Futurt'S Industry Association 

2001 Pcnnsykania Ave. NW 

Suire 600 

Washin~tOll., rx; 20006-1823 

202.466.5460 

202.296.3184 F;,x 

www.fururc.sindusrry.urg 

Received CFTC. 

Records Section 

It /tt//tx6 

COMMENT 

November 13, 200R 

David A. Stawick 

Secretary 

Commodity F1.1tures Trading Commission 

1155 21st Street NW 

Washington DC 20581 

Re: Joint Audit Committee Operating Agreement 

73 FetLReg; 52832 (September ll; 2008} · 

Dear Mr. Stawick: 

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The Futures Industry Association ("FIA") 1 is pleased to submit this letter in response to the 

Commodity Futures Trading Commission's ("Commission's") request for comments on the 

proposed revisions to the Joint Audit Committee Operating Agreement ("Agreement") to be 

entered into among the several futures exchanges and the National Futures Association 

(''NFA"). As explained in the above-referenced Federal Register release, the Agreement 

govems the operation of the Joint Audit Committee ("JAC") and the manner by which the 

JAC will cooperate in examining and monitoring FCMs for compliance with Commission and 

self-regulatory organization ("SRO") minimum financi al and related reporting requirements. 

Among other things, the Agreement establishes a procedure by which the JAC assigns 

primary responsibility for conducting audits of FCMs to a designated self regulatory 

organization ("DSR0").2 

FIA strongly supp011s self regulation as an effective and efficient means of assuring market 

integrity and the protection of the public. Further, a procedure by which one SRO is assigned 

primary responsibility for conducting audits of FCMs that are members of more than one 

FIA is a principal spokesman for the commodity futures and options industry. PIA's regular 

membership is comprised of approximately 30 of the largest futures commission merchants ("FCMs") in the 

United States. Among its associate members are representatives from virtually all other segments of the futures 

industry, both national and i.ntemational. Reflecting the scope and diversity of its membership, FIA estimates 

chat its members effect more than eighty percent of all customer transactions executed on United Stales contract 

markets. 

Commission rule 1.3(ec), defines an SRO as a designated contract market or a registered futmes 

association. A DSRO is defined in Commission rule 1.3(ft) as an SRO assigned responsibility for monitoring 

and auditing an FCM in accordance with a plun approved under Commission rule 1.52. Significantly, 

derivat.ivcs clearing organizations are not se lt regu atory organiza tion ~ under the Commission's rules. 

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Mr. David A. Stawick 

November 13, 2008 

Page 2 

SRO properly reduces the costs and administrative burdens on member firms. However, we 

respectfully submit that the Agreement no longer reflects the structure of the futures industry 

or the rights and responsibilities of the several SROs. 

The Agreement and Commission Rule 1.52 appear to contemplate the allocation of audit 

responsibilities among the seventeen SROs listed as signatories.

3 That is, each SRO would 

play a part, to one degree or another, in performing audits of member firms. In fact, however, 

with one exception,4 audit responsibilities are now allocated between only two SROs: (1) 

CME Group, which audits essentially all exchange member FCMs; and (2) NFA, which audits 

primarily non-exchange member FCMs.5 This allocation is tmlikely to change in the 

foreseeable future. 

In these circumstances, we believe it is appropriate that the Commission, in consultation with 

the several SROs, FCMs, and the public consider whether Rule l.52 and the Agreement 

should continue to govern the rights, obligations and potential liabilities of the parties, or 

whether a new structure should be established to reflect more accurately the· ·eFfective ---· -

delegation of audit responsibilities to CME Group (with respect to exchange memberFCMs) 

and NFA (with respect to non-exchange member FCMs). This consideration would also 

address, among other topics, appropriate voting rights of participating SROs,6 confidentiality 

of documents generated or received in connection with the audits, and potential conflicts of 

interest.7 

Conclusion 

Three of the signatories have been dormant for three years or more. 

The Kansas City Board of Trade has audit responsibilities for one FCM. 

Each SRO, of course, continues to be responsible for market and trade practice surveillance on its own 

markets. 

Although the relevant provisions are unclear, the Agreement appears to restrict the voting rights of a 

significant number of participating SROs. 

This analysis could be conducted concurrently with the Commission's continuing consideration of 

Acceptable Practices with respect to Core Principle 15 and, in particular, the detinition of a Public Director. 
Mr. David A. Stawick 

November 13, 2008 

Page 3 

cc: Honorable Walter L. Lukken, Acting Chairman 

Honorable Michael Dunn, Commissioner 

Honorable Jill E. Sommers, Commissioner 

Honorable Bart Chilton, Commissioner 

Ananda Radhakrishnan, Director, Division of Clearing and Intermediary Oversight 

Thomas J. Smith, Deputy Director, Division of Clearing and fntermediary Oversight 

Jennifer Bauer, Special Counsel, Division of Clearing and Intermediary Oversight