[Federal Register Volume 61, Number 129 (Wednesday, July 3, 1996)]
[Notices]
[Page 34802]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16979]


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COMMODITY FUTURES TRADING COMMISSION


Coffee, Sugar & Cocoa Exchange, Inc., Proposed Rule Amendments to 
Require that Membership Lessees Soliciting or Executing Customer Orders 
Affiliate with Member Firms

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rule amendments of the Coffee, Sugar & Cocoa 
Exchange, Inc., to require that membership lessees soliciting or 
executing customer orders affiliate with member firms.\1\

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SUMMARY: The Coffee, Sugar & Cocoa Exchange, Inc., (``CSC'' or 
``Exchange'') has submitted proposed rule amendments and other 
materials to require that lessees soliciting or executing customer 
orders affiliate with member firms.<SUP>2 Acting pursuant to the 
authority delegated by Commission Regulation 140.96, the Division of 
Trading and Markets has determined to publish the CSC proposal for 
public comment. The Division believes that publication of the CSC 
proposal is in the public interest and will assist the Commission in 
considering the views of interested persons.
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    \1\ Rule 1.47 of the Coffee, Sugar & Cocoa Exchange, Inc., 
permits a full or associate member to lease his membership to 
another individual. Rule 1.47 states, among other things, that ``a 
Full Membership so leased shall be utilized for the limited purpose 
of trading in commodity contracts and an Associate Membership so 
leased shall be utilized for the limited purpose of trading in 
options on or subject to the Rules of the [Coffee, Sugar & Cocoa 
Exchange, Inc.,] and in such other contracts as may be specified by 
the Board from time to time.''
    \2\ The CSC proposal includes amended and newly proposed 
definitions and amendments to existing Rule 1.47.

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DATES: Comments must be received on or before August 2, 1996.

FOR FURTHER INFORMATION CONTACT: Clarence Sanders, Attorney, Division 
of Trading and Markets, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street NW, Washington, DC 20581. Telephone: 
(202) 418-5484.

SUPPLEMENTARY INFORMATION:

I. Description of Proposed Rule Amendments

    By a letter dated April 18, 1996, the CSC submitted proposed rule 
amendments pursuant to Section 5a(a)(12)(A) of the Commodity Exchange 
Act (``Act'') and Commission Regulation 1.41(b). The proposed 
amendments would require that lessees soliciting or executing customer 
orders affiliate as employees or principals of member firms.<SUP>3 
Thus, the proposed affiliation requirement would prohibit a lessee from 
soliciting or executing customer orders unless the lessee serves as an 
employee or principal of a member firm.
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    \3\ Under Exchange Rule 1.21, a partnership, corporation, 
limited liability company, or other entity is eligible to apply for 
member firm privileges. Applicants for member firm privileges must 
meet certain qualifying criteria and are subject to approval by the 
Board of the Exchange.
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    The Exchange states that the purpose of the proposed affiliation 
requirement is ``to [establish] a regulatory structure in which a 
member firm is specifically responsible for the lessee's day to day 
activities on the Exchange.'' The Exchange asserts that, as mandated by 
the proposal, ``the [member] firm with which a lessee is affiliated is 
in the best position to effectively supervise [the lessee].''
    In further support of the proposal, the Exchange states that a 
lessor typically does not employ or have any other relationship with 
the individual to whom a membership is leased and, for that reason, is 
not in a position to effectively oversee a lessee's trading activities 
or practices. The Exchange also notes that a clearing member guarantor 
of a lessee is not well situated to carry out supervisory 
responsibilities over lessees because the guarantor is functionally 
capable of monitoring a lessee's trading activity only after the 
fact.<SUP>4
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    \4\ Under CSC Rule 1.14, a clearing member guarantor is 
obligated to the Exchange and its members for the performance, 
payment, and discharge of all contracts, obligations, and 
liabilities of the guaranteed member.
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    The Exchange states that it proposes to defer implementation of the 
proposal ``in order to give the affected lessees and floor brokerage 
firms sufficient time to make appropriate arrangements and to become 
member firms.'' Thus, the Exchange proposes to implement the proposal 
on September 20, 1996.

II. Request for Comments

    The Commission requests comments on any aspect of the CSC's 
proposed rule amendments that members of the public believe may raise 
issues under the Act or Commission regulations. In particular, the 
Commission requests comments regarding the proposal's competitive 
effects, impact on supervisory oversight of lessees, and implementation 
schedule.
    Copies of the proposed rule amendments and related materials are 
available for inspection at the Office of the Secretariat, Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street 
NW, Washington, DC 20581. Copies also may be obtained through the 
Office of the Secretariat at the above address or by telephoning (202) 
418-5100. Some materials may be subject to confidential treatment 
pursuant to 17 CFR 145.5 or 145.9.
    Any person interested in submitting written data, views, or 
arguments on the proposed rule amendments should send such comments to 
Jean A. Webb, Secretary, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street NW, Washington, DC 20581, by the 
specified date.
    Issued in Washington, DC, on June 27, 1996.
Alan L. Seifert,
Deputy Director.
[FR Doc. 96-16979 Filed 7-2-96; 8:45 am]
BILLING CODE 6351-01-P