Document ID: SEC-2014-1137-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Futures Association
Posted Date: 2014-07-09T04:00Z

[Federal Register Volume 79, Number 131 (Wednesday, July 9, 2014)]
[Notices]
[Pages 39046-39048]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-15960]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72514; File No. SR-NFA-2014-05]

Self-Regulatory Organizations; National Futures Association; 
Notice of Filing of Proposed Rule Change Relating to the NFA 
Interpretive Notice Entitled ``NFA Compliance Rule 2-9: Enhanced 
Supervisory Requirements''

July 2, 2014.
    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 June 18, 2014, National Futures Association (``NFA'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by NFA. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.\3\
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    \1\ 15 U.S.C. 78s(b)(7).
    \2\ 17 CFR 240.19b-7.
    \3\ NFA previously filed amendments to the Notice regarding Rule 
2-9(b) with the Commission. See Exchange Act Release No. 47533 (Mar. 
19, 2003), 68 FR 14733 (Mar. 26, 2003) (SR-NFA-2003-01); Exchange 
Act Release No. 52808 (Nov. 18, 2005), 70 FR 71347 (Nov. 28, 2005) 
(SR-NFA-2005-01); Exchange Act Release No. 53568 (Mar. 29, 2006), 71 
FR 16850 (Apr. 4, 2006) (SR-NFA-2006-01); Exchange Act Release No. 
55710 (May 4, 2007), 72 FR 26858 (May 11, 2007) (SR-NFA-2007-03); 
Exchange Act Release No. 57142 (Jan. 14, 2008), 73 FR 3502 (Jan. 18, 
2008) (SR-NFA-2007-07); Exchange Act Release No. 57640 (Apr. 9, 
2008), 73 FR 20341 (Apr. 15, 2008) (SR-NFA-2008-01); and Exchange 
Act Release No. 63602 (Dec. 22, 2010), 76 FR 202 (Jan. 3, 2011) (SR-
NFA-2010-04).
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    On June 18, 2014, NFA also filed the proposed rule change with the 
Commodity Futures Trading Commission (``CFTC'') and requested that the 
CFTC make a determination

[[Page 39047]]

that review of the proposed rule change of NFA is not necessary. The 
CFTC has not yet made such determination.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NFA Compliance Rule 2-9(b) (``Rule 2-9(b)'') and its related 
Interpretive Notice entitled ``NFA Compliance Rule 2-9: Enhanced 
Supervisory Requirements'' (``Notice'') require NFA member firms 
(``Members'') that meet certain criteria identified by NFA's Board of 
Directors (``Board'') to comply with specific enhanced supervisory 
requirements that are designed to prevent abusive sales practices. One 
way a Member firm triggers the enhanced supervisory requirements is to 
employ a certain specified number or percentage of associated persons 
(APs) that have previously been associated with another firm that was a 
``Disciplined Firm'' (as defined in the Notice). The Notice, however, 
permits a Member firm to exclude certain of those APs and principals 
who meet very specific criteria identified by the Board from its 
determination of whether it triggers the enhanced supervisory 
requirements. The amendment to the Notice revises this criterion to 
provide limited additional relief to a few individual principals who 
would currently not be excluded from a Member firm's determination of 
whether it triggers the enhanced supervisory requirements.
    The text of the proposed rule change is available at the principal 
office of NFA, on NFA's Web site at http://www.nfa.futures.org, and at 
the Commission's Public Reference Room.

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 included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Section 15A(k) of the Exchange Act \4\ makes NFA a national 
securities association for the limited purpose of regulating the 
activities of Members who are registered as brokers or dealers in 
security futures products under Section 15(b)(11) of the Exchange 
Act.\5\ The Notice entitled: ``NFA Compliance Rule 2-9: Enhanced 
Supervisory Requirements'' applies to all Members who meet the criteria 
in the Notice and could apply to Members registered as security futures 
brokers or dealers under Section 15(b)(11) of the Exchange Act.
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    \4\ 15 U.S.C. 78o-3(k).
    \5\ 15 U.S.C. 78o(b)(11).
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    Rule 2-9(b) authorizes NFA's Board to require Members that meet 
certain criteria established by the Board to comply with specific 
enhanced supervisory requirements designed to prevent abusive sales 
practices. The related Notice specifies the criteria that subject a 
Member firm to the enhanced supervisory requirements and the enhanced 
supervisory requirements that must be followed.\6\ Rule 2-9(b) and the 
Notice \7\ also provide that a Member may seek a waiver from the 
requirements from NFA's Telemarketing Procedures Waiver Committee 
(``Waiver Committee''), a Board-appointed panel consisting of three 
members of NFA's Business Conduct Committee or Hearing Committee.
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    \6\ See Notice at II (Obligations of Members Subject to Enhanced 
Supervisory Requirements).
    \7\ See Notice at IV (Waiver Procedure).
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    As stated above, under Rule 2-9(b) and the Notice, a Member firm 
with a certain number or percentage of APs who were previously employed 
or associated with a Disciplined Firm is required to comply with the 
enhanced supervisory requirements. The Notice also provides that any 
Member with a principal who is or was a principal at another Member 
that was required to comply with the enhanced supervisory requirements 
must itself adopt the enhanced supervisory requirements or seek a 
waiver. The Notice further provides, however, that if the principal 
satisfies certain criteria in the Notice, the principal will not cause 
the Member to comply with the enhanced supervisory requirements.
    NFA's Waiver Committee suggested that NFA make a minor modification 
to the Notice to provide limited additional relief to a few individual 
principals who the Waiver Committee believes are similarly situated to 
the current exempt group of principals but who do not benefit from the 
relief contemplated in creating the exemption because the principal 
does not satisfy the criteria that he/she was a principal at only one 
firm that was subject to the enhanced supervisory requirements. The 
Waiver Committee is concerned with respect to situations where a Member 
firm becomes subject to the enhanced supervisory requirements by virtue 
of having a significant percentage of APs who had formerly worked at 
Disciplined Firms. If a principal of that firm is also a principal of 
another Member firm, then the second Member firm automatically is 
subject to the enhanced supervisory requirements simultaneously with 
the original firm because the second Member firm now has a principal 
who is a principal of another Member (i.e., the first Member) that is 
subject to the enhanced supervisory requirements. There have been 
several instances where both Members have successfully petitioned the 
Waiver Committee for full waivers; however, the principals of those 
Members do not qualify for the current exemption because they have been 
principals of more than one such Member subject to the enhanced 
supervisory requirements.
    The Waiver Committee requested that NFA modify the exemption to 
eliminate the requirement that the principal could only have been a 
principal of one firm that has been subject to the enhanced supervisory 
requirements and replace it with the requirement that the most recent 
firm in the principal's history that was subject to the enhanced 
supervisory requirements either had received a full waiver from those 
requirements or had abided by the requirements for two years and is no 
longer subject to the requirements. The proposed amendments do not 
eliminate any of the other requirements including that the individual 
principal must never have been personally subject to CFTC or NFA 
disciplinary action or a principal or an AP of a current Disciplined 
Firm; and that no firm in the principal's history that was subject to 
the enhanced supervisory requirements has become subject to a sales 
practice or promotional material based disciplinary action by NFA or 
the CFTC since becoming subject to the enhanced supervisory 
requirements.
2. Statutory Basis
    NFA believes that the proposed rule change is authorized by, and 
consistent with, Section 15A(k)(2)(B) of the Exchange Act. That section 
sets out requirements for rules of a futures

[[Page 39048]]

association, registered under Section 17 of the Commodity Exchange Act, 
that is a registered national securities association for the limited 
purpose of regulating the activities of members who are registered as 
brokers or dealers in security futures products under Section 15(b)(11) 
of the Exchange Act. Under Section 15A(k)(2)(B), the rules of such a 
limited purpose national securities association must be 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 in a manner reasonably comparable to the rules of a registered 
national securities association applicable to securities futures 
products. NFA believes Rule 2-9(b) and the Notice meet these 
requirements by imposing enhanced supervisory requirements on Members 
that meet criteria that NFA's Board has determined indicates a greater 
potential for sales practice fraud to occur. The proposed rule change 
does not diminish the effectiveness of Rule 2-9(b) and the Notice but 
merely extends relief to certain principals whose background the Board 
has determined do not raise the supervisory concerns that Rule 2-9(b) 
and the Notice were intended to address.

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

    NFA does not believe that the proposed rule change would impose any 
burden on competition. The amendments merely extend existing relief to 
certain individual principals whose backgrounds the Board has 
determined do not raise the supervisory concerns that Rule 2-9(b) and 
the Notice were intended to address.

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

    NFA did not publish the rule changes to its membership for comment. 
NFA did not receive comment letters concerning the rule changes.

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

    The proposed rule change is not effective because the CFTC has not 
yet determined that review of the proposed rule change is not 
necessary.
    At any time within 60 days of the date of effectiveness of the 
proposed rule change, the Commission, after consultation with the CFTC, 
may summarily abrogate the proposed rule change and require that the 
proposed rule change be refiled in accordance with the provisions of 
Section 19(b)(1) of the Exchange Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the 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 email to rule-comments@sec.gov. Please include 
File Number SR-NFA-2014-05 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NFA-2014-05. This file 
number should be included on the subject line if email 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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of 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 publicly available. All 
submissions should refer to File Number SR-NFA-2014-05 and should be 
submitted on or before July 30, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(73).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-15960 Filed 7-8-14; 8:45 am]
BILLING CODE 8011-01-P