This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

31078 

Vol. 83, No. 128 

Tuesday, July 3, 2018 

1Regulation 145.9. Commission regulations 

referred to herein are found at 17 CFR chapter I. 

2See Remarks of Acting Chairman J. Christopher 

Giancarlo before the 42nd Annual International 

Futures Industry Conference in Boca Raton, FL, 

dated March 15, 2017. The remarks are available at 

the Commission’s website: https://www.cftc.gov/ 

PressRoom/SpeechesTestimony/opagiancarlo-20. 

3Project KISS, 82 FR 21494 (May 9, 2017); 

amended on May 24, 2017, 82 FR 23765 (May 24, 

2017). The Federal Register Request for 

Information, and the suggestion letters filed by the 

public are available at the Commission’s website: 

https://comments.cftc.gov/KISS/KissInitiative.aspx. 

4See Letter from Kathleen Cronin, Senior 

Managing Director, General Counsel and Corporate 

Secretary, CME Group, dated September 29, 2017. 

The CME’s letter is available at the Commission’s 

website: https://comments.cftc.gov/Public

Comments/ViewComment.aspx?id=61395&Search

Text=. 

5The term ‘‘self-regulatory organization’’ is 

defined in Regulation 1.52 to include a contract 

market (as defined in Regulation 1.3) or an RFA 

under section 17 of the Commodity Exchange Act 

(‘‘Act’’) (7 U.S.C. 1 et seq.), but the term as defined 

in Regulation 1.52 does not include a swap 

execution facility (as defined in Regulation 1.3). See 

Regulation 1.52(a)(2). 

6The term ‘‘futures commission merchant’’ is 

generally defined in Regulation 1.3 as (1) an entity 

that is engaged in soliciting or accepting orders for 

the purchase or sale of any commodity for future 

delivery or a swap and, in connection with the 

solicitation and acceptance of such orders, accepts 

money, securities or property (or extends credit in 

lieu thereof) to margin, guarantee or secure futures 

or swaps transactions, or (2) an entity registered as 

an FCM. 

7CME Letter, pp. 13–14. 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 1 

RIN 3038–AE73 

Financial Surveillance Examination 

Program Requirements for SelfRegulatory Organizations 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Proposed rule. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’ or 

‘‘CFTC’’) is proposing to amend its 

regulations governing the minimum 

standards for a self-regulatory 

organization’s (‘‘SRO’’) financial 

surveillance examination program of 

futures commission merchants 

(‘‘FCMs’’). The proposed amendments 

would revise the scope of a third-party 

expert’s evaluation of the SRO’s 

financial surveillance program to cover 

only the examination standards used by 

SRO staff in conducting FCM 

examinations. The proposed 

amendments also would revise the 

minimum timeframes between when an 

SRO must engage a third-party expert to 

evaluate its FCM examination 

standards. 

DATES: Comments must be received on 

or before September 4, 2018. 

ADDRESSES: You may submit comments, 

identified by RIN 3038–AE73, by any of 

the following methods: 

• CFTC Comments Portal: https://

comments.cftc.gov. Select the ‘‘Submit 

Comments’’ link for this rulemaking and 

follow the instructions on the Public 

Comment Form. 

• Mail: Send to Christopher 

Kirkpatrick, Secretary of the 

Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street NW, 

Washington, DC 20581. 

• Hand Delivery/Courier: Follow the 

same instructions as for Mail, above. 

Please submit your comments using 

only one of these methods. To avoid 

possible delays with mail or in-person 

deliveries, submissions through the 

CFTC Comments Portal are encouraged. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to https://

comments.cftc.gov. You should submit 

only information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that you believe is exempt from 

disclosure under the Freedom of 

Information Act (‘‘FOIA’’), a petition for 

confidential treatment of the exempt 

information may be submitted according 

to the procedures established in § 145.9 

of the Commission’s regulations.1

The Commission reserves the right, 

but shall have no obligation, to review, 

pre-screen, filter, redact, refuse or 

remove any or all of your submission 

from https://comments.cftc.gov that it 

may deem to be inappropriate for 

publication, such as obscene language. 

All submissions that have been redacted 

or removed that contain comments on 

the merits of the rulemaking will be 

retained in the public comment file and 

will be considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under the FOIA. 

FOR FURTHER INFORMATION CONTACT: 

Matthew B. Kulkin, Director, 202–418– 

5213, mkulkin@cftc.gov; Thomas Smith, 

Deputy Director, 202–418–5495, 

tsmith@cftc.gov; Jennifer Bauer, Special 

Counsel, 202–418–5472, jbauer@

cftc.gov; or Joshua Beale, Special 

Counsel, 202–418–5446, jbeale@

cftc.gov, Division of Swap Dealer and 

Intermediary Oversight, Commodity 

Futures Trading Commission, Three 

Lafayette Centre, 1155 21st Street NW, 

Washington, DC 20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Commission Initiative to Simplify 

and Modernize Regulations 

In March of 2017, Commission staff 

initiated an agency-wide internal review 

of CFTC regulations and practices to 

identify those areas that could be 

simplified to make them less 

burdensome and costly.2 The 

Commission subsequently published in 

the Federal Register on May 9, 2017 a 

Request for Information soliciting 

suggestions from the public regarding 

how the Commission’s existing rules, 

regulations, or practices could be 

applied in a simpler, less burdensome, 

and costly manner.3

The CME Group (‘‘CME’’) submitted 

suggestions on a variety of rules, 

regulations, and practices in responses 

to the Commission’s Request for 

Information.4 One area identified by 

CME for simplification and the 

reduction of regulatory burden was 

Regulation 1.52, which imposes an 

obligation on SROs 5 to conduct 

periodic examinations of member 

FCMs 6 for compliance with both SRO 

and Commission minimum capital and 

other financial and related reporting 

requirements. Specifically, the CME 

suggested that Regulation 1.52 should 

be amended to eliminate a requirement 

that a third-party public accounting firm 

perform periodic evaluations and 

assessments of the CME’s surveillance 

program to oversee its member FCMs 

compliance with Commission and CME 

financial and related reporting 

requirements.7


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8See Regulation 39.16. 

9Section 4f(b) of the Act authorizes the 

Commission to adopt FCM minimum financial and 

related reporting requirements. Section 4f(b) 

provides, in relevant part, that no person shall be 

registered as an FCM unless such person meets the 

minimum financial requirements that the 

Commission may prescribe by regulation as 

necessary to insure such person meets its 

obligations as a registrant, and each person 

registered as an FCM shall at all times continue to 

meet such prescribed minimum financial 

requirements. 

10See Regulation 1.17 for FCM minimum capital 

requirements. 

11See Regulations 1.20, 22.2, and 30.7 for FCM 

segregation requirements for customer accounts 

containing futures positions, swap positions, and 

foreign futures positions, respectively. 

12See Regulation 1.11 for FCM risk management 

requirements. 

13See Regulations 1.32, 22.2 and 30.7 for FCM 

requirements to prepare and to submit to the 

Commission daily segregation computations and 

schedules for customer futures, cleared swaps and 

foreign futures accounts, respectively. 

14See Regulation 1.10 for FCM requirements to 

file unaudited monthly financial statements and 

annual audited financial statements. 

15See Regulation 1.12. 

16The National Futures Association (‘‘NFA’’) is 

the only registered RFA. NFA’s financial 

requirements for FCMs are available at its website, 

www.nfa.futures.org. 

17Section 3(b) of the Act. 

18Section 108 of the Commodity Futures 

Modernization Act of 2000, Public Law 106–554, 

114 Stat. 2763 (Dec. 21, 2000). 

19See section 17(p)(2) of the Act. 

20 Id. 

21See also, Regulation 38.602 which provides 

that a DCM must provide for the financial integrity 

of its transactions by establishing and maintaining 

appropriate minimum financial standards for its 

members and non-intermediated market 

participants, and Regulation 38.603 which requires 

a DCM to have rules concerning the protection of 

customer funds. 

22See Regulations 38.600 through 38.605. 

23See Regulation 1.52(b)(1). 

B. Statutory and Regulatory Background 

FCMs perform critical functions to 

facilitate the efficient operation of 

Commission-regulated exchange-traded 

derivatives markets. In addition to 

trading for their own accounts and 

carrying the accounts of their affiliates, 

FCMs are market intermediaries, 

standing between customers trading 

futures and swaps transactions on one 

side and designated contract markets 

(‘‘DCMs’’) and derivatives clearing 

organizations (‘‘DCOs’’) on the other 

side. As part of their role as market 

intermediaries, FCMs carry customer 

accounts and hold customer funds to 

margin futures and cleared swap 

transactions. FCMs also fulfill daily 

settlement obligations on behalf of 

customers by posting sufficient funds to 

DCOs to support their customers’ 

futures and swap positions, including 

paying mark-to-market losses associated 

with such positions. FCMs also are 

essential to the efficient operation of 

Commission-regulated markets in that 

they guarantee each customer’s financial 

performance for futures and swap 

positions to DCOs by agreeing to use 

their own financial resources to cover 

any shortfall resulting from a customer 

default.8

The Act acknowledges the critical role 

performed by FCMs. Section 4f(b) of the 

Act authorizes the Commission to adopt 

regulations imposing minimum capital 

and financial reporting requirements on 

FCMs to help ensure that they maintain 

adequate financial resources to meet 

their obligations.9 Under this statutory 

authorization, the Commission adopted 

regulations requiring FCMs, among 

other requirements, to maintain a 

minimum level of regulatory capital,10

to segregate customer funds from their 

own funds in specially designated 

customer accounts,11 and to maintain 

appropriate risk management programs 

to monitor and manage the risks 

associated with their activities as 

FCMs.12

The Commission also has adopted, 

under the authority granted by section 

4f(b), regulations imposing periodic 

financial reporting requirements on 

FCMs that are intended to provide the 

Commission with information regarding 

their financial condition. The financial 

reporting requirements include daily 

statements demonstrating compliance 

with the segregation of customer funds 

requirements,13 monthly unaudited and 

annual audited financial statements,14

and regulatory notices upon the 

occurrence of specified events including 

failing to meet minimum capital 

requirements, failing to comply with 

segregation requirements, and failing to 

maintain current books and records.15

In addition to authorizing the 

Commission to adopt regulations 

imposing direct financial and related 

reporting requirements, the Act further 

establishes a regulatory oversight 

structure that imposes an obligation on 

DCMs and registered futures 

associations (‘‘RFAs’’),16 as SROs, to 

perform frontline regulatory oversight of 

market intermediaries, including 

FCMs.17 In 2000, Congress affirmed this 

regulatory structure of industry selfregulation by amending section 3 of the 

Act to state, in pertinent part, that it is 

the purpose of the Act to serve the 

public interests through a system of 

effective self-regulation of trading 

facilities, clearing systems, market 

participants and market professionals 

under the oversight of the 

Commission.18

To achieve the objective of a selfregulatory structure, the Act and 

Commission regulations require RFAs 

and DCMs to adopt financial and related 

reporting requirements for member 

FCMs, and to periodically examine 

FCMs for compliance with such 

requirements. Section 17(p) of the Act 

requires an RFA to establish and submit 

for Commission approval rules 

imposing minimum capital, segregation 

and other financial requirements 

applicable to its members for which 

such requirements are imposed by the 

Commission. The RFA’s financial 

requirements for its members must be at 

least as stringent as those set by the Act 

or Commission regulations.19 Section 

17(p) further provides that the RFA 

must implement a program to audit and 

enforce compliance by its members with 

the RFA’s minimum financial 

requirements.20

With respect to DCMs, section 

5(d)(11)(B) of the Act and Regulation 

38.600 require, in relevant part, each 

DCM to implement rules to ensure the 

financial integrity of any member FCM 

and the protection of customer funds.21

DCMs also are required to monitor an 

FCM member’s compliance with the 

DCM’s minimum financial requirements 

by reviewing financial information filed 

with the DCM and by conducting 

periodic examinations of the FCM.22

The Commission’s and SRO’s 

minimum financial requirements for 

member FCMs are intended to help 

ensure that FCMs can continue to meet 

their financial and operational 

obligations to both customers and DCOs, 

which is necessary in order for the 

Commission-regulated markets to 

operate efficiently and effectively. 

C. Current Commission Regulation 1.52 

As noted in section I.B., above, the 

Act and Commission regulations 

establish SROs (i.e., DCMs and NFA) as 

frontline regulators for FCMs. 

Commission Regulation 1.52 establishes 

the minimum standards that the 

Commission requires of an SRO 

oversight program, and includes an 

explicit requirement that each SRO 

must adopt rules prescribing minimum 

financial and related reporting 

requirements for member FCMs that are 

the same as, or more stringent than, the 

requirements imposed by the 

Commission.23 Consistent with the 

requirements of Regulation 1.52, SROs 

have adopted rules imposing FCM 

capital and financial reporting 

requirements that are at least as 

stringent as the FCM capital and 

financial reporting requirements set 


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31080 Federal Register / Vol. 83, No. 128 / Tuesday, July 3, 2018 / Proposed Rules 

24For example, CME Rule 970 imposes capital 

and financial reporting requirements on member 

FCMs that are at least as stringent as the 

Commission’s capital and financial reporting 

requirements. CME rules may be accessed via the 

CME’s website: http://www.cmegroup.com/ 

rulebook/CME/I/9/9.pdf. 

NFA FCM capital and financial reporting 

requirements are set forth in Section 1 of the NFA’s 

Financial Requirements section of its rulebook and 

may be accessed at NFA’s website: https://

www.nfa.futures.org/rulebook/index.aspx. 

25Enhancing Protections Afforded Customers and 

Customer Funds Held by Futures Commission 

Merchants and Derivatives Clearing Organizations, 

78 FR 68506 (Nov. 14, 2013) (the ‘‘2013 Customer 

Protection Rulemaking’’). 

26Regulation 1.52(c) and (d). 27The PCAOB is a nonprofit corporation 

established by Congress to oversee the audits of 

public companies in order to protect investors and 

the public interest by promoting informative, 

accurate, and independent audit reports. The 

PCAOB also oversees the audits of brokers and 

dealers registered with the Securities and Exchange 

Commission. The PCAOB was not, however, vested 

with the authority to oversee the audits of FCMs. 

28An ‘‘examinations expert’’ is defined in 

Regulation 1.52(a) as an accounting and auditing 

firm with substantial expertise in the audits of 

FCMs, risk assessment, and internal control 

reviews, and is an accounting and auditing firm that 

is acceptable to the Commission. 

29Since adoption of the amendments to 

Regulation 1.52 resulting from the 2013 Customer 

Protection Rulemaking, Commission staff has 

participated in several meetings with the CME, 

NFA, and their examinations expert to address 

issues and questions arising during the drafting of 

the initial examination standards and programs. In 

2015, Commission staff, through delegated 

forth in applicable Commission 

regulations.24

In 2013, the Commission adopted new 

rules and rule amendments to 

comprehensively enhance customer 

protections.25 As part of the 2013 

Customer Protection Rulemaking, the 

Commission amended Regulation 1.52 

to impose several additional obligations 

on SROs with respect to the oversight of 

FCMs. Amended Regulation 1.52 

requires each SRO to establish and 

operate a supervisory program that 

includes written policies and 

procedures concerning the application 

of the supervisory program in the 

examination of its member registrants 

(including FCMs) for the purpose of 

assessing whether each member 

registrant is in compliance with 

applicable SRO and Commission 

regulations governing net capital and 

related financial requirements, the 

obligations to segregate customer funds, 

risk management requirements, 

financial reporting requirements, 

recordkeeping requirements, and sales 

practices and other compliance 

requirements. The supervisory program 

also must adequately address the 

following elements: (1) The level, 

training, and independence of SRO 

examination staff; (2) The SRO’s 

ongoing surveillance of member FCMs, 

including the review and analysis of 

financial reports and regulatory notices 

received; (3) The SRO’s procedures for 

identifying and monitoring FCMs that 

are deemed to pose a high degree of 

financial risk; (4) The SRO’s conduct of 

on-site examination of FCMs by SRO 

staff at least once every 18 months; and 

(5) The documentation of all aspects of 

the SRO’s operation of its supervisory 

program. 

The supervisory program also must, at 

a minimum, incorporate FCM 

examination standards addressing: (1) 

The ethics of an SRO examiner; (2) The 

independence of an SRO examiner; (3) 

The supervision, review, and quality 

control of an SRO examiner’s work 

product; (4) The evidence and 

documentation to be reviewed and 

retained in connection with an 

examination; (5) The examination 

planning process; (6) Materiality 

assessment; (7) Quality control 

procedures to ensure that the SRO 

examinations maintain the level of 

quality expected; (8) Communications 

between an SRO examiner and the 

regulatory oversight committee, or the 

functional equivalent of the regulatory 

oversight committee, of the SRO of 

which the FCM is a member; (9) 

Communications between an SRO 

examiner and an FCM’s audit committee 

of the board of directors or similar 

governing body; (10) Analytical review 

procedures; (11) Record retention; and 

(12) Required items for inclusion in the 

SRO’s examination report, such as 

repeat violations, material items, and 

high risk issues.26 Regulation 1.52 

further provides that all aspects of an 

SRO’s supervisory program, including 

the FCM examination standards, must 

conform to auditing standards issued by 

the Public Company Accounting 

Oversight Board (‘‘PCAOB’’) as such 

PCAOB standards would apply to a nonfinancial statement audit.27

Regulation 1.52 also requires each 

SRO to engage an ‘‘examinations 

expert’’ to evaluate its supervisory 

program prior to its initial use, and to 

evaluate the SRO’s application of the 

supervisory program at least once every 

three years after its initial use.28 For 

each evaluation, the SRO is required to 

obtain from the examinations expert a 

written report on findings and 

recommendations issued under the 

consulting services standards of the 

American Institute of Certified Public 

Accountants (‘‘AICPA’’) that includes: 

(1) A statement that the examinations 

expert has evaluated the supervisory 

program (including its design to detect 

material weaknesses in an FCM’s system 

of internal controls), including any 

comments and recommendations 

regarding such evaluation; (2) A 

statement that the examinations expert 

has evaluated the application of the 

supervisory program by the SRO, 

including any comments and 

recommendations in connection with 

such evaluation; and, (3) A discussion 

and recommendations of any new or 

best practices as prescribed by industry 

sources, including the AICPA and 

PCAOB. 

II. Proposed Amendments to Regulation 

1.52 

A. Response To Request for Information 

The CME stated in its response to the 

Commission’s Request for Information 

that it fully supported the Commission’s 

objective of strengthening and 

enhancing SRO oversight programs for 

FCMs as set forth in the 2013 Customer 

Protection Rulemaking. CME further 

stated that it expended significant 

resources revising the FCM supervisory 

program to address the enhanced 

requirements of Regulation 1.52 that 

were imposed by the 2013 Customer 

Protection Rulemaking. In this regard, 

CME stated that it and NFA jointly 

engaged a public accounting firm as a 

consultant during the development of 

the FCM examination standards, and 

that the public accounting firm’s 

expertise was extremely beneficial in 

drafting the initial FCM examination 

standards and revising its supervisory 

program to address such standards. 

The CME, however, also suggested 

that the Commission should eliminate 

the requirement for an SRO to engage an 

examinations expert once every three 

years to evaluate the SRO’s supervisory 

program. The CME expressed its view 

that the engagement of an examinations 

expert at least once every three years 

does not provide any meaningful 

regulatory benefit. The CME noted that 

under the current regulatory framework, 

staff of the Commission’s Division of 

Swap Dealer and Intermediary 

Oversight (‘‘DSIO’’) provides effective 

oversight of the SRO FCM examination 

programs through the conduct of its 

SRO rule enforcement reviews. The 

CME noted that it revises the FCM 

examinations programs to incorporate 

any regulatory changes adopted by the 

Commission or SROs, and provides the 

actual FCM examination programs, with 

the revisions, to DSIO staff for review at 

least once each year. 

Based upon the CME’s response to the 

Commission’s Request for Information, 

and Commission staff’s firsthand 

experience in the CME’s and NFA’s 

implementation of their initial 

supervisory program,29 the Commission 


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Federal Register / Vol. 83, No. 128 / Tuesday, July 3, 2018 / Proposed Rules 31081 

authority, approved the initial FCM examination 

standards, and in 2017 approved the CME’s and 

NFA’s examination programs. The examination 

standards and programs are now fully implemented 

and are used in each DSRO examination of an FCM. 

30As many FCMs are members of more than one 

SRO, Regulation 1.52 provides a permissive system 

that allows SROs to enter into agreements allocating 

primary, but not exclusive, financial oversight and 

examination responsibilities of FCMs that are 

members of two or more SROs to one of the SROs, 

which is termed the ‘‘designated self-regulatory 

organization’’ (‘‘DSRO’’). The term ‘‘designated selfregulatory organization’’ is generally defined in 

Regulation 1.3 to mean the SRO delegated the 

primary responsibility to monitor and exam 

registrants that are subject to oversight by more than 

one SRO for compliance with minimum financial 

and related reporting requirements, and for 

receiving financial reports from such registrants. 

SROs that agree to participate in a plan to allocate 

common members to a DSRO are referred to as JAC 

members under Regulation 1.52. The examination 

requirements proposed to be amended are 

effectively identical for SROs and JACs, and the 

Commission’s proposed amendments would revise 

the examination requirements for both the SROs 

and JACs. 

31Regulation 1.52(c)(2)(iv). 

32Customer Protection Rulemaking, 78 FR 65506, 

68562. 

is proposing several amendments to 

Regulation 1.52 to revise the time 

interval between mandatory 

examinations expert evaluations of the 

SRO supervisory program, and to amend 

the scope of the examinations expert’s 

evaluation to focus on changes to 

auditing standards adopted by the 

PCAOB since the last examinations 

expert’s evaluation. The Commission 

also is proposing several technical 

amendments to eliminate redundancies 

in the rule text. 

B. Scope of the Examinations Expert’s 

Evaluation 

The examinations expert is currently 

required to evaluate, at least once every 

three years, (1) the supervisory program 

of an SRO or a Joint Audit Committee 

(‘‘JAC’’),30 and (2) the SRO’s or JAC’s 

application of its supervisory 

program.31 The SRO or JAC also is 

required to obtain from the 

examinations expert a written report on 

finding and recommendations issued 

under the consulting services standards 

of the AICPA that includes statements 

that the examinations expert has 

evaluated the supervisory program and 

the SRO’s or JAC’s application of the 

supervisory program, and an analysis of 

the supervisory program’s design to 

detect material weaknesses in internal 

controls. 

The Commission is proposing to 

amend Regulations 1.52(c)(2)(iv) and 

(d)(2)(ii)(I) to remove from the scope of 

the examinations expert’s evaluation the 

SRO’s or JAC’s application of its 

supervisory program during periodic 

reviews and the analysis of the 

supervisory program’s design to detect 

material weaknesses in internal controls 

during both periodic reviews and the 

initial review prior to the programs’ 

initial use. The Commission initially 

adopted in 2013 the requirement that 

the examinations expert issue a written 

report on its findings and 

recommendations of the SRO’s 

application of its supervisory program, 

including its internal controls, due to 

concerns that a third-party assessment 

was necessary due to limited 

Commission resources and expertise to 

perform a comparable periodic 

assessment.32 Since 2013, however, 

Commission staff has been actively 

involved with the NFA, CME, and their 

examinations expert in the development 

of a revised supervisory program that 

meets the requirements of Regulation 

1.52, including the development of FCM 

examinations standards that are 

consistent with PCAOB auditing 

standards. Commission staff also has 

reviewed the detailed FCM examination 

programs, including several programs 

designed to assess the adequacy of an 

FCM’s internal controls that were 

developed by the NFA and CME, for 

compliance with Regulation 1.52. 

Commission staff also has been 

performing scheduled oversight reviews 

of NFA’s and CME’s execution of its 

revised supervisory program, including 

its implementation and execution of 

programs designed to assess the FCM’s 

internal controls. 

Accordingly, following the adoption 

of the examination standards, the 

Commission believes that the scope of 

the examinations expert’s review should 

be limited to the area of its expertise— 

auditing standards—and that engaging 

an independent third-party to review 

the entire program involves additional 

cost, but results only in a small, 

incremental benefit. Having assessed the 

implementation of the revised 

supervisory program, Commission staff 

has determined that it has adequate 

resources and expertise in the 

application of CFTC regulations to the 

operations of FCMs, and is 

appropriately situated to assess whether 

SRO and JAC staff are accurately and 

properly applying Commission 

requirements to FCMs in their execution 

of the examination programs. 

Commission staff’s review of SRO and 

JAC supervisory programs includes 

detailed assessments of whether SRO or 

JAC staff complied with their respective 

FCM examination standards, including 

internal control testing and assessment, 

in the performance of FCM 

examinations. In this regard, 

Commission staff generally review, 

based on a risk-based approach, the 

most significant areas of an SRO’s or 

JAC’s FCM examination program during 

a review, including: (1) The staffing 

levels and adequate training and 

qualification of SRO or JAC staff 

members; (2) The detailed testing 

performed by SRO or JAC staff in each 

examination area (e.g., segregation of 

customer funds, capital compliance, and 

recordkeeping); (3) The timeliness and 

effectiveness of the SRO’s or JAC’s 

review of FCM financial reporting, 

including FCM daily segregation 

computations, monthly unaudited and 

annual audited financial statements, 

periodic reporting of customer 

investments, and periodic regulatory 

notices; and (4) The effectiveness of the 

SRO’s or JAC’s disciplinary program. 

Accordingly, the Commission believes 

that a more efficient balance of oversight 

can be achieved by focusing the 

examinations expert’s evaluation on the 

SRO’s or JAC’s examination standards, 

which is an area of the examinations 

expert’s particular expertise. While the 

Commission still notes that it has 

limited resources to perform a holistic 

review of the SRO’s or JAC’s 

examination program, covering both the 

design of the standards and the 

effectiveness of the audit program, the 

Commission believes, as noted above, 

that the proposed amendments strike a 

reasoned balance between the 

Commission’s expertise and that of the 

examinations expert. 

The proposed amendments would 

continue to require an examinations 

expert to provide the SRO or JAC with 

a written report on the examinations 

expert’s findings and recommendations. 

The Commission, however, is not 

mandating the form and content of the 

written report, other than that the report 

must accurately reflect the extent of the 

examinations expert’s evaluation, and 

include any findings and 

recommendations resulting from its 

evaluation. The Commission is also 

proposing that the written report will be 

provided to the Director of the Division 

of Swap Dealer and Intermediary 

Oversight with the understanding that 

the report will be shared with the 

Commission. 

C. Frequency of the Examinations 

Expert’s Evaluation of an SRO’s 

Supervisory Program 

Regulations 1.52(c)(2)(iv) and 

(d)(2)(ii)(I) require an SRO and JAC, 

respectively, to engage an examinations 

expert to evaluate their FCM 

supervisory programs prior to the 

initiation of the programs, and at least 

once every three years thereafter. The 

Commission believes that an 


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33The purpose of the proposal is for an SRO or 

JAC to promptly amend their respective FCM 

examination standards whenever the PCAOB issues 

new or revised auditing standards that are relevant 

to the SRO’s or JAC’s examinations of member 

FCMs. The SRO or JAC would further be required 

to engage an examinations expert to evaluate the 

consistency of any material amendments to the 

FCM examination standards with the PCAOB new 

or revised auditing standards. However, the 

Commission would not expect an SRO or JAC to 

engage an examinations expert if the amendments 

to the FCM examination standards are not material. 

The Commission also would not expect an SRO or 

JAC to engage an examinations expert more 

frequently than once every 12 months. 

In the context of the JAC, the annual JAC meeting 

required by Regulation 1.52(d) may serve as the 

appropriate forum for discussing amendments to 

the FCM examination standards, and if necessary, 

a vote of JAC members could determine that 

engagement of the examinations expert to more 

fully assess the supervisory program standards in 

the context of a non-financial statement audit is 

warranted. 

34The Commission also notes that proposal does 

not prescribe a specific timeframe for which the 

SRO or JAC should implement any revised 

examination standards, but only that the adoption 

must occur ‘‘promptly.’’ This is because the time 

needed to comport the newly adopted auditing 

standard into a newly adopted examination 

standard may vary depending on the complexity of 

the standard and whether the examinations expert 

has been engaged. For avoidance of any doubt, the 

Commission expects ‘‘promptly’’ adoption to occur 

within a reasonable amount of time under the 

circumstances. In the event that the adoption 

should take longer than one year from the time a 

PCAOB auditing standard is made effective, the 

SRO or JAC may petition the Director of the 

Division of Swap Dealer and Intermediary 

Oversight for a longer permitted adoption 

timeframe. 

35The Commission notes that current paragraphs 

(c)(2)(ii) and (d)(2)(ii)(F) both contain an 

explanatory sentence of what topics within PCAOB 

auditing standards should be used in order to 

conform the examination standards. The 

Commission reads paragraph (c)(2)(iii), and by 

cross-reference (d)(2)(ii)(G), to already include each 

of these topics. Moreover, paragraph (c)(2)(iii) more 

appropriately uses in this context the term 

‘‘examination,’’ as opposed to ‘‘audit’’ to articulate 

this construction. 

36 7 U.S.C. 19(a). 

examinations expert’s evaluation 

provides important oversight of the SRO 

FCM examination standards by an 

independent third-party that is an 

expert in the understanding and 

application of the auditing standards 

issued by the PCAOB. Accordingly, the 

Commission is not proposing to 

eliminate the requirement in Regulation 

1.52 for an SRO or JAC to engage an 

examinations expert at the initiation of 

the development of its supervisory 

program, or at different periods of time 

after the initial evaluation. 

The Commission, however, further 

believes that the frequency of an 

examinations expert’s evaluation of an 

SRO’s or JAC’s FCM examination 

standards should not be based upon a 

fixed timeframe of once every three 

years and is therefore proposing 

amendments that provide for flexibility 

dependent upon changes in auditing 

standards issued by the PCAOB. 

Accordingly, the Commission is 

proposing that SROs and JACs must 

review and revise their respective FCM 

examination standards promptly after 

the issuance of new or amended 

auditing standards by the PCAOB that 

have an impact on the FCM examination 

standards. The SRO or JAC also must 

engage an examinations expert to 

evaluate the consistency of the revised 

FCM examination standards with the 

PCAOB auditing standards whenever 

the SRO or JAC adopts material 

amendments to their respective FCM 

examination standards.33 The proposal 

would further provide the DSIO Director 

with the authority to direct an SRO or 

JAC to engage an examinations expert. 

This will address cases where DSIO staff 

believes that new or amended PCAOB 

audit standards have a material impact 

on FCM examinations standards, when 

an SRO of JAC has not otherwise 

engaged an examinations expert.34

The proposal would also set a 

requirement that an SRO or JAC must 

engage an examinations expert at least 

once every five years to address 

situations where the SRO or JAC have 

not considered any new or amended 

PCAOB auditing standards issued 

during the preceding five years to be 

material to the FCM examination 

standards. The Commission is 

proposing this five-year limit based 

upon the importance of the FCM 

examination process by SROs and JACs 

and its belief that third-party experts 

should evaluate the FCM examination 

standards at least once every five years 

to ensure that they are consistent with 

PCAOB auditing standards. The 

Commission requests specific comment 

on whether the amended timeframe of 

five years is appropriate, or whether a 

different timeframe would be more 

appropriate. 

In proposing the amendment to revise 

the FCM examination standards, the 

Commission is intending to limit the 

examinations expert’s evaluation to 

those FCM examination standards that 

are new or revised since the last 

examinations expert’s review or 

assessment. The Commission does not 

expect the examinations expert to reassess each examination standard each 

time an evaluation is performed, but 

only those standards that may be 

susceptible to change based on the 

examinations expert’s opinion, auditing 

standards adopted or amended by the 

PCAOB, and the examinations expert’s 

understanding of the CFTC regulatory 

requirements in consultation with SRO 

or JAC. 

D. Technical Amendments to Regulation 

1.52 

The Commission is proposing several 

technical amendments to Regulation 

1.52 which eliminate redundancies and 

simplify the intent of the rule. 

Specifically, the Commission is 

consolidating the FCM examination 

standards listed in paragraphs (c)(2)(ii) 

and (iii) of Regulation 1.52 governing 

SROs into a single revised Regulation 

1.52(c)(2)(ii).35 The Commission also is 

proposing to amend paragraph 

(d)(2)(ii)(F) to reflect the consolidation 

of the FCM examination standards in 

revised Regulation 1.52(c)(2)(ii). 

III. Cost-Benefit Considerations 

A. Introduction 

Section 15(a) of the Act requires the 

CFTC to consider the costs and benefits 

of its actions before promulgating a 

regulation under the Act or issuing 

certain orders.36 Section 15(a) of the Act 

further specifies that the costs and 

benefits shall be evaluated in light of 

five broad areas of market and public 

concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness, and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

CFTC considers the costs and benefits 

resulting from its discretionary 

determinations with respect to the 

section 15(a) factors below. 

Where reasonably feasible, the CFTC 

endeavors to estimate quantifiable costs 

and benefits. Where quantification is 

not feasible, the CFTC identifies and 

describes costs and benefits 

qualitatively. 

The CFTC requests comment on the 

costs and benefits associated with the 

proposed rule amendments. In 

particular, the CFTC requests that 

commenters provide data and any other 

information or statistics that the 

commenters relied on to reach any 

conclusions regarding the CFTC’s 

proposed considerations of costs and 

benefits. 

B. Economic Baseline 

The CFTC’s economic baseline for 

this proposed rule amendment analysis 

is the requirements of Regulation 1.52 

that exist today. Specifically, current 

Regulation 1.52 requires an SRO or a 

JAC to engage an examinations expert to 

evaluate its supervisory program prior 

to its initial use, and to evaluate the 

SRO’s application of the supervisory 


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37Since 2016 PCAOB has adopted approximately 

two new standards, neither of which had a 

significant impact on the examination standards 

applicable to FCMs. See PCAOB website available 

at: https://pcaobus.org/Standards/Pages/Current_

Activities_Related_to_Standards.aspx. 

38For example, in circumstances where an SRO 

or JAC has not engaged an examination expert yet 

DSIO staff believes a material change to PCAOB 

auditing standards warrants such engagement. 

39 In the 2013 Customer Protection Rulemaking, 

the Commission found that it was not feasible to 

quantify any costs associated with utilizing an 

examinations expert, largely because several 

nationally recognized accounting firms expressed 

their reluctance to provide such information. While 

it is likely not feasible to quantify such costs for the 

use of an examinations expert under the proposed 

amendments, such costs are likely much less than 

the costs under the existing rule. See, 2013 

Customer Protection Rulemaking at 68605. 

program at least once every three years 

after its initial use. 

The Commission’s proposal would 

not alter the requirement for an SRO or 

JAC to engage an examinations expert to 

evaluate its supervisory program prior 

to the initial use of the supervisory 

program. The Commission is proposing, 

however, to eliminate the requirement 

that the examinations expert must 

review the SRO’s or JAC’s ongoing 

application of its supervisory program 

during periodic reviews and the 

analysis of the supervisory program’s 

design to detect material weaknesses in 

internal controls during both periodic 

reviews and the initial review prior to 

the program’s initial use. The 

Commission also is proposing to revise 

the frequency of when an SRO or JAC 

must engage an examinations expert, as 

discussed below. 

The Commission’s proposal to 

eliminate the requirement that an 

examinations expert evaluate an SRO’s 

or JAC’s application of its supervisory 

program and the program’s design to 

detect material weaknesses in internal 

controls will reduce costs to the SROs 

and JACs. The proposal, however, 

would not substantially reduce the 

benefits obtained from an evaluation of 

the SROs’ and JACs’ supervisory 

program, including internal controls, as 

such reviews are performed by 

Commission staff on a routine basis. 

Commission staff evaluates the SRO’s or 

JAC’s execution of its supervisory 

program, including performing detailed 

reviews of SRO and JAC examination 

work papers, to assess the scope of the 

work performed by SRO and JAC staff 

members and to determine whether the 

conclusions reached by SRO and JAC 

staff members are supported by the 

work performed. Commission staff also 

reviews all SRO and JAC examination 

programs for conducting examinations 

of FCMs to assess the completeness of 

such programs and to determine that 

such programs properly reflect any 

regulatory updates, including rule 

amendments, adopted since the 

Commission staff’s previous review of 

the examination programs. Reviews of 

execution and completeness of 

supervisory programs for FCMs occur 

no less frequently than annually. 

Commission staff has a particular 

expertise in determining whether 

registrants are in compliance with 

Commission regulatory requirements 

that makes a third-party review 

redundant. 

The Commission proposes to continue 

to require that an examinations expert 

review the FCM examination standards 

contained in the supervisory program 

for consistency with PCAOB auditing 

standards, but is proposing to revise the 

timeframe for such reviews. Currently, 

Regulation 1.52 requires an SRO or JAC 

to engage an examinations expert at 

least once every three years to perform 

such a review. The Commission is 

proposing to amend Regulation 1.52 to 

require an SRO or JAC to engage an 

examinations expert if the PCAOB 

issued new or revised auditing 

standards that are material to the SRO’s 

or JAC’s examination of member FCMs. 

The examinations expert’s review, 

however, would be limited to only the 

new or revised PCAOB auditing 

standards that are applicable to the 

SRO’s or JAC’s examination of FCMs. 

Accordingly, the examinations expert 

would not have to review all of the 

SRO’s or JAC’s FCM examination 

standards for consistency with PCAOB 

audit standards. The proposal would 

further require an SRO or JAC to engage 

an examinations expert at least once 

every five years even if the SRO or JAC 

determined that the PCAOB did not 

issue new or revised auditing standards 

during the previous five-year period that 

are material to its examinations of 

member FCMs. Based on past 

experience, the Commission anticipates 

that the adoption of new or revised 

auditing standards that are material to 

examination standards applicable to 

FCMs will be infrequent, and therefore 

the triggering of an examinations expert 

review will also likely be an infrequent 

event.37 Finally, the proposal would 

provide that an SRO or JAC must engage 

an examinations expert if directed to by 

the Director of the Division of Swap 

Dealer and Intermediary Oversight.38

The proposed amendments to 

Regulation 1.52 are intended to 

streamline the process under which 

examinations experts conduct their 

reviews and the time period between 

those reviews. The Commission believes 

that these amendments will make 

conducting the reviews more efficient 

and less costly, while still balancing the 

importance of having an independent 

third-party examinations expert in 

auditing standards evaluating the 

examination standards used by SROs 

and the JAC. 

The Commission does not anticipate 

that there will be any significant 

increased costs associated with the 

proposed amendments. By narrowing 

the intended scope of examination 

reviews from an evaluation of the 

supervisory program to an assessment of 

the examinations standards for 

conformity with auditing standards 

established by the PCAOB as they apply 

to examinations, the Commission is 

purposely limiting the scope of the 

examinations expert’s review. The 

Commission anticipates that this 

limitation, coupled with extending the 

time period between expert examiner 

reviews, will significantly limit the 

costs associated with engaging and 

hiring an examinations expert.39

Nonetheless, the Commission believes 

that these amendments appropriately 

balance the integrity of the examination 

program with its costs while continuing 

to ensure that there is sufficient 

oversight over the minimum financial 

requirements at FCMs. As noted, 

Commission staff reviews no less 

frequently than annually all SRO and 

JAC examination programs and 

anticipates that it will continue to do so. 

These Commission staff reviews will 

continue to provide the benefits that 

have been associated with the 

examinations experts’ reviews. 

C. CEA Section 15(a) Factors 

i. Protection of Market Participants and 

the Public 

The Commission preliminarily 

believes that this proposal maintains the 

protection of market participants and 

the public provided by the current 

regulation. The proposal will continue 

to protect market participants and the 

public by ensuring that there is 

sufficient oversight over the minimum 

financial requirements at FCMs. As 

noted, the Commission believes that 

Commission staff is well-equipped to 

provide reviews that, under the 

proposal, would no longer be provided 

by outside examinations experts and 

Commission staff intends to continue to 

conduct such reviews. 

ii. Efficiency, Competitiveness, and 

Financial Integrity of Markets 

The Commission preliminarily 

believes that Regulation 1.52 as 

amended will continue to help ensure 

that FCMs can meet their financial and 


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40 5 U.S.C. 601 et seq. 

41 47 FR 18618 (Apr. 30, 1982). 

42 Id. at 18619. 

43 44 U.S.C. 3501 et seq. 

operational obligations to both 

customers and DCOs, which, along with 

the Commission’s ongoing reviews, will 

continue to foster the efficiency and 

financial integrity of markets. The 

Commission has not identified any 

effect of Regulation 1.52 on the 

competitiveness of derivatives markets. 

iii. Price Discovery 

The Commission has not identified 

any material effect of the proposed 

amendments on the price discovery 

process in futures and swap markets. 

iv. Sound Risk Management Practices 

The Commission preliminarily 

believes that Regulation 1.52 as 

amended, along with the Commission’s 

ongoing reviews, will continue to help 

ensure that FCMs can meet their 

financial and operational obligations to 

both customers and DCOs, which 

should continue to foster sound risk 

management practices. 

v. Other Public Interest Considerations 

The Commission has not identified 

any additional public interest 

considerations associated with the 

proposal. 

D. Consideration of Alternatives 

The Commission considered adopting 

the CME’s suggestion to fully eliminate 

the requirement that a third-party public 

accounting firm perform periodic 

evaluations and assessments of an 

SRO’s program to oversee its member 

FCMs’ compliance with financial and 

related reporting requirements. The 

Commission determined instead to 

eliminate the requirement that the 

examinations expert must periodically 

review the SRO’s or JAC’s ongoing 

application of its supervisory program, 

while maintaining reviews of an FCM’s 

examinations standards at a modified 

interval. The Commission preliminarily 

believes that there are significant 

benefits associated with having an 

outside auditor performing evaluations 

of examination standards at least every 

five years (and also when there are 

material and relevant changes in 

PCAOB auditing standards) as required 

by the proposed amendments. While, as 

noted, Commission staff is wellequipped to review the ongoing 

application of SRO and JAC supervisory 

programs and intends to continue to do 

so at least annually, the Commission 

believes that third-party public 

accounting firms are best equipped to 

perform evaluations of examination 

standards for conformity with auditing 

standards established by the PCAOB as 

they apply to examinations. 

The Commission also considered 

maintaining the current rule, but the 

Commission anticipates that the 

proposal will significantly reduce costs 

to SROs and JACs without materially 

impacting benefits. 

The CFTC requests comment on these 

alternatives as well as any other 

alternatives that commenters believe 

would present a superior cost-benefit 

profile to the proposal. 

IV. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) 40 requires Federal agencies, in 

promulgating regulations, to consider 

the impact of those regulations on small 

entities. The Commission has 

previously established certain 

definitions of ‘‘small entities’’ to be used 

by the Commission in evaluating the 

impact of its rules on small entities in 

accordance with the RFA.41 The 

proposed regulations would affect 

designated contract markets. 

The Commission has previously 

determined that designated contract 

markets are not small entities for 

purposes of the RFA, and, thus, the 

requirements of the RFA do not apply 

to designated contract markets.42

Accordingly, the Chairman, on behalf of 

the Commission, certifies pursuant to 5 

U.S.C. 605(b) that the proposed 

regulations would not have a significant 

economic impact on a substantial 

number of small entities. 

B. Paperwork Reduction Act 

This proposed rulemaking does not 

amend existing information collection 

requirements. The Paperwork Reduction 

Act (‘‘PRA’’) provides that a federal 

agency may not conduct or sponsor, and 

a person is not required to respond to, 

a collection of information unless it 

displays a currently valid control 

number issued by the Office of 

Management and Budget (‘‘OMB’’).43

The Commission is proposing 

amendments to rules that have 

previously identified collections of 

information under a pre-existing 

collection 3038–0052. The proposed 

amendments, however, only increase 

the respondents permitted time to file 

required information and reduce the 

requirements of review contained 

therein. As such, the previously 

identified response hours in collection 

3038–0052 remain a reasonable burden 

hour estimate. 

The collections contained in this 

rulemaking are mandatory collections. 

In formulating burden estimates for the 

collections in this rulemaking, to avoid 

double accounting of information 

collections that already have been 

assigned control numbers by OMB, or 

are covered as burden hours in 

collections of information pending 

before OMB, the PRA analysis provided 

in the proposed rulemaking, along with 

the information collection request 

(‘‘ICR’’) with burden estimates that were 

incorporated into the rulemaking by 

reference and submitted to OMB, 

accounted only burden estimates for 

collections of information that have not 

previously been submitted to OMB. The 

Commission invites comment on the 

collections of information contained in 

the proposed rulemaking only to the 

extent that the collections in the 

proposed rulemaking would increase 

the burden hours contained with respect 

to each of the related currently valid or 

proposed collections. 

List of Subjects in 17 CFR Part 1 

Brokers, Commodity futures, 

Consumer protection, Reporting and 

recordkeeping requirements. 

For the reasons stated in the 

preamble, the Commodity Futures 

Trading Commission proposes to amend 

17 CFR part 1 as follows: 

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, 5, 6, 6a, 6b, 6c, 

6d, 6e, 6f, 6g, 6h, 6i, 6k, 6l, 6m, 6n, 6o, 6p, 

6r, 6s, 7, 7a–1, 7a–2, 7b, 7b–3, 8, 9, 10a, 12, 

12a, 12c, 13a, 13a–1, 16, 16a, 19, 21, 23, and 

24 (2012). 

■ 2. Amend § 1.52 as follows: 

■ a. Revise paragraphs (c)(2)(ii), (iii), 

(iv), and (v); 

■ b. Remove paragraphs (c)(2)(vi) and 

(vii); 

■ c. Revise paragraphs (d)(2)(ii)(F), (G), 

(H), and (I); 

■ d. Remove paragraphs (d)(2)(ii)(J) and 

(K); and 

■ e. Revise paragraph (d)(2)(iii). 

The revisions read as follows: 

§ 1.52 Self-regulatory organization 

adoption and surveillance of minimum 

financial requirements. 

* * * * * 

(c) * * * 

(2) * * * 

(ii) The supervisory program must, at 

a minimum, have examination 

standards addressing the following: 

(A) The ethics of an examiner; 


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(B) The independence of an examiner; 

(C) The supervision, review, and 

quality control of an examiner’s work 

product; 

(D) The evidence and documentation 

to be reviewed and retained in 

connection with an examination; 

(E) The sampling size and techniques 

used in an examination; 

(F) The examination risk assessment 

process; 

(G) The examination planning 

process; 

(H) Materiality assessment; 

(I) Quality control procedures to 

ensure that the examinations maintain 

the level of quality expected; 

(J) Communications between an 

examiner and the regulatory oversight 

committee, or the functional equivalent 

of the regulatory oversight committee, of 

the self-regulatory organization of which 

the futures commission merchant is a 

member; 

(K) Communications between an 

examiner and a futures commission 

merchant’s audit committee of the board 

of directors or other similar governing 

body; 

(L) Analytical review procedures; 

(M) Record retention; and 

(N) Required items for inclusion in 

the examination report, such as repeat 

violations, material items, and high risk 

issues. The examination report is 

intended solely for the information and 

use of the self-regulatory organizations 

and the Commission, and is not 

intended to be and should not be used 

by any other person or entity. 

(iii)(A) Prior to the initial 

implementation of the supervisory 

program, a self-regulatory organization 

must engage an examinations expert to 

evaluate the examination standards for 

consistency with auditing standards 

issued by the Public Company 

Accounting Oversight Board as such 

auditing standards are applicable in the 

context of the self-regulatory 

organization’s examination of its futures 

commission merchant members. At least 

once every five years after the initial 

implementation of the supervisory 

program, a self-regulatory organization 

must engage an examinations expert to 

evaluate the examination standards for 

consistency with any new or amended 

auditing standards issued by the Public 

Company Accounting Oversight Board 

since the previous review performed by 

the examinations expert. At the 

conclusion of each evaluation, a selfregulatory organization must obtain a 

written report from the examinations 

expert in accordance with paragraph 

(c)(2)(iii)(C) of this section. 

(B) Notwithstanding paragraph 

(c)(2)(iii)(A) of this section, a selfregulatory organization must review any 

new or amended auditing standards 

issued by the Public Company 

Accounting Oversight Board, and must 

revise its examination standards 

promptly to reflect any changes in such 

auditing standards that are applicable in 

the context of the self-regulatory 

organization’s examination of its futures 

commission merchant members. A selfregulatory organization must engage an 

examinations expert to evaluate any 

material revisions that the selfregulatory organization makes to the 

examination standards to conform such 

standards with the Public Company 

Accounting Oversight Board’s auditing 

standards, or if directed to engage an 

examinations expert by the Director of 

the Division of Swap Dealer and 

Intermediary Oversight. At the 

conclusion of each review, a selfregulatory organization must obtain a 

written report from the examinations 

expert in accordance with paragraph 

(c)(2)(iii)(C) of this section. 

(C) At the conclusion of the 

examinations expert’s engagement 

pursuant to paragraph (c)(2)(iii)(A) or 

(B) of this section, the self-regulatory 

organization must obtain from the 

examinations expert a written report on 

findings and recommendations issued 

under the consulting services standards 

of the American Institute of Certified 

Public Accountants. The self-regulatory 

organization must provide the Director 

of the Division of Swap Dealer and 

Intermediary Oversight with a copy of 

the examinations expert’s written 

report, and the self-regulatory 

organization’s written responses to any 

of the examinations expert’s findings 

and recommendations, within thirty 

days of the receipt thereof. Upon 

resolution of any questions or comments 

raised by the Division of Swap Dealer 

and Intermediary Oversight, and upon 

written notice from the Division of 

Swap Dealer and Intermediary 

Oversight that it has no further 

comments or questions on the 

examinations standards as amended (by 

reason of the examinations expert’s 

proposals, consideration of the Division 

of Swap Dealer and Intermediary 

Oversight’s questions or comments, or 

otherwise), the self-regulatory 

organization shall commence applying 

such examinations standards for 

examining its registered futures 

commission merchant members for all 

examinations conducted with an ‘‘as of’’ 

date later than the date of the Division 

of Swap Dealer and Intermediary’s 

written notification. 

(iv) The supervisory program must 

require the self-regulatory organization 

to report to its risk and/or audit 

committee of the board of directors, or 

a functional equivalent committee, with 

timely reports of the activities and 

findings of the supervisory program to 

assist the risk and/or audit committee of 

the board of directors, or a functional 

equivalent committee, to fulfill its 

responsibility of overseeing the 

examination function. 

(v) The examinations expert’s written 

report, the self-regulatory organization’s 

response, if any, as well as any 

information concerning the supervisory 

program is confidential. 

(d) * * * 

(2) * * * 

(ii) * * * 

(F) The Joint Audit Program must 

include examination standards 

addressing the items listed in paragraph 

(c)(2)(ii) of this section. 

(G)(1) Prior to the initial 

implementation of the Joint Audit 

Program, the Joint Audit Committee 

must engage an examinations expert to 

evaluate the examination standards for 

consistency with auditing standards 

issued by the Public Company 

Accounting Oversight Board as such 

auditing standards are applicable in the 

context of the Joint Audit Committee’s 

examination of its futures commission 

merchant members. At least once every 

five years after the initial 

implementation of the Joint Audit 

Program, the Joint Audit Committee 

must engage an examinations expert to 

evaluate the examination standards for 

consistency with any new or amended 

auditing standards issued by the Public 

Company Accounting Oversight Board 

since the previous review performed by 

the examinations expert. At the 

conclusion of each review, the Joint 

Audit Committee must obtain a written 

report from the examinations expert in 

accordance with paragraph 

(d)(2)(ii)(G)(3) of this section. 

(2) Notwithstanding paragraph 

(d)(2)(ii)(G)(1) of this section, the Joint 

Audit Committee must review any new 

or amended auditing standards issued 

by the Public Company Accounting 

Oversight Board, and must revise its 

examination standards promptly to 

reflect any changes in such auditing 

standards that are applicable in the 

context of the Joint Audit Committee’s 

examination of its futures commission 

merchant members. The Joint Audit 

Committee must engage an 

examinations expert to evaluate any 

material revisions that the Joint Audit 

Committee makes to the examination 

standards to conform such standards 

with the Public Company Accounting 

Oversight Board’s auditing standards, or 

if directed to engage an examinations 

expert by the Director of the Division of 


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Swap Dealer and Intermediary 

Oversight. The Joint Audit Committee 

must obtain a written report from the 

examinations expert in accordance with 

paragraph (d)(2)(ii)(G)(3) of this section. 

(3) At the conclusion of the 

examinations expert’s engagement 

pursuant to paragraph (d)(2)(ii)(G)(1) or 

(2) of this section, the Joint Audit 

Committee must obtain from the 

examinations expert a written report on 

findings and recommendations issued 

under the consulting services standards 

of the American Institute of Certified 

Public Accountants. The Joint Audit 

Committee must provide the Director of 

the Division of Swap Dealer and 

Intermediary Oversight with a copy of 

the examinations expert’s written 

report, and the Joint Audit Committee’s 

written responses to any of the 

examinations expert’s findings and 

recommendations, within thirty days of 

the receipt thereof. Upon resolution of 

any questions or comments raised by 

the Division of Swap Dealer and 

Intermediary Oversight, and upon 

written notice from the Division of 

Swap Dealer and Intermediary 

Oversight that it has no further 

comments or questions on the 

examinations standards as amended (by 

reason of the examinations expert’s 

proposals, consideration of the Division 

of Swap Dealer and Intermediary 

Oversight’s questions or comments, or 

otherwise), the Joint Audit Committee 

shall commence applying such 

examinations standards for examining 

its registered futures commission 

merchant members for all examinations 

conducted with an ‘‘as of’’ date later 

than the date of the Division of Swap 

Dealer and Intermediary’s written 

notification. 

(H) The Joint Audit Program must 

require the Joint Audit Committee 

members to report to their respective 

risk and/or audit committee of their 

respective board of directors, or a 

functional equivalent committee, with 

timely reports of the activities and 

findings of the Joint Audit Program to 

assist the risk and/or audit committee of 

the board of directors, or a functional 

equivalent committee, to fulfill its 

responsibility of overseeing the 

examination function. 

(I) The examinations expert’s written 

report, the Joint Audit Committee’s 

response, if any, as well as any 

information concerning the supervisory 

program is confidential. 

(iii) Meetings of the Joint Audit 

Committee. (A) The Joint Audit 

Committee members must meet at least 

once each year. During such meetings, 

the Joint Audit Committee members 

shall consider revisions to the Joint 

Audit Program as a result of regulatory 

changes, revisions to the examination 

standards resulting from new or 

amended auditing standards issued by 

the Public Company Accounting 

Oversight Board, or the results of an 

examinations expert’s review. 

(B) In addition to the items 

considered in paragraph (d)(2)(iii)(A) of 

this section, the Joint Audit Committee 

members must consider the following 

items during the meetings: 

(1) Coordinating and sharing 

information between the Joint Audit 

Committee members, including issues 

and industry concerns in connection 

with examinations of futures 

commission merchants; 

(2) Identifying industry regulatory 

reporting issues and financial and 

operational internal control issues and 

modifying the Joint Audit Program 

accordingly; 

(3) Issuing risk alerts for futures 

commission merchants and/or 

designated self-regulatory organization 

examiners on an as-needed basis; 

(4) Responding to industry issues; and 

(5) Providing industry feedback to 

Commission proposals. 

(C) Minutes must be taken of all 

meetings and distributed to all members 

on a timely basis. 

(D) The Director of the Division of 

Swap Dealer and Intermediary 

Oversight must receive timely prior 

notice of each meeting, have the right to 

attend and participate in each meeting 

and receive written copies of the 

minutes required pursuant to paragraph 

(d)(2)(iii)(C) of this section, respectively. 

* * * * * 

Issued in Washington, DC, on June 28, 

2018, by the Commission. 

Christopher Kirkpatrick, 

Secretary of the Commission. 

Note: The following appendix will not 

appear in the Code of Federal Regulations. 

Appendix to Financial Surveillance 

Examination Program Requirements for 

Self-Regulatory Organizations— 

Commission Voting Summary 

On this matter, Chairman Giancarlo and 

Commissioners Quintenz and Behnam voted 

in the affirmative. No Commissioner voted in 

the negative. 

[FR Doc. 2018–14272 Filed 7–2–18; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF LABOR 

Occupational Safety and Health 

Administration 

29 CFR Part 1910 

[Docket No. OSHA–2018–0003] 

RIN 1218–AB76 

Revising the Beryllium Standard for 

General Industry 

AGENCY: Occupational Safety and Health 

Administration (OSHA), Labor. 

ACTION: Proposed rule; withdrawal. 

SUMMARY: With this document, OSHA is 

withdrawing the proposed rule that 

accompanied its direct final rule (DFR) 

amending the beryllium standard for 

general industry to address the 

application of the standard to materials 

containing trace amounts of beryllium. 

DATES: As of July 3, 2018, the proposed 

rule published May 7, 2018 (83 FR 

19989) is withdrawn. 

FOR FURTHER INFORMATION CONTACT: 

Press inquiries: Mr. Frank Meilinger, 

OSHA Office of Communications, Room 

N–3647, U.S. Department of Labor, 200 

Constitution Avenue NW, Washington, 

DC 20210; telephone: (202) 693–1999; 

email: meilinger.francis2@dol.gov. 

General information and technical 

inquiries: William Perry or Maureen 

Ruskin, Directorate of Standards and 

Guidance, Room N–3718, OSHA, U.S. 

Department of Labor, 200 Constitution 

Avenue NW, Washington, DC 20210; 

telephone: (202) 693–1950; fax: (202) 

693–1678. 

Copies of this Federal Register 

document and news releases: Electronic 

copies of these documents are available 

at OSHA’s web page at http://

www.osha.gov. 

SUPPLEMENTARY INFORMATION: On May 7, 

2018, OSHA published a DFR amending 

the application of the beryllium 

standard to materials containing trace 

amounts of beryllium (83 FR 19936). 

OSHA also published a companion 

proposed rule proposing the same 

changes to the beryllium standard (83 

FR 19989). In the DFR, OSHA stated 

that it would withdraw the companion 

proposed rule and confirm the effective 

date of the DFR if no significant adverse 

comments were submitted on the DFR 

by June 6, 2018. OSHA received seven 

comments in the record from Materion 

Brush, Inc., Mead Metals Inc., National 

Association of Manufacturers, Airborn, 

Inc., Edison Electric Institute, and two 

private citizens (Document ID OSHA– 

2018–0003–0004 thru OSHA–2018– 

0003–0010). The seven submissions 


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