Document ID: SEC-2008-0283-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Futures Association
Posted Date: 2008-02-22T05:00Z

[Federal Register: February 22, 2008 (Volume 73, Number 36)]
[Notices]               
[Page 9843-9844]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22fe08-115]                         

[[Page 9843]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57335; File No. SR-NFA-2007-05]

 
Self-Regulatory Organizations; National Futures Association; 
Notice of Filing and Immediate Effectiveness of Proposed Amendments, as 
Modified by Amendment No. 1 Thereto, to the Interpretive Notice 
Regarding Compliance Rule 2-4: Misuse of Trade Secrets and Proprietary 
Information

February 14, 2008.
    Pursuant to section 19(b)(7) of the Securities Exchange Act of 1934 
(``Exchange Act''),\1\ and Rule 19b-7 thereunder,\2\ notice is hereby 
given that on November 30, 2007, the National Futures Association 
(``NFA'') filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change described in Items I, II, and 
III below, which Items have been substantially prepared by NFA. On 
December 19, 2007, NFA filed Amendment No. 1 to the proposed rule 
change. The Commission is publishing this notice to solicit comments on 
the proposed rule change, as amended, from interested persons. NFA also 
has filed the proposed rule change with the Commodity Futures Trading 
Commission (``CFTC'').
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    \1\ 15 U.S.C. 78s(b)(7).
    \2\ 17 CFR 240.19b-7.
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    NFA, on November 30, 2007, submitted the proposed rule change to 
the CFTC for approval and invoked the ``ten-day'' provision of section 
17(j) of the Commodity Exchange Act (``CEA'').\3\ The ``ten-day'' 
provision permits NFA to make any rule changes or amendments effective 
ten days after receipt by the CFTC unless, within those ten days, NFA 
requests review or approval by the CFTC or the CFTC notifies NFA of its 
intent to review the filing. By letter dated December 11, 2007, the 
CFTC notified NFA of its determination not to review the proposed rule 
change.\4\
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    \3\ 7 U.S.C. 21(j).
    \4\ See Letter from Lawrence B. Patent, Deputy Director, CFTC, 
to Thomas W. Sexton, III, General Counsel, NFA (Dec. 11, 2007) 
(``Letter'').
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I. Self-Regulatory Organization's Description of the Proposed Rule 
Change

Text of Rule Change

Interpretive Notices

NFA Compliance Rule 2-4: Misuse of Trade Secrets and Proprietary 
Information

    National Futures Association (``NFA'') Compliance Rule 2-4 provides 
that Members and Associates shall observe high standards of commercial 
honor and just and equitable principles of trade in the conduct of 
their commodity futures business. Over the years, NFA's Board of 
Directors (``Board'') has provided guidance on certain issues to ensure 
that Members and Associates understand their responsibilities to 
observe just and equitable principles of trade and to act honestly, 
fairly, and in the best interests of customers.
    Compliance Rule 2-4 prohibits Members and Associates from knowingly 
obtaining or seeking to obtain another Member's or Associate's 
confidential information or trade secrets without that person's 
permission. It also prohibits Members and Associates from knowingly or 
recklessly misusing confidential information or trade secrets in their 
possession. Although that rule does not seek to regulate business 
disputes between Members or extend beyond their commodity futures 
activities, it does reach conduct that could potentially harm futures 
customers.
    Conduct that may violate Compliance Rule 2-4 includes:
     Misusing sensitive personal information, such as a Social 
Security number, or purposefully or recklessly violating the firm's 
privacy policy;
     Disclosing customer orders prior to execution (except as 
permitted by exchange rules); or
     Obtaining or attempting to obtain information disclosing a 
CTA's historical trading positions without the CTA's permission.
    These are merely examples of conduct that could potentially harm 
customers. Any Member or Associate that knowingly obtains or seeks to 
obtain confidential information or trade secrets of another Member or 
Associate without that person's permission or that knowingly or 
recklessly misuses trade secrets and/or proprietary information in the 
conduct of its commodity futures business violates Compliance Rule 2-4.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NFA has prepared statements 
concerning the purpose of, and basis for, the proposed rule change, 
burdens on competition, and comments received from members, 
participants, and others. The text of these statements may be examined 
at the places specified in Item IV below. NFA has prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Section 15A(k) of the Exchange Act \5\ makes NFA a national 
securities association for the limited purpose of regulating the 
activities of NFA Members who are registered as brokers or dealers in 
security futures products under section 15(b)(11) of the Exchange 
Act.\6\ The revised interpretive notice applies to all NFA Members, 
including those who are registered as security futures brokers or 
dealers under section 15(b)(11).
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    \5\ 15 U.S.C. 78o-3(k).
    \6\ 15 U.S.C. 78o(b)(11).
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    NFA Compliance Rule 2-4 requires NFA Members and Associates to 
observe high standards of commercial honor and just and equitable 
principles of trade in the conduct of their commodity futures business. 
The notice makes clear that NFA Members and Associates violate NFA 
Compliance Rule 2-4 if they knowingly obtain or seek to obtain another 
NFA Member's or Associate's confidential information or trade secrets 
without that person's permission, or knowingly or recklessly misuse 
confidential information or trade secrets in their possession when 
these activities may harm futures customers. The amendments to the 
notice make technical changes that do not affect the substance of the 
interpretive notice.
2. Statutory Basis
    The rule change is authorized by, and consistent with, section 
15A(k) of the Exchange Act. Section 15(A)(k) requires NFA to have rules 
that are designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, and, in 
general, to protect investors and the public interest in connection 
with security futures products. The proposed rule change accomplishes 
this by prohibiting the misuse of nonpublic information.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The rule change will not impose any burden on competition that is 
not necessary or appropriate in furtherance of the purposes of the 
Exchange Act. The interpretive notice should, however, prevent NFA 
Members from using illegitimate means to gain a competitive advantage 
when those means could harm futures customers.

[[Page 9844]]

C. Self-Regulatory Organization's Statement of Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    NFA, on November 30, 2007, submitted the proposed Interpretive 
Notice entitled ``NFA Compliance Rule 2-4: Misuse of Trade Secrets and 
Proprietary Information'' to the CFTC for approval and invoked the 
``ten-day'' provision of section 17(j) of the CEA.\7\ The CFTC notified 
NFA of its determination not to review the proposed rule change.\8\ The 
proposed rule change became effective on December 11, 2007.
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    \7\ 7 U.S.C. 21(j) (2002).
    \8\ See Letter, supra note 4.
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    Within 60 days of the date of effectiveness of the proposed rule 
change, the Commission, after consultation with the CFTC, could have 
summarily abrogated the proposed rule change and required that the 
proposed rule change be re-filed in accordance with the provisions of 
section 19(b)(1) of the Exchange Act.\9\
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    \9\ 15 U.S.C. 78s(b)(1).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change conflicts with the Exchange Act. Comments may be submitted by 
any of the following methods.

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NFA-2007-05 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-NFA-2007-05. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room, 100 F Street, 
NE., Washington, DC 20549-1090, on official business days between the 
hours of 10 a.m. and 3 p.m. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
NFA. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-NFA-
2007-05 and should be submitted on or before March 14, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(75).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-3255 Filed 2-21-08; 8:45 am]

BILLING CODE 8011-01-P