Document ID: SEC-2007-0488-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Futures Association
Posted Date: 2007-04-02T04:00Z

[Federal Register: April 2, 2007 (Volume 72, Number 62)]
[Notices]               
[Page 15740-15741]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02ap07-122]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55525; File No. SR-NFA-2007-01]

 
Self-Regulatory Organization; National Futures Association; 
Notice of Filing and Immediate Effectiveness of a Proposed Amendment 
Relating to NFA Compliance Rule 2-10

March 26, 2007.
    Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-7 under the Act,\2\ notice is hereby given 
that on February 27, 2007, National Futures Association (``NFA'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change 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. 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 February 26, 2007, submitted the proposed rule change to 
the CFTC for approval. The CFTC approved the proposed rule change on 
March 12, 2007.\3\
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    \3\ See Letter from Eileen Donovan, Acting Secretary, CFTC, to 
Thomas W. Sexton, General Counsel, NFA, dated March 12, 2007, 
confirming approval of the proposal.
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I. Self-Regulatory Organization's Description of the Proposed Rule 
Change

    Section 15A(k) of the Act \4\ makes NFA a national securities 
association for the limited purpose of regulating the activities of NFA 
members (``Members'') who are registered as brokers or dealers in 
security futures products under Section 15(b)(11) of the Act.\5\ NFA 
Compliance Rule 2-10(b) applies to all futures commission merchant 
(``FCM'') Members, including those who are registered as security 
futures brokers or dealers under Section 15(b)(11) of the 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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    NFA Compliance Rule 2-10 currently requires FCM Members to maintain 
their books and records in an office located in either the U.S. or a 
jurisdiction that the CFTC has determined to have a comparable 
regulatory scheme for purposes of the CFTC's Part 30 regulation.\6\ The 
amendment requires the U.S. or Part 30

[[Page 15741]]

jurisdiction office to be under the supervision of an associated person 
(``AP'') principal resident in that office.
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    \6\ 17 CFR 30.1-30.12.
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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
    In November 2005, NFA's Board adopted amendments to NFA Compliance 
Rule 2-10 to require FCMs to maintain their books and records in an 
office located in either the U.S. or a Part 30 jurisdiction (if the 
firm is subject to the Part 30 regulatory scheme).\7\ The rule does not 
require the office to be under the supervision of an AP principal 
resident in that office, however.
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    \7\ See Securities Exchange Act Release No. 53190 (January 30, 
2006), 71 FR 6119 (February 6, 2006).
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    This creates several potential problems. First, the rule allows the 
firm's principals to supervise the office from a remote location. 
Without a principal on the premise to oversee the office's day-to-day 
recordkeeping activities, the firm is less likely to discover potential 
problems quickly. Second, there may be no one in the office who is 
subject to NFA's disciplinary jurisdiction. Although the firm's AP 
principals may ultimately be responsible for the firm's books and 
records violations, their distance from the office could dilute their 
sense of accountability as well as the accountability of those in the 
office.
    The lack of a resident principal also means that NFA Compliance 
staff may not have ready access to someone who can answer questions 
during an audit or investigation. Although Compliance Rule 2-10 
requires all Members to have an individual who is authorized to act on 
the Member's behalf, is fluent in English, and is knowledgeable about 
the Member's business and about financial matters, the absence of a 
resident AP principal can be problematic when NFA is seeking 
information from an FCM.\8\
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    \8\ Telephone conversation between Kathryn Page Camp, Associate 
General Counsel, NFA, and Molly M. Kim, Special Counsel, Division of 
Market Regulation, Commission, on March 22, 2007.
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    Accordingly, NFA amends Compliance Rule 2-10(b) to require that an 
FCM's books and records be kept in a U.S. or Part 30 office that is 
under the supervision of an AP principal resident in that office. As is 
currently the case, a firm could only use an office in a Part 30 
jurisdiction if the firm is actually subject to regulation in that 
jurisdiction.
2. Statutory Basis
    The rule change is authorized by, and consistent with, Section 
15A(k) of the Act.\9\
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    \9\ 15 U.S.C. 78o-3(k).
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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 Act 
and the Commodity Exchange Act.

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

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

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

    NFA, on February 26, 2007, submitted the proposed amendments to NFA 
Compliance Rule 2-10 to the CFTC for approval. The CFTC approved the 
proposed rule change on March 12, 2007.
    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 Act.\10\
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    \10\ 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 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 e-mail to rule-comments@sec.gov. Please include 

File No. SR-NFA-2007-01 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 No. SR-NFA-2007-01. 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. Copies of such 
filing will also 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 available publicly. All submissions should refer to File No. SR-
NFA-2007-01 and should be submitted on or before April 23, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(75).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-5989 Filed 3-30-07; 8:45 am]

BILLING CODE 8010-01-P