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[Federal Register: January 4, 1999 (Volume 64, Number 1)]
[Rules and Regulations]
[Page 16-24]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04ja99-14]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1


Voting by Interested Members of Self-Regulatory Organization
Governing Boards and Committees

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rulemaking.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') has adopted a new Regulation 1.69 that implements the
statutory directives of Section 5a(a)(17) of the Commodity Exchange Act
(``CEA'') as it was amended by Section 217 of the Futures Trading
Practices Act of 1992 (``FTPA'').\1\
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    \1\ Pub. L. No. 102-546, section 217, 106 Stat. 3590 (1992).
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    New Commission Regulation 1.69 requires self-regulatory
organizations (``SRO'') to adopt rules prohibiting governing board,
disciplinary committee and oversight panel members from deliberating or
voting on certain matters where the member has either a relationship
with the matter's named party in interest or a financial interest in
the matter's outcome. This final rulemaking also has amended Commission
Regulations 1.41 and 1.63 to make modifications made necessary by new
Commission Regulation 1.69.

EFFECTIVE DATE: March 5, 1999.

FOR FURTHER INFORMATION CONTACT: David P. Van Wagner, Acting Associate
Director, or Martha A. Mensoian, Attorney-Advisor, Division of Trading
and Markets, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street, N.W., Washington, D.C. 20581. Telephone:
(202) 418-5490.

SUPPLEMENTARY INFORMATION

I. Introduction

    Section 217 of the FTPA amended Section 5a(1)(17) of the CEA to
``provide for the avoidance of conflict of interest in deliberations by
the governing board and any disciplinary and oversight committee.'' \2\
On May 3, 1996, the Commission published for pubic comment in the
Federal Register a proposed new Regulation 1.69 and related amendments
to existing Commission Regulations 1.41 and 1.63 which would have
required SROs to adopt rules prohibiting governing board, disciplinary
committee and oversight panel members from deliberating and voting on
certain matters where the member had either a relationship with the
matter's named party in interest or a financial interest in the
matter's outcome.\3\ In response to that proposed rulemaking release,
the Commission received letters from eleven commenters. After reviewing
those comments, the Commission decided to incorporate into its
rulemaking many of the suggestions made by the commenters and to issue
for pubic comment re-proposed versions of Regulation 1.69 and amended
Regulations 1.41 and 1.63. The Commission published its re-proposed
rulemaking in the Federal Register on January 23, 1998.\4\ That release
extensively discusses the comments that were made on the originally
proposed rulemaking, indicates whether and how the re-proposed
rulemaking responds to the comments and explains the Commission's
reasons for proposing a re-proposed version of the rulemaking. The
comment period for the re-proposed rulemaking expired on March 25,
1998.
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    \2\ For the purposes of this release, the term ``committee''
generally will be used to include governing boards, disciplinary
committees and oversight panels unless otherwise specified.
    \3\ 61 FR 19869 (May 3, 1996).
    \4\ 61 FR 3492 (Jan. 23, 1998).
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II. Comments Received

    The Commission received ten comment letters in response to its re-
proposed rulemaking. The comment letters were submitted by five futures
exchanges (the Chicago Board of Trade (``CBT''), the Chicago Mercantile
Exchange (``CME''), the Coffee, Sugar & Cocoa Exchange, Inc.
(``CSCE''), the Minneapolis Grain Exchange (``MGE''), and the New York
Mercantile Exchange (``NYMEX'')); a futures clearing organization (the
Board of Trade Clearing Corporation (``BOTCC'')); two trade
associations (the Futures Industry Association (``FIA'') and the
National Grain Trade Council (``NGTC'')); a futures commission merchant
(American Futures Group, Inc. (``AFG'')) and Mr. Evan Tucker, an
individual who was formerly an associated person with AFG.
    The Commission has carefully reviewed these comments and has
decided to issue new Regulation 1.69 and amended Regulations 1.41 and
1.63 as final with certain modifications from the re-proposed version
of the rulemaking. The following sections of this release analyze the
Commission's final rulemaking. Each section describes a provision of
the Commission's reproposed rulemaking, discusses comments which were
made on that particular provision, indicates how the provision has been
adopted in the final rulemaking, and explains the Commission's
rationale for adopting the provision. (For ease of reference, the re-
proposed rulemaking will be referred to as the ``proposed'' rulemaking
throughout the remainder of this release.)

III. Final Rulemaking

A. Definitions (Regulation 1.69(a))

1. Disciplinary Committee (Regulation 1.69(a)(1))
    As proposed, Regulation 1.69(a)(1) defined ``disciplinary
committee'' to mean ``any person or committee of persons, or any
subcommittee thereof'' that is authorized by an SRO ``to issue
disciplinary charges to conduct disciplinary proceedings, to settle
disciplinary charges, to impose disciplinary sanctions, or to hear
appeals thereof'' in any case involving a violation of an SRO's rules.
The proposed definition excluded persons who were individually
authorized by an SRO to impose sanctions summarily for decorum-type
rule violations. CBT, CME, CSCE, FIA and NYMEX each commented that the
definition should exclude any person or committee of persons that
summarily imposed minor disciplinary fines. These commenters contended
that imposing conflict of interest restrictions on anyone taking
summary actions, whether a single person or a committee, would be
cumbersome for SROs to implement.
    The Commission has reviewed these comments and concurs that
applying conflict of interest requirements to SRO disciplinary
authorities when they take summary actions for minor rule violations
could be administratively burdensome and might hamper the SROs' ability
to take quick, decisive actions in these circumstances. Accordingly,
the Commission has determined to establish a disciplinary committee
definition that would exclude committees and persons who summarily
issue minor penalties for violating rules regarding ``decorum, attire,
the timely submission of accurate records for clearing or verifying
each day's transactions or other similar activities.''

[[Page 17]]

2. Family Relationship (Regulation 1.69(a)(2))
    As further discussed below, proposed Regulation 1.69(b)(1)(i)(E)
prohibited committee members from deliberating and voting on committee
matters in which they had a ``family relationship'' with the matter's
named party in interest. For these purposes, proposed Regulation
1.69(a)(2) defined ``family relationship'' to mean a person's ``spouse,
former spouse, parent, stepparent, child, stepchild, sibling,
stepbrother, stepsister, grandparent, grandchild, uncle, aunt, nephew,
niece or in-law.''
    CBT commented that the inclusion of ``former spouses'' in the
definition ran counter to the approach taken in proposed Regulation
1.69(b)(1)(i)(D) where conflicts of interests were limited to current,
``ongoing'' business relationships with the named party in interest.
The Commission believes that the two types of relationships cited by
the CBT are distinguishable. The rationale for limiting conflict of
interest requirements to committee members with ``ongoing'' business
relationships is that, when a member and a matter's named party in
interest have an ongoing business relationship, a committee action that
could impact the party financially also could redound to the financial
advantage or disadvantage of anyone who is doing business with the
party at that point in time, including the committee member. Once a
business relationship between two parties no longer exists, however,
presumably the financial health of the two parties no longer has any
degree of interdependence. By contrast, a committee member's
relationship with a former spouse may have emotional and financial
implications that continue after their marriage, especially if there is
any sort of monetary support arrangement between the former spouses.
Accordingly, the Commission has determined to include former spouses in
the final definition of family relationship and to adopt the definition
as proposed.
3. Governing Board (Regulation 1.69(a)(3))
    As proposed, Regulation 1.69(a)(3)'s definition of ``governing
board'' included any SRO ``board of directors, board of governors,
board of managers, or similar body, or any subcommittee thereof,'' such
as an executive committee that was authorized to ``take action or to
recommend the taking of action'' on behalf of its SRO. The CBT
commented that the definition should not include governing board
subcommittees because any potential harm from any conflict of interest
on such a subcommittee would be cured by the fact that its actions
would be subject to the independent review and oversight of a governing
board. The Commission believes that, although board subcommittee
actions usually have to be ratified by governing boards, oftentimes
recommendations of such subcommittee are the primary influence on board
decision. Accordingly, in order to advance the integrity of the SRO
committee decision-making process, the Commission has decided to apply
its conflict of interest restrictions to governing board subcommittees
and to adopt the same governing board definition as proposed.
4. Oversight Panel (Regulation 1.69(a)(4))
    In the proposed rulemaking, the Commission defined ``oversight
panel'' as an SRO committee authorized to ``recommend or establish
policies or procedures with respect to the [SRO's] surveillance,
compliance, rule enforcement, or disciplinary responsibilities.'' \5\
The CBT and NYCE commented that this definition was too broad and
should not include committees which recommend policies as such a
definition would deter people, inside and outside of the futures
industry, from serving on task forces and planning committees that
formulate ideas that are helpful to the SROs.
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    \5\ See proposed Commission Regulation 1.69(a)(4).
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    The Commission believes that SRO policies with respect to
surveillance, compliance, rule enforcement and disciplinary
responsibilities are an integral part of the self-regulatory process
and that persons who are entrusted with recommending such policies
should be free from conflicts of interests. Accordingly, the Commission
has decided to adopt the proposed definition of oversight panels.
5. Member's Affiliated Firm (Regulation 1.69(a)(5))
    Under proposed Regulation 1.69(a)(5), a ``member's affiliated
firm'' was defined as any firm at which a committee member was either:
(1) A principal, as defined by Regulation 3.1(a), or (2) an employee.
The term became operative under proposed Regulation 1.69(b)(2)(iii)
which required SROs to review positions at a committee member's
``affiliated firm'' when determining whether the member had a direct
and substantial financial interest in the outcome of a significant
action. CME commented that the ``member's affiliated firm'' definition
should be limited to firms where the member was a principal. CME
contended that firms which employ committee members should not be
included in the definition as firm employees have much less knowledge
regarding their firms' positions than do principals. The Commission
believes the potential for a committee member to be influenced by an
employment relationship is sufficient to warrant his or her
disqualification from deliberating and voting on significant actions
which might impact the member's employer. Many firm employees have as
much knowledge of their firm's positions as do the firm's principals.
In fact, the Commission believes that in some instances an employment
relationship may have an even greater influence on a committee member
than an ownership relationship in that employees may be under the
control of their employing firm. Accordingly, the Commission has
determined not to modify this aspect of the definition of ``member's
affiliated firm'' but rather to adopt the definition as proposed.
6. Named Party in Interest (Regulation 1.69(a)(6))
    In its proposed rulemaking, the term ``named party in interest''
was defined to mean a party who was ``the subject of any matter being
considered'' by an SRO committee. In its comment letter, CBT suggested
that ``named party in interest'' be defined to mean a ``person who is
identified by name to a governing board, disciplinary committee or
oversight panel as the subject of a matter to be considered by it.''
The Commission believes the CBT's suggestion would help to clarify the
named party in interest definition. Accordingly, the Commission has
adopted the substance of CBT's proposed definition with the
modification that the provision include any ``person or entity'' that
is identified by name as a subject of a committee action. In adopting
this definition of ``named party in interest,'' the Commission reminds
the SROs that it would be inconsistent with the intent of Regulation
1.69 for SROs to shield the identities of named parties in interests
from committee members in order to circumvent the conflict of interest
requirements.
7. Self-Regulatory Organization (Regulation 1.69(a)(7))
    Proposed Regulation 1.69 defined SROs to include exchanges,
clearing organizations and registered futures associations
(``RFAs'')(with RFAs being excluded from the definition for the
purposes of Regulation 1.69(b)(2)

[[Page 18]]

``financial interest'' conflicts of interest). BOTCC and CBT both
objected to the inclusion of clearing organizations in the definition
of SRO on the ground that CEA Section 5a(a)(17), Regulation 1.69's
statutory enabling provision, only applies to contract markets and not
clearing organizations.
    The Commission believes that BOTCC's and CBT's suggestions would
lead to significant inconsistencies in the application of Regulation
1.69. Some contract markets have in-house clearing organizations (e.g.,
CME and NYMEX), while other contract markets are cleared by independent
clearing organizations (e.g., CBT and CSCE). Applying Regulation 1.69
to clearing organizations, as well as contract markets, would ensure
that there would not be differing treatment of contract markets based
on whether or not they had an in-house or independent clearing
mechanism.
    The Commission notes that, while CEA Section 5a(a)(17) only
specifies ``contract markets,'' the provision also requires that its
conflict of interest restrictions shall apply to committees handling
certain types of margin changes. Margin levels in the futures industry
are established by both contract markets and clearing organizations.
The Commission also notes that there have been previous occasions when
CEA requirements for contract markets have been applied to clearing
organizations. For example, Section 5a(a)(12)(A) of the CEA mandates
Commission review of ``contract market'' rules while Commission
Regulation 1.41, which establishes procedures for Commission review of
proposed rules, specifically includes clearing organizations within its
definition of contract markets for these purposes. In addition,
clearing organizations already are subject to regulatory requirements
that are comparable to Regulation 1.69 such as Regulation 1.41(f)'s
emergency action provisions and Regulation 1.63's prohibition on
committee service by persons with disciplinary histories.
    For each of the above reasons, the Commission has determined that
it is appropriate to make clearing organizations subject to Regulation
1.69 and to include them in the definition of SRO.
8. Significant Actions (Regulation 1.69(a)(8))
    Proposed Regulation 1.69(b)(2) applied conflict of interest
restrictions to SRO committees whenever they considered any significant
action. The term ``significant action'' was proposed to mean: (1)
Actions or rule changes that address Regulation 1.41(a)(4) non-physical
emergencies; (2) margin changes that respond to extraordinary market
conditions, such as ``an actual or attempted corner, squeeze,
congestion or undue concentration of positions''; and (3) margin
changes that are likely to have a substantial effect on contract prices
of any contract traded or cleared at the particular SRO. BOTCC and CBT
commented that this provision should track the language of the CEA and
that, accordingly, the rulemaking should pertain only to those contract
market margin changes that respond to extraordinary market conditions
that are likely to have a substantial effect on contract prices.
    The Commission believes that margin changes that are made in
response to corners, squeezes, congestion, or undue concentrations of
positions serve important market integrity purposes and that committee
members should not be influenced by their personal interests when
considering such decisions. Accordingly, the Commission has determined
not to reduce the scope of the significant action definition, but
rather to adopt the provision as it was proposed.

B. Self-Regulatory Organization Rules (Regulation 1.69(b))

    Proposed Commission Regulation 1.69(b) required SROs to adopt rules
prohibiting committee members from deliberating and voting on certain
types of matters as to which they had conflicts of interest. Proposed
Regulation 1.69(b)(1) restricted committee participation for members
who had a relationship with a matter's named party in interest.
Proposed Regulation 1.69(b)(2) restricted committee participation for
members who had a ``direct and substantial financial interest'' in
certain types of committee actions that do not require prior Commission
review and approval. Proposed Commission Regulations 1.69(b)(1) and (2)
also mandated certain procedures that SROs must follow when making a
determination as to the existence of a conflict of interest.
1. Conflict of Interest Due to a Relationship With Named Party in
Interest (Regulation 1.69(b)(1))
a. Nature of Relationship (Regulation 1.69(b)(1)(i))
    Under proposed Regulation 1.69(b)(1)(i), SRO committee members were
required to abstain from deliberating and voting on any matter where
they had a significant relationship with the ``named party in
interest.'' These relationships would include family, employment,
broker association and ``significant, ongoing business'' relationships.
In its comment letter, the CBT noted that CEA Section 5a(a)(17) limits
this abstention requirement to ``confidential'' deliberations and
voting. Accordingly, CBT suggested that Regulation 1.69(b)(1)(i) should
be revised to conform with Section 5a(a)(17) in this regard.
    Although the CEA only mandates that, at a minimum, committee
members must abstain from confidential deliberations on matters in
which they have a relationship with a named party in interest, the
Commission believes that adopting a more prophylactic approach in these
types of matters would ensure that SRO committees could not undermine
the intent of this provision by declaring ``open'' committee meetings
in lieu of applying conflict of interest restrictions. Accordingly, the
Commission has decided to adopt Regulation 1.69(b)(1)(i) as proposed
and to apply its requirements to all committee deliberations,
regardless of whether they are confidential or not.
    CME, CSCE and NYMEX commented that the Commission should clarify
Regulation 1.69(b)(1)(i) so that it does not apply to committee actions
such as price change register revisions and the certification of the
late submission of pit cards. The commenters contended that these
situations already are addressed by their own existing procedures and
that, accordingly, a Commission rulemaking in this area would be an
unnecessary administrative encumbrance.
    The fact that these commenters already have their own conflict of
interest requirements for price change register revisions and late pit
card certifications does not obviate the need for the Commission to
establish an industry-wide standard in this area. In addition, the
existence of such requirements at these exchanges also would seem to
contradict the contention that Commission-established requirements
would be administratively cumbersome to enforce. Accordingly, in
connection with this provision, the Commission wishes to clarify that,
if a particular, identifiable person approaches an SRO committee member
to request sign-off on a price change register revision or a late pit
card certification, Regulation 1.69(b)(1) should apply, and the
committee member should abstain from handling the matter if his or her
relationship with

[[Page 19]]

the requesting member falls within the parameters of Regulation
1.69(b)(1)(i).\6\
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    \6\ The Commission notes that committees which act in these
capacities would qualify as oversight panels under Regulation
1.69(a)(4), rather than disciplinary committees or governing boards.
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    The Commission recognizes that a floor committee would not be
subject to Regulation 1.69(b)(1)'s requirements when taking summary
disciplinary actions for minor rule violations,\7\ while the same
committee would be subject to Regulation 1.69(b)(1)'s requirements when
taking actions such as price change register revisions and the
certification of the late submission of pit cards. This distinction
reflects the important regulatory interests implicated by these latter
actions but not summary actions for minor rule violations.
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    \1\ See discussion of Regulation 1.69(a)(1)'s definition of
disciplinary committee in Section III.A.1 above.
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    AFG and Mr. Tucker each suggested that regulation 1.69(b)(1)(i)'s
restrictions should extend to relationships where a committee member
and a matter's named party in interest may have shared liability for
facts that are under consideration by a committee. AFG and Mr. Tucker
indicated that their suggestions were prompted by a particular SRO
enforcement case in which a member of the disciplinary committee
hearing the case potentially shared liability with the case's named
party. The Commission believes that the proposed provision would be
difficult to formulate and would likely be overbroad in application. In
addition, the types of relationships described by the commenters would
probably qualify as employment or significant business relationships
and, thus, would already appear to qualify as one of Regulation
1.69(b)(1)(i)'s list of disqualifying relationships.
    MGE commented that, because of its small size, some of its broker
associations contain practically all of the exchange's floor brokers
and consequently, under proposed Regulation 1.69(b)(1)(i)(C), a large
number of MGE committee members would be disqualified in matters where
a floor broker was a named party in interest. In order to address
possible hardships that Regulation 1.69 may impose on smaller futures
exchanges, the Commission has decided to consider granting small
exchanges exemptions from certain provisions of Regulation 1.69 on a
case-by-case basis. In making a request for such an exemption, the
requesting exchange must: (1) Demonstrate that the pertinent provision
of Regulation 1.69 would create a material hardship and (2) provide for
alternative procedures that are not inconsistent with the policy
considerations underlying Regulation 1.69.
b. Disclosure of Relationship (Regulation 1.69(b)(1)(ii))
    Proposed Regulation 1.69(b)(1)(ii) required that SRO committee
members disclose to the appropriate SRO staff whether they had any one
of the relationships listed in Regulation 1.69(b)(1)(i) with respect to
a matter's named party in interest. No commenter addressed this
provision, and the Commission has determined to adopt Regulation
1.69(b)(1)(ii) as proposed.
c. Procedures for Determination (Regulation 1.69(b)(1)(iii))
    Proposed Regulation 1.69(b)(1)(iii) required that SROs establish
procedures for determining whether committee members had a
disqualifying relationship with a matter's named party in interest. The
provision mandated that the determination must be based upon: (1)
information provided by the committee members to the appropriate SRO
staff (Regulation 1.69(b)(1)(iii)(A)), and (2) ``any other source of
information that is reasonably available'' to the SRO (Regulation
1.69(b)(1)(iii)(B)).
    The CBT, CSCE and NYMEX each proposed amendments to the clause
covering ``any other source of information reasonably available'' to
the SRO. CBT suggested that SROs be able to rely upon ``any information
of which the [SRO] has actual knowledge.'' CSCE suggested that SROs be
able to rely upon ``any information otherwise known to the SRO in the
ordinary course of business.'' Finally, NYMEX proposed that SROs be
permitted to rely upon information in their membership and broker
association files.
    The Commission believes that CBT's and CSCE's respective proposed
changes could create an undesirable incentive for SROs to remain
ignorant of their committee members' relationships. On the other hand,
the Commission believes that NYMEX's proposed change is too limited in
that it would permit SROs to overlook committee member information they
may hold somewhere other than in their membership or broker association
files.
    In order to avoid the ambiguities and compliance issues created by
proposed Regulation 1.69(b)(1)(iii)(B)'s knowledge standard, the
Commission has determined to establish a more defined, narrower scope
for SRO reviews undertaken to determine whether committee members have
a conflict of interest with a named party in interest. Accordingly, in
addition to the particular information required to be provided to SROs
by committee members pursuant to Regulation 1.69(b)(1)(iii)(A), final
Regulation 1.69(b)(1)(iii)(B) requires that SROs review information
that is ``held by and reasonably available'' to them.
    NYMEX also suggested that SROs be permitted to take into account
the ``exigency'' of a committee action in determining what type of
information to review when assessing committee member relationships
with named parties in interest. The Commission has determined to adopt
NYMEX's suggestion and has incorporated an ``exigency'' modifier into
final Regulation 1.69(b)(1)(iii). The Commission notes that the
revision parallels what proposed Regulation 1.69(b)(2)(iv) already
provided in connection with SRO determinations of conflict due to
financial interests in significant actions.
2. Conflict of Interest Due to a Financial Interest in a Significant
Action (Regulation 1.69(b)(2))
    Proposed Regulation 1.69(b)(2) required committee members to
abstain from ``significant actions'' by their committees, as that term
is defined in Regulation 1.69(a), if the member knowingly had a direct
and substantial financial interest in the outcome of the matter.
    While most of the comments addressing proposed Commission
Regulation 1.69(b)(2) focused on the provisions that mandated SRO
procedures for implementing this provision, See Regulations
1.69(b)(2)(ii) through (iv), MGE and NGTC both contended that
Regulation 1.69(b)(2)'s basic restriction would adversely impact small
exchanges. They commented that small exchanges often have a single
dominant contract that most of the exchange members (and hence most
committee members) trade. According to these commenters, apply
Regulation 1.69(b)(2) to significant actions concerning these contracts
would cause a large number of committee members to abstain and would
cripple the decisionmaking ability of small exchange committees.
    The Commission is prepared to consider granting small exchanges
exemptions from Regulation 1.69(b)(2), on a case-by-case basis. In
applying for such an exemption, an exchange must: (1) Demonstrate that
Regulation 1.69(b)(2) would create a material hardship (e.g., an
exchange that has a single large contract which is traded by a large
majority of its members), and (2) provide for alternative procedures
that

[[Page 20]]

are not inconsistent with the policy considerations underlying
Regulation 1.69(b(2).
a. Nature of Interest (Regulation 1.69(b)(2)(i))
    Proposed Commission Regulation 1.69(b)(2)(i) required that SRO
committee members abstain from committee deliberations and voting on
certain matters in which they ``knowingly [had] a direct and
substantial financial interest.'' The proposed restriction applied
whenever a committee considered significant actions.\8\ No commenter
addressed this provision in particular. Accordingly, the Commission has
determined to adopt Regulation 1.69(b)(2)(i) as proposed. In adopting
this provision, however, the Commission emphasizes that Regulation
1.69(b)(2)(i) itself states that the bases for a committee member's
direct and substantial financial interest in a significant action are
limited to exchange and non-exchange positions that ``reasonably could
be expected to be affected by the action.'' SROs should follow this
standard in establishing the level of disclosure made by committee
members pursuant to Regulation 1.69(b)(2)(ii) and the level of position
review made by them and their staffs pursuant to Regulations 1.69(b)(2)
(iii) and (iv).\9\
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    \8\ The definition of such significant actions is established by
final Regulation 1.69(a)(8) and is discussed above in Section
III.A.8.
    \9\ BOTCC, CBT and CME each requested clarification on this
particular point in their respective comment letters.
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b. Disclosure of Interest (Regulation 1.69(b)(2)(ii))
    Proposed Regulation 1.69(b)(2)(ii) required that, prior to the
consideration of a significant action, committee members must disclose
to appropriate SRO staff prescribed position information that was
``known'' to the committee member.
    BOTCC, CBT, CME and FIA each suggested that Regulation 1.69
specifically permit a committee member to recuse himself/herself from
deliberating and voting on a matter without having to make the required
disclosure pursuant to Regulation 1.69(b)(2)(ii). The commenters'
suggestions are consistent with the Commission's original intent in
proposing Regulation 1.69(b)(2)(ii). Accordingly, the Commission has
made responsive changes to the final provision.
c. Procedure for Determination (Regulation 1.69(b)(2)(iii))
    In determining a committee member's financial interest in a
significant action, proposed Regulation 1.69(b)(2)(iii) (A) through (D)
required SROs to review certain types of positions held at the SRO by
the member, the member's affiliated firm, and customers of the member's
firm in any contract that could be affected by the committee's
significant action. In addition, Regulation 1.69(b)(2)(iii)(E) required
SROs to review ``any other types of positions, whether at that [SRO] or
elsewhere,'' that the SRO ``reasonably expect[ed] could be affected by
the significant action.''
    CBT commented that the review of positions held outside of the
particular SRO should be limited to positions owned or controlled by
the committee member himself or herself and should not include outside
positions held by the member's firm or customers of the member's firm.
The Commission concurs with this suggestion insofar as it pertains to
positions held outside of an SRO by customers of a committee member's
firm. Such positions would be both difficult to ascertain and would be
less likely to influence a committee member's decisionmaking. In
contrast, positions held by a committee member are certainly less
difficult to ascertain, and both positions held by a member and in the
proprietary accounts of a member's affiliated firm are more likely to
influence a committee member's decisionmaking. Accordingly, the
Commission has amended final Regulation 1.69(b)(2)(iii)(E) to require
SRO review of outside positions held in a member's personal accounts or
the proprietary accounts of a member's affiliated firm.
    CME suggested that it was not necessary to have an SRO conduct the
same level of review for positions held outside of the SRO as for
positions held at the SRO and that Regulation 1.69(b)(2)(iii) should be
appropriately amended. The Commission does not believe that it is
appropriate to establish some lessened level of review standard for
positions held outside of the subject SRO. Regulation 1.69(b)(2)
already includes provisions that serve the same purpose. For example,
Regulation 1.69(b)(2)(i) limits the bases for conflict of interest
determinations to positions that ``reasonably'' could be expected to be
affected by a significant action. In addition, Regulation
1.69(b)(2)(iv) states that SROs may take into account ``the exigency of
the significant action'' when undertaking a review of the various
sources of information to be considered when making a conflict of
interest determination.
d. Bases for Determination (Regulation 1.69(b)(2)(iv))
    Proposed Regulation 1.69(b)(2)(iv) specified what sources of
information SROs should rely upon in determining whether a committee
member had a conflict of interest in a significant action. Generally,
the provision directed SROs to consult: (1) The most recent large
trader reports and clearing records available to the SRO (Regulation
1.69(b)(2)(iv)(A)); (2) position information provided to the SRO by the
committee member (Regulation 1.69(b)(2)(iv)(B)); and (3) any other
source of information that was ``held by and reasonably available'' to
the SRO, whether it be from inside or outside the SRO (Regulation
1.69(b)(2)(iv)(C)).
    CBT and CSCE each suggested replacement language for Regulation
1.69(b)(2)(iv)(C)'s requirement that SROs consult ``any other source of
information that is reasonably available'' to the SRO. CBT suggested
that SROs be permitted to rely on ``any information of which the [SRO]
has actual knowledge.'' CSCE suggested that SROs be able to rely on
``any information otherwise known to [the SRO] in the ordinary course
of business.''
    The Commission does not believe that either of these suggested
review standards would be appropriate in that they could create a
disincentive for SROs to remain apprised of their committee members'
positions. The Commission has adopted an alternative revision to
Regulation 1.69(b)(2)(iv)(C) which provides that SROs consult ``any
other source of information that is held by and reasonably available''
to the SRO. The Commission notes that this revision parallels the
standard which the Commission has adopted in Regulation 1.69(b)(1)(iii)
with respect to information that SROs should consult in determining
whether a committee member has a conflict due to a relationship with a
matter's named party in interest.
3. Participation in Deliberations (Regulation 1.69(b)(3))
    CEA Section 5a(a)(17) recognizes that in some instances a committee
member with a conflict in a particular committee matter also might have
special knowledge or experience regarding that matter. Accordingly, in
a limited number of circumstances, proposed Commission Regulation
1.69(b)(3) permitted SRO committees to allow a committee member, who
otherwise would be required to abstain from

[[Page 21]]

deliberations and voting on a matter because of a conflict, to
deliberate but not to vote on the matter. This ``deliberation
exception'' was only made applicable to matters in which a committee
member had a conflict of interest as the result of having a ``direct
and substantial financial interest'' in the outcome of a vote on a
significant action under Regulation 1.69(b)(2). Consistent with Section
5a(a)(17), proposed Regulation 1.69(b)(3)'s deliberation exception did
not apply to matters in which a committee member had a conflict due to
his or her relationship with a matter's named party in interest under
Regulation 1.69(b)(1).
    In determining whether to permit a ``conflicted'' committee member
to deliberate on a matter, proposed Regulation 1.69(b)(3) required that
the presiding committee consider a number of factors including: (1)
Whether the member had unique or special expertise, knowledge or
experience in the matter involved, and (2) whether the member's
participation in deliberations would be necessary for the committee to
obtain a quorum.\10\ Proposed Regulation 1.69(b)(3)(iii) also required
that when SRO committees determine whether to grant a deliberation
exception, they ``must fully consider the position information'' which
evidences the committee member's financial interest in the matter.
---------------------------------------------------------------------------

    \10\ The Commission, in its proposed rulemaking, indicated that
it believed that, given the factors that must be considered,
deliberation exception determinations should be made by the
committee involved, rather than SRO staff. For any particular SRO
committee matter, the committee members themselves would be in a
better position than SRO staff to assess their individual levels of
expertise in the matter and their need for input during
deliberations from the committee member who otherwise would be
required to abstain. The Commission continues to adhere to this
view, and no commenters on the proposed rulemaking addressed this
issue. Accordingly, final Regulations 1.69 specifically confers the
responsibility for deliberation exception determinations on the SRO
committee involved.
---------------------------------------------------------------------------

    The Commission has decided to retain the basic requirements of
proposed Regulation 1.69(b)(3)'s deliberation exception provision in
this final rulemaking. The Commission believes that the provision
strikes a reasonable balance between ensuring that SRO committees make
well-informed decisions while minimizing the influence of a committee
member's potential bias or self-interest in a matter.
    Only two commenters addressed proposed Regulation 1.69(b)(3).
Specifically, CBT and CSCE commented that Regulation 1.69(b)(3)(iii)
should not be interpreted to mean that a member's precise position
information must be disclosed to the entire SRO committee and that,
instead, some sort of general summary of the member's positions should
be sufficient disclosure.
    The disclosure of a ``conflicted'' committee member's position
information to the committee, pursuant to Regulation 1.69(b)(3)(iii),
generally serves two purposes. First, it enables the committee to
evaluate the depth of a committee member's financial interest in the
outcome of a significant action and to balance whether his or her
participation in deliberations would be worthwhile. Second, in the case
of a committee member who receives a deliberation exception, the
disclosure of the member's interest to his or her fellow committee
members should help to mitigate any prejudicial influence such member's
views could have on the other members during the course of
deliberations. In light of this important need for accurate position
information, the Commission does not believe that it would be
appropriate for SRO committees to make deliberation exception
determinations based upon a general summary of a conflicted member's
position information. Accordingly, the Commission has not revised this
provision in the final rulemaking.
4. Documentation of Determination (Regulation 1.69(b)(4))
    Whenever an SRO committee made a conflict of interest
determination, proposed Regulation 1.69(b)(4) required that certain
information regarding the abstention determination be recorded. Such a
record was required to indicate: (1) The committee members who attended
the meeting (Regulation 1.69(b)(4)(i)), (2) the name of any committee
member who was directed to abstain or who voluntarily recused himself
or herself and the reasons why (Regulation 1.69(b)(4)(ii)), (3) a
listing of the position information reviewed for each committee member
(Regulation 1.69(b)(4)(iii)), and (4) in those instances when a
committee member was granted a deliberation exception, a general
description of the views expressed by the member during the committee's
deliberations on the underlying significant action (Regulation
1.69(b)(4)(iv)).
    The CSCE commented that, under the proposal, committee members who
received a deliberation exemption would be ``chilled'' from expressing
their opinions by the requirement that their views be particularly
recorded. The Commission concurs with CSCE's comment and, accordingly,
has deleted this requirement from final Regulation 1.69.

C. Amendments to Other Commission Regulations Made Necessary by Final
Commission Regulation 1.69

    Section 213 of the FTPA amended Section 5a(a)(12)(B) of the CEA to
require that the Commission issue regulations establishing ``terms and
conditions'' under which contract markets may take temporary emergency
actions without prior Commission approval. Section 5a(a)(12)(B) and
Regulation 1.41(f), the Commission's implementing regulation, require
that any such temporary emergency action be adopted by a two-thirds
vote of a contract market's governing board. In recognition of the fact
that governing board members may be required to abstain from
deliberations and voting on such actions under contract market rules
implementing Regulation 1.69, the Commission, as part of its proposed
conflict of interest rulemaking, proposed to amend Regulation 1.41(f)
to provide that such abstaining board members not be included in
determining whether a temporary emergency action has been approved by a
two-thirds majority of a governing board. Abstaining board members are,
however, included for quorum purposes so that the existence of
conflicted members will not prevent a board from taking temporary
emergency actions.
    No commenters addressed this provision, and the Commission has
determined to amend Regulation 1.41(f)(10) as proposed.
    The Commission also proposed to amend Commission Regulation 1.63's
definition of ``disciplinary committee'' so that it more closely
conformed with Regulation 1.69's definition of the same term. As
indicated above in Section III.A.1., the Commission now has revised
Regulation 1.69(a)(1)'s definition of disciplinary committee to exclude
committees and persons who summarily issue minor penalties for minor
offenses regarding ``decorum, attire, the timely submission of accurate
records for clearing or verifying each day's transactions or other
similar activities.'' This revision was made in response to the concern
that the application of conflict of interest requirements to SRO
disciplinary authorities when they take summary actions for minor rule
violations would be administratively burdensome and might hamper the
SROs' ability to take quick and decisive actions in such circumstances.
The same concerns are not presented by Regulation 1.63 which generally
prohibits persons with disciplinary histories from serving on
disciplinary committees for at least three years after the date of the

[[Page 22]]

underlying disciplinary judgment or settlement agreement. Accordingly,
the Commission has determined to adopt Regulation 1.63(a)(2)'s
disciplinary committee definition as proposed. The definition is
identical to Regulation 1.69's disciplinary committee definition,
except that Regulation 1.63's definition does not exclude committees
that handle summary disciplinary matters.
    Finally, the CME in its comment on proposed Regulation 1.69
suggested that Commission Regulation 8.17(a)(1), which already imposes
a general conflict of interest requirement on disciplinary committees,
be amended to clarify that Regulation 1.69 pre-empts Regulation
8.17(a)(1). The Commission does not believe that compliance with
Regulation 1.69 will necessarily constitute compliance with Regulation
8.17(a)(1). Specifically, instances when a disciplinary committee
member is a witness to the alleged misconduct, testifies about the
alleged misconduct or investigates the alleged misconduct would not
constitute a conflict of interest pursuant to Regulation 1.69 but would
possibly be a conflict of interest pursuant to Regulation 8.17(a)(1)
requiring the member's recusal from the disciplinary committee. See In
the Matter of Malato, [1987-1990 Transfer Binder] Comm. Fut. L. Rep.
(CCH) para. 24,084, at 34,704 (CFTC Dec. 22, 1987). Accordingly, for
these reasons, the Commission has determined not to amend Regulation
8.17(a)(1) as suggested by the CME.

D. Conclusion

    The Commission believes that final Regulation 1.69 and the
amendments to Regulation 1.41 and 1.63 meet the statutory directives of
Section 5a(a)(17) of the CEA as it was amended by Section 217 of the
FTPA. The rulemaking establishes guidelines and factors to be
considered in determining whether an SRO committee member is subject to
a conflict of interest which could potentially impinge on his or her
ability to make fair and impartial decisions in a matter and, thus,
warrants abstention from participation in committee deliberations and
voting.

IV. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.
(1980), requires that agencies, in promulgating rules, consider the
impact of those rules on small businesses. The Commission has
previously determined that contract markets are not ``small entities''
for purposes of the RFA. 47 Fed. Reg. 18618, 18619 (Apr. 30, 1982).
Furthermore, the then Chairman of the Commission previously has
certified on behalf of the Commission that comparable rules affecting
clearing organizations and registered futures associations did not have
a significant economic impact on a substantial number of small
entities. 51 FR 44866, 44868 (Dec. 12, 1986).
    This rulemaking will affect individuals who serve on SRO governing
boards, disciplinary committees and oversight panels. The Commission
believes that this rulemaking will not have a significant economic
impact on these SRO committee members. This rulemaking requires these
committee members to disclose to their SROs certain information which
is known to them at the time that their committees consider certain
types of matters. The Commission believes that this requirement will
not have any significant economic impact on such members because the
information which they are required to provide should be readily
available to them.
    Accordingly, the Chairperson, on behalf of the Commission, hereby
certifies, pursuant to Section 3(a) of the RFA, 5 U.S.C. Sec. 605(b),
that the action taken herein will not have a significant economic
impact on a substantial number of small entities.

B. Agency Information Activities; Proposed Collection; Comment Request

    When publishing final rules, the Paperwork Reduction Act of 1995
(``PRA'') (Pub. L. 104-13 (May 13, 1995)) imposes certain requirements
on federal agencies (including the Commission) in connection with their
conducting or sponsoring any collection of information as defined by
PRA. In compliance with the Act, this final rule informs the public of:

    (1) The reasons the information is planned to be and/or has been
collected; (2) the way such information is planned to be and/or has
been used to further the proper performance of the functions of the
agency; (3) an estimate, to the extent practicable, of the average
burden of the collection (together with a request that the public
direct to the agency any comments concerning the accuracy of this
burden estimate and any suggestions for reducing this burden); (4)
whether responses to the collection of information are voluntary,
required to obtain or retain a benefit, or mandatory; (5) the nature
and extent of confidentiality to be provided, if any; and (6) the
fact that an 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 Office of Management and Budget (``OMB''
control number.

The Commission previously submitted this rule in proposed form and its
associated information collection requirements to OMB. OMB approved the
collection of information associated with this rule on October 24,
1998, and assigned OMB control number 3038-0022, Rules Pertaining to
Contract Markets and their Members, to the rule. The burden associated
with this entire collection, including this final rule, is as follows:
    Average burden hours per response: 788,857.
    Number of respondents: 434,052.
    Frequency of response: On occasion.
    The burden associated with this specific final rule, is as follows:
    Average burden hours per response: 2.00.
    Number of respondents: 20.
    Frequency of response: On occasion.
    Persons wishing to comment on the information required by this
final rule should contact the Desk Officer, CFTC, 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 in 17 CFR Part 1

    Commodity futures, Contract markets, Clearing organizations,
Members of contract market.

    In consideration of the foregoing, and based on the authority
contained in the Commodity Exchange Act and, in particular, Sections 3,
4b, 5, 5a, 6, 6b, 8, 8a, 9, 17, and 23(b) thereof, 7 U.S.C. 5, 6b, 7,
7a, 8, 13a, 12, 12a, 13, 21 and 26(b), the Commission hereby amends
Title 17, Chapter I, Part 1 of the Code of Federal Regulations 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. 2, 2a, 4, 4a, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g,
6h, 6i, 6j, 6k, 6l, 6m, 6n, 6o, 7, 7a, 8, 9, 12, 12a, 12c, 13a, 13a-
1, 16, 19, 21, 23, and 24, unless otherwise stated.

    2. Section 1.41 is amended by adding paragraph (f)(10) to read as
follows:


Sec. 1.41  Contract market rules; submission of rules to the
Commission; exemption of certain rules.

* * * * *
    (f) * * *
    (10) Governing board members who abstain from voting on a temporary
emergency rule pursuant to Sec. 1.69 shall not be counted in
determining whether such a rule was approved by the two-

[[Page 23]]

thirds vote required by this regulation. Such members can be counted
for the purpose of determining whether a quorum exists.
    3. Section 1.63 is amended by revising paragraph (a)(2) to read as
follows:


Sec. 1.63  Service on self-regulatory organization governing boards or
committees by persons with disciplinary histories.

    (a) * * *
    (2) Disciplinary committee means any person or committee of
persons, or any subcommittee thereof, that is authorized by a self-
regulatory organization to issue disciplinary charges, to conduct
disciplinary proceedings, to settle disciplinary charges, to impose
disciplinary sanctions or to hear appeals thereof.
* * * * *
    4. Section 1.69 is added to read as follows:


Sec. 1.69  Voting by interested members of self-regulatory organization
governing boards and various committees.

    (a) Definitions. For purposes of this section:
    (1) Disciplinary committee means any person or committee of
persons, or any subcommittee thereof, that is authorized by a self-
regulatory organization to issue disciplinary charges, to conduct
disciplinary proceedings, to settle disciplinary charges, to impose
disciplinary sanctions, or to hear appeals thereof in cases involving
any violation of the rules of the self-regulatory organization except
those cases where the person or committee is authorized summarily to
impose minor penalties for violating rules regarding decorum, attire,
the timely submission of accurate records for clearing or verifying
each day's transactions or other similar activities.
    (2) Family relationship of a person means the person's spouse,
former spouse, parent, stepparent, child, stepchild, sibling,
stepbrother, stepsister, grandparent, grandchild, uncle, aunt, nephew,
niece or in-law.
    (3) Governing board means a self-regulatory organization's board of
directors, board of governors, board of managers, or similar body, or
any subcommittee thereof, duly authorized, pursuant to a rule of the
self-regulatory organization that has been approved by the Commission
or has become effective pursuant to either Section 5a(a)(12)(A) or
17(j) of the Act to take action or to recommend the taking of action on
behalf of the self-regulatory organization.
    (4) Oversight panel means any panel, or any subcommittee thereof,
authorized by a self-regulatory organization to recommend or establish
policies or procedures with respect to the self-regulatory
organization's surveillance, compliance, rule enforcement, or
disciplinary responsibilities.
    (5) Member's affiliated firm is a firm in which the member is a
``principal,'' as defined in Sec. 3.1(a), or an employee.
    (6) Named party in interest means a person or entity that is
identified by name as a subject of any matter being considered by a
governing board, disciplinary committee, or oversight panel.
    (7) Self-regulatory organization means a ``self-regulatory
organization'' as defined in Sec. 1.3(ee) and includes a ``clearing
organization'' as defined in Sec. 1.3(d), but excludes registered
futures associations for the purposes of paragraph (b)(2) of this
section.
    8 (Significant action) includes any of the following types of self-
regulatory organization actions or rule changes that can be implemented
without the Commission's prior approval:
    (i) Any actions or rule changes which address an ``emergency'' as
defined in Sec. 1.41(a)(4)(i) through (iv) and (vi) through (viii);
and,
    (ii) Any changes in margin levels that are designed to respond to
extraordinary market conditions such as an actual or attempted corner,
squeeze, congestion or undue concentration of positions, or that
otherwise are likely to have a substantial effect on prices in any
contract traded or cleared at such self-regulatory organization; but
does not include any rule not submitted for prior Commission approval
because such rule is unrelated to the terms and conditions of any
contract traded at such self-regulatory organization.
    (b) Self-regulatory organization rules. Each self-regulatory
organization shall maintain in effect rules that have been submitted to
the Commission pursuant to Section 5a(a)(12)(A) of the Act and
Sec. 1.41 or, in the case of a registered futures association, pursuant
to Section 17(j) of the Act, to address the avoidance of conflicts of
interest in the execution of its self-regulatory functions. Such rules
must provide for the following:
    (1) Relationship with named party in interest--(i) Nature of
relationship. A member of a self-regulatory organization's governing
board, disciplinary committee or oversight panel must abstain from such
body's deliberations and voting on any matter involving a named party
in interest where such member:
    (A) is a named party in interest;
    (B) is an employer, employee, or fellow employee of a named party
in interest;
    (C) is associated with a named party in interest through a ``broker
association'' as defined in Sec. 156.1;
    (D) has any other significant, ongoing business relationship with a
named party in interest, not including relationships limited to
executing futures or option transactions opposite of each other or to
clearing futures or option transactions through the same clearing
member; or,
    (E) Has a family relationship with a named party in interest.
    (ii) Disclosure of relationship. Prior to the consideration of any
matter involving a named party in interest, each member of a self-
regulatory organization governing board, disciplinary committee or
oversight panel must disclose to the appropriate self-regulatory
organization staff whether he or she has one of the relationships
listed in paragraph (b)(1)(i) of this section with a named party in
interest.
    (iii) Procedure for Determination. Each self-regulatory
organization must establish procedures for determining whether any
member of its governing board, disciplinary committees or oversight
committees is subject to a conflicts restriction in any matter
involving a named party in interest. Taking into consideration the
exigency of the committee action, such determinations should be based
upon:
    (A) information provided by the member pursuant to paragraph
(b)(1)(ii) of this section; and
    (B) any other source of information that is held by and reasonably
available to the self-regulatory organization.
    (2) Financial Interest in a Significant Action--(i) Nature of
Interest. A member of a self-regulatory organization's governing board,
disciplinary committee or oversight panel must abstain from such body's
deliberations and voting on any significant action if the member
knowingly has a direct and substantial financial interest in the result
of the vote based upon either exchange or non-exchange positions that
could reasonably be expected to be affected by the action.
    (ii) Disclosure of Interest. Prior to the consideration of any
significant action, each member of a self-regulatory organization
governing board, disciplinary committee or oversight panel must
disclose to the appropriate self-regulatory organization staff the
position information referred to in paragraph (b)(2)(iii) of this
section that is known to him or her. This

[[Page 24]]

requirement does not apply to members who choose to abstain from
deliberations and voting on the subject significant action.
    (iii) Procedure for Determination. Each self-regulatory
organization must establish procedures for determining whether any
member of its governing board, disciplinary committees or oversight
committees is subject to a conflicts restriction under this section in
any significant action. Such determination must include a review of:
    (A) gross positions held at that self-regulatory organization in
the member's personal accounts or ``controlled accounts,'' as defined
in Sec. 1.3(j);
    (B) gross positions held at that self-regulatory organization in
proprietary accounts, as defined in Sec. 1.17(b)(3), at the member's
affiliated firm;
    (C) gross positions held at that self-regulatory organization in
accounts in which the member is a principal, as defined in Sec. 3.1(a);
    (D) net positions held at that self-regulatory organization in
``customer'' accounts, as defined in Sec. 1.17(b)(2), at the member's
affiliated firm; and,
    (E) any other types of positions, whether maintained at that self-
regulatory organization or elsewhere, held in the member's personal
accounts or the proprietary accounts of the member's affiliated firm
that the self-regulatory organization reasonably expects could be
affected by the significant action.
    (iv) Bases for Determination. Taking into consideration the
exigency of the significant action, such determinations should be based
upon:
    (A) the most recent large trader reports and clearing records
available to the self-regulatory organization;
    (B) information provided by the member with respect to positions
pursuant to paragraph (b)(2)(ii) of this section; and,
    (C) any other source of information that is held by and reasonably
available to the self-regulatory organization.
    (3) Participation in Deliberations. (i) Under the rules required by
this section, a self-regulatory organization governing board,
disciplinary committee or oversight panel may permit a member to
participate in deliberations prior to a vote on a significant action
for which he or she otherwise would be required to abstain, pursuant to
paragraph (b)(2) of this section, if such participation would be
consistent with the public interest and the member recuses himself or
herself from voting on such action.
    (ii) In making a determination as to whether to permit a member to
participate in deliberations on a significant action for which he or
she otherwise would be required to abstain, the deliberating body shall
consider the following factors:
    (A) whether the member's participation in deliberations is
necessary for the deliberating body to achieve a quorum in the matter;
and
    (B) whether the member has unique or special expertise, knowledge
or experience in the matter under consideration.
    (iii) Prior to any determination pursuant to paragraph (b)(3)(i) of
this section, the deliberating body must fully consider the position
information which is the basis for the member's direct and substantial
financial interest in the result of a vote on a significant action
pursuant to paragraph (b)(2) of this section.
    (4) Documentation of Determination. Self-regulatory organization
governing boards, disciplinary committees, and oversight panels must
reflect in their minutes or otherwise document that the conflicts
determination procedures required by this section have been followed.
Such records also must include:
    (i) the names of all members who attended the meeting in person or
who otherwise were present by electronic means;
    (ii) the name of any member who voluntarily recused himself or
herself or was required to abstain from deliberations and/or voting on
a matter and the reason for the recusal or abstention, if stated; and
    (iii) information on the position information that was reviewed for
each member.

    Issued in Washington, D.C. on December 23, 1998, by the
Commission.
Catherine D. Dixon,
Assistant Secretary of the Commission.
[FR Doc. 98-34516 Filed 12-31-98; 8:45 am]
BILLING CODE 6351-01-M
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