[Federal Register Volume 61, Number 19 (Monday, January 29, 1996)]
[Rules and Regulations]
[Pages 2719-2720]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1509]



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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 33


Deletion of Option Regulation Requiring That Futures Commission 
Merchants Give Notification of Disciplinary Actions to Their Designated 
Self-Regulatory Organizations; Regulation 33.4(b)(6)

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is 
amending 17 CFR Part 33 to delete Regulation 33.4(b)(6), under which a 
board of trade must adopt rules that require each member futures 
commission merchant (``FCM'') that engages in the offer or sale of Part 
33 option contracts to give notice to the FCM's designated self-
regulatory organization (``DSRO'') of any disciplinary action taken 
against the FCM or any of its associated persons by the Commission or 
by another self-regulatory organization (``SRO''). The purpose of this 
deletion is to eliminate unnecessary recordkeeping requirements 
affecting FCMs.

EFFECTIVE DATE: February 28, 1996.

FOR FURTHER INFORMATION CONTACT:
Kimberly A. Browning, Attorney, Commodity Futures Trading Commission, 
Division of Trading and Markets, Three Lafayette Centre, 1155 21 Street 
NW., Washington, DC 20581. Telephone (202) 418-5490.

SUPPLEMENTARY INFORMATION: 

I. Background

    Regulation 33.4(b)(6) is part of a group of regulations that date 
from the Commission's three-year pilot program, instituted by the 
Commission on November 3, 1981, for the trading on domestic exchanges 
of options on non-agricultural futures contracts. The establishment of 
the pilot program was the culmination of a long history of Commission 
efforts to provide for the trading of commodity options in a regulated 
environment. Subsequently, the Commission adopted a pilot program that 
expanded the trading of options to non-agricultural physical 
commodities. 47 FR 65996 (December 22, 1982). On January 23, 1984, the 
Commission adopted a separate three-year pilot program that expanded 
the trading of options on futures contracts to domestic agricultural 
commodities. 49 FR 2752. Overall, the Commission found that each pilot 
program had been a success.\1\

    \1\ By February 9, 1987, the Commission had made the programs 
permanent. Option trading on non-agricultural futures was made 
permanent effective August 1, 1986. 51 FR 17464 (May 13, 1986); 51 
FR 27529 (August 1, 1986). Option trading on agricultural futures 
and options on non-agricultural physicals were made permanent 
effective February 9, 1987. 52 FR 777 (January 9, 1987).
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    Part 33 of the Commission's regulations governs domestic exchange-
traded commodity option transactions. Regulation 33.4, in conjunction 
with the requirements of Section 5 of the Commodity Exchange Act 
(``Act''), sets forth the requirements which a board of trade must meet 
in order to be designated as a contract market for the trading of 
option contracts. Part 33, including Regulation 33.4, was adopted 
concurrently with the initial implementation of the first pilot program 
in 1981. Under Regulation 33.4(b)(6), a board of trade must adopt rules 
that require each member FCM which engages in the offer or sale of Part 
33 option contracts to give notice to the FCM's DSRO of any 
disciplinary action taken against the FCM or any of its associated 
persons by the Commission or by another SRO.
    By letter dated September 11, 1992, the Chicago Board of Trade 
(``CBT'') petitioned the Commission for deletion of Regulation 
33.4(b)(6). In support of its petition, the CBT explained that, along 
with other futures exchanges, it has joined the National Futures 
Association (``NFA'') in implementing a centralized repository for the 
entry of information on exchange disciplinary actions the (``NFA 
Clearinghouse'').\2\ The CBT stated that it believes that because the 
NFA Clearinghouse includes data on Commission, NFA and exchange 
disciplinary actions, the reporting requirements imposed on FCMs by 
Regulation 33.4(b)(6) are now duplicative and should be abolished.\3\

    \2\ For background on the NFA Clearinghouse, see generally 58 FR 
4949 (January 19, 1993).
    \3\ It should be noted that on September 4, 1992, the Commission 
proposed the deletion of two other provisions in Regulation 33.4: 
Regulation 33.4(b)(4)(iii) and Regulation 33.4(b)(8). 57 FR 40626. 
On December 14, 1992, the deletion of these two regulations became 
final. See 57 FR 58976. Under these regulations, boards of trade 
designated as contract markets for options were required to adopt 
rules requiring member FCMs that engaged in the offer or sale of 
commodity options regulated under Part 33 to send copies of customer 
complaints, the record of the final disposition thereof, and copies 
of all promotional material to the member's DSRO.
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    The NFA Clearinghouse went into effect in late January 1991. At 
that time, several exchanges began to file their disciplinary action 
data electronically into the NFA Clearinghouse database through what 
the NFA refers to as the exchange disciplinary action portion for the 
NFA Clearinghouse. The NFA Clearinghouse, which the exchanges have 
entered into voluntarily, permits the Commission and the exchanges to 
enter and review disciplinary action data, including disciplinary 
actions taken against an FCM or any of its associated persons by the 
Commission or by another SRO, via computer terminals at their 
respective locations.\4\

    \4\ Currently, the exchanges are required to submit hardcopy 
notices of disciplinary actions to the Commission pursuant to 
Regulation 9.11. Ultimately, however, it is anticipated that data 
will be entered into the NFA Clearinghouse in lieu of filing 
hardcopy notices. Until the Commission permits such data entry 
directly into the NFA Clearinghouse, in lieu of such filings, 
exchanges must continue to file hardcopy notices with the Commission 
within the 30-day requirement of Regulation 9.11.
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II. Proposed Rule

    On January 19, 1993, the Commission's proposal to delete Regulation 
33.4(b)(6) was published in the Federal Register (58 FR 4948). This 
proposal was made in response to the CBT's September 11, 1992 petition 
for deletion of Regulation 33.4(b)(6). The Commission stated that the 
NFA Clearinghouse appeared to satisfy the objective of Regulation 
33.4(b)(6) by providing a repository for, among other things, exchange 
disciplinary actions. In making the proposal to delete Regulation 
33.4(b)(6), the Commission stated that before it approved final 
deletion of the regulation, it intended to examine exchange and NFA 
refinements to the operation of the NFA Clearinghouse to determine 
whether the system would serve the purpose of Regulation 33.4(b)(6).

III. Comments Received

    The Commission received one comment letter, from the NFA, that 
supported the proposed deletion of Regulation 33.4(b)(6). The NFA 
commented that it believes that Regulation 33.4(b)(6) places an 
unnecessary regulatory burden upon FCMs because the Commission, members 
of the public, and any DSRO may already obtain disciplinary 
information, without an FCM's specific disclosure, by accessing the NFA 
Clearinghouse.

IV. Final Rule

    Commission staff has been monitoring each exchange's use of the NFA 
Clearinghouse. Since August 1991, the majority of the exchanges have 
been 

[[Page 2720]]
electronically filing their respective disciplinary actions into the 
NFA Clearinghouse in an accurate and timely manner, including 
disciplinary actions taken against an FCM or any of its associated 
persons by the Commission or by another SRO, thus satisfying the 
purpose of Regulation 33.4(b)(6). Typically, exchanges enter directly 
or with the assistance of NFA, disciplinary action data into the NFA 
Clearinghouse in an accurate and timely manner.\5\

    \5\ The Commission's deletion of the reporting requirement is 
based, in part, on the existence of the NFA Clearinghouse which 
provides an adequate substitute mechanism by which SROs may obtain 
disciplinary information. Should there be any material changes in 
the operation of the NFA Clearinghouse, the Commission would 
necessarily evaluate the need for any supplementary reporting 
requirements.
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    The disciplinary action data that the exchanges have agreed to 
enter into the NFA Clearinghouse by the NFA and that are being entered 
include: (1) The respondent's name; (2) the rule number violated and a 
description of the rule; (3) which of the ten uniform categories of 
rule violations adopted by the Joint Compliance Committee (``JCC''),\6\ 
applies to the disciplinary action; \7\ (4) the date of the violation; 
(5) the effective date of the disciplinary action; (6) the sanction or 
penalty imposed on the named respondent; (7) the name of the exchange 
committee that imposed the sanction; and (8) whether the offense cited 
is one that renders the named respondent ineligible from serving on an 
exchange disciplinary committee, oversight panel, arbitration panel or 
governing board under the requirements of Commission Regulation 
1.63.\8\

    \6\ The JCC was formed in May 1989 and consists of senior 
compliance officials from each exchange and the NFA. Commission 
staff is present at each meeting as observers. The JCC was 
established to aid the development of improved compliance systems 
through joint exchange efforts and information sharing among the 
self-regulators. In addition, the JCC has undertaken efforts to 
enhance exchange compliance with Commission regulations by 
developing uniform standards and definitions where appropriate.
    \7\ The ten uniform categories of rule violations adopted by the 
JCC include: trade practice, sales practice, speculative position 
limits, financial, financial and position reporting, floor 
recordkeeping, office recordkeeping, registration, decorum and 
attire, and general conduct.
    \8\ Commission Regulation 1.63 prohibits an individual from 
serving on exchange disciplinary committees, oversight panels, 
arbitration panels or governing boards who, among other things, was 
found within the prior three years by a final decision of a SRO, an 
administrative law judge, a court of competent jurisdiction or the 
Commission to have committed a disciplinary offense or who currently 
is subject to an agreement with the Commission or any SRO not to 
apply for registration with the Commission or membership in any SRO. 
For a complete listing of the conditions under Commission Regulation 
1.63 that prohibit an individual from serving on such exchange 
committees, panels, or boards, see 55 FR 7884 (March 6, 1990).
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    In addition, on March 15, 1995, the Commission advised the JCC that 
the Clearinghouse must include exchange membership denial actions and 
requested that the exchange enter into the Clearinghouse all membership 
denial actions from January 1990 to the present to bring the 
Clearinghouse up-to-date. Currently, the exchanges are entering such 
data into the Clearinghouse.

V. Conclusion

    The Commission believes that, consistent with the other deletions 
made of Regulation 33.4(b)(4)(iii) and Regulation 33.4(b)(8), the 
requirements set forth in Regulation 33.4(b)(6) also should be deleted. 
The Commission also believes that the NFA Clearinghouse satisfies the 
objective of Regulation 33.4(b)(6) by providing an adequate repository 
for, among other things, exchange disciplinary actions. The Commission 
no longer believes that it is necessary for FCMs that engage in the 
offer or sale of Part 33 option contracts to give notice to the FCM's 
DSRO of any disciplinary action taken against the FCM or any of its 
associated persons by the Commission or by another SRO. Accordingly, 
the Commission amends 17 CFR Part 33 by deleting Regulation 33.4(b)(6).

VI. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) 5 U.S.C. 601 et seq., requires 
that agencies, in proposing rules, consider the impact of those rules 
on small businesses. The Commission previously has established that 
contract markets and FCMs are not ``small entities'' for purposes of 
the RFA. 47 FR 18618-18621 (April 30, 1982). This deletion to Part 33 
will permit contract markets to delete rules affecting FCMs and thereby 
relieve them of that requirement.

B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1980 (``PRA'') 44 U.S.C. 3501 et 
seq., 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, the Commission previously submitted this rule in proposed form and 
its associated information collection requirements to the Office of 
Management and Budget (``OMB''). The OMB approved the collection of 
information associated with this rule on October 2, 1991 and assigned 
OMB control number 3038-0007 to the rule. While this rule has no 
burden, the group of rules of which this is a part has the following 
burden:

Average burden hours per response................................50.32.
Number of respondents.........................................190,19.7.
Frequency of response......................................on occasion.

    Copies of the OMB approved information collection package 
associated with this rule may be obtained from the Office of Management 
and Budget, Room 3220, NEOB Washington, DC, (202) 395-7340.

List of Subjects in 17 CFR Part 33

    Regulation of domestic exchange-traded commodity option 
transactions.

    In consideration of the foregoing and pursuant to the authority 
contained in the Act and, in particular, section 4(b) of the Act, the 
Commission proposes to amend Part 33 of Title 17 of the Code of Federal 
Regulations as follows:

PART 33--REGULATION OF DOMESTIC EXCHANGE-TRADED COMMODITY OPTION 
TRANSACTIONS

    1. The authority citation for Part 33 continues to read as follows:

    Authority: 7 U.S.C. 2, 2a, 4, 6, 6a, 6b, 6e, 6f, 6g, 6i, 6j, 6k, 
6l, 6m, 6n, 6o, 7, 7a, 7b, 8, 9, 11, 12a, 13a-1, 13b, 19, and 21, 
unless otherwise noted.


Sec. 33.4  [Amended]

    2. Section 33.4(b)(6) is removed.

    Issued in Washington, DC, January 23, 1996 by the Commodity 
Futures Trading Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 96-1509 Filed 1-26-96; 8:45 am]
BILLING CODE 6351-01-M