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[Federal Register: August 18, 1997 (Volume 62, Number 159)]
[Rules and Regulations]
[Page 43930]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18au97-6]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 12


Commission's Reparations Jurisdiction Over Commodity Trading
Advisors Exempt From Registration Under Section 4m(1) of the Commodity
Exchange Act

AGENCY: Commodity Futures Trading Commission.

ACTION: Advisory.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is
clarifying its reparations jurisdiction over certain commercial
agricultural cash market participations and nonprofit general farm
organizations referred to in Section 4m(1) of the Commodity Exchange
Act (``Act'').\1\ Provided that these persons furnish commodity trading
advice that is solely incidental to the conduct of their business,
these persons are exempt from registration as commodity trading
advisors (``CTAs'') pursuant to Section 4m(1) of the Act, but are
subject to reparations proceedings under Section 14 of the Act.
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    \1\ 7 U.S.C. Sec. 1 et seq. (1994).

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EFFECTIVE DATE: August 18, 1997.

FOR FURTHER INFORMATION CONTACT: Natalie A. Markman, Attorney-Advisor,
Division of Trading and Markets, Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st Street, N.W., Washington, DC 20581.
Telephone: (202) 418-5450.

SUPPLEMENTARY INFORMATION: Section 4m(1) of the Act provides, among
other things, that dealers, processors, brokers or sellers in cash
market transactions in the agricultural commodities enumerated in
Section 2 of the Act or the products thereof as well as certain
nonprofit voluntary membership farm organizations (collectively, ``Cash
Dealers'') are exempt from registration as CTAs but are subject to
reparations proceedings under Section 14 of the Act.\2\ Section
14(a)(1) of the Act, which generally addresses the Commission's
reparations jurisdiction, provides that reparations claims may be filed
by persons complaining of any violation of the Act or Commission rules
against ``any person who is registered'' under the Act.\3\ No cross-
reference or other acknowledgment of the Section 4m(1) reparations
provision is made in Section 14. However, the Commission's reparations
rules, which implement Section 14 of the Act, expressly include the
Section 4m(1) Cash Dealers as a category of permissible respondents in
reparations proceedings.\4\
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    \2\ The second sentence of Section 4m(1) provides that:
    The [registration] provisions of this section shall not apply to
any [CTA] who is a (1) dealer, processor, broker, or seller in cash
market transactions of any commodity specifically set forth in
[S]ection 2(a) of this Act prior to the enactment of the Commodity
Futures Trading Commission Act of 1974 (or products thereof) or (2)
nonprofit, voluntary membership, general farm organization, who
provides advice on the sale or purchase of any commodity
specifically set forth in [S]ection 2(a) of this Act prior to the
enactment of the Commodity Futures Trading Commission Act of 1974;
if the advice by the person described in clause (1) or (2) of this
sentence as a [CTA] is solely incidental to the conduct of that
person's business: Provided, That such person shall be subject to
proceedings under [S]ection 14 of this Act.
    7 U.S.C. Sec. 6m(1) (1994) (emphasis added). Commission Rules
4.14(a) (1) and (2) also provide that Cash Dealers are exempt from
CTA registration but make no mention of reparations jurisdiction.
Commission rules referred to herein are found at 17 CFR Ch. I
(1997).
    This Advisory does not address the scope of the exemption from
CTA registration under Section 4m(1) of the Act or under Rules
4.14(a) (1) and (2).
    \3\ Section 14(a)(1) provides, in relevant part, that:
    Any person complaining of any violation of any provision of this
Act or any rule, regulation, or order issued pursuant to this Act by
any person who is registered under this Act may, at any time within
two years after the cause of action accrues, apply to the Commission
for an order awarding--(A) actual damages proximately caused by such
violation. * * * and (B) in the case of any action arising from a
willful and intentional violation in the execution of an order on
the floor of a contract market, punitive or exemplary damages equal
to no more than two times the amount of such actual damages * * *.
    7 U.S.C. Sec. 18(a)(1) (1994) (emphasis added). As amended by
the Futures Trading Act of 1978, Section 14(a) provided that a
reparations complaint could be filed with the Commission by ``[a]ny
person complaining of any violation of any provision of this Act or
any rule, regulation, or order thereunder by any person who is
registered or required to be registered under [S]ection 4d, 4e, 4k,
or 4m of this Act * * *.'' Pub. L. No. 95-405, Sec. 21, 92 Stat.
865, 876-76 (1978) (emphasis added). The Futures Trading Act of 1982
(``1982 Act'') subsequently amended Section 14(a) to eliminate
reparations jurisdiction over persons ``required to be registered''
under the Act. Pub. L. No. 97-444, Sec. 231, 96 Stat. 2294, 2319
(1983).
    \4\ In 1983, the Commission amended its reparations rules by
promulgating interim reparations rules to implement the 1982 Act's
amendment of Section 14(a), which eliminated reparations
jurisdiction over persons ``required to be registered'' under the
Act. 48 FR 21923 (May 16, 1983). In Rule 12.21 of the interim rules,
the Commission retained reparations jurisdiction over registrants
but eliminated those persons who were ``required to be registered''
under the Act as potential reparations respondents. The Commission
also modified Rule 12.21 by adding, for the first time, persons
``exempt from registration as [CTAs] by virtue of the second
sentence of Section 4m'' as a class of potential reparations
respondents. Id. at 21924. The Commission explained that under
Section 4m:
    Certain dealers, processors, brokers, or sellers in cash market
transactions in agricultural commodities and non-profit general farm
organizations who provide advice on agricultural commodities are
exempt from having to register as [CTAs]. Nevertheless Section 4m
provides that such persons are subject to proceedings in
reparations. Nothing in the 1982 amendments has affected this
provision of the Act. Thus, * * * the Commission will continue to
hear reparations claims filed against persons who, at the time of
the violation, were exempt from registration pursuant to Section 4m
of the Act.
    Id. (emphasis added).
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    The Part 12 rules, as promulgated in 1984 and continuing to the
present, provide in Rule 12.13(a) that reparations complaints may be
filed against any registrant, as defined in Rule 12.2.\5\ Rule 12.2
defines registrant as any person who: (1) Was registered at the time of
the alleged violation; (2) is subject to reparations proceedings by
virtue of Section 4m; or (3) is otherwise subject to reparations
proceedings.
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    \5\ The Commission replaced interim Rule 12.21 with Rule
12.13(a) and moved its list of Part 12 definitions to Rule 12.2. 49
FR 6602, 6622-23, 6626 (February 22, 1984).
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    In a 1985 Federal Register release addressing revisions of Part 4
of the Commission's rules, the Commission stated that it did ``not
intend hereafter to exercise jurisdiction in its reparations program
over persons exempt from CTA registration under [S]ection 4m(1).'' \6\
The Commission wishes to eliminate any ambiguity that may have been
created by the 1985 release by clarifying that, as provided in Section
4m(1), dealers, processors, brokers or sellers in cash market
transactions in the agricultural commodities enumerated in Section 2 of
the Act or the products thereof and certain nonprofit voluntary
membership farm organizations who provide commodity trading advice in a
manner incidental to their business are exempt from CTA registration
but subject to reparations proceedings pursuant to Section 4m(1) and as
provided in Part 12 of the Commission's rules.

    \6\ 50 FR 15868, 15881 n. 77 (April 23, 1985); see also 49 FR
4778, 4783 (February 8, 1984) (proposing the Part 4 amendments).
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    Issued in Washington, D.C. on August 12, 1997 by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 97-21829 Filed 8-15-97; 8:45 am]
BILLING CODE 6351--01-M
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