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[Federal Register: December 30, 1998 (Volume 63, Number 250)]
[Notices]
[Page 71896-71899]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30de98-46]

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COMMODITY FUTURES TRADING COMMISSION


Coffee, Sugar & Cocoa Exchange, Inc. Petition for Exemption From
the Dual Trading Prohibition Set Forth in Section 4j(a) of the
Commodity Exchange Act and Commission Regulation 155.5

AGENCY: Commodity Futures Trading Commission.

ACTION: Order.

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SUMMARY: The Commodity Futures Trading Commission ("Commission") is
granting the petition of the Coffee, Sugar & Cocoa Exchange, Inc.
("CSCE" or "Exchange") for exemption from the prohibition against
dual trading in its Cocoa futures contract.

DATES: This Order is effective December 23, 1998.

FOR FURTHER INFORMATION CONTACT:
Duane C. Andersen, Special Counsel, Division of Trading and Markets,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155
21st., N.W., Washington, DC 20581; telephone (202) 418-5490.

SUPPLEMENTARY INFORMATION: On October 19, 1993, the Coffee, Sugar &
Cocoa Exchange, Inc., ("CSCE" or "Exchange") submitted a Petition
for Exemption from the Dual Trading Prohibition contained in Section 4j
of the Commodity Exchange Act ("Act") and Regulation 155.5 for then-
affected contract markets, including its Sugar #11 and Coffee "C"
futures contracts.\1\ The Exchange submitted an amended petition of
March 21, 1997.\2\
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    \1\ Affected contract market" means a contract market with an
average daily volume equal to or in excess of 8,000 contracts for
each of four quarters during the most recent volume year. Commission
Regulation 155.5(a)99). See Section 4j(a)(4). Under Section 4j(a) of
the Act and Regulation 155.5(b), the dual trading prohibition
applies to each affected contract market. The Commission, therefore,
must consider separately each such contract market.
    \2\ In its amended petition, the Exchange petitioned for dual
trading exemptions for six contract markets: Coffee "C", Sugar #11
and Cocoa futures and futures option contracts.
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    Following its review of the March 21, 1997 petition the Commission
found that the Exchange met all applicable statutory and regulatory
standards for an exemption from the dual trading prohibition for its
Sugar #11 futures contract market, the only affected contract market at
the Exchange at that time. The Commission subsequently granted CSCE an
unconditional exemption for that contract market by Order dated July 8,
1997.\3\
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    \3\ 62 FR 37563 (July 14, 1997).
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    Subsequent to the publication of the Order, the Cocoa futures
contract became an affected contract market. Consequently, on February
3, 1998, CSCE updated its petition to request that the Cocoa futures
contract market be granted an exemption from the dual trading
petition.\4\ Notice of availability of the CSCE's updated petition was
published in the Federal Register on March 4, 1998.\5\
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    \4\ Under Regulation 155.5(c)(3), the effective date of a dual
trading prohibition shall be no more than 30 calendar days after the
current computation date for that contract market. The computation
date for the Cocoa futures contract market was January 6, 1998.
Thus, CSCE timely submitted its amended petition before February 5,
1998, the effective date of the dual trading prohibition in the
newly affected contract market.
    \5\ 63 FR 10596 (March 4, 1998). The petition, as hereinafter
discussed, includes the original 1993 petition, the 1997 amendment,
and the 1998 update unless otherwise indicated.
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    Upon consideration of CSCE's petition, as supplemented,\6\ and
other data and analysis, including, but not limited to:
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    \6\ On December 22, 1997, the memberships of both the CSCE and
the New York Cotton Exchange ("NYCE") voted to merge and form the
Board of Trade of the City of New York ("NYBT"). The merger was
approved by the Commission on April 24, 1998, and initially closed
on June 10, 1998. Data discussed herein generally focus on 1997, the
period covered by the petition update, and precede the merger.
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    <bullet> Exchange audit trail test results reconciling imputed
trade execution times to underlying trade documentation and verifying
data on window sizes;
    <bullet> Actions taken in response to the Commission's November
1994 Report on Adult Trail Status and Re-Test;
    <bullet> Commission trade practice investigations and compliance
reviews conducted in conjunction with rule enforcement reviews or other
investigatory or surveillance activities;
    <bullet> Division of Trading and Markets Memoranda dated June 19,
1997, and December 4, 1998;

and upon review of each element of CSCE's trade monitoring system and
of CSCE's trade monitoring as a whole, the Commission hereby finds that
CSCE meets the standards for granting a dual trading exemption
contained in Section 4j(a) of the Act as interpreted in Commission
Regulation 155.5.\7\
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    \7\ The burden to provide that the exemption standards of the
Act and Commission regulations are met rests exclusively on the
contract market. The dual trading provisions set forth in Section 4j
of the Act and the standards for trade monitoring systems provided
in Section 5a(b) of the Act were enacted as part of the Futures
Trading Practices Act of 1992 ("FTPA"). Pub. L. No. 102-546, 101,
106 Stat. 3590 (1992). The FTPA's legislative history makes clear
that the burden to prove that the exemption standards are met rests
upon the contract market. For instance, the 1992 House-Senate
Conference Committee stated that "a board of trade may satisfy the
initial burden of demonstrating that each of its designated contract
markets complies with trade monitoring system requirements of
section 5a(b) of the Act, subject to requests for further
information by the Commission by showing that it has maintained an
ongoing record of compliance with those requirements." H.R. Conf.
Rep. No. 102-978 at 53 (1992). The Conference Committee adopted the
1991 House Bill's (H.R. 707) dual trading provisions, with
amendments relating to exemptions. Id. at 50. The 1991 Senate Bill
(S. 207) similarly placed on the exchange the burden to demonstrate
the ability of its systems to meet the standards and reiterated the
view, previously expressed in the 1989 Senate Bill (S. 1729), that
an exchange has the best access to its own records and therefore is
in the best position to show that its systems are effective and
satisfactory. S. Rep. No. 102-22 at 32 (1991); S. Rep. No. 101-191
at 39-40 (1989).
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    Subject to CSCE's continuing ability to demonstrate that it meets
applicable requirements, the Commission specifically finds with respect
to the Cocoa futures contract market that CSCE maintains a trade
monitoring system which is capable of detecting and deterring, and is
used on a regular basis to detect and to deter, all types of violations
attributable to dual trading and, to the full extent feasible, all
other violations involving the making of trades and execution of
customer orders, as required by Section 5a(b) of the Act and Commission
Regulation 155.5. The Commission further finds that CSCS's trade
monitoring system includes audit trail and recordkeeping systems that
satisfy the Act and regulations.\8\
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    \8\ Section 4j(a)(3) of the Act requires the Commission to
exempt a contract market from the prohibition against dual trading
unconditionally upon finding that the trade monitoring system in
place at the contract market satisfies the requirements of Section
5a(b) with regard to violations attributable to dual trading at the
contract market. If the trade monitoring system does not satisfy the
requirements, Section 4j(a)(3) requires the Commission to deny the
exemption or in the alternative to exempt a contract market from the
prohibition against dual trading on stated conditions upon finding
that there is a substantial likelihood that a dual trading
prohibition would harm the public interest in hedging or price
basing and that corrective actions are sufficient and appropriate to
bring the contract market into compliance with the standards set
forth in Section 5a(b). Regulation 155.5(b) prohibits floor brokers
from dual trading in an affected contract market unless that
contract market is exempted under Regulation 155.5(d).
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    With respect to each required component of the trade monitoring

[[Page 71897]]

system, the Commission finds as follows:
    Physical Observation of Trading Areas--CSCS's trade monitoring
system satisfies the requirements of Section 5a(b)(1)(A) in that CSCE
maintains and executes as adequate program for physical observation of
Exchange trading areas and integrates the information obtained from
such observation into its compliance programs. The Exchange conducts
daily floor surveillance during the open and close on all affected
contract markets and at random times during each trading day. CSCE also
performs floor surveillance when warranted by special market
conditions, such as exceptional volatility or contract expirations. The
Exchange uses information obtained from such surveillance in evaluating
audit trail data and otherwise in executing its compliance programs.
    Audit Trail System--The Exchange's trade monitoring system
satisfies the audit trail standards of Section 5a(b)(1) of the Act and
Regulation 155.5(d)(2)(ii), which provide that a contract market's
audit trail system must be able, and must be used, to capture essential
data on the terms, participants, and sequence of transactions
(including relevant data on unmatched trades and outtrades) and
otherwise satisfy the requirements of Regulation 1.35 and Section
5a(b)(3).
    CSCE's audit trail system records "reliably accurate" trade times
in increments of no more than one minute in length as required by
Section 5a(b)(2) of the Act, Regulation 1.35(g), and Appendix A to
Regulation 155.5. Section 5a(b)(2) establishes that each exchange's
audit trail system must, consistent with Commission regulations,
reliably record accurate one-minute execution times of trades and
sequence trades for each floor trader and broker. Section II of
Appendix A to Regulation 155.5 states that the contract market must
"[d]emonstrate the highest degree of accuracy practicable (but in no
event less than 90% accuracy) of trade execution times required under
Regulation 1.35(g) (within one minute, plus or minus, of execution)
during four consecutive months within the 12-month period ending with
the month preceding the submission of the exemption petition.\9\ In
addition, Section II provides that the contract market must
"[d]emonstrate the effective integration of such trade timing data
into the contract market's surveillance system with respect to dual
trading-related abuses."
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    \9\ Appendix A further requires that the contract market provide
a description of the trade time imputation algorithm, "including
how and why it reliably establishes the accuracy of the imputed
trade execution times." In analyzing various audit trail test
results for imputed timing systems, the Commission has articulated
these standards in terms of verifiability of audit trail times.
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    Exchanges which assign one-minute trade execution times based upon
an imputation algorithm, including CSCE, must demonstrate for each
affected contract market that 90 percent or more of imputed trade times
are reliable, precise, and verifiable as demonstrated by being imputed
within a timing window of two minutes or less ("90 percent performance
standard"). Section 5a(b)(2), enacted, in 1992, codified the
Regulation 1.35(g) requirement that "[a]ctual times of execution shall
be stated in increments of no more than one minute in length."
Although strict application of the regulation would mandate that 100
percent of trade execution times meet that requirement, Regulation
155.5 requires that the exchange demonstrate that no less than 90
percent of trade execution times meet the Regulation 1.35(g)
standard.\10\
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    \10\ further, imputed timing systems do not capture actual trade
execution times. Rather, these systems use various trade and timing
data to form a timing window within which a trade most likely
occurred and then apply computerized logic, known as an algorithm,
to impute a time for that trade. That imputed time is a proxy for
the actual trade execution time. Consequently, even where an
exchange can demonstrate a trade timing window of two minutes or
less, it is not possible to determine where within that window the
trade occurred. Thus, a two-minute window for imputed trade times
represents a further liberal construction of the Regulation 1.35(g)
one-minute timing requirement. The Commission has made clear that an
accurate and verifiable imputed trade execution time only can be
demonstrated by a timing window that narrows the time assigned to a
trade to a two-minute period within which the trade is most likely
to have occurred.
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    CSCS has established for the Cocoa futures contract market that it
satisfies the 90 percent performance standard--that is, 90 percent or
more of imputed trade times, as assigned by the Exchange's trade timing
system for Cocoa futures, are reliable, precise, and verifiable as
demonstrated by being imputed within a timing window of two minutes or
less.
    Finally, the Exchange's trade monitoring system satisfies the
standards of Section 5a(b)(3) of the Act, which imposed heightened
audit trail standards, effective October 1995, requiring exchanges to
capture for large-volume markets unalterable and continual times. The
exchanges also must identify times independently through an automatic
mechanism, or a means which captures similarly reliable times, and
sequence trades in a precise manner, to the extent practicable.\11\
With respect to sequencing, CSCS's system is adequately precise to
determine the sequence of all trades by each floor trader and the
sequence of all trades by each floor broker. Consistent with the
guidelines to Regulation 155.5 CSCE demonstrated the use of trade
timing data in its surveillance systems for dual trading-related and
other trading-related abuses.
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    \11\ These provisions apply "except to the extent the
Commission determines that circumstances beyond the control of the
contract market prevent compliance despite the contract market's
affirmative good faith efforts to comply."
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One-Minute Execution Time Accuracy

    CSCE's Audit Trail system ("ATS") imputes a one-minute execution
time for every trade. Trade times are imputed based upon time and
sequencing data entered by both buyers and sellers for customer and
proprietary trades, including trading card and line order entry
sequence numbers, certain execution times required to be manually
entered, time and sales data, and 30-minute bracket codes.12
The Exchange endeavors to capture each transaction as a time and sales
print. Additional trade data are input by members' clerks to the trade
processing system, which matches trades for clearing. Based on these
data, ATS uses a series of trade data comparisons to match both sides
of a trade, to narrow further the time windows, and ultimately to
assign an imputed execution time for the trade.13

[[Page 71898]]

With respect to the accuracy of the ATS imputed trade execution times,
all trade timing data obtained since 1994 indicate that CSCE met the 90
percent performance standard.
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    \12\ Exchange members are required to record manually the
execution time of the first trade on the card, as well as any
customer type indicator trades (trades for another member present on
the floor or an account controlled by that other member) and cross
trades. Members are encouraged to record manually the execution time
of the fifth trade on each trading card.
    CSCE does not use order ticket timestamp data in the processing
logic for imputing times. Instead, the system attempts to obtain and
use a time and sales print for all trades, extensive sequencing data
(such as line numbers) and the various required manually entered
times to impute trade execution times. Order ticket entry and exit
times have been verified in the course of tests of the CSCE audit
trail as being consistent with imputed times.
    \13\ As discussed in the Order dated July 7, 1998, CSCE planned
to upgrade its ring reporter system through development and
implementation of the Automated Sequential Trade Reporting System
("ASTRS"). With ASTRS, each ring reporter would use an upgraded
handheld terminal and would be able to enter, in addition to the
prince information currently entered to the extent practicable the
selling member's acronym or short code. In December 1997 CSCE
conducted a two-week pilot test that involved using ASTRS to impute
trade times in parallel with the existing ATS system. The Exchange
found that, in spite of the best efforts of the price reporters to
capture and enter the selling broker's ID on all price reports, only
a 60 percent capture rate was experienced and there was no means to
verify accuracy. Consequently, CSCE has determined not to replace
the ATS system, which the Exchange represents has a 93-95 percent
accuracy rate, with ASTRS. Instead, the Exchange plans to use ASTRS
on a periodic basis as a means to determine the accuracy rate, with
ASTRS. Instead, the Exchange plans to use ASTRS on a periodic basis
as a means to determine the accuracy of the times imputed by ATS.
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    In order to determine the accuracy of the execution times, the
audit trail tests designed and reviewed by the Commission and conducted
by the Exchange in response to a November 23, 1994 Commission letter
involved a determination of the consistency of imputed trade execution
times with all underlying audit trail records and data. Based upon that
process, trade timing accuracy and sequencing rates for CSCE's imputed
system were computed.\14\ In reviewing the results of the test designed
to evaluate trade timing accuracy, Commission staff determined that 94
percent of CSCE's trade times satisfied the standard for consistency
and underlying data and 91 percent of those trade times had timing
windows of two minutes or less and thus could be verified.\15\
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    \14\ To the extent that the time imputed by a computer algorithm
was consistent with required trade documentation, time and sequence
data and time and sales information for the subject trade and
surrounding trades, that time was deemed accurate. If the imputed
time fell within a two-minute level of precision as measured by the
size of the final time window determined by the algorithm, that
imputed time is considered to be verifiable, reliable, and precise.
    \15\ Audit Trail Report at 9, 22. The test sample included 400
trades randomly selected on a proportionate basis from the three
futures contract markets which then had average daily volumes in
excess of 8000 contracts: Coffee "C", Sugar #11, and Cocoa.
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    More recent data reflecting trade execution times in the Cocoa
futures contract market confirms that the Exchange continues to meet
the 90 percent performance standard. In order to verify the accuracy of
ATS imputed trade execution times, Exchange staff conducted one ATS
review in the Cocoa futures contract market during 1997.\16\ The
Exchange manually reconstructed, from the underlying sources of timing
data, the 352 trades executed in bracket F on May 16, 1997, in the
Cocoa futures market.\17\
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    \16\ CSCE computer data reflect that 96 percent of trades
executed in the Cocoa futures contract market from September 1997
through December 1997 were assigned ATS execution times within one
minute, plus or minus, of execution.
    \17\ The Exchange found that 99 percent of the trades executed
in that bracket were assigned times within one minute, plus or
minus, of execution. Commission staff subsequently independently
reviewed the trades executed during that bracket and determined that
345 of the 352 trades, or 98 percent, were assigned times within one
minute, plus or minus, of execution.
    CSCE also completed one ATS review in the Sugar #11 futures
contract market during 1997. The Exchange confirmed that 92 percent
of the trades executed in bracket C in the Sugar #11 futures
contract on November 4, 1997, were assigned times within one minute,
plus or minus, of execution.
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    Commission staff reviewed the data to determine whether CSCE met
the 90 percent performance standard. The staff's review revealed that
322 of the 352 trades, or 91.5 percent, were assigned ATS times that
met that standard--that is, 91.5 percent of the trades had imputed
execution times that were within the same minute as the time and sales
print or within the minutes after the time and sales print, a window of
120 second.\18\ Since 1994, CSCE has demonstrated for the cocoa futures
contract market that 90 percent or more of imputed trade times are
reliable, precise, and verifiable as demonstrated by being imputed
within a timing window of two minutes or less.\19\
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    \18\ Times and sales prints, but not ATS times, are captured in
seconds. Thus, an execution time was considered to be within a two
minute window as illustrated by the following: If the time and sales
print was anywhere between 10:39:00 and 10:39:59, ATS times of 10:39
or 10:40 would fall within the two-minute window. In this example,
the two minute window could not exceed the period from 10:39:00 to
10:40:59.
    \19\ For this purpose, the Commission is specifically relying
upon the above-mentioned windows data calculated by Commission staff
in 1994 and 1997. The other noted timing data were generated by the
Exchange and are not expressly relied upon for this purpose, given
that the data were calculated differently. However, the Exchange-
generated data do tend to support the conclusion.
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Other Components of CSCE's Audit Trail System

    The Exchange also meets the remaining standards with respect to an
audit trail system. With regard to unalterability, as mandated by
Section 5a(b)(3)(A)(i) of the Act, trade records are unalterable, since
trades are recorded on trading cards and order tickets in nonerasable
ink and trade corrections are not permitted to obscure original data.
With respect to the requirement that trade data be provided continually
to the Exchange in accordance with Section 5a(b)(3)(A)(ii), trade data
are provided continually to the Exchange in that members must enter
data into the automated trade data entry and matching system by one-
half hour after the end of the bracket period in which the trade was
executed. CSCE's imputed timing system meets the Section
5a(b)(3)(A)(iii) standards for independence, to the extent practicable,
in that the timing system uses data from sources other than the trader,
as well as data provided by the trader, to derive times. CSCE also
meets sequencing standards that in the Exchange requires that all
trades, both proprietary and customer, be recorded in sequence on
trading cards. Consistent with Section 5a(b)(1)(B), CSCE's trade entry
and outtrade resolution programs capture essential data on cleared
trades, unmatched trades, errors, and outtrades. Finally, CSCE enforces
its audit trail requirements and integrates audit trail data into its
surveillance system for dual trading-related abuses.

Broker Receipt Time

    The Commission finds that it is not practicable at this time for
CSCE to capture the time that each order is received by a floor broker
for execution as is required, to the extent practicable as determined
by the Commission by rule or order, by Section 5a(b)(3)(B) of the
Act.\20\
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    \20\ Section 5a(b)(3)(B) codified existing requirements for
capturing the times that an order is received on the floor and
reported as executed and established a new requirement for capturing
the time that an order is received by the floor broker. This Section
requires a contract market to make a good faith effort, to the
extent practicable as determined by the Commission, to "record the
time that each [customer's] order is received on the floor of the
board of trade, is received by the floor broker for execution . . .
and is reported from the floor of the board of trade as executed"
through an unalterable, continual, precise, independent, and
automatic or similarly reliable means.
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    Recordkeeping System--CSCE's trade monitoring system satisfies the
requirements of Section 5a(b)(1)(B) in that CSCE maintains an adequate
recordkeeping system that is capable of capturing essential data on the
terms, participants, and sequence of transactions. The Exchange uses
such information and information on violations of recordkeeping
requirements on a consistent basis to bring appropriate disciplinary
actions.
    CSCE conducts trading card and order ticket reviews three times a
year for a sample of customer orders and personal trades and uses
information from these reviews to generate investigations. The
documents reviewed constitute a "representative sample" of
documentation required to be prepared and maintained by each floor
member and member firm regarding the execution of customer orders and
other trading. Further, the sample is adequate to demonstrate
compliance with all applicable rules and regulations.
    Surveillance Systems and Disciplinary Actions--As required by
Section 5a(b)(1) (C), (D) and (F), CSCE generally uses information
generated by its trade monitoring and audit trail systems on a
consistent basis to bring appropriate disciplinary action for
violations relating to the making of trades and execution of customer
orders. In addition, CSCE assesses meaningful penalties against
violators and refers appropriate cases to the Commission.

[[Page 71899]]

    On a daily basis, CSCE's different management information system
programs analyze trade data to detect possible instances of dual
trading-related and other trading-related abuses. Systems are designed
to permit subjection of all relevant trade data to these reviews. The
computerized exception reports generated by the Exchange are designed
to identify such suspicious trading activity as accommodation trading,
including direct and indirect trading against a customer, direct and
indirect trading ahead of a customer, and improper cross trading.
Investigators can design customized exception reports to identify
certain specific trading activity, to isolate suspicious trading
patterns, to filter and to sort data within reports, and to expand
review activities.
    During 1997, the Exchange initiated 129 investigations and/or
reviews into all types of possible abuses. Approximately 80 percent of
the investigations opened and closed during that period were closed
within the four-month standard set forth in Regulation 8.06. During
1997, the Exchange initiated 59 dual trading-related investigations as
a result of its routine reviews of exception reports and referred 15
brokers and four firms to a disciplinary action committee. During that
same period, CSCE assessed $14,500 in fines in 11 dual trading-related
cases involving ten members and two member firms and ordered $928.00 in
restitution in four of these cases.
    Commitment of Resources--The Commission finds that CSCE meets the
requirements of Section 5a(b)(1)(E) by committing sufficient resources
for its trade monitoring system, including automating elements of such
trade surveillance system, to be effective in detecting and deterring
violations and by maintaining an adequate staff to investigate and to
prosecute disciplinary actions. For fiscal year 1997, CSCE committed 25
personnel to the Compliance and Market Surveillance Departments and
reported its total self-regulatory costs to be $4,320,500.\21\ CSCE
reported its volume for 1997 as 13,066,042 contracts and 2,200,567
trades.
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    \21\ In June 1998 NYBT began to implement plans to combine and
integrate the NYCE and CSCE compliance staffs into one department.
This combined department is budgeted for 25 positions, including a
Vice President of Compliance, two Senior Managers, four Managers,
and a Staff Attorney. In July 1998 compliance staff members were
physically relocated into one area. The Commission finds that the
overall number of staff members assigned to compliance matters at
NYBT is appropriate to the size of the NYBT and anticipated volume
of trading and does not anticipate any material change in the
performance of the trade monitoring system with respect to the Cocoa
futures contract or with respect to the other affected contract
markets at NYBT, Cotton No. 2 futures on NYCE and Sugar #11 futures
on CSCE.
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    Accordingly, on this date, the Commission HEREBY GRANTS CSCE's
Petition for Exemption from the dual trading prohibition for trading in
its Cocoa futures contract.
    For this exemption to remain in effect, CSCE must demonstrate on a
continuing basis that it meets the relevant statutory and regulatory
requirements. The Commission will monitor continued compliance through
its rule enforcement review program and any other information it may
obtain about CSCE's program.
    Unless otherwise specified, the provisions of this Order shall be
effective on the date on which it is issued and shall remain in effect
unless and until it is revoked in accordance with Section 8e(b)(3)(B)
of the Commodity Exchange Act, 7 U.S.C. Sec. 12e(b)(3)(B). If other
CSCE contracts become affected contracts after the date of this Order,
the Commission may expand this Order in response to an updated petition
that includes those contracts.
    It is so ordered.

    Dated: December 23, 1998.
Catherine D. Dixon,
Assistant Secretary to the Commission.
Concurring Opinion of Commissioner Barbara P. Holum On the Order
Granting a Dual Trading Exemption to the Coffee, Sugar & Cocoa
Exchange, Inc.
    I concur in the Commission's decision to grant a dual trading
exemption to the Coffee, Sugar & Cocoa Exchange, Inc. (CSCE) for the
Cocoa futures contract. CSCE has demonstrated that its trade monitoring
system as a whole does detect and deter dual trading abuses. While I
concur in the Commission's decision to grant CSCE a dual trading
exemption, I think that it is important to clarify the reason for my
decision. The trade monitoring system is comprised of five elements:
physical observation of trading areas; audit trail system;
recordkeeping and surveillance systems; disciplinary actions; and
commitment of resources to effectively detect, deter and discipline
dual trading violations. No single element should dictate granting,
conditioning or denying an exemption, CSCE's trade monitoring system
taken as a whole meets the relevant statutory and regulatory
requirements for a dual trading exemption.

    Dated: December 22, 1998.
Barbara P. Holum,
Commissioner.
[FR Doc. 98-34554 Filed 12-29-98; 8:45 am]
BILLING CODE 6351-01-M
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