Document ID: SEC-2018-0983-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Futures Assn.
Posted Date: 2018-06-27T04:00Z

[Federal Register Volume 83, Number 124 (Wednesday, June 27, 2018)]
[Notices]
[Pages 30203-30205]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-13763]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83490; File No. SR-NFA-2018-02]

Self-Regulatory Organizations; National Futures Association; 
Notice of Filing and Immediate Effectiveness of Proposed Change to the 
Interpretive Notice to NFA Compliance Rule 2-9: Enhanced Supervisory 
Requirements: Requiring NFA Members To Maintain a Record of All 
Electronic Written Communications

June 21, 2018.
    Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 
(``Exchange Act''),\1\ and Rule 19b-7 under the Exchange Act,\2\ notice 
is hereby given that on June 12, 2018, 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 prepared by NFA. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(7).
    \2\ 17 CFR 240.19b-7.
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    On November 27, 2017, NFA filed this proposed rule change with the 
Commodity Futures Trading Commission (``CFTC'') and requested that the 
CFTC make a determination that review of the proposed rule change of 
NFA is not necessary. By letter dated December 11, 2017, the CFTC 
notified NFA of its determination not to review the proposed rule 
change.\3\
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    \3\ See letter from Matthew Kulkin, Director CFTC, to Carol A. 
Wooding, General Counsel, NFA (``Letter'').
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    The text of the proposed rule change is available at the self-
regulatory organization's office, on the NFA's website at 
www.nfa.futures.org, and at the SEC's Public Reference Room.

I. Self-Regulatory Organization's Description and Text of the Proposed 
Rule Change

    NFA's Interpretive Notice to NFA Compliance Rule 2-9 entitled ``NFA 
Compliance Rule 2-9: Enhanced Supervisory Requirements'' 
(``Interpretive Notice'') requires NFA Member (``Member'') firms that 
meet certain criteria identified by NFA's Board of Directors 
(``Board'') to comply with specific enhanced supervisory requirements 
(``Requirements'') that are designed to prevent abusive sales 
practices. NFA's Board is amending the Interpretive Notice to require 
all Members subject to the Requirements to maintain a record of all 
electronic written communications between associated persons (``APs'') 
and customers or potential customers, including but not limited to, 
email, text messages, instant messages, and any other communication 
that occurs in a chat room or on any social media platform. The 
proposed rule change also requires all Member firms subject to the 
Requirements of the Interpretive Notice to prepare a catalog of 
electronic written communications and for APs to maintain a log of 
those written electronic communications. The text of the proposed rule 
change to the Interpretive Notice is found in Exhibit 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 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 
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 NFA Members who are registered as brokers or dealers in 
security futures products under Section 15(b)(11) of the Exchange 
Act.\5\ NFA's Interpretive Notice applies to all NFA Members who meet 
the criteria in the Interpretive Notice, including those that are 
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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    NFA's Interpretive Notice to Compliance Rule 2-9(b) authorizes 
NFA's Board to require Members to adopt certain enhanced supervisory 
requirements based upon the regulatory background of either its APs or 
principals. The Interpretive Notice is designed to, among other things, 
minimize the likelihood of a Member engaging in deceptive sales 
practices. One of the more important Requirements with respect to 
minimizing sales practice problems is the requirement that firms make 
audio

[[Page 30204]]

recordings of all telephone conversations between APs and customers. At 
the time this Interpretive Notice was adopted, telephone communications 
were the most common method that APs used to solicit customers. 
However, since that time, other electronic written communications, such 
as text or instant messages, have become one of the primary methods of 
communication between APs and customers. NFA's Interpretive Notice, 
however, does not specifically require a Member firm subject to the 
Requirements to maintain a record of electronic written communications, 
prepare a catalog of electronic written communications, or require its 
APs to maintain a log of those communications. NFA relies on the 
catalog of communications and the AP sales solicitation logs when 
examining a Member for compliance with the Requirements.
    Given the popularity of electronic written communications, NFA's 
Board is amending the Interpretive Notice to explicitly state that all 
Members subject to the Requirements are required to maintain a record 
of all electronic written communications, including but not limited to, 
emails, text messages, instant messages, and any other communication 
that occurs in a chat room or on any social media platform. NFA's Board 
is also amending the Interpretive Notice to require Member firms 
subject to the Requirements to prepare a catalog of electronic written 
communications and require APs to maintain a log of those written 
electronic communications. This modification to the Interpretive Notice 
merely parallels the current cataloging and AP log requirement for 
telephone sales solicitations and ensures that, for firms subject to 
the Requirements, all sales solicitations--regardless of the method by 
which they occur--are maintained, cataloged, and logged by the firm's 
APs.
    Amendments to the Interpretive Notice were previously filed with 
the SEC in SR-NFA-2002-07, Exchange Act Release No. 34-47147 (Jan. 9, 
2003), 68 FR 2383 (Jan. 16, 2003); SR-NFA-2003-01, Exchange Act Release 
No. 34-47533 (Mar. 19, 2003), 68 FR 14733 (March 26, 2003); SR-NFA-
2005-01, Exchange Act Release No. 34-52808 (Nov. 18, 2005), 70 FR 71347 
(Nov. 28, 2005); SR-NFA-2006-01 Exchange Act Release No. 34-53568 (Mar. 
29, 2006), 71 FR 16850 (Apr. 4, 2006); SR-NFA-2007-03, Exchange Act 
Release No. 34-55710 (May 4, 2007), 72 FR 26858 (May 11, 2007); SR-NFA-
2007-07, Exchange Act Release No. 34-57142 (Jan. 14, 2008), 73 FR 3502 
(Jan. 18, 2008); SR-NFA-2008-02, Exchange Act Release No. 34-58709 
(Oct. 1, 2008), 73 FR 59011 (Oct. 8, 2008); SR-NFA-2010-04, Exchange 
Act Release No. 34-63602 (Dec. 22, 2010), 76 FR 202 (Jan. 3, 2011); and 
SR-NFA-2014-05, Exchange Act Release No. 34-72514 (July 2, 2014), 79 FR 
39046 (July 9, 2014).
2. Statutory Basis
    The proposed rule change is authorized by, and consistent with, 
Section 15A(k)(2)(B) of the Exchange Act.\6\ That Section 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, 
including rules governing sales practices and advertising of security 
futures products. The proposed rule change accomplishes this by 
imposing enhanced supervisory requirements on Member firms that meet 
certain criteria that NFA's Board has determined indicates a greater 
potential for sales practice fraud to occur.
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    \6\ 15 U.S.C. 78o-3(k).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    At first glance, the proposed rule change appears to impose 
additional burdens on NFA Members subject to the Requirements. In 
practice, however, CFTC Regulation 1.35 \7\ requires Futures Commission 
Merchants (``FCMs''), Retail Foreign Exchange Dealers (``RFEDs''), and 
Introducing Brokers (``IBs''), as well as Commodity Pool Operators 
(``CPOs'') and Commodity Trading Advisors (``CTAs'') that are members 
of a designated contract market (``DCM'') or swaps execution facility 
(``SEF'') to maintain a record of electronic written communications. 
Therefore, the proposed rule imposes no new or additional requirements 
on FCMs, RFEDs and IBs as well as CTAs and CPOs that are Members of a 
SEF or DCM.
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    \7\ 17 CFR 1.35.
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    However, CFTC Regulation 1.35 does not apply to CPOs and CTAs that 
are not a member of a DCM or SEF. NFA and NFA's Member Committees 
realize that this proposed rule would impose an additional 
recordkeeping requirement and additional costs to CPOs and CTAs that 
are not a member of a DCM or a SEF. However, NFA and NFA's Member 
Committees believe that this consideration is outweighed by the fact 
that, in NFA's experience, firms that qualify to adopt the Requirements 
are more likely to engage in deceptive sales solicitations and 
requiring these firms to maintain records of electronic written 
communications may reduce the likelihood of deceptive sales practices. 
Therefore, this burden is necessary and appropriate to help minimize 
deceptive sales solicitations.
    Additionally, the other portion of the proposed rule change--the 
cataloging and AP log requirement for electronic written 
communication--poses minimal burden on impacted firms because it merely 
parallels the current cataloging and AP log requirement for telephone 
sales solicitations. This minimal burden is necessary and appropriate 
to minimize the likelihood of abusive sales practices.

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

    NFA worked with Member Committees in developing the proposed rule 
change. NFA did not, however, publish the proposed 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

    On December 11, 2017, the CFTC notified NFA of its determination 
not to review the proposed rule change.\8\ The proposed rule change 
became effective on January 31, 2018.
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    \8\ See Letter, Supra note 3.
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    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.\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 is consistent 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 email to [email protected]. Please include 
File Number SR-NFA-2018-02 on the subject line.

[[Page 30205]]

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-2018-02. 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 website (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 website 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. Persons submitting comments are cautioned 
that we do not redact or edit personal identifying information from 
comment submissions. You should submit only information that you wish 
to make publicly available. All submissions should refer to File Number 
SR-NFA-2018-02 and should be submitted on or before July 18, 2018.

    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)(73).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13763 Filed 6-26-18; 8:45 am]
BILLING CODE 8011-01-P