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[Federal Register: November 17, 1998 (Volume 63, Number 221)]
[Notices]
[Page 63913-63915]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17no98-45]

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COMMODITY FUTURES TRADING COMMISSION


Adverse Registration Actions by the National Futures Association
With Respect to Agricultural Trade Option Merchants and Their
Associated Persons and Applicants for Registration in Either Category

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice and Order.

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SUMMARY: The Commodity Futures Trading Commission (Commission) is
authorizing the National Futures Association (NFA) to deny, condition,
suspend, modify, restrict or revoke the registration of any
agricultural trade option merchant (ATOM) or any associated person (AP)
of an ATOM or to deny or condition an application for registration in
either category. In addition, the Commission is authorizing NFA to
perform record custodianship functions with respect to such adverse
registration actions. The Commission has previously authorized NFA to
perform various functions with respect to processing registration
records for ATOMs and their APs, and applicants therefore, including
granting such registrations where appropriate and serving as the
official custodian of those Commission records. 63 FR 18821 (April 16,
1998). This Order does not authorize NFA to accept or act upon requests
for exemption or to render "no-

[[Page 63914]]

action" opinions with respect to applicable registration requirements.
This Order generally will confirm NFA's authority regarding the ATOM
and ATOM AP registration categories to the authority delegated by the
Commission to NFA concerning the other categories of registration under
the Commodity Exchange Act (Act).\1\
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    \1\ 7 U.S.C. 1 et seq. (1994).
    Although "agricultural trade option merchant" and "associated
person of an agricultural trade option merchant" are not
registration categories defined by the Act, they are, nevertheless,
registration categories "under the Act" by virtue of the
Commission's promulgation of rules creating these registration
categories under Section 4c(b) of the Act (its plenary authority
over the regulation of options) and under Section 8a(5) of the Act
(its general rulemaking authority). 62 FR 18821, 18825, n. 20.

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EFFECTIVE DATE: November 17, 1998.

FOR FURTHER INFORMATION CONTACT:
Kimberly A. Browning, Attorney/Advisor, Division of Economic Analysis,
or Lawrence B. Patent, Associate Chief Counsel, Division of Trading and
Markets, Commodity Futures Trading Commission, Three Lafayette Centre,
1155 21st Street, NW., Washington, DC 20581, (202) 418-5000, or
electronically at [[email protected]] or [[email protected]].

SUPPLEMENTARY INFORMATION:

Introduction

    On April 16, 1998, the Commission published interim final rules in
the Federal Register authorizing NFA to perform registration processing
functions with respect to ATOMs and their APs.\2\ These functions
include: (1) processing and, where appropriate, granting applications
for registration for ATOMs and their APs; and (2) establishing and
maintaining systems of records regarding ATOMs and their APs and
serving as the official custodian of those Commission records.\3\ By
the Order below, issued on this date, the Commission is authorizing NFA
to assume the performance of additional registration functions on
behalf of the Commission, specifically, to deny, condition, suspend,
modify, restrict or revoke the registration of any ATOM or any ATOM AP
or to deny or condition an application for registration in either
category. In addition, the Commission is authorizing NFA to perform
record custodianship functions with respect to such adverse
registration actions.
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    \2\ 63 FR 18821. These interim final rules became effective on
June 15, 1998. Id.
    \3\ Under cover of a letter dated June 18, 1998, NFA submitted
to the Commission amendments to its bylaws and rules to govern these
two registration processing functions.
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    Further, this Order does not authorize NFA to accept or act upon
requests for exemption or to render "no-action" opinions with respect
to applicable registration requirements. This Order will conform NFA's
authority concerning the ATOM and ATOM AP registration categories to
the authority delegated by the Commission to NFA concerning the other
categories of registration under the Act.\4\
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    \4\ The Commission has previously authorized NFA to perform
registration processing functions, and to take adverse registration
actions, with respect to futures commission merchants, introducing
brokers, commodity pool operators, commodity trading advisors,
leverage transactions merchants, associated persons of any of the
foregoing entities, floor brokers and floor traders, as well as
applicants for registration in any of the aforementioned categories.
See 49 FR 15940 (April 13, 1983); 49 FR 35158 (August 3, 1983); 48
FR 51809 (November 14, 1983); 48 FR 8226 (March 5, 1984); 49 FR
39593 (October 9, 1984); 50 FR 34885 (August 28, 1985); 54 FR 19594
(May 8, 1989); 54 FR 41133 (October 5, 1989); 59 FR 38957 (August 1,
1994); and 62 FR 36050 (July 3, 1997).
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    The Commission further notes that, in enacting Section 227 of the
Futures Trading Practices Act of 1992, Congress added Section 8a(11) to
the Act, 7 U.S.C. 12a(11) (Supp. IV 1992), which provided rulemaking
authority for the Commission to modify or suspend the registration of
any person charged with a felony if the Commission determines that
continued registration of the person may pose a threat to the public
interest or may threaten to impair public confidence in any market
regulated by the Commission. The Commission adopted Rule 3.56 to
implement this authority. The Commission expects that NFA will promptly
notify the Commission when NFA becomes aware that any registrant has
been charged with a felony.\5\
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    \5\ In this regard, the Commission notes that ATOMs and their
APs, as well as applicants for registration in either category, are
required to supplement their respective registration applications to
include any changes to the information provided thereon and report
such changes to the NFA. See Commission Rule 3.13(e)(4).
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United States of America Before the Commodity Futures Trading
Commission Order Authorizing the Performance of Registration Functions

I. Authority and Background

    Section 8a(10) of the Act (7 U.S.C. 12a(10) (1994)) provides that
the Commission may authorize any person to perform any portion of the
registration functions under the Act, notwithstanding any other
provision of law, in accordance with rules adopted by such person and
submitted to the Commission for approval or, if applicable, for review
pursuant to Section 17(j) of the Act and subject to the provision of
the Act applicable to registrations granted by the Commission. Section
17(o)(2) of the Act provides that the Commission may authorize any
registered futures association, in this case NFA, in performing
Commission registration functions, to deny, condition, suspend,
restrict or revoke any registration, subject to Commission review.\6\
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    \6\ 7 U.S.C. 21(o)(2) (1994).
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    NFA submitted under cover of a letter dated August 27, 1998,
amendments to its rules to govern adverse actions against ATOMs, ATOM
APs and applicants for registration in either category. These
amendments reflect actions taken by NFA's Board of Directors at a
meeting on August 20, 1998. NFA's rule amendments establish procedures
for conducting adverse registration actions with respect to the ATOM
and ATOM AP registration categories. In particular, NFA will conduct a
fitness review of each ATOM and ATOM AP registration applicant. In
appropriate circumstances, NFA will institute adverse registration
actions against ATOMs, their APs or applicants for registration in
either category based on the statutory disqualifications provided under
Sections 8a(2) and 8a(3) of the Act. NFA also will review the financial
statements submitted by prospective ATOMs with their registration
applications to determine whether such statements demonstrate
compliance with the $50,000 minimum net worth requirement provided
under Commission Rule 3.13(d)(i). In those instances where the listed
financial data fail to satisfy this requirement, NFA will institute
adverse registration actions.
    Upon consideration, the Commission has determined to authorize NFA,
effective, November 17, 1998, to deny, condition, suspend, modify,
restrict or revoke the registration of any ATOM, any ATOM AP or an
applicant for registration in either category in accordance with the
standards established by the Act and rules promulgated thereunder. In
addition, the Commission is authorizing NFA to perform record
custodianship functions with respect to such adverse registration
actions. Separately, by letter dated September 10, 1998, the
Commission's Division of Trading and Markets permitted amendments to
NFA bylaws and NFA Registration Rules 201 and 501(a) to become
effective without Commission approval in order to implement these
grants of authority.
    By prior orders, the Commission has authorized NFA to maintain
various other Commission registration records and certified NFA as the
official custodian of such records for this

[[Page 63915]]

agency.\7\ The Commission has now determined, in accordance with its
authority under Section 8a(10) of the Act, to authorize NFA to
maintain, and to serve as official custodian of, the Commission's
registration records with respect to adverse actions against ATOMs,
their APs and applicants for registration in either category from this
time forward. This determination is based upon NFA`s representations
regarding the implementation of rules and procedures for maintaining
and safeguarding all such records.
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    \7\ 49 FR 39593 (October 9, 1984); 50 FR 34885 (August 28,
1985); 51 FR 25929 (July 7, 1986); 54 FR 19594 (May 8, 1989); 54 FR
41133 (October 5, 1989); 58 FR 19657 (April 15, 1993); and 59 FR
38957 (August 1, 1994).
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    In maintaining the Commission's registration records pursuant to
this Order, NFA shall be subject to all other requirements and
obligations imposed upon it by the Commission in existing or future
orders or regulations. In this regard, NFA shall also implement such
additional procedures (or modify existing procedures) as are necessary
and acceptable to the Commission to ensure the security and integrity
of the ATOM, ATOM AP or applicant records in NFA's custody; to
facilitate prompt access to those records by the Commission and its
staff, particularly as described in other Commission orders or rules;
to facilitate disclosure of public or nonpublic information in those
records when permitted by Commission orders or rules and to keep logs
as required by the Commission concerning disclosure of nonpublic
information; and otherwise to safeguard the confidentiality of the
records.

II. Conclusion and Order

    The Commission has determined, in accordance with the provisions of
Section 8a(10) of the Act, to authorize NFA, effective November 17,
1998, to perform the following registration functions:
    (1) To deny, condition, suspend, modify, restrict or revoke
registration under the Commodity Exchange Act as an agricultural trade
option merchant, an associated person of an agricultural trade option
merchant or an applicant for registration in either category; and
    (2) To establish and to maintain a system of records regarding such
adverse actions involving agricultural trade option merchants,
associated persons of agricultural trade option merchants and
applicants for registration in either category and to serve as the
official custodian of those Commission records. NFA shall perform these
functions in accordance with the standards established by the Act and
the regulations promulgated thereunder.
    These determinations are based upon the Congressional intent
expressed in Sections 8a(10) and 17(o) of the Act that the Commission
be allowed to authorize NFA to perform any portion of the Commission's
registration responsibilities under the Act for purposes of carrying
out these responsibilities in the most efficient and cost-effective
manner and upon NFA's representations concerning standards and
procedures to be followed in administering these functions.
    This Order does not, however, authorize NFA to accept or act upon
requests for exemption from registration or to render "no-action"
opinions or interpretations with respect to applicable registration
requirements.
    Nothing in this Order or in Section 8a(10) or 17 of the Act shall
affect the Commission's authority to review the granting of a
registration application by NFA in the performance of Commission
registration functions or to review any adverse registration action
taken by NFA. See also Sections 17(o) (3) and (4) of the Act, 7 U.S.C.
21(o) (3) and (4) (1994), and 17 CFR Part 171.

    Issued in Washington, DC on November 10, 1998 by the Commission.
Catherine D. Dixon,
Assistant Secretary of the Commission.
[FR Doc. 98-30647 Filed 11-16-98; 8:45 am]
BILLING CODE 6351-01-M
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