[Federal Register Volume 62, Number 175 (Wednesday, September 10, 1997)]
[Proposed Rules]
[Pages 47612-47617]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23882]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 1, 30, 33 and 190


Distribution of Risk Disclosure Statements by Futures Commission 
Merchants and Introducing Brokers

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or 
``Commission'') is proposing to amend its Rule 1.55 in order that 
futures commission merchants (``FCMs'') or introducing brokers 
(''IBs'') would no longer be required to furnish the specified written 
risk disclosure statement to certain categories of financially 
accredited customers or to obtain from these customers written 
acknowledgments of receipt of the risk disclosure statement before 
opening a commodity futures account for such customers. In addition, 
the Commission is proposing amendments to relieve FCMs and IBs from 
requirements to furnish disclosure statements to these customers 
pursuant to Rule 30.6(a) (risk disclosure pertaining to foreign futures 
or foreign options), Rule 33.7(a) (risk disclosure pertaining to 
domestic exchange-traded commodity options), Rule 1.65(a)(3) (risk 
disclosure for customers whose accounts are transferred other than at 
the customer's request to another FCM or IB) and Rule 190.10(c) 
(disclosure pertaining to treatment in bankruptcy of non-cash margin 
held by an FCM).

DATES: Comments must be received on or before November 10, 1997.

ADDRESSES: Comments on the proposed amendments should be sent to Jean 
A. Webb, Secretary of the Commission, Commodity Futures Trading 
Commission, 1155 21st Street, NW., Washington DC 20581. In addition, 
comments may be sent by facsimile transmission to facsimile number 
(202) 418-5221, or by electronic mail to <a href="/cdn-cgi/l/email-protection#8ffceaecfdeafbeefdf6cfece9fbeca1e8e0f9"><span class="__cf_email__" data-cfemail="bac9dfd9c8dfcedbc8c3fad9dcced994ddd5cc">[email protected]</span></a>. Reference 
should be made to ``FCM/IB Risk Disclosure Amendments.''

FOR FURTHER INFORMATION CONTACT: Thomas E. Joseph, Attorney-Adviser, 
Division of Trading and Markets, Commodity Futures Trading Commission, 
1155 21st Street, NW., Washington DC 20581. Telephone (202) 418-5450.

SUPPLEMENTARY INFORMATION:

I. Background

    CFTC rules require FCMs and IBs to provide customers with 
Commission-approved disclosure statements describing the risks of 
trading in domestic (and, as applicable, foreign) commodity futures and 
options and to receive written acknowledgment of receipt of such 
statements prior to opening an account for the customer.\1\ In 
addition, Commission Rule 190.10(c) requires an FCM to provide a 
customer with a disclosure statement concerning the treatment in 
bankruptcy of any non-cash property deposited as margin at the FCM by a 
customer before the FCM may accept non-cash property from the customer 
to margin, guarantee or secure any commodity contract.\2\
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    \1\ See Rule 1.55(a) (risk disclosure requirement concerning 
trading domestic commodity futures); rule 30.6(a) (risk disclosure 
requirement concerning non-United States commodity futures or 
options contracts); and rule 33.7(a) (risk disclosure requirement 
concerning domestic, exchange-traded commodity options).
    \2\ Commission rule 190.10 does not require an FCM to obtain a 
customer's written acknowledgment of receipt of this statement.
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    In 1993 and 1994, the Commission amended its rules to simplify 
these disclosure requirements, reduce the potential for duplicative 
disclosure requirements and ease administrative burdens on FCMs and IBs 
without sacrificing the important customer protection purposes served 
by these regulations. In this regard, the Commission adopted amendments 
to consolidate the risk disclosures required by Rules 1.55(a) and 
30.6(a) into a single, generic statement set forth in CFTC Rule 1.55(b) 
satisfying risk disclosure obligations with respect to domestic futures 
transactions and foreign futures and options transactions.\3\ In 
addition, the Commission amended its rules to include the generic risk 
disclosure statement set forth in Appendix A to CFTC Rule 1.55, which 
may be used to satisfy the risk disclosure obligations under Commission 
Rules 1.55(a), 30.6(a) and 33.7(a) for domestic futures and commodity 
options transactions, foreign futures and commodity options 
transactions and the CFTC Rule 190.10 disclosure concerning non-cash 
property used to margin futures transactions, as well as to satisfy the 
risk disclosure requirements of certain foreign jurisdictions.\4\
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    \3\ See 58 FR 17495 (April 5, 1993) (amending rules to 
consolidate foreign futures and foreign commodity options risk 
disclosure statement required by Rule 30.6(a) with the domestic 
futures risk disclosure statement required by Rule 1.55(a)).
    \4\ See 59 FR 34376 (July 5, 1994) (amending rules so that 
single risk disclosure statement set forth in Appendix A of Rule 
1.55 would satisfy risk disclosure obligations under Rules 1.55(a), 
30.6(a) and 33.7(a) as well as disclosure required pursuant to Rule 
190.10(c)). The risk disclosure statement set forth at Appendix A to 
Rule 1.55 also fulfills risk disclosure requirements in the United 
Kingdom and Ireland for certain specified instruments. The rules 
proposed herein would not alter an FCM's or IB's disclosure 
obligations under the laws or regulations of any foreign 
jurisdiction. Further, as the Commission has previously emphasized, 
compliance with the risk disclosure obligations specified in CFTC 
Rules 1.55, 30.6 and 33.7 does not relieve FCMs and IBs of 
obligations under the Commodity Exchange Act (``Act''), state and 
common law, or Commission rule 1.55(f) to disclose to customers all 
material information concerning a transaction. See, e.g., it. at 
34378. Nor does compliance with these Commission rules fulfill 
individual exchange particularized risk disclosure requirements 
related to linkage arrangement and other special products.
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    When adopting the generic risk disclosure statement set forth in 
Appendix A to Rule 1.55 and the related rule amendments, the Commission 
noted that one commenter on the proposed rule amendments had suggested 
that the Commission eliminate the requirement of receipt of a written 
acknowledgment of disclosure with respect to sophisticated 
investors.\5\ The Commission determined not to address the issues 
raised by that comment at that time. However, since adopting the Rule 
1.55 Appendix A risk disclosure statement, the Commission has assessed 
the results of efforts in other contexts to reduce disclosure 
requirements and other regulatory burdens on Commission registrants 
without undermining consumer protection safeguards. For example, the 
Commission has acquired substantial experience with the simplified 
disclosure regime for sophisticated commodity pool investors and 
clients of commodity trading advisors (``CTAs'') established in 1992 in 
Rule 4.7.\6\ Under Rule 4.7, CPOs offering pool participations to 
qualified participants and CTAs offering managed account programs to 
qualifying clients may be exempted from the requirement to deliver a 
disclosure document containing the disclosures specified in Rules 4.24 
and 4.25 for CPOs and 4.34 and 4.35 for CTAs. However, they remain 
subject to statutory and regulatory antifraud prohibitions and

[[Page 47613]]

are thus required to disclose all material information. In addition, 
the Commission has been able to assess more fully its previous efforts 
to consolidate and simplify risk disclosure obligations for FCMs and 
IBs. Based upon this experience, the Commission believes that it is 
appropriate to provide FCMs and IBs with relief from certain risk 
disclosure and bankruptcy statement requirements in the context of 
accounts for specified sophisticated customers and is thus proposing 
these rule amendments.
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    \5\ Id. at 34378.
    \6\ Rule 4.7 became effective September 8, 1992. 57 FR 34853 
(August 7, 1992) (adopting release for Rule 4.7). Among other 
things, Rule 4.7 relieves commodity pool operators (``CPOs'') and 
CTAs from most specified reporting and disclosure obligations, 
including risk disclosure obligations, with respect to certain 
qualified eligible participants (``QEPs) in rule 4.7 pools or 
qualified eligible clients (``QECs'') of a CTA, as defined in the 
rule.
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II. Discussion

    The amendments proposed herein would eliminate the requirement that 
FCMs and IBs provide specified, financially accredited customers with 
the Commission-mandated risk disclosure statements pursuant to CFTC 
Rules 1.55(a), 1.65(a)(3), 30.6(a), and 33.7(a) and obtain from such 
customers a written acknowledgment of receipt of the risk disclosure 
statement before opening a commodity futures or options account for 
such customers. Additionally, the amendments would relieve FCMs of the 
obligation to furnish these financially accredited customers with the 
bankruptcy disclosure statement required by Rule 190.10(c) before 
accepting non-cash property from such customers to margin a futures 
contract. While the proposed amendments would relieve an FCM or IB of 
the specific disclosure obligations discussed above in connection with 
futures or options transactions by specified customers, these 
amendments make clear that an FCM and IB would remain obligated to 
provide such customers with all disclosures that are material in light 
of the circumstances of the transaction in question. Under the proposed 
amendments, FCMs or IBs would remain free to provide customers 
specified in proposed Rule 1.55(f) with the Commission-approved risk 
and bankruptcy disclosure statements without obtaining a written 
acknowledgment of receipt of these statements from such qualified 
customers.

A. Customers For Whom Relief May Be Claimed

    The categories of customers specified in proposed Rule 1.55(f) for 
whom an FCM or IB may claim the relief proposed herein are based 
substantially upon the categories of eligible swap participants in Part 
35 of the Commission rules \7\ and eligible participants in Part 36 of 
the Commission rules.\8\ The Commission believes that the definitions 
of eligible swap participants and eligible part 36 participants are 
appropriate models for the definitions set forth in proposed Rule 
1.55(f) inasmuch as the Part 35 and 36 rules exempt parties from 
providing mandatory risk disclosure statements (as well as compliance 
with other requirements) in connection with transactions covered by 
those rules.\9\ However, certain minor differences between the proposed 
categories of qualified customers in proposed Rule 1.55(f) and the 
lists of eligible swap participants and eligible participants in parts 
35 and 36, respectively, exist.
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    \7\ See CFTC Rule 35.1(b)(2). Part 35 of the Commission rules 
exempts certain swap agreements from most provisions of the Act and 
Commission rules.
    \8\ See CFTC Rule 36.1(c)(2). Part 36 of the Commission rules 
exempts certain contract market transactions from specified 
provisions of the Act and Commission regulations thereunder. Parts 
35 and 36 of the Commission rules were adopted pursuant to authority 
set forth in Section 4(c) of the Act, 7 U.S.C. 6(c). See 58 FR 5587 
(January 22, 1993) (adopting part 35) and 60 FR 51323 (October 2, 
1995) (adopting part 36). Section 4(c)(2) of the Act, 7 U.S.C. 
6(c)(2), requires that, among other conditions, any agreement, 
contract or transaction exempted from any provision of the Act 
pursuant to Section 4(c) of the Act must ``be entered into solely 
between appropriate persons,'' who are defined in Section 4(c)(3) 
(A) through (J) of the Act, 7 U.S.C. 6(c)(3) (A)-(J). Thus, the 
lists of eligible swap participants and eligible participants were, 
in turn modeled closely on the list of appropriate persons provided 
in Section 4(c) of the Act.
    \9\ Part 35 exempts any eligible swap transaction from all 
provisions of the Act, except Sections 2(a)(1)(B), 4b, and 4o of the 
Act, 7 U.S.C. 2a, 6b, and 6o, Rule 32.9 and Sections 6(c) and 
9(a)(2) of the Act, 7 U.S.C. 9 and 13(a)(2), to the extent these 
provisions prohibit manipulation of the market price of any 
commodity in interstate commerce or for future delivery on or 
subject to the rules of any contract market. Rule 36.7 relieves an 
FCM or IB from the requirement to provide an eligible participant 
with a risk disclosure statement pursuant to Commission Rules 1.55, 
1.65, 33.7 or 190.10 in connection with Section 4(c) contract market 
transactions as defined in Rule 36.1(c)(1).
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    First, proposed Rule 1.55(f) does not require a pool to have a 
minimum asset level in order to qualify for the proposed relief. Such a 
minimum asset test for pools is unnecessary in light of current Rule 
1.55,\10\ which already relieves an FCM or IB from the obligation to 
provide a Rule 1.55 risk disclosure statement to a commodity pool 
operated by a CPO registered under the Act or exempt from such 
registration.\11\ The Commission believes that it is appropriate to 
extend this relief to the comparable risk disclosure obligations set 
forth in CFTC Rules 1.65(a)(3), 30.6(a), 33.7(a) and 190.10(c). In 
addition, proposed new Rule 1.55(f) (unlike Parts 35 and 36) would not 
restrict relief to entities not formed for the specific purpose of 
eligibility for the relief, since it is highly unlikely that any entity 
would be formed specifically for the purpose of avoiding receipt of a 
risk disclosure statement.
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    \10\ See CFTC Rule 1.55(a)(1)(iii).
    \11\ Commmission Rule 4.13 exempts a party from registration as 
a CPO where: (1) the pool operator receives no compensation for 
operating the pool, other than reimbursement of administrative 
expenses, operates only one pool, is not otherwise required to 
register under the Act and is not affiliated with any person 
required to register under the Act, and no person involved with the 
pool advertises in connection with the pool; or (2) the total gross 
capital contributions for all pools a person operates or intends to 
operate do not exceed $200,000, and none of the pools operated by 
such person has more than 15 participants at any time. Persons who 
wish to claim registration relief under Rule 4.13 must file a 
statement of intent with the Commission before accepting funds or 
soliciting customers for any pool operated by it and fulfill other 
requirements specified in the rule.
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    As under Parts 35 and 36, an investment company for which the 
proposed relief may be claimed is defined as one ``subject to 
regulation under the Investment Company Act.'' This provision will 
permit FCMs and IBs to apply the proposed relief to hedge funds which, 
although subject to the Investment Company Act, generally are not 
regulated under it.\12\ Similarly, proposed Rule 1.55(f)(10) would 
allow an FCM or IB to claim relief with respect to a customer who is a 
``futures commission merchant * * * subject to regulation under the 
Act.'' Thus, FCMs exempt from registration pursuant to Commission Rule 
3.10(c) would nonetheless be qualifying customers within the meaning of 
proposed Rule 1.55(f)(10) since such FCMs remain subject to regulation 
under the Act.\13\
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    \12\ Cf. 60 FR at 51329-51330 (discussing ``subject to 
regulation'' criteria as applied to investment companies in 
definition of eligible participants in Part 36 and eligible swap 
participants in Part 35).
    \13\ Rule 3.10(c) exempts from registration an FCM which is 
``trading solely for proprietary accounts, as defined in [Commission 
Rule] 1.3(y) * * * .'' Rule 3.10(c) states that such FCMs, although 
exempt from registration, remain ``subject to all other provisions 
of the Act, and of the rules, regulations and orders thereunder.''
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    The categories of customers for whom an FCM or IB would be able to 
claim the proposed disclosure relief include: (1) Regulated financial 
intermediaries, such as banks, trust companies, savings associations, 
credit unions, and insurance companies; (2) registered securities and 
futures entities, such as broker-dealers regulated under the Securities 
Exchange Act of 1934, investment companies with assets exceeding 
$5,000,000 and subject to regulation under the Investment Company Act, 
pools formed and operated by a CPO registered under the Act or exempt 
from such registration, and FCMs, floor brokers or floor traders 
regulated under the Act; (3) other financially sophisticated persons, 
such as employee benefit plans with assets in

[[Page 47614]]

excess of $5,000,000 and subject to the Employee Retirement Income 
Security Act of 1974, corporations, partnerships, proprietorships and 
other entities with total assets exceeding $10,000,000 or a net worth 
of at least $1,000,000, and natural persons with assets in excess of 
$10,000,000; and (4) any governmental entity, including the United 
States, any state or foreign government, or any political subdivision 
thereof, or any multinational or supranational entity or any 
instrumentality, agency or department of any of the foregoing.
    Like the definitions of Part 35 eligible swap participant and Part 
36 eligible participant, the categories of customers specified in 
proposed Rule 1.55(f) would include certain regulated foreign entities 
that perform roles or functions similar to those performed by one of 
the enumerated, regulated United States entities. These foreign 
entities must satisfy the same minimum asset or net worth criteria as 
their United States counterparts and, although not required to be 
subject to regulation under specified United States laws, they must be 
subject to regulation in their home jurisdiction.\14\ Thus, an FCM or 
IB would be able to claim the proposed relief in connection with 
opening a futures or commodity option account for a foreign employee 
benefit plan subject to applicable foreign regulations, a commodity 
pool operated by a foreign person performing a function similar to that 
of a CPO and subject to foreign regulation as such, or a foreign-
regulated entity performing a function similar to that of a United 
States investment company, broker-dealer, FCM, floor broker or floor 
trader, if such customers satisfy applicable minimum asset or net worth 
criteria.
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    \14\ In this regard, the Commission intends that the foreign 
entity be subject to regulation based upon activities or functions 
similar to those performed by a United States entity specified in 
proposed Rule 1.55(f). For example, to be within the meaning of 
proposed Rule 1.55(f)(10), the activities of a foreign FCM should be 
governed by regulations dealing with its business as an FCM and not 
by an unrelated regulatory regime.
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    As proposed, these amendments require that a customer satisfy the 
criteria set forth in proposed Rule 1.55(f) only at the time an account 
is opened. An FCM or IB would be under no obligation to monitor a 
customer's status to assure that the customer continues to satisfy the 
Rule 1.55(f) criteria throughout the time an account remains open. 
Moreover, the proposed amendment to Rule 1.65(a)(3), which addresses 
accounts transferred other than at a customer's request, allows the FCM 
or IB to whom such an account is transferred to claim the proposed 
disclosure relief with respect to a customer who either: (1) as clearly 
evidenced by information available to the transferee firm, satisfied 
the proposed 1.55(f) criteria at the time the account was first opened 
with the transferring FCM or IB; or (2) satisfies such criteria at the 
time the account is transferred.
    Proposed Rule 1.55(f) will provide FCMs and IBs with clear, 
objective criteria for identifying the customers to whom delivery of 
the Commission-approved disclosure statements pursuant to CFTC Rules 
1.55(a), 1.65(a)(3), 30.6(a), 33.7(a) and 190.10(c) is not required. 
These criteria should serve to minimize any administrative burdens 
associated with implementing the proposed relief. In this regard, the 
Commission notes that the proposed rule contains no specific 
requirement that FCMs and IBs maintain with their books and records any 
information in addition to that already required by other Commission 
rules in order to identify a particular customer's eligibility for the 
relief provided by the proposed amendments.\15\ However, FCMs and IBs 
are required to assure that mandated disclosure statements are provided 
to customers other than those to whom this relief applies. In order to 
substantiate compliance with such disclosure requirements and exercise 
meaningful supervision over customer accounts, FCMs and IBs should 
assure that adequate records are maintained and reviewed on a regular 
basis.\16\ Thus, FCMs and IBs should maintain documentation relevant to 
the qualifications of the customers for whom the relief proposed herein 
will be claimed and to confirm the identities of customers to whom 
specified risk disclosures have been made and from whom acknowledgments 
have been obtained.
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    \15\ For example, FCMs and IBs would be required to obtain and 
maintain the information required by CFTC Rule 1.37 concerning all 
customers, including customers listed in proposed Rule 1.55(f).
    \16\ Rule 166.3 requires FCMs and IBs to supervise diligently 
the handling of commodity interest accounts.
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B. Relief

    The proposed amendments will relieve FCMs and IBs from the 
requirements to deliver disclosure statements pursuant to Commission 
Rules 1.55(a), 1.65(a)(3), 30.6(a), and 33.7(a) to customers who, at 
the time of account opening, are within the categories specified in 
proposed Rule 1.55(f).\17\ FCMs and IBs also would no longer be 
required to obtain and retain a signed statement from such customers 
acknowledging that the customer received and understood the required 
risk disclosure statement.
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    \17\ The Commission also proposes to redesignate current Rule 
1.55(f) as 1.55(g).
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    Further, the Commission believes that it is appropriate to relieve 
FCMs of the obligation to provide disclosure statements to these 
specified customers pursuant to Rule 190.10(c). However, the Commission 
requests comment concerning the proposed relief with respect to Rule 
190.10(c), which requires that the disclosure statement specified 
therein be given only when customers deposit non-cash property as 
margin.\18\ The Commission also notes that the proposed rule amendments 
do not provide FCMs with relief with respect to the subordination 
agreement required by Financial and Segregation Interpretation No. 12 
to be executed by a customer whose funds are held by an FCM in foreign 
depositories, which may be incorporated in the Rule 190.10(c) 
bankruptcy statement.\19\
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    \18\ The commodity broker provisions of the Bankruptcy Code, 
which mandate pro rata distribution of cash and non-cash customer 
property, including property specifically identifiable to a 
customer, have been in effect for approximately nineteen years, and 
the Commission's bankruptcy rules for fourteen years.
    \19\ 53 FR 46911 (November 21, 1988) (stating conditions under 
which an FCM may hold funds of its United States domiciled customers 
in a foreign depository). The Commission has stated that the 
subordination agreement discussed in Financial and Segregation 
Interpretation No. 12 may be incorporated in the Rule 190.10(c) 
bankruptcy disclosure document or separately executed. Id. at 46914.
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C. Continuing Disclosure Obligations

    The proposed amendments make clear that despite relief from the 
specific disclosure obligations of CFTC Rules 1.55(a), 1.65(a)(3), 
30.6(a), 33.7(a) or 190.10(c), FCMs and IBs remain obligated under 
other statutory and regulatory provisions, including Section 4b of the 
Act \20\ and current CFTC Rule 1.55(f),\21\ to provide customers with 
all material information relating to a transaction, including 
information relating to the risks involved in entering a particular 
transaction. As the Commission stated when it adopted current Rule 
1.55(f), these minimum disclosure obligations arise under the Act, 
under state law and under common law.\22\ However, the required

[[Page 47615]]

disclosures may differ in particular cases, depending upon the nature 
of the relationship between the FCM or IB and its customer and such 
factors as whether the FCM or IB has discretionary authority over an 
account or is merely executing trades according to a customer's 
instructions.\23\
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    \20\ 7 U.S.C. 6b.
    \21\ Current Commission Rule 1.55(f), which would be 
redesignated as Rule 1.55(g) under the proposed amendments, states 
that compliance with Rule 1.55 does not relieve an FCM or IB of any 
other disclosure obligations it may have under applicable law. See 
50 FR 5380 (February 8, 1985) (adopting Rule 1.55(d), since 
redesignated as Rule 1.55(f), and explaining FCMs' and IBs' 
disclosure obligations under the Act).
    \21\ Id. at 5381. Further, as the Commission noted when it 
adopted Rule 1.55(d) ``the prescribed disclosure statement [of Rule 
1.55] was not meant to be an exhaustive explanation of the mechanics 
and risks of futures trading or of particular transactions, but 
rather was designed to highlight some of the inherent risks of 
futures trading for new customers.'' Id. at 5382.
    \22\ See, e.g., Yameen v. Madda Trading Company, [1980-1982 
Transfer Binder] Comm. Fut. L. Rep. (CCH) para.21,125 (CFTC 1980) 
(FCM and its associated person (``AP'') breached duty to customer by 
not disclosing limitations of stop loss orders after having 
discussed favorable features of these orders); Ruddy v. First 
Commodity Corp. of Boston, [1980-1982 Transfer Binder] Comm. Fut L. 
Rep. (CCH) para.21,435 (CFTC 1981) (FCM and AP breached duty to 
customer for whom they had discretionary authority by failing either 
to contact him promptly or to remove the hedges entered for him once 
the strategy under which the hedges had been recommended and placed 
and failed), aff'd sub nom. First Commodity Corp. of Boston v. CFTC, 
676 F.2d 1 (1st Cir. 1982); In the Matter of JCC, Inc., [1992-1994 
Transfer Binder] Comm. Fut. L. Rep. (CCH) para.26,080 (CFTC 1994) 
(omission and misrepresentation of material information about a 
trading program, including information concerning applicable fees 
and potential risks, violated antifraud provisions of Act), aff'd 
sub nom. JCC, Inc. v. CFTC, 63 F.3d 1557 (11th Cir. 1995).
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III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-611, 
requires that agencies, in proposing rules, consider the impact of 
those rules on small businesses. The rules discussed herein will affect 
FCMs and IBs. The Commission has already established certain 
definitions of ``small entities'' to be used by the Commission in 
evaluating the impact of its rules on such small entities in accordance 
with the RFA. FCMs have been determined not to be small entities under 
the RFA.
    With respect to IBs, the Commission has stated that it is 
appropriate to evaluate within the context of a particular rule 
proposal whether some or all IBs should be considered to be small 
entities and, if so, to analyze the economic impact on such entities at 
that time. The proposed rule amendments would not require any IB to 
alter its current method of doing business. Instead the proposed 
amendments would provide IBs with relief from certain disclosure and 
recordkeeping requirements with respect to certain identified 
customers. Presumably, an IB would only choose to make use of such 
relief if it were cost-effective to do so. Further, these rule 
amendments as proposed should impose no additional burden or 
requirements on IBs and, thus, if adopted would not have a significant 
economic impact on a substantial number of IBs.

B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 \24\ imposes certain 
requirements on federal agencies (including the Commission) in 
connection with their conducting or sponsoring any collection of 
information as defined by the Paperwork Reduction Act.
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    \24\ Pub. L. 104-13 (May 13, 1995).
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    There is no burden associated with the proposed rule amendments to 
Rule 1.55 or Rule 1.65. While these proposed rule amendments have no 
burden, the group of rules (3038-0024) of which these rules are a part 
has the following burden:

Average burden hours per response  128
Number of Respondents  3,148
Frequency of response  36

    Three OMB approved collections would be affected by the adoption of 
these proposed rule amendments. In compliance with the Paperwork 
Reduction Act, the Commission, through this rule proposal, solicits 
comments to:

    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including the validity of the methodology and assumptions used; (2) 
evaluate the accuracy of the agency's estimate of the burden of the 
proposed collection of information including the validity of the 
methodology and assumptions used; (3) enhance the quality, utility, 
and clarity of the information to be collected; and (4) minimize the 
burden of the collection of the information on those who are to 
respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques 
or other forms of information technology, e.g., permitting 
electronic submission of responses.

    The Commission has submitted this proposed rule and its associated 
information collection requirements to the Office of Management and 
Budget. Three OMB approved collections would be affected by the 
adoption of this rule. These are:

    3038-0007--Regulation of Domestic Exchange-Traded Commodity 
Options. The burden associated with collection 3038-0007, including 
this proposed rule, is as follows:

Average burden hours per response  50.57
Number of Respondents  190,422
Frequency of response  1,111

    The burden associated with this specific proposed rule, is as 
follows:

Average burden hours per response  0.08
Number of Respondents  175
Frequency of response  115

    3038-0021--Regulations Governing Bankruptcies of Commodity 
Brokers. The burden associated with collection 3038-0021, including 
this proposed rule, is as follows:

Average burden hours per response  0.35
Number of Respondents  472
Frequency of response  34

    The burden associated with this specific proposed rule, is as 
follows:

Average burden hours per response  0.05
Number of Respondents  235
Frequency of response  8

    3038-0035--Rules Relating to the Offer and Sale of Foreign 
Futures and Options. The burden associated with collection 3038-
0035, including this proposed rule, is as follows:

Average burden hours per response  15.70
Number of Respondents  2,832
Frequency of response  48

    The burden associated with this specific proposed rule, is as 
follows:

Average burden hours per response  0.60
Number of Respondents  360
Frequency of response  4

    Persons wishing to comment on the information which would be 
required by this proposed/amended rule should contact the Desk Officer, 
CFTC, Office of Management and Budget, Room 10202, NEOB, Washington, DC 
20503, (202) 395-7340. Copies of the information collection submission 
to OMB are available from the CFTC Clearance Officer, 1155 21st Street 
NW., Washington, DC 20581, 202) 418-5160.

List of Subjects

17 CFR Part 1

    Customer protection, Risk disclosure statements, Commodity futures.

17 CFR Part 30

    Foreign futures and options transactions, Customer protection, Risk 
disclosure statements.

17 CFR Part 33

    Domestic exchange-traded commodity options transactions.

17 CFR Part 190

    Bankruptcy.

    In consideration of the foregoing and pursuant to the authority 
contained in the Commodity Exchange Act and in particular sections 
2(a)(1), 4b, 4c, 4d, 4f, 4g and 8a of the Act, as amended, 7 U.S.C. 2, 
6b, 6c, 6d, 6f, 6g and 12a, the Commission hereby proposes to amend 
Chapter I of title 17 of the Code of Federal Regulations as follows:

[[Page 47616]]

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

    1. The authority citation for Part 1 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 2a, 4, 4a, 6, 6a, 6b, 6c, 6d, 6e, 6f, 
6g, 6h, 6i, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a, 
12c, 13a, 13a-1, 16, 16a, 19, 21, 23, 24.

    2. Section 1.55 is amended by revising paragraph (a)(1), by 
removing paragraph (a)(1)(iii), by redesignating paragraph (f) as 
paragraph (g), and by adding new paragraph (f) to read as follows:


Sec. 1.55  Distribution of ``Risk Disclosure Statement'' by futures 
commission merchants and introducing brokers.

    (a)(1) Except as provided in Sec. 1.65, no futures commission 
merchant, or in the case of an introduced account no introducing 
broker, may open a commodity futures account for a customer, other than 
for a customer specified in paragraph (f) of this section, unless the 
futures commission merchant or introducing broker first:
* * * * *
    (f) A futures commission merchant or, in the case of an introduced 
account an introducing broker, may open a commodity futures account for 
a customer without furnishing such customer the disclosure statements 
or obtaining the acknowledgments required under paragraph (a) of this 
section, Sec. 1.65(a)(3), and Sec. 30.6(a), Sec. 33.7(a), and 
Sec. 190.10(c) of this chapter, provided that the futures commission 
merchant or, in the case of an introduced account the introducing 
broker, provides such customer with such disclosure as is material in 
the circumstances and the customer is, at the time at which the account 
is opened:
    (1) A bank or trust company;
    (2) A savings association or credit union;
    (3) An insurance company;
    (4) An investment company subject to regulation under the 
Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, et seq.) or a 
foreign entity performing a similar role or function subject as such to 
foreign regulation, provided that such investment company has total 
assets exceeding $5,000,000;
    (5) A pool operated by a commodity pool operator registered under 
the Commodity Exchange Act or exempt from such registration or by a 
foreign person performing a similar function to that of a commodity 
pool operator and subject as such to foreign regulation;
    (6) A corporation, partnership, proprietorship, organization, 
trust, or other entity: (A) which has total assets exceeding 
$10,000,000; or (B) which has a net worth of $1,000,000;
    (7) An employee benefit plan subject to the Employee Retirement 
Income Security Act of 1974, or a foreign person performing a similar 
role or function and subject as such to foreign regulation, with total 
assets exceeding $5,000,000 or whose investment decisions are made by a 
bank, trust company, insurance company, investment adviser subject to 
regulation under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1, 
et seq.), or a commodity trading advisor subject to regulation under 
the Commodity Exchange Act;
    (8) Any governmental entity (including the United States, any 
state, or any foreign government) or political subdivision thereof, or 
any multinational or supranational entity or any instrumentality, 
agency, or department of any of the foregoing;
    (9) A broker-dealer subject to regulation under the Securities 
Exchange Act of 1934 (15 U.S.C. 78a, et seq.) or a foreign person 
performing a similar role or function subject as such to foreign 
regulation, acting on its own behalf: provided, however, that if such 
broker-dealer is a natural person or proprietorship, the broker-dealer 
must also meet the requirements of paragraphs (f)(6) or (f)(11) of this 
section;
    (10) A futures commission merchant, floor broker, or floor trader 
subject to regulation under the Commodity Exchange Act or a foreign 
person performing a similar role or function subject as such to foreign 
regulation; or
    (11) Any natural person with total assets exceeding $10,000,000.
* * * * *
    3. Section 1.65 is amended by redesignating paragraph (a)(3)(ii) as 
(a)(3)(iii) and adding new paragraph (a)(3)(ii) to read as follows:


Sec. 1.65  Notice of bulk transfers and disclosure obligations to 
customers.

    (a) * * *
    (3) * * *
    (ii) As to customers for which the transferee futures commission 
merchant or introducing broker has clear evidence that such customer 
was at the time the account was opened by the transferring futures 
commission merchant or introducing broker, or is at the time the 
account is being transferred, a customer listed in section 1.55(f) of 
this chapter; or
* * * * *

PART 30--FOREIGN FUTURES OR FOREIGN OPTIONS TRANSACTIONS

    4. The authority citation for Part 30 continues to read:

    Authority: 7 U.S.C. 1a, 2, 4, 6, 6c and 12a, unless otherwise 
noted.

    5. Section 30.6 is amended by revising paragraph (a) to read as 
follows:


Sec. 30.6  Disclosure.

    (a) Futures commission merchants and introducing brokers. Except as 
provided in Sec. 1.65 of this chapter, no futures commission merchant, 
or in the case of an introduced account no introducing broker, may open 
a foreign futures or option account for a foreign futures or option 
customer, other than for a customer specified in Sec. 1.55(f) of this 
chapter, unless the futures commission merchant or introducing broker 
first furnishes the customer with a separate written disclosure 
statement containing only the language set forth in Sec. 1.55(b) of 
this chapter or as otherwise approved under Sec. 1.55(c) of this 
chapter (except for nonsubstantive additions such as captions), which 
has been acknowledged in accordance with Sec. 1.55 of this chapter; 
Provided, however, that the risk disclosure statement may be attached 
to other documents as the cover page or the first page of such 
documents and as the only material on such page.
* * * * *

PART 33--REGULATION OF DOMESTIC EXCHANGE-TRADED COMMODITY OPTION 
TRANSACTIONS

    6. The authority citation for Part 33 continues to read:

    Authority: 7 U.S.C. 1a, 2, 4, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 
6i, 6j, 6k, 6l, 6m, 6n, 6o, 7, 7a, 7b, 8, 9, 11, 12a, 12c, 13a, 13a-
1, 13b, 19, and 21, unless otherwise noted.

    7. Section 33.7 is amended by revising paragraph (a)(1) to read as 
follows:


Sec. 33.7  Disclosure.

    (a)(1) Except as provided in Sec. 1.65 of this chapter, no futures 
commission merchant, or in the case of an introduced account no 
introducing broker, may open or cause the opening of a commodity option 
account for an option customer, other than for a customer specified in 
Sec. 1.55(f) of this chapter, unless the futures commission merchant or 
introducing broker first:
* * * * *

PART 190--BANKRUPTCY

    8. The authority citation for Part 190 continues to read:


[[Page 47617]]


    Authority: 7 U.S.C. 1a, 2, 4a, 6c, 6d, 6g, 7a, 12, 19, and 24, 
and 11 U.S.C. 362, 546, 548, 556 and 761-766, unless otherwise 
noted.

    9. Section 190.10 is amended by revising paragraph (c)(1) to read 
as follows:


Sec. 190.10  General.

* * * * *
    (c) Disclosure statement for non-cash margin. (1) Except as 
provided in Sec. 1.65, no commodity broker (other than a clearing 
organization) may accept property other than cash from or for the 
account of a customer, other than a customer specified in Sec. 1.55(f) 
of this chapter, to margin, guarantee, or secure a commodity contract 
unless the commodity broker first furnishes the customer with the 
disclosure statement set forth in paragraph (c)(2) of this section in 
boldface print in at least 10 point type which may be provided as 
either a separate, written document or incorporated into the customer 
agreement, or with another statement approved under Sec. 1.55(c) of 
this chapter and set forth in appendix A to Sec. 1.55 which the 
Commission finds satisfies this requirement.
* * * * *
    Issued in Washington, DC on September 3, 1997 by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 97-23882 Filed 9-9-97; 8:45 am]
BILLING CODE 6351-01-P


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