```

[Federal Register: June 10, 1997 (Volume 62, Number 111)]
[Rules and Regulations]
[Page 31507-31510]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10jn97-2]

=======================================================================
-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1


Alternative Method of Compliance With Requirements for Delivery
and Retention of Monthly, Confirmation and Purchase-and-Sale Statements

AGENCY: Commodity Futures Trading Commission.

ACTION: Advisory; alternative method of compliance.

-----------------------------------------------------------------------

SUMMARY: The Commodity Futures Trading Commission (``Commission'') is
issuing guidance concerning compliance with the requirements of
Commission Rules 1.33 and 1.46 for the delivery of confirmation,
purchase-and-sale and monthly statements, and Commission rule 1.31 for
related recordkeeping requirements. A futures commission merchant
(``FCM'') may deliver such statements to any customer solely by means
of electronic media, once the FCM obtains the revocable consent of the
customer to receipt of electronic delivery. An FCM also may maintain
related records either pursuant to Rule 1.31 or as allowed by
Securities and Exchange Commission (``SEC'') regulations.

EFFECTIVE DATE: June 10, 1997.

FOR FURTHER INFORMATION CONTACT:
Susan C. Ervin, Deputy Director/Chief Counsel; Lawrence B. Patent,
Associate Chief Counsel; or Natalie A. Markman, Attorney-Advisor,
Division of Trading and Markets, Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21 St. Street, NW., Washington, DC 20581.
Telephone: (202) 418-5450.

SUPPLEMENTARY INFORMATION:

I. Introduction

    By this release, the Commission is issuing guidance to FCMs
concerning alternative methods of compliance by FCMs with requirements
pertaining to the delivery of specified customer account documents and
related recordkeeping requirements. Commission Rules 1.33 and 1.46
require an FCM to provide certain statements to customers in connection
with their accounts.\1\ Specifically, rule 1.33(a) requires an FCM to
furnish promptly to each customer a written monthly account statement,
or a quarterly statement where an account has no open positions at the
end of the statement period and there have been no changes to the
account balance since the prior statement period.\2\ rule 1.33(b)
requires an FCM to provide to each customer a

[[Page 31508]]

written conformation of each commodity interest transaction executed on
the customer's behalf not later than the business day following the
transaction.\3\ Rule 1.46(a) requires an FCM to furnish promptly to
each customer a purchase-and-sale statement when commodity interest
contracts are closed out by an offsetting transaction.\4\ Rule 1.31,
the Commission's general recordkeeping rule, requires an FCM to retain
copies of these statements for a period of five years.
---------------------------------------------------------------------------

    \1\ Commission rules referred to herein are found at 17 CFR Ch.
I (1996).
    \2\ Commission Rule 1.33(a) states, among other things, that
each FCM must promptly furnish in writing to each commodity, option,
foreign futures and foreign options customer, as of the close of the
last business day of each month or as of any regular monthly date
selected, except for accounts in which there are neither open
positions at the end of the statement period nor any changes to the
account balance since the prior statement period, but in any event
not less frequently than once every three months, a statement that
clearly shows:
    (1) For each commodity customer and foreign futures customer--
(i) The open contracts with prices at which acquired; (ii) The net
unrealized profits or losses in all open contracts marked to the
market; . . . (iii) Any customer funds carried with the [FCM]; and
(iv) A detailed accounting of all financial charges and credits to
such customer accounts during the monthly reporting period * * * and
    (2) For each option customer and foreign options customer--(i)
All commodity options and foreign options purchased, sold,
exercised, or expired during the monthly reporting period,
identified by underlying futures contract or underlying physical,
strike price, transaction date, and expiration date; (ii) The open
commodity option and foreign option positions carried for such
customer as of the end of the monthly reporting period identified by
underlying futures contract or underlying physical, strike price,
transactions date, and expiration date; (iii) All open commodity
option and foreign option positions marked to the market and the
amount each position is in the money, if any; (iv) Any customer
funds carried in such customer's account(s); and (v) A detailed
accounting of all financial charges and credits to such customer's
account(s) during the monthly reporting period * * *.
    \3\ Commission Rule 1.33(b) states, among other things, that
each FCM must, not later than the next business day after any
commodity futures or commodity option transaction, including any
foreign futures or foreign options transactions, furnish;
    (1) To each commodity customer, a written confirmation of each
commodity futures transaction caused to be executed by it for the
customer [;]
    (2) To each option customer, a written conformation of each
commodity option transaction, containing [certain] information [;
and]
    (3) To each option customer, upon the expiration or exercise of
any commodity option, a written confirmation statement thereof,
which statement shall include the date of such occurrence, a
description of the option involved, and, in the case of exercise,
the details of the futures or physical position which resulted
therefrom including, if applicable, the final trading date of the
contract for future delivery underlying the option. Notwithstanding
the above provisions of Rule 1.33(b) (1)-(3), a commodity futures or
commodity option transaction that is caused to be executed for a
commodity pool need be confirmed only to the operator of the
commodity pool.
    \4\ Commission Rule 1.46(a) states that, except with respect to
purchases or sales that are for omnibus accounts, any FCM who, on or
subject to the rules of a contract market:
    (1) Purchases any commodity for future delivery for the account
of any customer when the account of such customer at the time of
such purchase has a short position in the same future of the same
commodity on the same market;
    (2) Sells any commodity for future delivery for the account of
any customer when the account of such customer at the time of such
sale has a long position in the same future of the same commodity on
the same market;
    (3) Purchases a put or call option for the account of any option
customer when the account of such option customer at the time of
such purchase has a short put or call option position with the same
underlying futures contract or same underlying physical, strike
price, expiration date and contract market as that purchased; or
    (4) Sells a put or call option for the account of any option
customer when the account of such option customer at the time of
such sale has a long put or call option position with the same
underlying futures contract or same underlying physical, strike
price, expiration date and contract market as that sold--shall on
the same day apply such purchase or sale against such previously
held short or long futures or option position, as the case may be,
and shall, for futures transactions, promptly furnish such customer
a statement showing the financial result of the transactions
involved and, if applicable, that the account was introduced to the
[FCM] by an introducing broker [(``IB'')] and the names of the [FCM]
and [IB]. Commission rules 1.46 (c), (d) and (e) provided for
certain exceptions to this requirement.
---------------------------------------------------------------------------

    On May 2, 1996, the Division of Trading and Markets (``Division'')
issued Advisory 22-96 to provide guidance to registered FCMs concerning
the delivery of daily confirmation statements by facsimile
transmission.\5\ The Division stated that FCMs were permitted to
fulfill their obligations under Rule 1.33(b) by sending daily
confirmation statements solely by means of facsimile transmission to
customers who were either: (1) ``eligible swap participants,'' as
defined by Commission Rule 35.1(b)(2); \6\ or (2) ``institutional
customers,'' as defined by Federal Reserve Board (``FRB'') Rule
225.2(g).\7\ The relief was subject to the following conditions: (1)
FCMs were required to obtain the written, hard copy, revocable consent
of eligible customers to receipt of confirmation statements solely by
facsimile transmission; and (2) FMCs were required to continue to
furnish monthly account statements to such customers in hard copy form
and to maintain the confirmation statements in accordance with the
standards set forth in Commission Rule 1.31.\8\
---------------------------------------------------------------------------

    \5\ CFTC Advisory No. 22-96, [1994-1996 Transfer Binder] Comm.
Fut. L. Rep. (CCH) para. 26,679 (May 2, 1996). Previously, on
February 28, 1996, the Division has issued a no-action letter
permitting an FCM to deliver confirmation statements by facsimile
transmission to institutional customers without mailing such
statements in hard copy form, subject to certain conditions. CFTC
Interpretative Letter No. 96-18, [1994-1996 Transfer Binder] Comm.
Fut. L. Rep. (CCH) para. 26,630 (February 28, 1996).
    \6\ The following are eligible swap participants under
Commission Rule 35.1(b)(2):
    (1) a bank or trust company (acting on its own behalf or on
behalf of another eligible swap participant);
    (2) a savings association or credit union;
    (3) an insurance company;
    (4) an investment company subject to regulation under the
Investment Company Act of 1940 (``ICA'') or a foreign person
performing a similar role or function subject as such to foreign
regulation;
    (5) a commodity pool, formed and operated by a person subject to
regulation under the Commodity Exchange Act (``Act'') or a foreign
person performing a similar role or function subject as such to
foreign regulation, that has assets exceeding $5,000,000;
    (6) a corporation, partnership, proprietorship, organization,
trust or other entity (a) with assets exceeding $10,000,000, (b)
with a net worth of $1,000,000 that enters into the swap agreement
in connection with its business, or (c) whose obligations under the
swap agreements are guaranteed by another eligible swap participant
listed above or under item (8) below;
    (7) an employee benefit plan subject to the Employee Retirement
Income Security Act of 1974 or a foreign person performing a similar
role or function subject as such to foreign regulation, with assets
exceeding $5,000,000, or whose investment decisions are made by a
bank, trust company or insurance company, or investment adviser or
commodity trading advisor (``CTA'') subject to regulation;
    (8) any governmental entity or political subdivision thereof, or
any multinational or supranational entity, or any instrumentality,
agency or department of any of the foregoing;
    (9) a broker-dealer subject to regulation under the Securities
Exchange Act of 1934 (``SEA'') or a foreign person performing a
similar role or function subject as such to foreign regulation;
    (10) an FCM, floor broker or floor trader subject to regulation
under the Act or a foreign person performing a similar role or
function subject as such to foreign regulation; or
    (11) a natural person with assets exceeding $10,000,000.
     An investment company, commodity pool or other entity is not an
eligible swap participant if it is formed solely for the purpose of
constituting an eligible swap participant. A broker-dealer, FCM,
floor broker or floor trader that is a natural person or
proprietorship also must meet the requirements of either item (6) or
(11).
    \7\ 12 CFR 225.2(g) (1996). The following are institutional
customers under this FRB rule:
    (1) a bank (acting in an individual or fiduciary capacity),
savings and loan association, insurance company, investment company
registered under the ICA, or corporation, partnership,
proprietorship, organization or institutional entity with a net
worth exceeding $1,000,000;
    (2) an employee benefit plan with assets exceeding $1,000,000,
or whose investment decisions are made by a bank, insurance company
or investment adviser registered under the Investment Advisers Act
of 1940;
    (3) a natural person whose net worth (or joint net worth with a
spouse) exceeds $1,000,000;
    (4) a broker-dealer or option trader registered under the SEA,
or other securities, investment or banking professional; or
    (5) an entity whose equity owners are institutional customers.
    \8\ In Advisory 22-96, the Division also confirmed that FCMs
would be permitted to fulfill their obligations under Rule 1.33(d)
with respect to furnishing confirmation and purchase-and-sale
statements to account controllers by transmitting such statements
solely by facsimile, irrespective of whether the customer met the
criteria for eligible swap participants or institutional customers
or had elected to receive confirmation statements by facsimile. This
aspect of the relief was subject to the following conditions. (1)
FCMs were required to continue to furnish monthly account statements
to the account controllers in hard copy form and obtain the account
controllers' written, hard copy, revocable consent to receive
confirmation and purchase-and-sale statements solely by facsimile
transmission; and (2) account controllers were required to maintain
the confirmation and purchase-and-sale statements in accordance with
the standards set forth in Commission Rule 1.31. The Division noted,
however, that the relief granted under Rule 1.33(d) with regard to
account controllers did not affect FMCs' obligations to provide
confirmation and purchase-and-sale statements to their customers
under Rule 1.33(b).
---------------------------------------------------------------------------

    In response to recent requests from the Futures Industry
Association (``FIA''),\9\ the Commission is issuing this Advisory to
facilitate further the use by FCMs of electronic media to deliver
confirmation, purchase-and-sale and monthly statements (collectively,
``Statements'') to customers, and to provide guidance concerning FCMs'
recordkeeping obligations with respect to such Statements. For purposes
of this release, the term ``electronic'' media encompasses facsimiles,
electronic mail, Internet World Wide Web sites and computer networks
(e.g., local area networks and commercial on-line

[[Page 31509]]

services). FCMs who choose to provide Statements electronically should
consider several factors in determining whether a particular electronic
medium is appropriate: (1) The medium should convey the same
information and achieve the same objectives as a paper-based medium;
\10\ (2) the customer should have adequate notice that Statements are
available electronically; \11\ (3) delivery should not be unduly
burdensome to customers; and (4) the accessibility of Statements should
be comparable to that of documents in hard copy form, which can be read
and re-read.
---------------------------------------------------------------------------

    \9\ The FIA is a trade association whose membership consists
primarily of FCMs.
    \10\ Statements delivered electronically must satisfy the
requirements of Commission Rules 1.33 and 1.46.
    \11\ Unlike postal mail to a business or residential address,
which accomplishes delivery and notice of delivery simultaneously,
electronic delivery of a document may result in availability of a
document to a particular recipient in a medium that the recipient
must take affirmative steps to access in order to receive notice
that the document is available and to view or download the document.
Consequently, in establishing procedures for electronic delivery and
obtaining the customer's consent to electronic delivery, firms must
assure that customers understand and consent to the particular
electronic delivery procedure to be used, e.g., electronic mail
delivered on a specified schedule.
---------------------------------------------------------------------------

    The Commission believes that the alternative method of compliance
discussed herein will benefit both customers and FCMs by providing for
more expeditious receipt of the Statements by customers and more cost-
effective methods of transmission and storage for FCMs.\12\ This action
constitutes the latest in a series of measures the Commission has taken
to recognize advances in computers and related electronic media
technology and to facilitate the use of such technology where adequate
measures exist to safeguard customer interests.\13\
---------------------------------------------------------------------------

    \12\ According to the FIA, FCMs already are supplying Statements
electronically in response to customer demand for rapid
dissemination of information. In order to comply with Commission
regulations, however, the FCMs also are mailing duplicate Statements
in hard copy form. The Commission notes that some customers may wish
to receive Statements (or some categories of Statements) by means of
electronic delivery and in hard copy form. In such instances, FCMs
must deliver Statements in hard copy form and may choose to enter
into an agreement to provide Statements by means of electronic media
as well.
    \13\ See, e.g., 62 FR 18265 (April 15, 1997) (adopting a program
for commodity pool operators (``CPOs'') and CTAs to file Disclosure
Documents with the Commission electronically on a voluntary basis);
62 FR 10441 (March 7, 1997) (providing for the use of personal
identification numbers by FCMs and IBs in making attestations in
financial reports that are permitted to be filed with the Commission
electronically); 62 FR 7675 (February 20, 1997) (permitting the use
of electronic records of customer orders generated through
electronic order-routing systems); 61 FR 42146 (August 14, 1996)
(publishing Commission views with respect to the use of electronic
media for the transmission and delivery of Disclosure Documents,
reports and other information by CPOs, CTAs and associated persons
thereof).
---------------------------------------------------------------------------

II. Delivery of Statements

    Under this Advisory, a registered FCM is permitted to fulfill its
obligations under Rules 1.33 and 1.46 by sending Statements solely by
means of electronic media to any customer who consents to delivery by
that method, subject to certain conditions. In order for a customer to
receive Statements (or some types of Statements) electronically, the
customer must consent to transmission of Statements through such
electronic media and the consent must reflect sufficient information
about the manner and costs of delivery to constitute informed consent.
Disclosures relevant to determining whether the consent obtained was
sufficiently informed would include: (1) The electronic medium or
source through which the Statements will be delivered; (2) the period
during which the consent will be effective (which can be until further
notice); (3) the information that will be delivered using such means (a
customer might, for example, request that only daily confirmations and
purchase-and-sale statements be delivered electronically and still wish
to receive a monthly statement by mail); (4) the costs, if any, that
will be charged to the customer specific to electronic delivery of the
Statements; and (5) the customer's right to revoke at any time the
consent to receive statements solely by means of electronic medium.\14\
---------------------------------------------------------------------------

    \14\ See 61 FR 24643, 24647 and n.23 (May 15, 1996) (SEC release
discussing use of electronic media by securities broker-dealers,
transfer agents and investment advisers for delivery of
information).
---------------------------------------------------------------------------

    For customers who constitute ``eligible customers,'' as defined
herein, the FCM may obtain the customer's informed consent orally, by
means of electronic media or through hard copy documentation including
the customer's signature. Such documentation also could be incorporated
in the customer account agreement. If the customer consents orally or
by electronic media to electronic delivery of Statements, the FCM
should document the customer's consent by written confirmation in paper
or electronic form of the customer's informed consent and retain this
confirmation as part of its records.\15\ Absent subsequent action by
the customer to revoke or to dispute the confirmation, the confirmation
evidences that the customer received an explanation of the right to
elect electronic delivery of the Statements and of the information
pertinent to that election and has elected to receive the Statements
(or some categories of Statements) electronically. Eligible customers,
for purposes of this Advisory, include any person who:
---------------------------------------------------------------------------

    \15\ Consistent with the Act and Commission regulations, FCMs
maintain procedures to assure that consents obtained from customers
are duly authorized.
---------------------------------------------------------------------------

    (1) is an ``eligible swap participant,'' as defined by Commission
Rule 35.1(b)(2);
    (2) is an ``institutional customer,'' as currently defined by FRB
Rule 225.2(g); or
    (3) is a Commission registrant.\16\
---------------------------------------------------------------------------

    \16\ This category likely includes a majority of account
controllers. Although the account controller is not the customer for
purposes of Rule 1.33, the Commission believes that an FCM may
fulfill its obligations under Rule 1.33(d) with respect to
furnishing Statements to registered account controllers via
electronic media without first obtaining written and signed consent
in hard copy form. With respect to unregistered account controllers
who do not otherwise satisfy the above ``eligible customer''
definition, the FCM must obtain written, signed, hard copy,
revocable consent from the unregistered account controller prior to
the electronic transmission of nay Statement. Such unregistered
account controllers could include CTAs who are not required to
register as such under Section 4m(1) of the Act because they provide
advice to 15 or fewer persons and do not hold themselves out
generally to the public as CTAs. See 7 U.S.C. Sec. 6m(1) (1994).
Unregistered account controllers also could include, for example,
CPOs who are exempt from registration under Rule 4.13(a). The
Division notes that the relief granted under Rule 1.33(d) with
regard to account controllers does not affect FCMs' obligations to
provide Statements to their customers under Rules 1.33(a), 1.33(b)
and 1.46(a).
---------------------------------------------------------------------------

    For a person who is not an eligible customer, the FCM must obtain
the customer's signed, hard copy, revocable consent prior to the
transmission of any Statement by means of electronic media.\17\ This
consent could be obtained as part of the customer account agreement or
in a subsequently executed document. Once the FCM assures itself that
the customer has agreed to electronic delivery on an informed basis,
the FCM may begin to send Statements (or some categories of Statements)
to the customer by means of the agreed-upon electronic medium.
Documentation of the customer's consent should clearly indicate whether
the customer has agreed to electronic delivery of a Statement in lieu
of hard copy or in addition to hard copy.
---------------------------------------------------------------------------

    \17\ In order to effectuate electronic delivery of Statements
more quickly, the customer may transmit the signed consent by
facsimile transmission.
---------------------------------------------------------------------------

    Under this Advisory, any customer or potential customer may consent
to electronic delivery of Statements. The Commission envisions that
this consent generally would be communicated in person when an account
is opened or by subsequent telephone, facsimile or electronic
communication. With respect

[[Page 31510]]

to ``eligible customers,'' as defined above, the FCM may rely upon its
own contemporaneous confirming letter to the customer (which could
itself be transmitted electronically) as evidence of the customer's
consent, describing the method of electronic transmission of the
Statements, the information to be transmitted, the effective period of
the consent, any costs to the customer for such transmissions and a
statement that such consent is revocable at any time. In order to
employ electronic media to deliver Statements to persons who do not
constitute eligible customers, the FCM must receive a signed
authorization from the account owner before beginning electronic
transmission of Statements.
    Since an FCM may only deliver Statements electronically upon
receipt of customer consent,\18\ it need not obtain and retain evidence
that the customer actually received the Statements, such as by an
electronic mail return-receipt or by confirmation that the information
was accessed, downloaded or printed. However, to ensure that Statements
are delivered as intended, and FCM providing Statements using either
electronic or paper media should take reasonable precautions to ensure
the integrity and security of the Statements.\19\ In this regard, the
FCM has a duty to supervise firm personnel \20\ to assure compliance
with applicable requirements and prevent wrongdoing and should
implement supervisory systems and procedures necessary to assure timely
and appropriate delivery of Statements and to deter or detect
misconduct in connection with the delivery of Statements. The FCM also
has an obligation to maintain the confidentiality of customer orders
\21\ and should take reasonable precautions tailored to the particular
electronic medium being used to ensure the confidentiality of personal
financial information. Self-regulatory organizations (``SROs'') \22\
whose member FCMs intend to deliver Statements solely by electronic
means to customers so requesting should enhance their audit programs to
review the procedures and precautions employed by FCMs in making such
deliveries.
---------------------------------------------------------------------------

    \18\ The FCM must retain evidence of the customer's consent as a
record, in accordance with the recordkeeping requirements discussed
infra.
    \19\ See 61 FR at 24647.
    \20\ See 17 CFR 166.3 (1996).
    \21\ See 17 CFR 155.3(b)(1) (1996).
    \22\ See 17 CFR 1.63(a)(1) (1996).
---------------------------------------------------------------------------

III. Maintenance of Records

    Copies of Statements generally must be maintained in accordance
with the standards set forth in Rule 1.31 which, among other things,
requires that records be retained for a period of five years and be
readily accessible during the first two years of the five-year period.
Rule 1.31(b) provides that copies may be retained on microfilm,
microfiche, or optical disk but must be maintained in accordance with
the standards set forth in Rule 1.31 (c) and (d).\23\
---------------------------------------------------------------------------

    \23\ Rule 1.31(d) states, among other things, that all records
preserved on optical media pursuant to Rule 1.31(b) must be
preserved on non-rewritable, write once read many (``WORM'') media.
In addition, the technology must have write-verify capabilities that
continuously and automatically verify the quality and accuracy of
the information stored and automatically correct quality and
accuracy defects. Rule 1.31(d)(1) states that the optical storage
system must: (i) Use removable disks; (ii) serialize the disks;
(iii) time-date all files of information placed on the disks,
reflecting the computer run time of the file of information and
using a permanent and non-erasable time-date; and (iv) write files
in ASCII or EBCDIC format. As the Commission has noted, the ASCII
and EBCDIC formats ``generally do not allow storage of paper records
or electronic images, such as webpages, since such records images
are normally not written in ASCII or EBCDIC format. Therefore, these
records would be required to be retained in hard [] copy form.'' 61
FR at 42162.
---------------------------------------------------------------------------

    Concerning the storage and maintenance of records of Statements,
the Commission understands that it may be difficult or impossible as a
technical matter to store certain data in exactly the format in which
it is transmitted to customers. The FCM must be able to store and
maintain records of Statements in order that, upon request of any
representative of the Commission or the United States Department of
Justice, the FCM can reproduce the Statements in substantially the same
form\24\ and containing the same account and trading information as was
transmitted to customers.\25\ If the FCM provides continual, real-time
updates to customers of activity throughout the day, the FCM would
generate several different intraday ``screens'' as trades were placed
and available to customers. For record retention purposes, an FCM need
only retain the daily confirmation statement as of the end of the
trading session, provided it reflects all trades made during the
trading session. This would be consistent with the record provided to a
customer and retained using a paper-based medium.
---------------------------------------------------------------------------

    \24\ For example, FCM logos can be deleted.
    \25\ As mentioned supra, statements delivered electronically
must satisfy the requirements of Commission Rules 1.33 and 1.46.
---------------------------------------------------------------------------

    To facilitate FCMs' efforts to use electronic media when possible
and to avoid imposing duplicative or inconsistent requirements on
broker-dealer firms, the Commission hereby permits an FCM to use
guidelines recently set forth by the SEC in its recent rulemaking in
connection with recordkeeping requirements for broker-dealers.\26\
Accordingly, an FCM may maintain Statements pursuant to Commission Rule
1.31 or as allowed by SEC regulations.\27\
---------------------------------------------------------------------------

    \26\ 62 FR 6469 (February 12, 1997). The SEC amended its Rule
17a-4(f) to provide for the production or reproduction of records by
means of electronic storage media, with the limited exception of
those records required for penny stocks. Rather than specify
particular electronic storage media, the SEC provided that the
particular medium chosen must meet certain criteria:
    (A) Preserve the records exclusively in a non-rewrit [] able,
non-erasable format;
    (B) Verify automatically the quality and accuracy of the storage
media recording process;
    (C) Serialize the original and, if applicable, duplicate units
of storage media, and time-date for the required period of retention
the information placed on such electronic storage media; and
    (D) Have the capacity to readily download indexes and records
preserved on the electronic storage media to any medium acceptable
under [Rule 17a-4(f)] as required by the [SEC] or the [SROs] of
which the member, broker, or dealer is a member.
    17 CFR 240.17a4(f)(ii) (1997). If a broker-dealer chooses to use
electronic storage media, it must notify its designated examining
authority prior to using such media and, if the broker-dealer uses
media other than optical disk technology or CD-ROM, it must provide
notice of at least 90 days. The SEC also set forth, among other
things, the following requirements: maintenance of duplicates of
records, which can be stored on any medium satisfying the above
criteria; organizing and indexing of both original and duplicate
records; an audit system that can record both the entry and
modification of records; a third-party download provider, whose name
is provided to the SRO and who agrees to promptly furnish to the SEC
and SRO(s) information necessary to access and download records;
and, where a broker-dealer uses an outside service bureau to
preserve records, and escrow agent who keeps a current copy of the
information necessary to access and download records.
    \27\ As of March 31, 1997, 113 of 236 FCMs were registered with
the SEC as broker-dealers. Therefore, the Commission has attempted,
where possible, to coordinate its regulatory efforts with SEC
requirements. For instance, Rule 1.10(h) permits and FCM to file
reports concerning its financial condition by submitting a copy of
its Financial and Operational Combined Uniform Single report filed
with the SEC in lieu of the Commission's Form 1-FR-FCM, and Rules
1.14 and 1.15, the Commission's risk assessment rules, attempt to
avoid duplication of similar SEC rules with regard to recordkeeping
and reporting.

    Issued in Washington, DC on June 4, 1997 by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 97-15071 Filed 6-9-97; 8:45 am]
BILLING CODE 6351-01-M
```

----

**======== RETURN TO    INDEX ========**

----