fliCeived CFTC ~t~~jf~~~~~~ Section 

Cf(c33/o~ 

UNITED ITA TEl OF AMERICA 

COMMODITY FUTURES TRADING COMMISSION 

2033 K Street, N.W. 

Ms. Yvonne .J. Downs 

Assistant Mministrator 

Waahlngton. D.C. 20581 

Office of Investiqo.tions and Audits 

Chicago BOard .of 'l'rade 

La sane at Jackson 

Chicago, Illinois 60604 

ne: Joint Audit Plan 

Dear Ms. Dcwns: 

Oct.cber 11' 1984 . 

This is in response to the suJ:IDission, pursuant to section 1.52 (c) of 

the Cannission'·s regulatia~s, of a designated self-regulatoJ:y cxganintion ("DSI~") plan, also referred to as a joint audit plan, to which all of the 

contract market!:i and the National FUtures Assoc:i11tion are part:Ws, which is 

dated r-s.~y 1, 1904 N1d was filed w1Cier cover of yaw: letter dated May 1!3, 

1904. 'Ibis new plan will essentially supersede various joint a\Xiit plans 

J)reviously appmvcd by the carmisGion and, as a result, all futures c:armissiclt 

rrel."Chants ("ro-ts•) now should have only one DSIO with :respect to their 

camcdity-rele&t:ed activities, whereas sone ~ new have two DSll>s. 

'ihen tm Carmission publishccl its :request for ccament notice on the 

new jnint andit pl.va, 49 Fed. neg. 28906 (.July 17, 1984), it raised c:oncexns with res(.ect to five specific items related to the plana (1) the affect of 

U11,1 new pl;m un t.he previously-~pp.rovecl pluns: (2) Oonraission ACICQSs tQ joint 

audit pliUl docum':!nt::;; (3) r:sro response to :l civil subpoena or SUimUls for 

docuarents gcmoratcd or rca:i:ued pursuant to the joint aUdit plan; (4) DSK) 

furnishing of audit rel.lO;i:G to othe= p..'lrti.l!s to the plan of which the audiWCI 

firm is a rrenber; and (5) whether the aptian-related activity of a guaranteed 

introducing broker .,.dll be covered by the new plan. After rwicwing your 

1\.ugust 17, 1984 letter responding to tbe ""&qUeSt for CCI'IIII!:It notice, as Well 

as the the letb:lr dated "'ugust 3, 1984 iran Bernard .1. PUrta to Andrea M. 

co:ccor.;,n, the cannisRion is aatisfiecl that its concerns have been adequately 

addressed, with the exception of item J referxt!d to CIJ:xwe, the provisial 

!'elating to <:~ os.no response to a civil subpoena or a."l.lllmlnS .for. doc:unenttJ 

gl!neratcd ot· received pursuant to the joint audit plan. Althcuqh the 

O.:llllllission is encouraged by the stu1:arent in your August 17, 1984 leta'!r that 

the J()int Audit Ccmnittee l'laS agreeCl to review tlle wrkability of this 

p:rovisica1 in the nt..~ future, since the pmvisiCI'l :cemains a put of the 

contract arrong the partiea to the plan, the caanission has detel:mined to 

exclude t:h~ provision frun its general approval of the new joint audit plan. 

Tilt! Cormlia.~ion oxpressod its intention not to approve this provision in itG 

request Co1· u:..diJWlt j}' -tice. 
Ms. Yvonne J. Dams 

Page 2 

Tho Canniasion also wishes to maJce clear ..bat the phraSI! "civil 

subpoon.:1 or m111nuts" nuy not IJC iall:crprcaxi to apply to any. C01mt.::t1ion 

subpol!na or swtm:~ns, ~ncl furtJJOr nol:.cls the broad .rigbbl of CCllnuitJW.on rc..-pr"'-

sentatives to inspect and c:Df.:l joint c:u.xht plan docununts which you acknowledged in yew: August 17, 1984 let~r, which should make it unnecessaxy for 

the Catmission to ruly on a subpoena to gain accoss to RCX)rds gener4t:BCI or 

received by a DSR:> under t:hB joint audit plan. The camd.saia1 unc5erstands 

your 1\UgUst 17, 19!14 hlttur to be a concurruncc with the: Camdr.sion • s st:.Dtement Sl!t forth in the ruquest far cament notice that "[A)ny z:epmamtative 

of tha C!amlission, upon his or her request, bas aca!SS to lJI1d t:ha right to 

mtlko copies o£ any c:'lt.x:lmlents qena"tated or received by any party to the p.1an 

pursu&ant to t:he party's funct.ions t:beteunder. &lch request may be oral or 

written and shall net be subject to prior notification or AUthorization." 49 

Fed. ~· 28906, 28907 (July 17, 1984). 

. The camli.ssion also is conc:emed ilbout tbi! deferral of including thl 

option-related activity of guaranteed intrcducing btokera in the new plan. 

1\lt:OOugh the Ccmnissicn recognizes that t.he intmclucing bmker qltion area is 

not an csSt:ntial elcunnt ol a joint audit plan, we again urge the selfregulatory organizations to move ~ticusly to develop an audit prcgrmu 

that \\Ould accac&li:x!ate introducing brokers. which wish to engage in the Ccmni.~;sion 's exchal~,JO-trolded ~JPtion pilot program. 

'l'hc cannissiou wishes to .remind the parties ta.."' the new joint audit 

plan that the .reoent report of the Division of 1'rad.in'J am· Markets pz:epared 

iu oonnect:i.cn \'lith a review of the effectiveness of the c:cntra\."t a.rrangermnts 

_betwecr, the New York Stock Exchange, Inc. ("NYSE") and varicus camodit:y 

self-rcgulatoJ:y org<ll1i2ations ("BIOs") found that the ~mgaticn audlt work 

perfcrrled by the. NYSE under the contract was deficient. '1'0 c:orz:ect that 

deficiency, the s.oos were cli.rected to dwelcp pratptly, and haw ~ NYSE 

inplernent, a set of segregation audit pa:x:edures to be usea on a mandatoxy 

basis in the course of examinations of those !tM/broker-de&l.ers wham CU~ir.<lit.im:~ .is u signi.fit-:u.nt line of business. The Div1sicn set forth in !:he reporl: sugge~:.-ted guideline~~ as to what steps such audit ~· should contain 

<and ~ Division aloo noted thal it mcpects to use these guidelines i.JS a st:.::mdard, to be upplii!d ou o1 pzospectiw bl.lsis, to jc.xl;e the sufficiency in 

this ·area o.f ~11 cacll'Cdi ty sro audit and financial surveillance programs. 

'l'he Canni.ssion underst:ancls that the guidelines contain ~ generally 

in use by i:he c:i:lrmo..iity S~s in their own audit pmgrams. 1\ c:cpy of t:M 

D.i'lision's report is enclosed, and partic."'Ulilr attention should be directed to 

tJr:ages 6 and 7, <Lnd 24-26, with rosp.:oct. tu what is expected of a segregation 

auclil:. 

'l'oo Cuuniusicn has rcviewl'!d the joint audit plan dated May l, 1984 tL:I 

whic:ll <>.11 of the contrAct markets and the Natiooal. Putures Associatial are 

pa.rti..as, and the CQIIIUSsion finds that the plan meets the requi.mnents for 

Ccmnission appJ:OVal of such a plan, or any part of the plan, in that it: 

(l) ill I"IElC'.eSIJa%Y or uppropriute to serve the pmlic interest; (2) iu for tho 

protection and in the interest of cust:IClmitrs or option custalera; (3) reduces. 

111.1ltiple m:mitoring and auditing for cextplianoe with the minimlm financial 

rules of the self-mgulatory organizations subnitting tba plan fm.• apy · 
Ms. "tvonne J. DOWns 

Page 3 

futures cxmni.ssion fiiiUChant or int.J:oducing .broker which la a llllllbtX' of RDro 

!:han one solf-rogulatory organizoatiom (4) · rcduce.u II'Ul.tiple mporting of th: · 

financial in.fomation necossitated .by such minilllllft finllncial and mlAted 

reporting mquirtliiDilts .by any futw:'es c:amdssian mm:ctaant or introcJucing 

.broker which is a llllll'ber of nun: than one aalf-regulatory OJ:9anizaticn, 

(5) fosters cooperatiun and COOltli.nation anong the ccntract markets; and 

(6) does not hinder t:he dwel.cpnGnt of a registexocl fut:w:es uaoc::iation 

urxlcr Section 17 of the 1\ct. 

'l'his is to infoDII you that tb;J Calmill&ion en Octcber 10, 1984, 

approved, pm;uant tc Sectia1 l.S2(gJ of the zegq.1.aticlns, tbe joint ~t 

pl<:ln datcel May l, 1984 to Which all of the contract D~Elcata and tbe Naticnal ~tures J\asOciation am parties, and which generally supenedaa certain 

pEeVious joint audit plans betwoeil and. an01g such pu:ties, with the exoeptiQn 

that the camd.ssian does not appmve the pt:Wisim relating to a IJSR)' s t-espcnse to a civil subpoena or B\llllons for docilaenta generated or received 

pursuant to the joint audit plan, as diacuased above. 

&lclosure 

cc: All Parties to the Plan ~ Regional.Offices 

Vlll:Y trul,y )'CUrS, 

....