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[Federal Register: May 27, 1999 (Volume 64, Number 102)]
[Rules and Regulations]
[Page 28735-28743]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27my99-8]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1


Recordkeeping

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rules.

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SUMMARY: The Commodity Futures Trading Commission is adopting
amendments to the recordkeeping obligations established in Regulation
1.31. Specifically, the amendments will allow recordkeepers to store
most categories of required records on either micrographic or
electronic storage media for the full five-year maintenance period,
thereby harmonizing procedures for those firms regulated by both the
Commission and the Securities and Exchange Commission. Recordkeepers
will have the flexibility necessary to maximize the cost reduction and
time savings available from improved storage technology while
continuing to provide Commission auditors and investigators with timely
access to a reliable system of records.

EFFECTIVE DATE: June 28, 1999.

FOR FURTHER INFORMATION CONTACT: Edson G. Case, Counsel, or Lurie
Plessala Duperier, Special Counsel, Division of Trading and Markets,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155
21st. Street, NW, Washington, DC 20581. Telephone (202) 418-5430.

SUPPLEMENTARY INFORMATION:

I. Introduction

    On June 5, 1998, the Commodity Futures Trading Commission
(``Commission'' or ``CFTC'') published a Federal Register Notice
proposing several amendments to the recordkeeping requirements of
Commission Regulation 1.31 (the ``Proposal'')\1\ In light of the
significant number of Commission registrants that are subject to the
recordkeeping requirements of the Securities and Exchange Commission
(``SEC''), the Proposal included many provisions similar to those
adopted by the SEC in 1997.\2\ The Proposal's overall design reflected
the Commission's dual goals of ``maximiz[ing] the cost-reduction and
time-savings arising from technological developments in the area of
electronic storage media'' and maintaining the type of safeguards that
``ensure the reliability of the recordkeeping process.'' \3\ The
comment period on the Proposal originally was due to expire on August
4, 1998. Upon request from the Futures Industry Association (``FIA''),
the Commission extended the deadline to August 18, 1998, to encourage
comment by interested persons.
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    \1\ 63 FR 30668 (June 5, 1998).
    \2\ 62 FR 6469 (Feb. 12, 1997). The SEC's rulemaking involved
reporting requirements for brokers or dealers under the Securities
Exchange Act of 1934. The Commission has relied on these rules in
addressing recordkeeping issues on prior occasions. See, e.g., 62 FR
39104 (July 22, 1997) (interpreting Commission requirements
affecting the use of electronic media by commodity pool operators
(``CPOs'') and commodity trading advisors (``CTAs'') and amending
Part 4 of the Commission's Rules in light of the interpretation); 62
FR 31507 (June 10, 1997) (issuing guidance regarding a futures
commission merchant's (``FCM's'') electronic delivery of
confirmation, purchase-and-sale, and monthly statements to customers
and the related recordkeeping requirements); 62 FR 7675 (February
20, 1997) (permitting the use of electronic records of customer
orders generated by an electronic order-routing system).
    \3\ 63 FR at 30668.
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    The commission is publishing final rules that respond to comments
expressed by industry participants and that track closely the SEC's
recordkeeping requirements. While the final rules are similar to the
Proposal in most respects, the Commission intends to modify certain
staff practices in light of the comments received. The final rules and
modifications to staff practices will provide recordkeepers with
opportunities to reduce costs and improve both the efficiency and
security of their recordkeeping systems by initiating a transition to
electronic storage of Commission-required records.

[[Page 28736]]

    The Commission recognizes the important role improved technology
can play in the continued development of the futures industry.
Minimizing unnecessary regulatory obstacles to the adopted of improved
technology is a goal of the industry members, customers, and the
Commission. Indeed, the pace of technological changes will require the
Commission continually to review the standards articulated in this rule
to ensure that the recordkeeping requirements reflect to the extent
possible the reality of established technological innovation. The
Commission therefore welcomes consultation with industry participants
and specific proposals regarding how the regulations might be amended
in the future to permit the futures industry to use available
technology and to respond to the Commission's legitimate need to have
access to complete and accurate records when necessary.

II. Nature of the Proposal

A. Current Rule 1.31

    Commission Regulation 1.31 sets forth certain recordkeeping
requirements imposed by the CEA and Commission regulations. Subsection
(a) describes the general rule. It mandates that all records required
to be kept by the Act or Commission regulations (``required records'')
be maintained for five years and be kept ``readily accessible'' during
the first two years. It also defines the inspection and production
rights of representatives of the Commission and the Department of
Justice.\4\
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    \4\ For example, Regulation 1.31(a) provides that all required
records shall be open to inspection by such representatives. It also
requires recordkeepers to provide copies of originals of any
required record ``promptly,'' upon request.
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    Subsections (b) and (c) establish alternative requirements for
required records that are stored as reproductions. Recordkeepers that
fulfill the conditions for alternative treatment may dispose of
original required records. Eligibility for alternative treatment is
limited to particular classes of records that are reproduced on
microfilm, microfiche, or optical disk. Computer and machine generated
records are immediately eligible for reproduction and storage on one of
the alternative media. Most other required records become eligible
after two years of storage. Trading cards and written customer orders
are ineligible; originals must be maintained for the full five-year
period. Subsection (c) describes the special inspection and production
conditions applicable to recordkeepers that choose to store
reproductions rather than original required records.\5\
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    \5\ For example, persons maintaining reproductions must maintain
indexes of the records and have facilities that permit
representatives of the Commission and the Department of Justice to
review and obtain hard copies of the records immediately. For
records stored on optical disk, Regulation 1.31(c)(1)(iii) also
mandates that a copy of each record be immediately provided ``on
Commission compatible machine-readable media as defined in
[Commission Regulation] 15.00(1) * * *.''
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B. Proposed Rules

    The Proposal would eliminate the current requirement that the
original of most required records be maintained for two years.\6\
Immediate storage of reproductions maintained on micrographic or
electronic storage media will enable recordkeepers to lower storage
costs significantly by discarding original records following the
successful storage of a reproduction. Moreover, the Proposal gave
recordkeepers increased flexibility in selecting the advanced
technology best suited to their business requirements by substituting
the less restrictive category ``electronic storage media'' for
``optical disk'' in describing the storage media recordkeepers could
employ.\7\ As a result, recordkeepers may now take advantage of
electronic storage technologies such as digital tape.\8\
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    \6\ The Proposal retained the current regulation's requirement
that original trading cards and written customers orders be retained
for the full five-year period. Proposal at 30669-70. It also sought
to clarify the type of records ineligible for micrographic or
electronic storage by referring to ``written orders'' rather than
``written customer orders'' and to ``documents on which trade
information is originally recorded in writing'' rather than
``trading cards.'' The documents included in the Proposal's revised
category are among the ``original source documents'' that Commission
Regulation 1.35(a) requires to be retained and produced. Proposal at
30671.
    \7\ The current rule's definition of acceptable optical storage
systems, for example, requires that the system write files in ASCII
or EBCDIC format and use removable disks. The Proposal, however,
permitted recordkeepers to employ any digital storage medium or
system that meets four generic requirements: (1) preserves records
exclusively in a non-rewritable, non-erasable format; (2) verifies
automatically the quality and accuracy of the recording process; (3)
serializes the units of storage media and creates a time-date
whenever information is placed on the storage media; and (4) permits
the immediate downloading of indexes and records maintained on the
storage media to any of the media permitted by the regulation
(paper, micrographic media or electronic media).
    \8\ The Proposal did not require Commission approval of plans to
convert to a system that maintains records on electronic storage
media. Recordkeepers, however, must submit a representation to the
Commission that the selected electronic storage system meets the
four generic requirements.
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    In addition, consistent with both the SEC's approach and current
Commission requirements, the Proposal set forth several conditions on
recordkeepers who choose to meet their obligations by retaining
reproductions rather than original records--including safeguards to
endure timely access to the reproductions and the Commission's ability
to maintain its access to required records despite catastrophic
events.\9\
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    \9\ Recordkeepers were required to: (1) maintain facilities that
allow immediate production of both an easily readable image of the
stored records and an easily readable hard-copy; (2) maintain an
index of stored documents that permits immediate location of a
particular document; and (3) waive any privilege, claim of
confidentiality or other objection to disclosure of non-Commission-
required documents stored on the same individual medium as
Commission-required documents. In regard to catastrophic events, the
Proposal noted that the Commission had lost access to required
records due to a fire at a Chicago storage warehouse in 1996.
Proposal at 30669 n.12. To avoid this problem in the future, the
Proposal required recordkeepers to maintain a duplicate of both
stored records and required indexes at a separate location.
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    The Proposal articulated additional conditions on recordkeepers
that choose to meet their obligations by retaining reproductions on
electronic storage media rather than micrographic storage media. First,
to ensure that there was an effective check on the reliability of the
transfer process, the Proposal required electronic recordkeepers to
maintain written operational procedures and controls that would provide
accountability over both the initial entry of required records to the
electronic storage media and the entry of each change made to any such
records.\10\ Second, due to practical limitations on the Commission's
ability to process data stored in the full range of available formats
and coding structures on the full range of storage media available to
recordkeepers, the Proposal required recordkeepers to provide copies of
requested records on ``Commission compatible machine-readable media''
with the format and coding structure specified in the request.\11\
Third, like the SEC's rules, the Proposal required recordkeepers using
electronic storage media to keep available for inspection ``all
information necessary to access records and indexes maintained on
electronic storage media * * *'' \12\
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    \10\ The Proposal indicated that the written operational
procedures and controls should provide for the systematic collection
of data that includes the identities of individuals inputting
records and making changes as well as the identity of any new
document created and record changed.
    \11\ Proposal at 30699. The Proposal noted that ``compatible
machine-readable media'' would be defined in accordance with
Commission Regulation 15.00(1).
    \12\ Proposal at 30674. This condition anticipated situations in
which electronic recorkeepers had stored required records but were
unable or unwilling to provide Commission representatives with an
appropriate means to view and copy specified documents. The Proposal
did recognize that the required information might not be freely
available to recordkeepers that obtained their storage technology
from third-party vendors. As a result, the Proposal permitted
recordkeepers to employ escrow agreements to protect the third-party
vendor's proprietary rights.

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[[Page 28737]]

    The Proposal contained a final, additional condition on
recordkeepers who stored all required records or all of a particular
class of required records solely on electronic storage media. To
address those situations in which such a recordkeeper was unable or
unwilling to provide Commission representatives with an appropriate
means to view and copy specified records and failed to maintain or
permit inspection of the information necessary to access requested
records, the Proposal required such recordkeepers to enter into an
arrangement with a third-party Technical Consultant.\13\
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    \13\ Such recordkeepers must provide the Technical Consultant
with access to the storage media containing their required records,
and the Technical Consultant must (1) have the ability to download
information from the recordkeeper's storage media to any medium
acceptable under Regulation 1.31 and (2) undertake to provide
Commission representatives with access to the records stored on the
recordkeeper's storage media including, as appropriate, arrangement
for downloading the records in the format designated by Commission
representatives.
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III. Final Rules

    The Commission received nine comments on the Proposal. Commenters
included the National Futures Association (``NFA''), four designated
futures exchanges, two commodity industry associations, and First
Options of Chicago, Inc. (``FOC''), a registered futures commission
merchant (``FCM''), which submitted two comments.\14\ Most commenters
praised the Commission for proposing revisions to its recordkeeping
requirements. One commodity exchange praised the Proposal for giving
recordkeepers ``flexibility to use technological advances in the
electronic storage media to reduce the costs associated with record
retention.'' \15\ A commodity industry association commended the
Commission for moving toward a more generic, performance-based approach
to the definition of permissible record storage technology. Another
commodity exchange agreed that aspects of the Proposal could lead to
improvement in both the security and availability of required records.
NFA characterized the Proposal as ``a significant step in the right
direction * * *.\16\
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    \14\ One of FOC's submissions was a petition to amend Regulation
1.31, which was received shortly before the Commission published its
Proposal. To avoid undue delay, the Commission decided to publish
the Proposal and to treat this submission as a general comment on
the issues raised. FOC later filed a written submission responding
more specifically to the issues raised in the Proposal.
    \15\ Chicago Board of Trade Comment at 1.
    \16\ NFA Comment at 1.
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    In view of the significant number of firms subject to regulation
under both the federal commodity and securities laws, the final
regulations recognize the value of maintaining consistency, where
possible, between the Commission's approach to recordkeeping and that
of the SEC. The regulations do not reflect strict conformity with the
regulations the SEC adopted in 1997, however, because the Commission
concluded that there were significant differences between the
commodities and securities industry that justified retaining certain of
its current rules.\17\
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    \17\ In addition to the mandate that original written trading
cards and order tickets be maintained for five years, these include
requirements that recordkeepers: (1) maintain indexes of
electronically stored records that are available for immediate
examination and permit the location of any particular record to be
immediately ascertained; (2) keep the information necessary to
access electronically stored records and indexes available for
immediate examination; and (3) provide copies of specified records
on Commission-compatible machine-readable media with the format and
coding structure specified in the request.
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    The comments focused primarily on five areas, each of which is
discussed below.

A. Maintaining Original Written Trading Cards and Order Tickets

    The Proposal permitted recordkeepers to transfer most categories of
records to micrographic or electronic storage media immediately,
eliminating the need to keep original records for two years. However,
original trading cards and customer order tickets were required to be
maintained for the full five-year period. A majority of commenters
cited cost, efficiency and security concerns in questioning why the
Commission declined to permit written trading cards and customer orders
to be stored electronically. Both commodity industry associations
emphasized that firms incur significant costs organizing, indexing, and
storing order tickets and trading cards. FOC noted that firms also
incur significant costs to retrieve such records, and one exchange
estimated that it expended $100,000 each year to retrieve records
requested under Commission Regulation 1.31. Commenters also questioned
why retention of original trading cards and order tickets is an
important element of an effective audit trail for futures transactions,
particularly since the SEC permits electronic storage of written
trading cards and order tickets. One commodity industry association
urged the Commission to ``consider whether the high cost and burden of
maintaining original written orders and trading cards is
disproportionate to the limited use of these documents in enforcement
cases.'' \18\
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    \18\ FIA Comment at 4.
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    The Commission recognizes that electronic storage of written
trading cards and order tickets could reduce storage costs, increase
the efficiency of the retrieval process, and help eliminate certain
security problems attendant to the storage of paper records.
Nevertheless, given the importance these original records continue to
play in the futures industry, the Commission believes that it would be
imprudent to rely solely on electronic versions of these records at
this time. Although the SEC permitted electronic storage of these
documents, it recognized the need for caution in this area and rested
its decision to eliminate the requirement that recordkeepers maintain
originals largely on the diminished role such written records play due
to the prevalence of electronic order routing in the securities
industry.\19\
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    \19\ 62 FR 6471.
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    Review of written trading records for differences in the instrument
used to record apparently contemporaneous information remains a regular
feature of investigations focusing on potential trade practice or
allocation violations.\20\ FOC contended that current technology can
produce superb reproductions that make differences in hand writing and
time stamps clearly visible. Even if we assume this to be true,\21\
this argument does not address the full range of material information
Commission auditors and investigators may gather by examining original
written trading records. For example, the Commission's Division of
Enforcement often examines these records in the context of a variety of
alleged violations.\22\ If only electronically stored records were
available, errors in the scanning process, such as failing to process
information on

[[Page 28738]]

both sides of a written order ticket, would deprive investigators of
material information. Moreover, even properly scanned records could
deprive investigators of currently available information. For example,
it is unlikely that investigators could distinguish ink colors on
scanned documents or detect either erasure or the use of products such
as white out. This type of discrepancy may be important in establishing
that a participant in the transaction inserted some information on a
trading card or order ticket after the bulk of the information had
already been recorded.\23\
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    \20\ Indeed, Commission precedent indicates that such
differences--usually detected by noting differences in the color of
the ink on the document--can play an important evidentiary role in
cases raising trade practice allegations. See In re Russo, [Current
Transfer Binder] Comm. Fut. L. Rep. (CCH) 27,133 at 45,303 n. 9
(CFTC Aug. 20, 1997).
    \21\ FOC submitted reproductions of two order tickets in support
of its contention. The limited nature of FOC's sample raises
significant questions about the validity of the broad inference it
draws. Moreover, the information recorded on the order tickets is
displayed in black and white. Aside from these limitations, FOC's
comment does not address even straight-forward implementation
problems such as ensuring that all material information is scanned
and stored--including time stamps and written information on the
back of order tickets.
    \22\ Such violations include wash trading, accommodation
trading, direct or indirect trading ahead of or against customer
orders, offsetting or matching customer orders, unauthorized
trading, and inappropriate trade allocation.
    \23\ For example, if information about the price, quantity and
contract is recorded on a written order ticket in one color ink, and
the number designating the identity of the customer is written in a
different color ink, an investigator might suspect that the trade
was allocated to a customer after it was executed and search for
additional indications that orders were being improperly allocated.
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    Many commenters offered support for a compromise position suggested
by the FIA. Under this proposal, original written trading records would
be retained for one year. During this period, the written trading
records would be stored on ``high-quality micrographic or electronic
storage media that are reasonably able to detect alterations.'' \24\
After the initial year, recordkeepers would be free to destroy original
written trading records and to fulfill their obligations under
Regulation 1.31 by producing reproductions of the stored records.
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    \24\ FIA Comment at 5. FIA indicates that the Commission could
maintain a check on the quality of available reproductions by
publishing a list of acceptable media or permitting recordkeepers to
seek Commission approval of a particular record storage medium or
system.
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    The FIA proposal rests on an assumption that is not necessarily
correct. According to FIA, the experience of futures exchanges
indicates that auditors or compliance investigators generally request
access to written trading documents within one year of their creation.
FIA's implicit assumption is that there is no practical need to retain
original written trading documents for more than a year because the
experience of Commission auditors and investigators is fully consistent
with their exchange counterparts.
    The Commission's experience with audits and investigations
indicates that there is no reliable basis for predicting the period of
time that any particular original written trading record will be
needed. For example, investigations of trade practice allegations are
frequently lengthy due to both the complexity of the underlying
transactions and efforts by many participants to disguise their intent
in entering the transactions. Information may not come to the
Commission's attention within a year of the wrongdoing, and the
suspicious activity often spans more than a one-year period. Moreover,
review of written trading records from a multi-year period may reveal
the type of pattern of suspicious trading that facilitates prosecution
of trade practice violations.\25\
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    \25\ Participants in a suspicious transaction often seek to
undermine the significance of suspicious circumstances by claiming
that they are the product of peculiar market forces at the time of
the challenged transactions. Proof that the participants have been
involved in a pattern of suspicious transactions undertaken under
varying market conditions over a period of months or years is often
the most effective rebuttal to such a claim.
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    Given the legitimate needs of its auditors and investigators, the
Commission cannot endorse the one-year retention period proposed by
FIA. Nevertheless, the Commission is modifying staff audit and
investigative practices in order to permit recordkeepers to take
advantage of some of the benefits of electronic storage technology, yet
protect the Commission's interest in maintaining access to original
trading records. Under the revised practice, if a recordkeeper chooses
to transfer trading cards and customer order tickets to electronic
media, a recordkeeper initially may respond to a request for written
trading cards and order tickets by producing reproductions maintained
on electronic storage media unless the staff request specifically
provides to the contrary. Staff generally will review these
reproductions prior to requesting production of original written
trading cards or order tickets.\26\ If this review confirms that
further investigation or examination of original trading records is
unwarranted, the recordkeeper's original trading cards and order
tickets may remain in storage.
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    \26\ If staff is at a point in its review that indicates a
request for original written trading records is inevitable, it need
not waste either its own or the recordkeeper's resources by
initially requesting reproductions.
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    While recordkeepers transferring original written trading documents
to electronic storage media will incur some additional costs, they also
may obtain substantial benefits from this change in policy. For
example, recordkeepers should be able to reduce retrieval costs, to
locate requested records more expeditiously, and to improve the
security of their stored original records.\27\ Commission auditors and
investigators should also benefit by obtaining more expeditious and
complete responses to their requests. Of course, the success of this
process will depend on the ability of recordkeepers not only to select
electronic storage systems that will produce high quality
reproductions, but also to manage the implementation challenges likely
to arise in transitioning from a paper-based system properly. In
addition, Commission experience with recordkeepers who choose to make
records available on electronic storage media pursuant to this policy
should provide a basis for reassessing the continued need for retention
of original trading cards and order tickets.\28\
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    \27\ For example, if access to stored original records is rarely
necessary, it will be less likely that records will be lost or
misplaced in the process of locating requested records.
    \28\ Implementation of this policy change does not require any
revision to the rules. By holding out the prospect of reduced
retrieval costs, the policy encourages recordkeepers to begin the
transition to electronic storage systems that promise greater
efficiency and security. Nevertheless, recordkeepers will still be
obliged to maintain the original version of trading cards, documents
on which trade information is originally recorded in writing, and
written orders required to be kept pursuant to Commission Regulation
1.35(a), (a-1)(1), (a-1)(2) and (d) for five years and to produce
those records in response to a request by an appropriate Commission
representative.
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B. Timeliness of Responses to Production Requests

    Under current requirements, original records must be produced
``promptly'' and reproductions stored on micrographic media or optical
disk must be produced ``immediately.'' Some commenters believed that
``immediately'' is an unduly vague standard. Commenters also emphasized
that this standard does not acknowledge the relevance of practical
circumstances that can delay production by even cooperative
recordkeepers. Thus, many commenters urged the Commission to require
that both original records and reproductions stored on micrographic or
electronic storage media be produced ``promptly.''
    There is no evidence that the current dual production standard has
created any practical problems. While the rule grants Commission staff
broad discretion in determining when specified records should be
produced, none of the commenters has claimed that Commission staff have
abused this discretion by establishing arbitrary deadlines that ignored
relevant circumstances.\29\ Indeed, FIA's

[[Page 28739]]

comment stated that Commission staff ``typically exhibits flexibility
when requesting documents to accommodate practical considerations.\30\
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    \29\ The current standards do not describe a level of timeliness
that staff auditors and investigators must invariably demand from
recordkeepers. Indeed, Commission representatives frequently tailor
the deadline applicable to a particular document request in light of
the scope and nature of the request, as well as unusual or
unforeseen circumstances affecting a recordkeeper's ability to
respond quickly or completely. Nonetheless, because delay in the
production of required records can sometimes represent an undue
threat to the public interest, Regulation 1.31 grants Commission
representatives the discretion to specify production deadlines
sufficient to address such threats.
    \30\ FIA Comment at 8.
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    The ``immediately'' standard provides recordkeepers with notice of
the highest level of timeliness Commission representatives may demand
in seeking production. As indicated in the Proposal, Regulation 1.31
requires that reproductions stored on micrographic or electronic
storage media be produced ``immediately'' rather than ``promptly''
because, in general, it is easier to locate and to produce such
reproductions than to locate and to produce original records. The dual
standards make it clear that Commission auditors and investigators are
authorized to demand that reproductions be produced more quickly than
original records. At the same time, they require auditors and
investigators to weigh a recordkeeper's potentially more limited
ability to locate and produce original records in establishing a
deadline for their production.
    The Commission recognizes that applicable deadlines should reflect
an evaluation of factors such as the volume of documents covered by a
request, competing requests from other regulators, or unusual and
unforeseeable circumstances that prevent the recordkeeper from
accessing electronically controlled records. Staff discretion, however,
plays a necessary role in an effective production process, and there is
no indication that staff has failed to exercise their discretion
sensibly.\31\ On the current record, there is no basis for imposing
further limitations on the discretion exercised by Commission auditors
and investigators.
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    \31\ One commenter indicated that the production process under
Regulation 1.31 should be modeled on the discovery process in an
adjudicatory proceeding. The Regulation 1.31 process, however, is
specifically designed to avoid both the delay and diversion of
resources common to such an adversarial process. As a result,
Regulation 1.31 does not provide that a response can be delayed
until a recordkeeper's counsel has had an opportunity to review
requested records. Nor does it establish a process for settling
objections over issues such as breadth or relevance. Moreover,
recordkeepers are expected to manage their affairs in a manner that
permits them to fulfill the duties described in Regulation 1.31. For
example, recordkeepers using micrographic or electronic storage
systems are expected to retain a sufficient number of expert
personnel to meet their regulatory responsibilities. The absence of
a single individual due to sickness or vacation should not make it
impossible for the recordkeeper to make an immediate response to an
auditor's or investigator's request in the infrequent circumstance
when immediacy is a critical component of the request, e.g. in a
financial crisis or where customer positions or other assets are at
risk.
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C. Retention of a Consultant

    As noted above, the Proposal, like the SEC rules, required
recordkeepers who stored all required records or all of a particular
class of required records solely on electronic storage media to enter
into an arrangement with a third-party Technical Consultant.\32\
Commenters criticized this aspect of the Proposal for imposing a costly
burden that will discourage transition to electronic storage systems.
Commenters also argued that this safeguard will threaten the
confidentiality of information maintained by recordkeepers.
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    \32\ Such recordkeepers must provide the Technical Consultant
with access to the storage media containing their required records,
and the Technical Consultant must (1) have the ability to download
information from the recordkeeper's storage media to any medium
acceptable under Regulation 1.31 and (2) undertake to provide
Commission representatives with access to the records stored on the
recordkeeper's storage media including, as appropriate, arrangement
for downloading the records in the format designated by Commission
representatives.
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    The Commission has decided to adopt this aspect of the Proposal
without change. The SEC has required this type of safeguard since
1993.\33\ A significant number of Commission registrants are subject to
the SEC's recordkeeping requirements, and none of the comments on the
Proposal describes any problems with the implementation of this
safeguard under the SEC's rules. Recordkeepers are only required to
enter an arrangement with a Technical Consultant if they choose to
store all required records or all of a particular class of required
records solely on electronic storage media. As a result, recordkeepers
may protect themselves from costs related to retaining a Technical
Consultant by maintaining backup copies of electronically stored
records in either a hard copy or micrographic version. As to
confidentiality concerns relating to a Technical Consultant's access to
required records, recordkeepers may protect themselves by entering into
appropriate confidentiality agreements with their Technical
Consultants. In short, the objections that have been raised by
commenters do not establish that there are circumstances unique to the
futures industry that warrant a deviation from the SEC policy.\34\
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    \33\ As noted above, the SEC adopted this safeguard as part of
its 1997 rulemaking. In June 1993, however, the SEC's Division of
Market Regulation issued a no-action letter allowing broker-dealers
to utilize optical storage technology for recordkeeping under
certain conditions. The availability of a third-party backup was one
of the conditions to this relief. See Letter from Michael A.
Macciaroli, Associate Director, Division of Market Regulation, SEC
to Michael D. Udoff, Chairman, Ad Hoc Record Retention Committee,
Securities Industry Association (June 18, 1993), 1993 WL 246230
(SEC).
    \34\ The Commission does not intend that Commission
investigators or auditors regularly seek required records from
Technical Consultants. Indeed, staff will only seek performance of
the Technical Consultant's undertaking with the Commission when the
recordkeeper itself has shown that it is unable or unwilling to meet
its regulatory obligations.
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D. Production on Commission Compatible Machine-Readable Media

    The Proposal required recordkeepers using electronic storage media
to provide copies of requested records on Commission compatible
machine-readable media (as defined by Commission Regulation 15.00(l))
\35\ with the format and coding structure specified in the request. Two
commenters stated that neither the Proposal nor Regulation 15.00(l)
provides adequate notice of either the range of media that the
Commission will deem compatible or the range of formats and coding
structures that may be required. In response to these comments, the
Commission has decided to provide guidance about the intent underlying
this provision and to direct staff to take steps to provide
recordkeepers with ongoing notice of the applicable requirements.\36\
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    \35\ Commission Regulation 15.00(l) provides that the term
compatible data processing media means: [D]ata processing media
approved by the Commission or its designee. The rule delegates the
Commission's approval authority to the Executive Director and
provides that the Executive Director may designate employees to
exercise the approval authority on her behalf.
    \36\ When the Commission amended Regulation 15.00(l) in 1997, it
deleted references to specific media in light of comments suggesting
that a regulatory definition was impractical because electronic
media are evolving at such a rapid pace. 62 FR 24026, 24028 (May 2,
1997).
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    The requirement that recordkeepers provide documents to the
Commission in one of the many identified formats arises out of
practical limitations on the Commission's ability to process data
stored in the full range of available formats and coding structures on
the full range of storage media available to recordkeepers. The
Commission uses standard desktop tools including Microsoft Office
Professional 97. Recordkeepers using storage systems with compatible
format and coding structures should not experience significant problems
providing Commission auditors and investigators with acceptable
machine-readable media. Records that include data files and images will
be acceptable if accompanied by appropriate

[[Page 28740]]

information.\37\ Where the records are from a relational data base
management system, the Commission would prefer that the recordkeeper
convert the records to an acceptable data file format. Under
appropriate conditions, however, the Commission will also accept such
records in another format.\38\ Where the records are from a different
source, providers will need to coordinate with the Commission to
determine acceptability.
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    \37\ For records that include data files, the required
information includes:
    (1) how to identify individual records and record types;
    (2) how to identify individual fields within records;
    (3) how the individual fields and record types are defined; and
    (4) the format of each quantitative field and the meaning of
each field value for other fields.
    For records that include images, the required information
includes:
    (1) how any data files are linked to images;
    (2) how to identify individual images; and
    (3) the format of the images.
    The Commission uses ``Wang Imaging for Windows 95.'' The
Commission will accept images in another format if:
    (1) software is provided with the records that makes it feasible
to view and print the images;
    (2) this software will run under Windows NT or Windows 95/98;
    (3) this software can be freely provided to the Commission under
the terms of the provider's licensing agreements with the concerned
software vendor(s); and
    (4) information is provided on how individual images can be
accessed.
    \38\ The applicable conditions include:
    (1) the records are accompanied by software that makes it
feasible to access the records using standard office tools,
    (2) this software will run under Windows NT or Windows 95/98,
    (3) this software can be freely provided to the Commission under
the terms of the provider's licensing agreements with the concerned
software vendor(s),
    (4) information is provided on how the individual fields and
record types are defined, and
    (5) information is provided on the format of each quantitative
field and the meaning of each field value for other fields.
---------------------------------------------------------------------------

    Recordkeepers can provide information to the Commission on a number
of different media. Clearly, a small file can be placed on a diskette
or set of diskettes. CD-ROM, 4mm tape, 30 GB DLT tape, nine-track tape
and IBM 3490 cartridge tapes are also acceptable. Absent security
concerns, email attachments and FTP transmitted files are acceptable.
Providers will need to coordinate with the Commission if different
media are contemplated.
    Of course the Commission's capabilities in this regard will change
over time. To provide affected recordkeepers with continuous notice of
what is currently acceptable, the Commission is modifying current staff
practice to require preparation of an updated list of formats and
coding structures as changes are made. Notice of any changes to the
list will be available both in writing and on the Commission's web
page, and an updated list will be published in the Federal Register.

E. Waiver of Privilege

    Consistent with current Commission requirements, the Proposal
provided that recordkeepers employing micrographic or electronic
storage systems must agree to waive any privilege, claim of
confidentiality or other objection to the disclosure of non-Commission-
required records stored on the same individual medium as Commission-
required documents. Some commenters characterized this approach as
inflexible and urged the Commission to adopt an approach modeled on ABA
Op. No. 92-368 (Standing Committee on Ethics and Professional
Responsibility, Nov. 10, 1992).\39\
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    \39\ In that opinion, the American Bar Association Standing
Committee on Ethics and Professional Responsibility addressed
circumstances in which an attorney inadvertently sends another
lawyer privileged or otherwise confidential materials belonging to
an opposing party. The committee found that a lawyer receiving such
confidential material has a professional obligation, when he or she
recognizes opposing counsel's error, to avoid further review of the
material. The committee also concluded that the affected lawyer
should notify opposing counsel of the error and follow counsel's
directions as to the disposition of the material.
---------------------------------------------------------------------------

    The Commission has decided that the waiver language should be
deleted from Regulation 1.31. While courts are not in agreement about
the proper application of the ``inadvertent waiver'' theory discussed
in the ABA's Opinion, the Commission does not believe that a
recordkeeper should be precluded by rule from raising a question about
privilege if a privileged document has been inadvertently stored and/or
produced on the same medium as Commission-required documents.\40\ In an
effort to avoid this problem, the deleted waiver language will be
replaced with the current Commission requirement that recordkeepers
store Commission-required records on a separate individual medium from
non-Commission-required records. Waiver, however, will no longer be a
mandatory consequence of failing to fulfill this segregation
requirement, at least by operation of regulation.
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    \40\ As is currently the case with all Commission-required
records, recordkeepers may not deny authorized Commission
representatives access to any individual storage medium that
includes Commission-required records or delay production while the
individual storage medium is reviewed for the presence of privileged
material. The final rule merely eliminates the regulatory inference
that the commingling of Commission-required records with non-
Commissioned-required records necessarily amounts to a waiver of any
privilege otherwise covering the latter category of records.
---------------------------------------------------------------------------

F. Other Issues

1. Generic standards
    Several commenters urged the Commission to adopt generic standards
of accessibility, security, and reliability that do not distinguish
between original records and eligible substitutes. One of the commodity
industry associations argued that the adoption of generic performance
standards would increase flexibility and decrease the likelihood that
the applicable standards would become ``outdated'' due to continued
technological developments. One exchange commenter claimed that such a
unitary approach would ensure consistency and lessen confusion.
    A generic approach may have certain advantages in an area likely to
be affected by rapid technological change. Some comments on the
Proposal, however, illustrate the weaknesses of any approach that fails
to provide sufficiently specific notice of the procedures the
Commission considers necessary to a reliable system of records. These
comments suggest that, absent specific guidance, many industry
participants would interpret their recordkeeping duties in a manner the
Commission views as incompatible with the public interest.\41\
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    \41\ FOC argued that any required record should be deemed
accessible if produced within 10 days. One commodity industry
association noted that Regulation 1.31 does not include any
requirements for the security and integrity of paper records and
argued that firms have no duty to supervise the security and
reliability of hard copy records under the generic standard set
forth in Commission Regulation 166.3. One exchange commenter
indicated that it would be burdensome to require recordkeepers to
maintain an accurate and complete index of records stored on
micrographic or electronic storage media.
---------------------------------------------------------------------------

    More importantly, none of the commentators that urged adoption of
more generic standards offered the type of specific proposal that would
permit the Commission to make a reasoned evaluation of the practical
costs and benefits of a more generic approach. Indeed, none of the
commenters cited to generic standards adopted by a state or federal
regulatory body with responsibilities comparable to those the CEA
entrusts to the Commission. The absence of any specific proposals may
be a product of the futures industry's limited experience with the
design or implementation of large-scale electronic storage systems.\42\
We emphasize that

[[Page 28741]]

movement toward more generic standards may well be appropriate as
industry experience and expertise develop. Indeed, as part of its
ongoing evaluation of developments warranting additional amendments to
its recordkeeping requirements, the Commission encourages the
submission of specific proposals for generic standards that both
provide recordkeepers with the flexibility necessary to maximize the
cost reduction and time savings available from improved storage
technology and ensure that Commission auditors and investigators
maintain timely access to a reliable system of records.
---------------------------------------------------------------------------

    \42\ Even if the capabilities of electronic storage systems meet
the high expectations of their proponents, the Commission expects
that the transition process from paper-based systems to electronic-
based systems will involve implementation problems requiring
significant adjustments. If the security, reliability, and
accessibility of the recordkeeping process are to be protected
during this period of learning and adjustment, it is important that
recordkeepers have clear notice of their ongoing obligations under
Regulation 1.31. It is equally important that recordkeepers keep the
Commission informed of the experience gained during this period so
that the Commission can develop a reliable basis for making
necessary adjustments to its rules.
---------------------------------------------------------------------------

2. Format of Storage Media
    One exchange commenter noted that one of the Proposal's four
characteristics for defining electronic storage media could be
misconstrued as requiring that the storage system itself exclusively
preserve records in a non-rewritable, non-erasable format. It suggests
that such an interpretation could disqualify CD-ROM storage systems
with rewritable CD-ROM capabilities. The Commission agrees that the
medium, not the storage system itself, must exclusively preserve
records in a non-rewritable, non-erasable format.
3. Escrow Agreements
    Two exchange commenters opposed the Proposal's requirement that
recordkeepers using electronic storage media keep available for
inspection all information necessary to access records and indexes
maintained on electronic storage media or, in the alternative, place
such information in escrow and, as necessary, update the information.
These commenters raised the possibility that third-party vendors may be
unwilling to enter into source code escrow agreements. As noted in the
Proposal, however, such escrow agreements are a common feature of
software licensing agreements. There is no indication that the similar
safeguard in the SEC's rules has resulted in problems with third-party
vendors. Given the speculative nature of the information provided by
the commenters, modification of this safeguard is not warranted.
4. Written Procedures
    Several commenters objected to the Proposal's requirement that
electronic recordkeepers maintain written operational procedures and
controls that would provide accountability over both the initial entry
of required records to the electronic storage media and the entry of
each change made to any such records. As noted in the Proposal, the
Commission believes that all recordkeepers must have and enforce
procedures to keep their required records from being altered or
destroyed.\43\ The Proposal's specific requirements for electronic
storage systems reflect the special security/integrity concerns that
attend the transition process from paper-based recordkeeping systems.
While experience may prove these special precautions unnecessary, the
arguments raised by the commenters do not warrant their deletion at
this time.
---------------------------------------------------------------------------

    \43\ Proposal at 30672.
---------------------------------------------------------------------------

5. Adjusting Requirements in Response to Technological Change
    Several commenters noted that some of the Proposal's requirements
may quickly become outdated due to rapid developments in the technology
underlying electronic storage media. These commenters observed that
addressing the necessary adjustments through the rulemaking process may
prove unduly slow, costly and inflexible.
    The rulemaking process can play an important role in identifying
and removing such obstacles. While the notice and comment process that
underlies rulemaking can result in limited delays, this process helps
ensure that the Commission's deliberations are informed by the
perspectives of a broad range of interested parties. Moreover, as in
this instance, the rulemaking process can play an important rule in
harmonizing the approach different regulators take to common areas of
concern, thereby minimizing the regulatory burden imposed on firms
subject to dual regulation.
    The Commission has adequate tools to address short-term
inefficiencies in the regulatory process. On several occasions during
the past two years, the Commission has provided interim relief from the
current requirements of Rule 1.31 to Commission registrants using
advanced technology.\44\ This relief has helped minimize obstacles to
the adoption of new technology while the Commission addressed the need
for final amendments to Rule 1.31. If circumstances warrant, similar
relief can be made available in the future.
---------------------------------------------------------------------------

    \44\ The Commission has permitted these registrants to
substitute compliance with the SEC's recordkeeping requirements for
compliance with the current requirements of Rule 1.31. See note 2,
supra.
---------------------------------------------------------------------------

IV. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601, et seq.,
611, requires that, in adopting rules and regulations, all federal
agencies consider their impact on small entities. In accordance with
Section 601(3) of the RFA, the Commission published a ``Policy
Statement of Definitions of Small Entities for Purposes of the
Regulatory Flexibility Act,'' 47 FR 18618 (Apr. 30, 1982). In that
statement,\45\ the Commission indicated that some classes of persons
were excluded from the definition of small entities. These include:
futures commission merchants registered or required to be registered;
floor brokers employed by registered futures commission merchants;
commodity pool operators registered or required to be registered; and
large traders in the futures market. The Commission considers other
entities to be small under particular facts and circumstances. These
include: futures commission merchants exempt from registration;
commodity pool operators exempt from registration; introducing brokers;
floor brokers not employed by futures commission merchants; floor
traders; and commodity trading advisors. Because the rules discussed
herein will affect the full spectrum of Commission registrants, it is
likely that small entities within the meaning of the RFA will be
affected.
---------------------------------------------------------------------------

    \45\ The Commission subsequently clarified some of the
definitions See 48 FR 35276 (Aug. 3, 1983); 55 FR 13550 (Apr. 11,
1990); 58 FR 40347 (Jul. 28, 1993).
---------------------------------------------------------------------------

    The final rules would generally expand the category of record
storage systems permissible under the Commission's rules. The
Commission anticipates that these rules will increase small entities'
freedom to tailor their record storage systems to the overall needs of
their businesses. The final rules will have no impact on a small entity
chooses to maintain a paper-based record storage system. However, if a
small entity chooses to use micrographic storage media, it may incur
costs related to creation of the duplicate record and storage at a
location separate from the micrographic record. Costs can be reduced by
moving the hard copies of the records to a separate location.

[[Page 28742]]

    The final rules will permit small entities that choose to use
electronic storage media for their storage record systems to select
systems that may be less costly and simpler to manage. The final rules
will impose limited additional burdens on these entities, including
requirements that the recordkeeper: (1) provide a representation that
the system meets pertinent regulatory requirements prior to converting
to an electronic storage system; (2) create a duplicate of both
required records and an index of those records and maintain the
duplicate at a separate location; (3) create and maintain an audit
system for transferring records to electronic storage media; (4) take
steps to ensure Commission access to information necessary to download
records from the electronic storage media; and (5) provide an
independent source for the downloading of records that are maintained
solely on electronic storage media. The Commission anticipates that
small entities will not convert their recordkeeping systems to
electronic storage media unless the accompanying burdens are outweighed
by the financial savings and operational efficiency that would result
from the change to electronic storage media.
    The Chairperson, on behalf of the Commission, hereby certifies,
pursuant to 5 U.S.C. 605(b), that the action taken herein will not have
a significant economic impact on a substantial number of small
entities.

B. Paperwork Reduction Act

    When publishing final rules, the Paperwork Reduction Act of 1995
\46\ (``PRA'') imposes certain requirements on federal agencies
(including the Commission) in connection with their conducting or
sponsoring any collection of information as defined by the PRA. In
compliance with the PRA, these final rules and/or their associated
information collection requirement inform the public of:

    \46\ Pub. L. 104-13 (May 13, 1995).
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    (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 current valid OMB control number.

    The Commission previously submitted these rules in proposed form
and their associated information collection requirement to the Office
of Management and Budget. The Office of Management and Budget approved
the collection of information associated with these rules on October
24, 1998, and assigned OMB control number 3038-0022, Rules Pertaining
to Contract Markets and Their Members, to these rules. The burden
associated with this entire collection 3038-0022, including these final
rule amendments, is as follows:
    Average burden hours per response: 3,609,89.
    Number of respondents: 15,893.
    Frequency of response: On occasion.
    The burden associated with the final rule amendments, is as
follows:
    Average burden hours per response: 17.50
    Number of respondents: 3,412.
    Frequency of response: On occasion.
    Persons wishing to comment on the information required by these
final rules should contact the Desk Officer, CFTC, Office of Management
and Budget, 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 N.W., Washington, DC
20581, (202) 418-5160.

List of Subjects in 17 CFR Part 1

    Recordkeeping requirements.

    Accordingly, 17 CFR part 1 is amended 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. 1a, 2, 2a, 4, 4a, 6, 6a, 6b, 6c, 6d, 6e, 6f,
6g, 6h, 6i, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a,
12c, 13a, 13a-1, 16, 16a, 19, 21, 23, 24.

    2. Section 1.31 is amended by revising paragraphs (b), (c), and (d)
to read as follows:


Sec. 1.31  Books and records; keeping and inspection.

* * * * *
    (b) Except as provided in paragraph (d) of this section, immediate
reproductions on either ``micrographic media'' (as defined in paragraph
(b)(1)(i) of this section) or ``electronic storage media'' (as defined
in paragraph (b)(1)(ii) this section) may be kept in that form for the
required time period under the conditions set forth in this paragraph
(b).
    (1) For purposes of this section:
    (i) The term ``micrographic media'' means microfilm or microfiche
or any similar medium.
    (ii) The term ``electronic storage media'' means any digital
storage medium or system that:
    (A) Preserves the records exclusively in a non-rewritable, non-
erasable format;
    (B) Verifies automatically the quality and accuracy of the storage
media recording process;
    (C) Serializes the original and, if applicable, duplicate units of
storage media and creates a time-date record for the required period of
retention for the information placed on such electronic storage media;
and
    (D) Permits the immediate downloading of indexes and records
preserved on the electronic storage media onto paper, microfilm,
microfiche or other medium acceptable under this paragraph upon the
request of representatives of the Commission or the Department of
Justice.
    (2) Persons who use either micrographic media or electronic storage
media to maintain records in accordance with this section must:
    (i) Have available at all times, for examination by representatives
of the Commission or the Department of Justice, facilities for
immediate, easily readable projection or production of micrographic
media or electronic storage media images;
    (ii) Be ready at all times to provide, and immediately provide at
the expense of the person required to keep such records, any easily
readable hard-copy image that representatives of the Commission or
Department of Justice may request;
    (iii) Keep only Commission-require records on the individual medium
employed (e.g., a disk or sheets of microfiche);
    (iv) Store a duplicate of the record, in any medium acceptable
under this regulation, at a location separate from the original for the
period of time required for maintenance of the original; and
    (v) Organize and maintain an accurate index of all information
maintained on both the original and duplicate storage media such that:
    (A) The location of any particular record stored on the media may
be immediately ascertained;
    (B) The index is available at all times for immediate examination
by

[[Page 28743]]

representatives of the Commission or the Department of Justice;
    (C) A duplicate of the index is stored at a location separate from
the original index; and
    (D) Both the original index and the duplicate index are preserved
for the time period required for the records included in the index.
    (3) In addition to the foregoing conditions, persons using
electronic storage media must:
    (i) Be ready at all times to provide, and immediately provide at
the expense of the person required to keep such records, copies of such
records on such approved machine-readable media as defined in
Sec. 15.00(1) of this chapter which any representative of the
Commission or the Department of Justice may request. Records must use a
format and coding structure specified in the request.
    (ii) Develop and maintain written operational procedures and
controls (an ``audit system'') designed to provide accountability over
both the initial entry of required records to the electronic storage
media and the entry of each change made to any original or duplicate
record maintained on the electronic storage media such that:
    (A) The results of such audit system are available at all times for
immediate examination by representatives of the Commission or the
Department of Justice;
    (B) The results of such audit system are preserved for the time
period required for the records maintained on the electronic storage
media; and
    (C) The written operational procedures and controls are available
at all times for immediate examination by representatives of the
Commission or the Department of Justice.
    (iii) Either
    (A) Maintain, keep current, and make available at all times for
immediate examination by representatives of the Commission or
Department of Justice all information necessary to access records and
indexes maintained on the electronic storage media; or
    (B) Place in escrow and keep current a copy of the physical and
logical format of the electronic storage media, the file format of all
different information types maintained on the electronic storage media
and the source code, documentation, and information necessary to access
the records and indexes maintained on the electronic storage media.
    (4) In addition to the foregoing conditions, any person who uses
only electronic storage media to preserve some or all of its required
records (``Electronic Recordkeeper'') shall, prior to the media's use,
enter into an arrangement with at least one third party technical
consultant (``Technical Consultant'') who has the technical and
financial capability to perform the undertakings described in this
paragraph (b)(4). The arrangement shall provide that the Technical
Consultant will have access to, and the ability to download,
information from the Electronic Recordkeeper's electronic storage media
to any medium acceptable under this regulation.
    (i) The Technical Consultant must file with the Commission an
undertaking in a form acceptable to the Commission, signed by the
Technical Consultant or a person duly authorized by the Technical
Consultant. An acceptable undertaking must include the following
provision with respect to the Electronic Recordkeeper:

    With respect to any books and records maintained or preserved on
behalf of the Electronic Recordkeeper, the undersigned hereby
undertakes to furnish promptly to any representative of the United
States Commodity Futures Trading Commission or the United States
Department of Justice (the ``Representative''), upon reasonable
request, such information as is deemed necessary by the
Representative to download information kept on the Electronic
Recordkeeper's electronic storage media to any medium acceptable
under 17 CFR 1.31. The undersigned also undertakes to take
reasonable steps to provide access to information contained on the
Electronic Recordkeeper's electronic storage media, including, as
appropriate, arrangements for the downloading of any record required
to be maintained under the Commodity Exchange Act or the rules,
regulations, or orders of the United States Commodity Futures
Trading Commission, in a format acceptable to the Representative. In
the event the Electronic Recordkeeper fails to download a record
into a readable format and after reasonable notice to the Electronic
Recordkeeper, upon being provided with the appropriate electronic
storage medium, the undersigned will undertake to do so, at no
charge to the United States, as the Representative may request.

    (ii) [Reserved]
    (c) Persons employing an electronic storage system shall provide a
representation to the Commission prior to the initial use of the
system. The representation shall be made by the person required to
maintain the records, the storage system vendor, or another third party
with appropriate expertise and shall state that the selected electronic
storage system meets the requirements set forth in paragraph (b)(1)(ii)
of this section. Persons employing an electronic storage system using
media other than optical disk or CD-ROM technology shall so state. The
representation shall be accompanied by the type of oath or affirmation
described in Sec. 1.10(d)(4).
    (d) Trading cards, documents on which trade information is
originally recorded in writing, and written orders required to be kept
pursuant to Sec. 1.35(a), (a-1)(1), (a-1)(2) and (d) must be retained
in hard-copy for the required time period.

    Issued in Washington, DC on May 21, 1999 by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 99-13514 Filed 5-26-99; 8:45 am]
BILLING CODE 6351-01-M
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