed against any registrant, as defined in Rule 12.2.\5\ Rule 12.2 
defines registrant as any person who: (1) Was registered at the time of 
the alleged violation; (2) is subject to reparations proceedings by 
virtue of Section 4m; or (3) is otherwise subject to reparations 
proceedings.
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    \5\ The Commission replaced interim Rule 12.21 with Rule 
12.13(a) and moved its list of Part 12 definitions to Rule 12.2. 49 
FR 6602, 6622-23, 6626 (February 22, 1984).
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    In a 1985 Federal Register release addressing revisions of Part 4 
of the Commission's rules, the Commission stated that it did ``not 
intend hereafter to exercise jurisdiction in its reparations program 
over persons exempt from CTA registration under [S]ection 4m(1).'' \6\ 
The Commission wishes to eliminate any ambiguity that may have been 
created by the 1985 release by clarifying that, as provided in Section 
4m(1), dealers, processors, brokers or sellers in cash market 
transactions in the agricultural commodities enumerated in Section 2 of 
the Act or the products thereof and certain nonprofit voluntary 
membership farm organizations who provide commodity trading advice in a 
manner incidental to their business are exempt from CTA registration 
but subject to reparations proceedings pursuant to Section 4m(1) and as 
provided in Part 12 of the Commission's rules.

    \6\ 50 FR 15868, 15881 n. 77 (April 23, 1985); see also 49 FR 
4778, 4783 (February 8, 1984) (proposing the Part 4 amendments).
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    Issued in Washington, D.C. on August 12, 1997 by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 97-21829 Filed 8-15-97; 8:45 am]
BILLING CODE 6351--01-M