2017-01232
Federal Register, Volume 82 Issue 13 (Monday, January 23, 2017)
[Federal Register Volume 82, Number 13 (Monday, January 23, 2017)]
[Proposed Rules]
[Pages 7738-7751]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01232]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 3 and 9
RIN 3038-AE15
Technical Amendments to Rules on Registration and Review of
Exchange Disciplinary, Access Denial or Other Adverse Actions
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or
``Commission'') is proposing technical amendments to its regulations
that govern registration and review of exchange disciplinary, access
denial or other adverse actions. The amendments would integrate
existing advisory guidance and the amendments to part 9 would also
incorporate swap execution facilities (``SEFs'') and update provisions
currently applicable to designated contract markets (``DCMs''). The
proposal revises existing rules to delete numerous cross-references to
previously deleted regulations and adds citations to applicable
parallel provisions for SEFs and DCMs.
[[Page 7739]]
Additionally, the proposal addresses the publication of final
disciplinary and access denial actions taken by the SEFs and DCMs on
their exchange Web sites.
DATES: Comments must be received on or before March 24, 2017.
ADDRESSES: You may submit comments, identified by RIN 3038-AE15, by any
of the following methods:
CFTC Web site: https://comments.cftc.gov. Follow the
instructions for submitting comments through the Comments Online
process on the Web site.
Mail: Christopher Kirkpatrick, Secretary of the
Commission, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW., Washington, DC 20581.
Hand Delivery/Courier: Same as Mail, above.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Please submit your comments using only one method.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
www.cftc.gov. You should submit only information that you wish to make
available publicly. If you wish the Commission to consider information
that you believe is exempt from disclosure under the Freedom of
Information Act (``FOIA''), a petition for confidential treatment of
the exempt information may be submitted according to the procedures
established in Commission regulation 145.9.
The Commission reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse or remove any or all of your
submission from www.cftc.gov that it may deem to be inappropriate for
publication, such as obscene language. All submissions that have been
redacted or removed that contain comments on the merits of the
rulemaking will be retained in the public comment file and will be
considered as required under the Administrative Procedure Act and other
applicable laws, and may be accessible under the FOIA.
FOR FURTHER INFORMATION CONTACT: Rachel Berdansky, Deputy Director,
Division of Market Oversight, at 202-418-5429 or [email protected];
or David Steinberg, Associate Director, Division of Market Oversight,
at 202-418-5102 or [email protected], in each case, at the Commodity
Futures Trading Commission, Three Lafayette Centre, 1151 21st Street
NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Description of Part 9
B. DCM Final Rules and Part 8 Removal
C. SEF Final Rules
II. Proposed Amendments to Regulations
A. Introduction
B. Part 9
1. Commission Regulation 9.1: Scope of Rules
2. Commission Regulation 9.2: Definitions
3. Commission Regulation 9.4: Filing and Service; Official
Docket
4. Commission Regulation 9.11: Form, Contents and Delivery of
Notice of Disciplinary or Access Denial Action
5. Commission Regulation 9.12: Effective Date of Disciplinary or
Access Denial Action
6. Commission Regulation 9.13: Publication of Notice
7. Commission Regulation 9.24: Petition for Stay Pending Review
8. Commission Regulation 9.31: Commission Review of Disciplinary
or Access Denial Action on Its Own Motion
9. Minor Changes to Commission Regulations 9.3, 9.4, 9.8, and
9.9
C. Part 3
1. Commission Regulation 3.31: Deficiencies, Inaccuracies, and
Changes To Be Reported
III. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Cost-Benefit Considerations
IV. Request for Comments
I. Background
A. Description of Part 9
On December 20, 1978, the Commission adopted part 9 rules relating
to the review of exchange disciplinary, access denial, or other adverse
actions.\1\ The rules govern the process and procedures by which the
Commission may review exchange disciplinary and access denial actions,
detailing the appellate process under which such review will be
instituted and conducted in cases where a person applies to the
Commission for review. In addition to setting forth procedures and
standards governing filing and service, motions, and settlement, the
rules also cover the process by which exchanges must provide notice of
the final disciplinary action to the subject of the disciplinary action
and to the Commission, as well as the publication of such notice. As
discussed below, DCMs and SEFs are already required to comply with the
part 9 regulations.
---------------------------------------------------------------------------
\1\ 43 FR 59343 (Dec. 20, 1978).
---------------------------------------------------------------------------
B. DCM Final Rules and Part 8 Removal
In June 2012, the Commission implemented Core Principles and Other
Requirements for Designated Contract Markets (``DCM Final Rules'').\2\
Commission regulation 38.2 of the DCM Final Rules provides that DCMs
shall comply with all applicable regulations under Title 17 of the Code
of Federal Regulations, except for certain exempt provisions.\3\ Part 9
is not included in the list of exempt provisions. Furthermore, part 9
applies to DCMs by defining ``exchange'' in Commission regulation
9.2(c) for purposes of the rules as any board of trade which has been
designated as a contract market.\4\
---------------------------------------------------------------------------
\2\ 77 FR 36612 (June 19, 2012).
\3\ 77 FR 36697 (June 19, 2012); 17 CFR 38.2.
\4\ 17 CFR 9.2(c).
---------------------------------------------------------------------------
Additionally, in the DCM Final Rules, the Commission adopted
regulations in ``Subpart N--Disciplinary Procedures'' of part 38 to
amend the disciplinary procedures applicable to DCMs.\5\ Several of the
regulations adopted in subpart N of part 38 are similar to the text of
the disciplinary procedures found in former part 8--exchange procedures
for disciplinary, summary, and membership denial actions.\6\ In order
to avoid confusion from the regulations containing two sets of
disciplinary procedures for DCMs, the Commission removed part 8 from
the regulations.\7\ As a result of this removal, the current part 9
rules, which contain cross-references to part 8 throughout, are being
updated in this rulemaking (``NPRM'' or ``Proposal'') to instead cite
to parallel provisions now contained in part 37 for SEFs and part 38
for DCMs.\8\
---------------------------------------------------------------------------
\5\ 17 CFR 38.700 through 38.712.
\6\ 43 FR 41950 (Sept. 19, 1978); 17 CFR 38.700 through 38.712.
For example, part 8 contained regulations 8.05 (Enforcement staff);
8.08 (Disciplinary committee); and 8.20 (Final decision). Subpart N
of part 38 has corresponding provisions: 38.701 (Enforcement staff);
38.702 (Disciplinary panels); and 38.709 (Final decisions).
\7\ Although Commission regulation 38.2 of the DCM Final Rules
specifies that DCMs are not required to comply with part 8, the
Commission removed part 8 to avoid any confusion resulting from the
regulations containing two sets of exchange disciplinary procedures
as part of the Adaption of Regulations to Incorporate Swaps
Rulemaking. 17 CFR 38.2; and removal of part 8 at 77 FR 66304 (Nov.
2, 2012).
\8\ 17 CFR parts 9, 37, and 38. For example, in Commission
regulation 9.2(k) the definition of ``summary action'' cites to
Commission regulations 8.17(b), 8.25, and 8.27 which were removed
along with the entirety of part 8. Proposed Commission regulation
9.2(k) will instead cite to part 37, appendix B, Core Principle 2,
paragraphs (a)(10)(vi), (a)(13), and (a)(14) [for SEFs] and part 38,
appendix B, Core Principle 13, paragraphs (a)(4), (a)(6), and (a)(7)
[for DCMs].
---------------------------------------------------------------------------
C. SEF Final Rules
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act'') repealed some sections of the Commodity Exchange
Act (``CEA'' or ``Act''), amended others, and established new
categories of Commission
[[Page 7740]]
registrants, including SEFs.\9\ Pursuant to the Dodd-Frank Act, the
Commission adopted new rules in part 37 Core Principles and Other
Requirements for Swap Execution Facilities (``SEF Final Rules'').\10\
The Commission notes that since the advent of the Dodd-Frank Act's new
statutory framework for regulating swaps, it adopted a rulemaking
(Adaptation of Regulations to Incorporate Swaps) implementing
conforming changes to existing regulations to clarify those pre-Dodd-
Frank provisions, including those applicable to SEFs.\11\ Part 9,
however, which also applies to SEFs, was not addressed in this
rulemaking.\12\ As such, in regulation 37.2 of the SEF Final Rules, the
Commission specified that SEFs shall comply with the requirements of
part 9.\13\ Accordingly, for clarity purposes, this NPRM amends certain
part 9 definitions and language which have not yet been addressed, to
better integrate them into the post-Dodd-Frank regulatory regime.
---------------------------------------------------------------------------
\9\ See generally Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law 111-203, 124 Stat. 1376 (2010) available
at http://www.cftc.gov/LawRegulation/OTCDERIVATIVES/index.htm; see
also Dodd-Frank Act section 721(a)(50), adding CEA section 1a(50),
codified at 7 U.S.C. 1a(50).
\10\ 78 FR 33476 (June 4, 2013).
\11\ 77 FR 66288 (Nov. 2, 2012).
\12\ Id.
\13\ See 78 FR 33476, 33479 (June 4, 2013); 17 CFR 37.2.
---------------------------------------------------------------------------
II. Proposed Amendments to Regulations
A. Introduction
This Proposal contains amendments of three different types:
Ministerial, accommodating, and substantive. Most of the proposed
amendments are purely ministerial--for instance, some of the proposed
changes would update definitions in Commission regulation 9.2 to
conform them to the CEA as amended by the Dodd-Frank Act as well as
other sections of the Commission's regulations. Furthermore, as noted
above, the citations to part 8 in the current part 9 rules would be
replaced with the appropriate citations to regulations, guidance, and
acceptable practices from parts 37 and 38.\14\ In a similar vein, one
of the proposed amendments to Commission regulation 9.1 would remove
the reference to section 5a(a)(11) of the CEA, since this section was
eliminated by the passage of the Commodity Futures Modernization Act of
2000 (``CFMA'').\15\
---------------------------------------------------------------------------
\14\ 17 CFR parts 37 and 38.
\15\ Public Law 106-554, 114 Stat. 2763, sec. 110 (2000).
---------------------------------------------------------------------------
The proposed accommodating amendments do not impose any new
obligations on SEFs; rather they clarify that SEFs, in addition to
DCMs, must comply with part 9.\16\ This clarification would be
accomplished by updating part 9's definition of ``exchange'' to include
SEFs and to add swaps to language discussing the types of transactions
from which an exchange disciplinary action might arise. These
amendments are more than ministerial because they require some judgment
in drafting. Another example of an accommodating amendment is the
proposed formal codification of the part 3 and part 9 advisories and
the Commission's delegation to the National Futures Association
(``NFA'') of the responsibility to receive notice of final exchange
disciplinary and access denial actions, in which the Commission
encouraged exchanges to comply with the notice requirements in
Commission regulation 9.11 (``9.11 notice'') by filing with the
NFA.\17\ Additionally, the proposed amendment to Commission regulation
9.11(b)(3)(ii) would codify the clarification contained in the Part 9
Advisory that an exchange indicate in its notice of disciplinary or
access denial actions whether the violation underlying the notice
resulted in financial harm to any customers.\18\
---------------------------------------------------------------------------
\16\ 17 CFR part 9, Sec. Sec. 37.2 and 38.2.
\17\ 64 FR 39913 (July 23, 1999) (``Part 9 Delegation''); 64 FR
39912 (July 23, 1999) (``Part 3 Advisory''); 64 FR 39915 (July 23,
1999) (``Part 9 Advisory''). As discussed more fully below in the
preamble, the Part 9 Advisory permits exchanges to file 9.11 notices
of final disciplinary or access denial actions with the Commission
or with the NFA. The Part 9 Delegation gives the NFA authority to
receive and process these notices on behalf of the Commission.
Finally, the Part 3 Advisory relieves registrants and registrant
applicants from Commission regulation 3.31 Form 3-R reporting
obligations in instances when the information to be reported is
solely the result of an exchange disciplinary or access denial
action.
\18\ 64 FR 39917 (July 23, 1999).
---------------------------------------------------------------------------
The remaining proposed amendments are generally substantive in that
they include an additional element required to be included in the
contents of a 9.11 notice and a material revision to Commission
regulation 9.13 which currently requires exchanges to post notice of
final exchange disciplinary action on the exchange's premises.\19\
First, as part 9 pertains to both DCMs and SEFs which offer a number of
varied products for trading, the proposed amendment to Commission
regulation 9.11 would require exchanges to include the type of product
(as applicable) involved in the adverse action in the contents of the
final notice. Second, the proposed amendment to Commission regulation
9.13 would remove the requirement to post notice on the exchange's
premises and instead require the exchange to post the notice on the
exchange's Web site. Finally, as addressed above in the discussion of
accommodating amendments, the Commission is proposing to codify the
Part 9 Advisory. By specifying in the rule text that exchanges provide
notice of final exchange disciplinary and access denial actions
directly to the NFA, the Commission is eliminating the option for
exchanges to file notice with the Commission.
---------------------------------------------------------------------------
\19\ 17 CFR 9.11 and 9.13.
---------------------------------------------------------------------------
B. Part 9
1. Commission Regulation 9.1: Scope of Rules
Commission regulation 9.1 governs the review by the Commission,
pursuant to section 8c of the CEA, of any suspension, expulsion,
disciplinary or access denial action, or other adverse action by an
exchange.\20\ As noted above, the Commission is proposing a ministerial
amendment to regulation 9.1(b)(1) by removing the reference to section
5a(a)(11) of the CEA, since this section was eliminated by the passage
of the CFMA.\21\
---------------------------------------------------------------------------
\20\ 7 U.S.C. 12c.
\21\ Public Law 106-554, 114 Stat. 2763, sec. 110 (2000).
---------------------------------------------------------------------------
Commission regulation 9.1(b)(2) provides an exclusion from the part
9 regulations with respect to the Commission's review of summary
actions imposed by an exchange for a minor penalty for the violation of
exchange rules relating to decorum, attire, or timely submission of
accurate records required for clearing or verifying each day's
transactions or similar activities. The Commission proposes to amend
regulation 9.1(b)(2) by replacing the reference to regulation 8.27 with
a reference to part 37 guidance pertaining to violations of rules
regarding timely submission of records and part 38 guidance pertaining
to summary fines for violations of rules regarding timely submission of
records, decorum, or other similar activities.\22\
---------------------------------------------------------------------------
\22\ The proposed references would be to (i) part 37 guidance,
17 CFR part 37, appendix B, Core Principle 2, paragraph (a)(13); and
(ii) part 38 guidance, 17 CFR part 38, appendix B, Core Principle
13, paragraph (a)(6).
---------------------------------------------------------------------------
Commission regulation 9.1(b)(3) provides an exclusion from the part
9 regulations concerning any exchange action arising from a claim,
grievance, or dispute involving cash market transactions which are not
a part of, or directly connected with, any transaction for the
purchase, sale, delivery or exercise of a commodity for future
delivery, or a commodity option. The Commission proposes to amend
regulation 9.1(b)(3) by inserting ``swap'' at the end of the paragraph
to account
[[Page 7741]]
for swap transactions on a DCM or on a SEF as a result of the Dodd-
Frank Act.\23\ As noted above, the addition of ``swap'' language is a
conforming amendment as it requires some judgment as to its inclusion.
---------------------------------------------------------------------------
\23\ Section 723(a)(3) of the Dodd-Frank Act added section
2(h)(8) of the CEA to require, among other things, that execution of
swaps subject to the clearing requirement of section 2(h)(1) of the
CEA must occur on either a DCM or a SEF.
---------------------------------------------------------------------------
Commission regulation 9.1(c) provides for the applicability of part
9 rules to matters filed with the Commission after August 6, 1987. In
1987, the part 9 rules in place at the time were superseded and
Commission regulation 9.1(c) governed whether an existing matter would
be subject to the pre- or post-1987 part 9 rules. Such determination is
no longer necessary because no pre-1987 matters are pending before the
Commission. As a result, the Proposal seeks to remove text from
Commission regulation 9.1(c) that governs whether a matter would be
subject to the pre- or post-1987 part 9 rules.
2. Commission Regulation 9.2: Definitions
The Commission proposes to revise the definition of four terms in
regulation 9.2. First, the Commission proposes to revise the definition
of ``disciplinary action'' in regulation 9.2(b) by deleting the
reference to regulation 8.03(i). The Commission also proposes to remove
the reference to ``member of an exchange'' and insert ``person'' in its
place. The Commission believes it is necessary to expand the
``disciplinary action'' definition to account for instances where an
exchange imposes sanctions against a person that is not a member of the
exchange. The Commission's proposal to include ``person'' in the
``disciplinary action'' definition is consistent with the statutory
language found in Core Principle 2 for DCMs and section 8c(b) of the
CEA, as amended by the Dodd-Frank Act.\24\
---------------------------------------------------------------------------
\24\ Section 735 of the Dodd-Frank Act amends section 5 of the
CEA, including DCM Core Principle 2. Paragraph (B)--Capacity of
Contract Market--of Core Principle 2 specifically requires that the
board of trade shall have the capacity to detect, investigate, and
apply appropriate sanctions to any person that violates any rule of
the contract market. Section 8c(b) of the CEA, 7 U.S.C. 12c(b),
provides that the Commission may, in its discretion and in
accordance with such standards and procedures as it deems
appropriate, review any decision by an exchange whereby a person is
suspended, expelled, disciplined, or denied access to the exchange.
In addition, section 8c(b) of the CEA provides that the Commission
may, in its discretion and upon application of any person who is
adversely affected by any other exchange action, review such action.
---------------------------------------------------------------------------
Second, the Commission proposes to amend the definition of
``exchange'' in regulation 9.2(c) to include SEFs. This change would
make clear that the Commission has the discretion to review adverse
actions imposed by a SEF and clarify that SEFs are subject to all of
the part 9 requirements.\25\
---------------------------------------------------------------------------
\25\ Id. The Commission notes that regulation 37.2 requires,
among other things, that a SEF shall comply with the part 9
regulations. 17 CFR 37.2. Additionally, footnote 40 of the SEF Final
Rules states ``the term `exchange' used in part 9 of the
Commission's regulations should be interpreted to include a SEF for
purposes of applying the requirements of part 9 to a SEF.'' 78 FR
33476, 33479 (June 4, 2013).
---------------------------------------------------------------------------
Third, the Commission proposes to amend regulation 9.2(f) to expand
the definition of ``member of an exchange'' to include any person who
has trading privileges on an exchange. This change is necessary to
conform the part 9 definition of ``member'' to the meaning set forth in
section 1a(34) of the CEA and in Sec. 1.3(q) of the Commission's
regulations.\26\
---------------------------------------------------------------------------
\26\ Section 1a(34) of the CEA provides that the term ``member''
means, among other things, an individual, association, partnership,
corporation, or trust having trading privileges on the registered
entity. See also 17 CFR 1.3(q). By amending the definition of
``member of an exchange'' to include all persons with trading
privileges, the Commission is clarifying that the appellate process
and Commission review, as defined in part 9, would apply to all
persons with trading privileges.
---------------------------------------------------------------------------
Fourth, the Commission proposes to amend the definition of
``summary action'' in regulation 9.2(k) by adding references to part 37
for SEFs and replacing the part 8 references with the relevant
provisions from part 38.\27\
---------------------------------------------------------------------------
\27\ Specifically, the proposed definition of ``summary action''
means a disciplinary action resulting in the imposition of a penalty
on a person for violation of rules of the exchange permitted under
the provisions of part 37, appendix B, Core Principle 2, paragraph
(a)(10)(vi) or part 38, appendix B, Core Principle 13, paragraph
(a)(4) (penalty for impeding progress of hearing); part 37, appendix
B, Core Principle 2, paragraph (a)(14) or part 38, appendix B, Core
Principle 13, paragraph (a)(7) (emergency disciplinary actions);
part 37, appendix B, Core Principle 2, paragraph (a)(13) (summary
fines for violations of rules regarding timely submission of
records); or part 38, appendix B, Core Principle 13, paragraph
(a)(6) (summary fines for violations of rules regarding timely
submission of records, decorum, or other similar activities).
---------------------------------------------------------------------------
3. Commission Regulation 9.4: Filing and Service; Official Docket
Commission regulation 9.4(a) describes the procedures for filing
any document required by part 9 to be filed with the Commission
Procedures Clerk, including proof of filing and proof of service. To
ease the burden on parties, the Commission proposes to amend regulation
9.4(a) by replacing the requirement of a formal affidavit of service
with the requirement that parties submit a signed ``statement of
service'' that: (1) Confirms that service has been made; (2) identifies
each person served; (3) sets forth the date of service; and (4) recites
the manner of service. The less formal and less burdensome statement of
service effectively serves the same purpose as an affidavit of service
(i.e., promoting and assuring the full exchange of information among
the parties by requiring service of submissions on all of the parties
in the proceeding). Additionally, the Commission proposes to amend
regulation 9.4(b)(1) to reduce the burden on parties by requiring an
original and one copy (instead of two copies) of all documents filed
with the Commission.
4. Commission Regulation 9.11: Form, Contents and Delivery of Notice of
Disciplinary or Access Denial Action
Commission regulation 9.11(a) requires that whenever an exchange
makes a decision, pursuant to which disciplinary action or access
denial to be imposed has become final, the exchange must provide
written notice of such action to the person against whom the action was
taken and to the Commission within 30 days thereafter. In 1999, the
Commission delegated authority to the NFA to receive and process
exchange disciplinary and access denial information (``Part 9
Delegation'').\28\ Consequently, the NFA currently serves as the
official custodian of records for exchange disciplinary filings. The
Commission intends to again delegate authority to the NFA, via an
updated order to be published concurrently with the final rule, to
receive and process exchange disciplinary and access denial
information. The Commission proposes to issue an updated order that
includes specific duties delegated to the NFA, such as: (1) To process
exchange disciplinary information; (2) to provide the Commission with
access to a report summarizing all recent exchange disciplinary
information; (3) to assist the Commission in enforcing exchange
compliance with regulation 9.11 filing requirements; and (4) to serve
as the official custodian of a database containing records of the
exchanges' disciplinary and access denial actions.
---------------------------------------------------------------------------
\28\ 64 FR 39913 (July 23, 1999). The NFA created the Background
Affiliation Status Information Center (``BASIC'') system through
which the public can access information pertaining to the types of
violations committed, penalties imposed, the effective date of the
action, and, in some cases, the text from the exchange's decision.
---------------------------------------------------------------------------
In 1999, concurrent with the Part 9 Delegation, the Commission
published an advisory permitting exchanges to file 9.11 notices with
the Commission or the NFA (``Part 9 Advisory'').\29\ While
[[Page 7742]]
permitting filing with the Commission, the Part 9 Advisory encourages
exchanges to file the required notice with the NFA and to do so
electronically as the Commission believes such filing to be faster and
more cost-effective for both the exchanges and the NFA. In an effort to
codify the Part 9 Advisory and formally replace the regulation 9.11
requirement that written notice be provided to the Commission, the
Commission proposes to amend regulation 9.11 to require that notice be
provided to the NFA via the NFA's BASIC system and eliminate the option
of filing the notice with the Commission.
---------------------------------------------------------------------------
\29\ 64 FR 39915 (July 23, 1999).
---------------------------------------------------------------------------
Additionally, the Commission proposes to amend regulation 9.11(a)
by replacing the reference to regulation 8.27 with a reference to part
38.\30\
---------------------------------------------------------------------------
\30\ Specifically, the reference to Commission regulation 8.27
would be replaced with a reference to part 38, appendix B, Core
Principle 13, paragraph (a)(6) (summary fines for violations of
rules regarding timely submission of records, decorum, or other
similar activities) for DCMs. Under the current rule and in the
proposed rule, DCMs would not be required to report summary fines
with respect to violations related to decorum or attire. Decorum or
attire violations do not apply to SEFs. Accordingly, SEFs are
required to report all disciplinary and access denial actions to
BASIC.
---------------------------------------------------------------------------
Commission regulation 9.11(b) sets forth the content that must be
included in the disciplinary notice. The Commission proposes
ministerial and conforming amendments to regulation 9.11(b) by
inserting references to part 37, replacing the references to part 8
with references to part 38, codifying the Part 9 Advisory clarification
that the contents of the notice include whether the violation resulted
in customer harm, and specifying the content of notices provided to:
(1) The person against whom the action was taken and (2) the NFA.
Additionally, for the sake of clarity, the Commission is proposing to
renumber regulation 9.11(b) by assigning separate paragraphs 9.11(b)(1)
to specify the notice to be provided by DCMs, 9.11(b)(2) to specify the
notice to be provided by SEFs, and 9.11(b)(3) to detail the list of
items to be included in the contents of the notice.
Furthermore, the Commission is proposing a substantive amendment to
regulation 9.11(b)(3)(ii) by adding an additional element required to
be included in the contents of the notice. Because part 9 pertains to
both DCMs and SEFs, which offer a number of varied products for
trading, the Commission believes that requiring exchanges to detail the
type of product (as applicable) involved in the adverse action as part
of the 9.11 notice will provide the Commission, market participants,
the public, and other exchanges with greater transparency concerning
where market abuses originate and whether the abuses are concentrated
among certain product types.\31\ Specifically, proposed Commission
regulation 9.11(b) provides that for purposes of part 9, the notice of
disciplinary action or access denial action provided to the person
against whom the action was taken may be a copy of a decision which
accords with part 37 and part 38 regulations and guidance.\32\
Alternatively, the notice provided to the person against whom the
action was taken must include: (i) The name of the individual against
whom the action was taken; (ii) a statement of the reasons for the
action, detailing the exchange product which was involved, as
applicable, and whether the violation that resulted in the action also
resulted in financial harm to any customers together with a list of any
rules which the individual was charged with having violated or which
otherwise serve as the basis of the action; (iii) a statement of the
exchange's conclusions and findings regarding each violation charged
or, in the event of a settlement, a statement specifying those rule
violations which the exchange believes were committed; (iv) the terms
of the action; (v) the date the action was taken and the date the
action will become effective; and (vi) a statement informing the party
subject to the action of the availability of Commission review pursuant
to section 8c of the CEA. Additionally, the Commission proposes to
amend regulation 9.11(b) by requiring that notice provided to the NFA
include items (i)-(v) immediately above.
---------------------------------------------------------------------------
\31\ For example, a product trading on a DCM might be specified
as a July 2016 Eurodollar future; while a product trading on a SEF
may be a CDX North American High Yield Series 26 5 year.
\32\ The notice required by Commission regulation 9.11 may be
satisfied by providing a copy of the final decision in accordance
with part 37, appendix B, Core Principle 2, paragraph (a)(9) or part
38, appendix B, Core Principle 13, paragraph (a)(3) (settlement
offers); Commission regulations 37.206(d) or 38.708 (decisions); or
part 37, appendix B, Core Principle 2, paragraph (a)(11)(iv) or part
38, appendix B, Core Principle 13, paragraph (a)(5)(iv) (appeal
decisions).
---------------------------------------------------------------------------
Commission regulation 9.11(c) sets forth the delivery process that
must be followed when providing notice of disciplinary action or access
denial action to the person who was the subject to the action, and the
filing process that must be followed when providing notice of the
action to the Commission. The Commission proposes to amend regulation
9.11(c) by deleting instructions for filing notice with the Commission
and replacing them with instructions for filing notice with the NFA.
Specifically, proposed Commission regulation 9.11(c) provides that
filing of the notice with the NFA is accomplished when an authorized
exchange employee verifies the accuracy of the information entered into
BASIC.
Commission regulation 9.11(d) sets forth the effect of delivery and
filing by mail. The Commission proposes to amend regulation 9.11(d) by
deleting instructions related to filing notices with the Commission by
mail since proposed regulation 9.11(c) calls for notice filings be made
to the NFA via BASIC instead of with the Commission by mail.
Commission regulation 9.11(e) sets forth the procedures for
certifying the notice provided pursuant to Commission regulation 9.11.
The Commission proposes to amend regulation 9.11(e) by adding
instructions for the certification of notice filed with the NFA.
Specifically, proposed Commission regulation 9.11(e) provides that
notice filed with the NFA is deemed certified when an authorized
exchange employee verifies the accuracy of the information entered into
BASIC.
5. Commission Regulation 9.12: Effective Date of Disciplinary or Access
Denial Action
Pursuant to Commission regulation 9.12(a), a disciplinary action or
access denial imposed by an exchange will not become effective until at
least 15 days after the written notice prescribed by Commission
regulation 9.11 is delivered to the person disciplined or denied
access. However, an exchange may cause a disciplinary action to become
effective prior to that time under certain circumstances that are
identified in Commission regulation 9.12(a)(1)-(a)(4). The Commission
proposes to amend regulation 9.12(a)(1)-(a)(4) by adding references to
part 37 and replacing references to part 8 with references to part
38.\33\
---------------------------------------------------------------------------
\33\ Specifically, the Commission proposes to amend regulation
9.12(a)(1) by adding a reference to part 37, appendix B, Core
Principle 2, paragraph (a)(14) (emergency disciplinary actions) and
replacing the reference to regulation 8.25 with a reference to Part
38, appendix B, Core Principle 13, paragraph (a)(7) (emergency
disciplinary actions). In regulation 9.12(a)(2), the Commission
proposes to add a reference to part 37, appendix B, Core Principle
2, paragraph (a)(10)(vi) (hearings) and replace the reference to
regulation 8.17(b) with a reference to part 38, appendix B, Core
Principle 13, paragraph (a)(4) (hearings). The Commission proposes
to amend regulation 9.12(a)(3) by adding a reference to part 37,
appendix B, Core Principle 2, paragraph (a)(13) (summary fines for
violations of rules regarding timely submission of records) and
replacing the reference to regulation 8.27 with a reference to part
38, appendix B, Core Principle 13, paragraph (a)(6) (summary fines
for violations of rules regarding timely submission of records,
decorum, or other similar activities).
---------------------------------------------------------------------------
[[Page 7743]]
Pursuant to Commission regulation 9.12(b), an exchange that
determines that a disciplinary action will become effective prior to
the expiration of 15 days after written notice must notify the person
disciplined in writing either personally or by telegram or other means
of written telecommunication. The exchange must also immediately notify
the Commission by telegram or other means of written telecommunication.
In order to modernize regulation 9.12(b), the Commission proposes to
replace references to ``telegram or other means of written
telecommunication'' with the term ``email'' and provide a Commission
email address where notice of the early effective date can be sent by
the exchange.
6. Commission Regulation 9.13: Publication of Notice
Pursuant to Commission regulation 9.13, whenever an exchange
suspends, expels or otherwise disciplines, or denies any person access
to the exchange, it must make public its findings by disclosing at
least the information contained in the notice required by Commission
regulation 9.11(b). An exchange also must make such findings public as
soon as the disciplinary action or access denial action becomes
effective in accordance with the provisions of Commission regulation
9.12 by posting a notice in a conspicuous place on its premises to
which its members and the public regularly have access for a period of
five consecutive business days. The exchange must also maintain and
make available for public inspection a record of the information
contained in the disciplinary or access denial notice.
The Commission notes that regulation 9.13 was published in 1987, at
a time when futures trading occurred primarily in person in the
exchange's trading pits and on exchange premises. Therefore, posting
notice of disciplinary action or access denial action on exchange
premises, where it could be readily viewed by market participants, was
an effective form of publicizing the disciplinary action. Today, most
trading on DCMs and some of the trading on SEFs occurs by electronic
execution. While some SEF trading is executed via a voice component,
both electronic and voice execution occurs between market participants
that are in geographically distinct locations and generally do not set
foot on exchange premises. Consequently, posting a notice of
disciplinary action on the premises of an exchange does little to
publicize a disciplinary action. In an effort to modernize Commission
regulation 9.13, and to provide better notice of a disciplinary action
or an access denial action, the Commission proposes to amend regulation
9.13 to require such notice be posted on an exchange's Web site to
which its members, market participants, and the public regularly have
access.\34\ In addition, to better inform market participants and
maintain a public record of disciplinary action taken by an exchange,
the Commission proposes to amend regulation 9.13 to require that such
notice of a disciplinary action or an access denial action be
maintained and readily available on an exchange's Web site.\35\ As a
result, the existing requirement to maintain and make available for
public inspection a record of the information contained in the
disciplinary or access denial notice would be eliminated.
---------------------------------------------------------------------------
\34\ The Commission acknowledges that many DCMs have already
adopted more modern methods to publicize notices of disciplinary
action. For example, the CME Group DCMs (Chicago Board of Trade
(``CBOT''), Chicago Mercantile Exchange (``CME''), Commodity
Exchange, Inc., (``COMEX''), and New York Mercantile Exchange, Inc.
(``NYMEX'')) and ICE Futures U.S. notify subscribers of exchange
disciplinary postings via email. The Commission also notes that the
proposed amendment generally tracks the Securities and Exchange
Commission's (``SEC'') standards for Release of Disciplinary
Complaints, Decisions and Other Information in Financial Industry
Regulatory Authority, Inc. (``FINRA'') Rule 8313, in which FINRA,
with SEC approval, has established its standard for releasing to the
public a copy of FINRA issued disciplinary complaints, decisions,
and other disciplinary information. See FINRA Rule 8313 ``Release of
Disciplinary Complaints, Decisions and Other Information,''
available at http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=3892. See also SEC Release
No. 34-69825; File No. SR-FINRA-2013-018 (June 21, 2013).
\35\ Some DCMs currently maintain records of disciplinary action
on their Web sites. For example, CBOE Futures Exchange, LLC
maintains a disciplinary decision database on its Web site that
allows the public to review disciplinary decisions dating back to
2012. The Commission notes that in the securities industry, the New
York Stock Exchange maintains disciplinary notices as far back as
1972.
---------------------------------------------------------------------------
The Commission recognizes that NFA BASIC presently acts as the
central repository of all disciplinary action taken by DCMs and SEFs.
However, such disciplinary information cannot be queried by a specific
exchange. In general, the Commission believes that greater access to
exchange disciplinary actions provides valuable guidance and
information to market participants and potential market participants.
Also, maintaining disciplinary actions on an exchange's public Web site
can serve to further deter and prevent future misconduct and to improve
overall compliance among market participants. In addition, market
participants may use such information to educate themselves as to
compliance matters, potential violations and related sanctions, as well
as to revise their own compliance procedures involving similar business
practices. Further, any market participant facing allegations of rule
violations may access an exchange's existing disciplinary decisions to
gain greater insight on related facts and sanctions. Finally, in an
effort to enhance access to disciplinary information, the Commission
anticipates that upon the effective date of the final part 9 rules, it
will include links on its SmartCheck Web site to each exchange's Web
site for posting notice of disciplinary action or access denial
action.\36\
---------------------------------------------------------------------------
\36\ In November 2014, the CFTC launched the SmartCheck Web
site. It connects investors to tools to check the registration,
license, and disciplinary history of certain financial
professionals. This collection of tools allows the responsible
investor to confirm the credentials of investment professionals,
uncover any past disciplinary history, and stay ahead of scam
artists with news and alerts.
---------------------------------------------------------------------------
7. Commission Regulation 9.24: Petition for Stay Pending Review
Commission regulation 9.24 provides the procedures that a person
disciplined or denied access by an exchange must follow in the event
that a person petitions the Commission to stay a disciplinary or access
denial action. The Commission proposes to amend regulation 9.24(a)(2)
by adding a reference to part 37 and replacing the reference to part 8
with a reference to part 38.\37\ In addition, the Commission proposes
to remove the reference to regulation 8.26, which provided for
emergency action hearing procedures, from regulation 9.24(a)(2), as the
part 37 and 38 emergency disciplinary action guidance (cited above)
provides for emergency action hearing procedures.
---------------------------------------------------------------------------
\37\ Specifically, the Commission proposes to add a reference to
part 37, appendix B, Core Principle 2, paragraph (a)(14) (emergency
disciplinary actions) and replace the reference to regulation 8.25
with a reference to part 38, appendix B, Core Principle 13,
paragraph (a)(7) (emergency disciplinary actions).
---------------------------------------------------------------------------
8. Commission Regulation 9.31: Commission Review of Disciplinary or
Access Denial Action on Its Own Motion
Commission regulation 9.31(a) permits the specified Divisions at
the Commission to request that an exchange file the record of an
exchange proceeding and other documents applicable to an exchange
proceeding with such Divisions, upon review of the
[[Page 7744]]
exchange notice specified in Commission regulation 9.11, in instances
where the person disciplined or denied access by the exchange has not
appealed the exchange decision to the Commission. The Commission
proposes to amend regulation 9.31(a) to delete the reference to the
Division of Clearing and Risk from the first sentence. This provision
had previously been amended to replace an earlier reference to the
Division [of] Clearing and Intermediary Oversight with references to
the Division of Swap Dealer and Intermediary Oversight and the Division
of Clearing and Risk, as the successors to the Division of Clearing and
Intermediary Oversight. Given the current organizational
responsibilities of the Divisions, it is not necessary to include the
Division of Clearing and Risk in Commission regulation 9.31(a). The
Division of Clearing and Risk does not typically review notices of
exchange disciplinary or access denial actions filed pursuant to
Commission regulation 9.11 but instead reviews reports regarding rule
enforcement activities and sanctions imposed against clearing members
by registered derivatives clearing organizations pursuant to Commission
regulations 39.17(a)(3) and 39.19(c)(4)(xi). The Commission also
proposes to amend regulation 9.31(a) by adding language that requires
the exchange to provide information to the requesting Division in the
manner requested by the Division and to the person who is the subject
of the disciplinary or access denial action in the manner prescribed by
regulation 9.11(c).
The Commission also proposes to amend regulation 9.31(b) to replace
reference to the ``Commission'' with ``NFA'' in the second sentence.
Such replacement is necessary to conform Commission regulation 9.31(b)
to proposed changes to Commission regulation 9.11 that call for a
notice of disciplinary or access denial action to be provided to the
NFA.
9. Minor Changes to Commission Regulations 9.3, 9.4, 9.8, and 9.9
The Commission proposes to amend regulation 9.3 by correcting the
referenced title of regulation 12.7 to read ``Ex parte communications
in reparation proceedings.'' The Commission also proposes to amend
regulations 9.4(b)(4) and (c)(3), 9.8(1), and 9.9(b)(3) and (4) to make
them gender neutral.
C. Part 3
1. Commission Regulation 3.31: Deficiencies, Inaccuracies, and Changes
To Be Reported
Pursuant to Commission regulation 3.31, an applicant or registrant
as a futures commission merchant, retail foreign exchange dealer, swap
dealer, major swap participant, commodity trading advisor, commodity
pool operator, introducing broker, floor trader that is a non-natural
person or leverage transaction merchant shall promptly correct any
deficiency or inaccuracy in Form 7-R or Form 8-R which has rendered the
information contained therein non-current or inaccurate. These
corrections must be made on Form 3-R and filed in accordance with the
form's instructions (such instructions presently require that Form 3-R
be filed with the NFA).
In 1999, concurrent with the Part 9 Delegation and Part 9 Advisory,
the Commission issued an advisory pertaining to part 3 of the
Commission's regulations (``Part 3 Advisory''). The Part 3 Advisory
relieves registrants and applicants for registrant status from filing a
Form 3-R, as required under Commission regulation 3.31, if the
information to be reported is solely the result of an exchange
disciplinary or access denial action.\38\ The Part 3 Advisory also
explains that the Commission has: (1) Permitted exchanges (via the Part
9 Advisory) to file either electronic or written 9.11 notices with the
NFA instead of the Commission and (2) delegated to the NFA (via the
Part 9 Delegation) the duty to receive and process exchange
disciplinary and access denial action information filed by the
exchanges in accordance with Commission regulation 9.11. The Commission
further explained that, as a result of the Part 9 Advisory and Part 9
Delegation, the NFA possesses the exchange disciplinary and access
denial action information that registrants and applicants for
registration status would otherwise be required to include in Form 3-R.
Therefore, to avoid duplicative reporting, the Part 3 Advisory advises
all individuals and entities subject to Commission regulation 3.31 that
they are relieved from Commission regulation 3.31 reporting obligations
resulting from an exchange disciplinary or access denial action and
reported by an exchange pursuant to a 9.11 notice.
---------------------------------------------------------------------------
\38\ 64 FR 39912 (July 23, 1999).
---------------------------------------------------------------------------
As discussed above, the Commission intends to again delegate
authority to the NFA to receive and process exchange disciplinary and
access denial information. Additionally, the Commission seeks to
replace the Part 9 Advisory by proposing to amend regulation 9.11 to
require that notice be provided to the NFA via the NFA's BASIC system.
Similarly, the Commission intends to codify the Part 3 Advisory by
proposing to amend the end of the first sentence of regulation
3.31(a)(1) with language that relieves the following applicants or
registrants from filing a Form 3-R if the information to be reported is
solely the result of an exchange disciplinary or access denial action:
Futures commission merchants (``FCMs''), retail foreign exchange
dealers (``RFEDs''), swap dealers (``SDs''), major swap participants
(``MSPs''), commodity trading advisors (``CTAs''), commodity pool
operators (``CPOs''), introducing brokers (``IBs''), floor traders
(``FTs'') that are non-natural persons or leverage transaction
merchants (``LTMs'').
III. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') requires that agencies
consider whether the regulations they propose will have a significant
economic impact on a substantial number of small entities and, if so,
provide a regulatory flexibility analysis respecting the impact.\39\
The part 9 rules proposed by the Commission will impact all SEFs and
DCMs. The Commission has previously established certain definitions of
``small entities'' to be used by the Commission in evaluating the
impact of its regulations on small entities in accordance with the
RFA.\40\ The Commission has also determined that DCMs and SEFs are not
small entities for the purpose of the RFA.\41\
---------------------------------------------------------------------------
\39\ 5 U.S.C. 601 et seq.
\40\ See 47 FR 18618 through 18621 (Apr. 30, 1982).
\41\ See 47 FR 18618, 18619 (Apr. 30, 1982) (DCMs); 78 FR 33548
(June 4, 2013) (SEFs).
---------------------------------------------------------------------------
The part 3 rules proposed herein would affect certain applicant or
registrant FCMs, RFEDs, SDs, MSPs, CTAs, CPOs, IBs, FTs who are non-
natural persons, and LTMs who would no longer have to file a Form 3-R
if the information to be reported is solely the result of an exchange
disciplinary or access denial action. The Commission has previously
determined that FCMs, RFEDS, SDs, MSPs, CPOs, and LTMs are not small
entities for purposes of the RFA.\42\ Therefore, the requirements of
[[Page 7745]]
the RFA do not apply to those entities. With respect to CTAs, FTs, and
IBs, the Commission has found it appropriate to consider whether such
registrants should be deemed small entities for purposes of the RFA on
a case-by-case basis, in the context of the particular Commission
regulation at issue.\43\ As certain of these registrants may be small
entities for purposes of the RFA, the Commission has considered whether
this Proposal would have a significant impact on these registrants.
---------------------------------------------------------------------------
\42\ See Policy Statement and Establishment of Definitions of
``Small Entities'' for Purposes of the Regulatory Flexibility Act,
47 FR 18618 (Apr. 30, 1982) (FCMs and CPOs); Leverage Transactions,
54 FR 41068 (Oct. 5, 1989) (LTMs); Regulation of Off-Exchange Retail
Foreign Exchange Transactions and Intermediaries, 75 FR 55410, 55416
(Sept. 10, 2010) (RFEDs); and Registration of Swap Dealers and Major
Swap Participants, 77 FR 2613, 2620 (Jan. 19, 2012) (SDs and MSPs).
\43\ See 47 FR 18620 (Apr. 30, 1982) (CTAs); Registration of
Floor Traders; Mandatory Ethics Training for Registrants; Suspension
of Registrants Charged With Felonies, 58 FR 19575, 19588 (Apr. 15,
1993) (FTs); and Introducing Brokers and Associated Persons of
Introducing Brokers, Commodity Trading Advisors and Commodity Pool
Operators; Registration and Other Regulatory Requirements, 48 FR
35248, 35276 (Aug. 3, 1983) (IBs).
---------------------------------------------------------------------------
The proposed amendment to Commission regulation 3.31 is technical
and not substantive in nature. In 1999, the Commission published the
Part 3 Advisory which relieved all applicants and registrants from
filing a Form 3-R, as required under Commission regulation 3.31, if the
information to be reported is solely the result of an exchange
disciplinary or access denial action.\44\ As discussed in the preamble,
the proposed amendment codifies the filing relief set forth in the Part
3 Advisory and would not impose any new regulatory obligations on any
registrant, including CTAs, FTs, and IBs. The Commission does not,
therefore, expect small entities to incur any additional costs as a
result of this Proposal. Consequently, the Commission finds that no
significant economic impact on small entities will result from this
Proposal.
---------------------------------------------------------------------------
\44\ 64 FR 39912 (July 23, 1999).
---------------------------------------------------------------------------
Accordingly, the Chairman, on behalf of the Commission pursuant to
5 U.S.C. 605(b), certifies that the proposed rules will not have a
significant economic impact on a substantial number of small entities.
B. Paperwork Reduction Act
1. Introduction
The Paperwork Reduction Act of 1995 (``PRA'') imposes certain
requirements on Federal agencies, including the Commission, in
connection with their conducting or sponsoring any collection of
information, as defined by the PRA.\45\ An agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless it displays a currently valid control number issued
by the Office of Management and Budget (``OMB''). This NPRM contains
recordkeeping and reporting requirements that are collections of
information within the meaning of the PRA.
---------------------------------------------------------------------------
\45\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------
The Proposal contains provisions that would qualify as collections
of information, for which the Commission has already sought and
obtained control numbers from the OMB. The titles for these collections
of information are ``Part 38--Core Principles and Other Requirements
for Designated Contract Markets'' (OMB Control Number 3038-0052) and
``Part 37--Core Principles and Other Requirements for Swap Execution
Facilities'' (OMB Control Number 3038-0074). If adopted, responses to
these collections of information would be mandatory.
As discussed below, the Commission is not seeking to amend
information collections 3038-0052 or 3038-0074 because the Commission
believes that the rule modifications proposed herein will not impose
any new information collection requirements that require approval from
OMB under the PRA. Accordingly, the Commission invites public comment
on the accuracy of its estimate regarding the impact of proposed
Commission regulation 9.11 on collections 3038-0052 and 3038-0074 and
its determination that no additional recordkeeping or information
collection requirements or changes to existing collection requirements
would result from the Proposal.\46\
---------------------------------------------------------------------------
\46\ For collection 3038-0052, see OMB Control No. 3038-0052,
available at http://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber=3038-0052. For collection 3038-0074,
see OMB Control No. 3038-0074, available at http://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber=3038-0074.
---------------------------------------------------------------------------
2. Section 9.11 Amendments
As discussed above, the proposed Commission regulation 9.11
amendments are primarily technical and not substantive in nature.
Commission regulation 9.11 currently requires that whenever an exchange
makes a decision, pursuant to which disciplinary action or access
denial to be imposed has become final, the exchange must provide
written notice of such action to the person against whom the action was
taken and to the Commission within 30 days thereafter. Among the
proposed amendments to regulation 9.11, the Commission is clarifying
the existing rules to formally incorporate SEFs under the requirements
and therefore include references to the part 37 SEF regulations.\47\
---------------------------------------------------------------------------
\47\ 17 CFR part 37. As explained earlier in the preamble, SEFs
are already subject to the part 9 reporting requirements under
regulation 37.2, in which the Commission specified that SEFs shall
comply with the requirements of part 9.
---------------------------------------------------------------------------
Furthermore, the Commission is proposing to add an additional
element required to be included in the contents of the notice
specifying which product type (as applicable) was involved in the
adverse action. The Commission believes that by adding such additional
element to the contents of the notice its impact on the burden would be
de minimis. For example, to describe a product trading on a DCM, the
notice might include the description, ``July 2016 Eurodollar future;''
while a product trading on a SEF may be a ``CDX North American High
Yield Series 26 5 year.'' Additionally, as a result of the Commission's
removal of part 8, the Commission is proposing to remove all cross-
references in regulation 9.11 to the part 8 regulations and replace
these references with applicable regulations, guidance, and acceptable
practices from parts 37 and 38.\48\ Finally, in 1999, the Commission
published the Part 9 Advisory permitting exchanges to file 9.11 notices
with the Commission or with the NFA.\49\ In an effort to codify the
Part 9 Advisory and formally replace the regulation 9.11 requirement
that written notice be provided to the Commission, the Commission
proposes to amend regulation 9.11 to require notice be provided to the
NFA via the BASIC system.
---------------------------------------------------------------------------
\48\ Removal of part 8 at 77 FR 66288, (Nov. 2, 2012); and 17
CFR parts 37 and 38.
\49\ 64 FR 39915 (July 23, 1999).
---------------------------------------------------------------------------
3. Clarification of Collections 3038-0052 and 3038-0074
The Commission notes that all DCMs and SEFs are already subject to
the part 9 reporting requirements.\50\ First, part 9 applies to DCMs,
by explicitly defining ``exchange'' in Commission regulation 9.2(c) for
purposes of the rules as ``any board of trade which has been designated
as a contract market.'' \51\ Furthermore, former regulation 38.2, which
was adopted by the Commission on August 10, 2001, specifically required
DCMs to comply with part 9 (``2001 DCM Rulemaking'').\52\ In the 2001
DCM Rulemaking, the Commission requested an OMB control number for part
38 to account for the reporting
[[Page 7746]]
requirements, including part 9.\53\ The text of Commission regulation
38.2 that specifically required DCMs to comply with part 9 was amended
on June 19, 2012, and currently provides that DCMs shall comply with
all applicable regulations under Title 17 of the Code of Federal
Regulations, except for certain exempt provisions.\54\ Part 9 is not
included in the list of exempt provisions. Accordingly, Commission
regulation 38.2 still requires that DCMs comply with the part 9 rules,
and therefore, the Commission regulation 9.11 reporting requirements.
Since the proposed amendments to Commission regulation 9.11 are
primarily technical, the Commission believes that these amendments
would not impact the current burden estimates in the DCM 3038-0052
collection.
---------------------------------------------------------------------------
\50\ 17 CFR part 9 and 38.2 [DCMs]; 17 CFR 37.2 [SEFs].
\51\ 17 CFR 9.2(c).
\52\ 66 FR 42277 (August 10, 2001).
\53\ Id. at 42268.
\54\ 77 FR 36697 (June 19, 2012); 17 CFR 38.2.
---------------------------------------------------------------------------
As noted above, SEFs are also subject to the part 9 reporting
requirements.\55\ The pertinent reporting burden of Commission
regulation 9.11 for SEFs is contained in Commission regulation 37.2,
which was adopted on June 4, 2013.\56\ Among the applicable provisions
with which SEFs must comply, Commission regulation 37.2 explicitly
lists part 9.\57\ Because the proposed amendments to Commission
regulation 9.11 are primarily technical, the Commission believes these
amendments would not impact the current burden estimates in the SEF
3038-0074 collection.\58\
---------------------------------------------------------------------------
\55\ 17 CFR 37.2.
\56\ 78 FR 33476 (June 4, 2013).
\57\ 17 CFR 37.2.
\58\ Supra note 46.
---------------------------------------------------------------------------
4. Information Collection Comments
The Commission invites comment on any aspect of the proposed
information collection requirements discussed above. Pursuant to 44
U.S.C. 3506(c)(2)(B), the Commission will consider public comments on
such proposed requirements in: (1) Evaluating whether the proposed
collection of information is necessary for the proper performance of
the functions of the Commission, including whether the information will
have a practical use; (2) evaluating the accuracy of the Commission's
estimate of the burden of the proposed collection of information,
including the validity of the methodology and assumptions used; (3)
enhancing the quality, utility, and clarity of the information proposed
to be collected; and (4) minimizing the burden of collection of
information on those who are to respond, including through the use of
appropriate automated, electronic, mechanical, or other technological
information collection techniques.
Copies of the submission from the Commission to OMB are available
from the CFTC Clearance Officer, 1155 21st Street NW., Washington, DC
20581, (202) 418-5160 or from http://RegInfo.gov. Persons desiring to
submit comments on the proposed information collection requirements
should send those comments to: The Office of Information and Regulatory
Affairs, Office of Management and Budget, Room 10235, New Executive
Office Building, Washington, DC 20503, Attention: Desk Officer of the
Commodity Futures Trading Commission; (202) 395-6566 (fax); or
[email protected] (email). Please provide the Commission with
a copy of submitted comments so that all comments can be summarized and
addressed in the final rulemaking, and please refer to the ADDRESSES
section of this rulemaking for instructions on submitting comments to
the Commission. OMB is required to make a decision concerning the
proposed information collection requirements between thirty (30) and
sixty (60) days after publication of the Proposal in the Federal
Register. Therefore, a comment to OMB is best assured of receiving full
consideration if OMB (as well as the Commission) receives it within
thirty (30) days of publication of the Proposal.
C. Cost-Benefit Considerations
1. Introduction
Section 15(a) of the CEA requires the Commission to consider the
costs and benefits of its actions before promulgating a regulation
under the CEA or issuing certain orders.\59\ Section 15(a) further
specifies that the costs and benefits shall be evaluated in light of
five broad areas of market and public concern: (1) Protection of market
participants and the public; (2) efficiency, competitiveness, and
financial integrity of the markets; (3) price discovery; (4) sound risk
management practices; and (5) other public interest considerations. The
Commission considers the costs and benefits resulting from its
discretionary determinations with respect to the section 15(a) factors.
---------------------------------------------------------------------------
\59\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------
The Commission considers the costs and benefits associated with the
proposed amendments, including updating the pre-existing regulatory
framework to incorporate SEFs, removing references to part 8 of the
Commission's regulations, and revising the reporting and notice
requirements for DCMs and SEFs. The Commission compares the costs and
benefits of this rulemaking against a baseline of the status quo, the
current requirements under part 3 and part 9. As discussed more fully
below, the Commission preliminarily believes that the only new cost
that would be imposed by the Proposal is the requirement in Commission
regulation 9.13 for DCMs and SEFs to publish and maintain disciplinary
notices on their respective Web sites.
2. Part 3 and Part 9 Technical Amendments
As explained above, the proposed amendments to part 3 and part 9
are primarily technical in nature. The Commission believes that these
technical amendments will not impose any new costs on DCMs, SEFs, or
market participants. For example, among the proposed changes, the
Commission is clarifying the definition of ``exchange'' to include SEFs
and updating the references to part 8, which was removed by the
Commission in 2012, to instead cite to parallel provisions now
contained in parts 37 and 38.\60\ Furthermore, the proposed revisions
to Commission regulations 3.31 and 9.11 codify existing reporting
procedures which were already authorized by the Commission in the Part
3 Advisory and Part 9 Advisory.\61\ These proposed amendments do not
substantively change the requirements that the Commission currently
imposes on DCMs and SEFs.\62\ Rather, instead of providing the 9.11
notices to the Commission, as required under the current part 9 rules,
proposed regulation 9.11 will instead instruct exchanges to provide the
notices to the NFA, as is permitted as an alternative method of
compliance under the Part 9 Advisory.\63\
---------------------------------------------------------------------------
\60\ Removal of part 8 at 77 FR 66288 (Nov. 2, 2012); and 17 CFR
parts 37 and 38. See, e.g., 17 CFR part 37 appendix B, Core
Principle 2, paragraph (a)(13) and part 38, appendix B, Core
Principle 13, paragraph (a)(6).
\61\ Part 9 Advisory: 64 FR 39915 (July 23, 1999); Part 3
Advisory: 64 FR 39912 (July 23, 1999).
\62\ Supra note 46. As noted above in the PRA, the Commission
believes the proposed substantive amendment to add an additional
element required to be included in the contents of a 9.11 notice
will not materially impact the costs imposed by this NPRM.
\63\ 17 CFR 9.11.
---------------------------------------------------------------------------
There is also the ministerial benefit to codifying the Part 3 and
Part 9 Advisories. Advisories are staff action and are not rules that
have been promulgated by the Commission subject to public notice and
comment. Thus, this rulemaking will achieve the benefit
[[Page 7747]]
of codifying the Part 3 Advisory and Part 9 Advisory into rules.
3. Summary of Proposed Amendments to Commission Regulation 9.13--
Publication of Notice
As discussed above, proposed Commission regulation 9.13 would
require all DCMs and SEFs to maintain and make readily accessible final
notices of exchange disciplinary and access denial actions on their Web
sites.\64\ This new requirement would replace the existing requirement
in Commission regulation 9.13 that exchanges publish the notice in a
conspicuous place on the exchange's premises.
---------------------------------------------------------------------------
\64\ 17 CFR 9.13.
---------------------------------------------------------------------------
a. Costs
The Commission believes that posting final disciplinary and access
denial notices to exchange Web sites will slightly increase the costs
for DCMs and SEFs. The Commission notes that the additional costs
incurred by DCMs and SEFs would be offset in part due to the proposed
amendment in Commission regulation 9.13 that would remove the
requirement of posting disciplinary and access denial notices on the
premises of the respective DCM or SEF. In order to estimate the
additional costs, the Commission queried the NFA's BASIC to determine
the total number of disciplinary and access denial actions filed by
DCMs in 2015. Because SEFs did not post any disciplinary or access
denial actions to BASIC in 2015, the numbers below reflect the
disciplinary and access denial actions filed by the 15 DCMs presently
registered with the Commission and provide the basis for estimating the
number of disciplinary and access denial actions for SEFs annually.\65\
---------------------------------------------------------------------------
\65\ As of November 9, 2016, 10 summary fines had been assessed
by a total of four SEFs. The notices for such summary fines have
been posted to BASIC. Because the Commission did not have a complete
year of data for 2016, the Commission used the 2015 numbers of
disciplinary and access denial actions to calculate the costs.
---------------------------------------------------------------------------
Total number of reported disciplinary and access denial actions in
BASIC by all DCMs in 2015: 452.
In order to estimate the costs for SEFs, the Commission calculated
the average number of disciplinary and access denial actions filed by
DCMs, excluding the four DCMs with the largest number of reported
disciplinary and access denial actions.\66\ The Commission notes that
SEFs are relatively new entities with significantly less volume and
fewer participants than the four DCMs that reported the highest number
of disciplinary and access denial actions.\67\ Therefore, the
Commission preliminary believes that the average number of disciplinary
and access denial actions reported by the 11 other DCMs in 2015 provide
a more appropriate comparison with respect to estimating the number of
disciplinary and access denial actions for SEFs annually. As the SEFs
mature, in terms of the number of participants and volume, the
Commission anticipates that the number of disciplinary and access
denial actions may increase accordingly.
---------------------------------------------------------------------------
\66\ The DCMs with largest number of reported disciplinary and
access denial actions are: ICE Futures U.S., CME, NYMEX, and CBOT.
\67\ 78 FR 33476 (June 4, 2013). The SEF Final Rules implemented
the SEF framework enacted by section 733 of the Dodd-Frank Act; 7
U.S.C. 7b-3.
---------------------------------------------------------------------------
Total number of reported disciplinary and access denial actions in
BASIC by DCMs in 2015, excluding the 4 DCMs with the largest number of
reported actions: 88.
Average number of reported disciplinary and access denial actions
in BASIC per DCM in 2015, excluding the 4 DCMs with the largest number
of reported actions: 8.
Currently, there are a total of 23 registered SEFs with the
Commission. The Commission estimates that each SEF would report at
least eight disciplinary and access denial actions annually in BASIC
for an aggregate total of 184 disciplinary and access denial actions
for all SEFs per year (eight actions multiplied by 23 SEFs equals 184
actions). Thus, the total number of exchange disciplinary and access
denial actions per year for all DCMs and SEFs is estimated to be 636
(184 actions for SEFs plus the 452 actions for DCMs equals 636 total
actions per year). The Commission anticipates each DCM and SEF would
spend an additional 15 minutes per disciplinary notice to post on the
exchange's Web site above the current requirement of posting the notice
on the exchange's premises. Accordingly, the aggregate new burden of
Commission regulation 9.13 is estimated to be 159 hours per year for
the 15 DCMs and 23 SEFs (15 minutes multiplied by 636 anticipated
actions per year equals 159 burden hours).
The Commission expects that a compliance officer employed by the
exchange will be posting the disciplinary or access denial action
notices to the exchange Web site. According to recent Bureau of Labor
Statistics National Occupational Employment and Wage Estimates, the
mean hourly wage of an employee under occupation code 13-1041,
``Compliance Officers,'' that is employed by the ``Securities and
Commodity Exchanges'' industry is $46.01. Because DCMs and SEFs can be
large, specialized entities that may engage employees with wages above
the mean, the Commission has conservatively chosen to use a mean hourly
wage of $50 per hour.\68\ Accordingly, the burden associated with
posting the disciplinary notices on exchange Web sites will total
approximately $7,950 per year for all of the 38 DCMs and SEFs, ($50
multiplied by the anticipated 159 burden hours equals $7,950 per
year).\69\
---------------------------------------------------------------------------
\68\ Bureau of Labor Statistics, Occupational Employment and
Wages: 13-1041 Compliance Officers, (May 2014), available at http://www.bls.gov/oes/current/oes131041.htm.
\69\ The Commission acknowledges that requiring exchanges to
post final notices of disciplinary and access denial actions on
their Web sites may necessitate additional bandwidth. The Commission
anticipates that any increased costs due to added bandwidth would be
insignificant in its calculation of the total annual burden
associated with this Proposal.
---------------------------------------------------------------------------
b. Benefits
The Commission preliminarily believes that greater access to
information regarding exchange disciplinary and access denial actions
provides valuable guidance and information to exchange members, market
participants, and the public. Releasing disciplinary information to the
public can serve to deter and prevent future misconduct and to improve
overall compliance standards in the futures and swaps industry. It also
allows customers to consider member firms' and traders' disciplinary
histories when considering whether to engage in business with them. In
addition, firms may use such information to educate their traders and
associated persons as to compliance matters, highlighting potential
violations and related sanctions. Further, any firm or individual
facing allegations of rule violations may access existing disciplinary
decisions to gain greater insight on related facts and sanctions. The
Commission believes that the added deterrence of publishing the
disciplinary notices on the exchange Web sites and the enhanced
investigative and educational benefits of making such information
public will ultimately decrease the incidents of wrongdoing and market
abuses which will benefit both market participants and the general
public.
c. Section 15(a) Factors
As noted above, section 15(a) of the CEA requires the Commission to
consider the effects of its actions in light of the following five
factors:
(1) Protection of market participants and the public. The
Commission
[[Page 7748]]
preliminarily believes that market participants and the public will
benefit from the ministerial and conforming amendments proposed herein
since they eliminate obsolete, vestigial provisions and references that
otherwise could be construed to give rise to confusing inconsistencies
between the Commission's regulations and the provisions of the CEA.
Furthermore, the Commission preliminarily believes that the proposed
substantive amendment to regulation 9.13, which would require exchanges
to publish notice of final disciplinary and access denial actions on
exchange Web sites, would increase transparency of exchange
disciplinary actions and serve as a deterrence of future market abuses.
These enhancements allow for operational efficiencies in oversight,
increased deterrence from market abuses, and greater transparency of
the exchange disciplinary process. Therefore, the Commission
anticipates that the amendment to regulation 9.13 would result in
improved protection of market participants and the public.
(2) The efficiency, competitiveness, and financial integrity of the
markets. The requirement that exchanges publish disciplinary notices
and access denial actions on their Web site is intended to improve the
operational efficiency, competitiveness and financial integrity of the
futures and swaps markets by enabling the public and those who access
the exchange Web site to be made aware of any disciplinary and access
denial actions imposed by the exchange. As discussed above, the vast
majority of trading no longer occurs in person on the exchange's
premises. The Commission believes that the current requirement in
regulation 9.13 of posting disciplinary and access denial actions on
the exchange's premises provides little to no public notice of these
actions. By publishing the notice on the exchange's Web site, the
Commission believes that the efficiency, competitiveness and financial
integrity of the markets would be bolstered by the deterrent effect
achieved by posting the notice in a publicly accessible medium.
(3) Price discovery. The Commission has not identified an impact on
price discovery as a result of the proposed regulations, but seeks
comment as to any potential impact. Will the proposed regulations
impact, positively or negatively, the price discovery process?
(4) Sound risk management practices. The Commission has not
identified an impact on risk management practices as a result of the
proposed regulations, but seeks comment as to any potential impact.
Will the proposed regulations impact, positively or negatively, sound
risk management practices?
(5) Other public interest considerations. The Commission has not
identified any other public interest considerations, but welcomes
comment on whether this Proposal would promote public confidence in the
integrity of derivatives markets by making notice of exchange
disciplinary and access denial actions more readily available to the
public. Will this Proposal impact, positively or negatively, any
unidentified matter of interest to the public?
d. Request for Comments
The Commission seeks additional information regarding the costs and
benefits of the Proposal. Beyond the specific questions interspersed
throughout its discussion above, the Commission requests comment on all
aspects of its consideration of costs and benefits, including:
Identification and assessment of any costs and benefits not discussed
therein; data and any other information to assist or otherwise inform
the Commission's ability to quantify or qualitatively describe the
benefits and costs of the proposed rules; and substantiating data,
statistics, and any other information to support positions posited by
commenters with respect to the Commission's consideration of costs and
benefits. Commenters also may suggest other alternatives to the
proposed approach where the commenters believe that the alternatives
would be appropriate under the CEA and provide a superior cost-benefit
profile.
IV. Request for Comments
The Commission requests comment on all aspects of the Proposal.
Commenters are specifically encouraged to include any considerations
related to the Commission's proposed notice and order delegating
regulation 9.11 authority to the NFA.
List of Subjects
17 CFR Part 3
Administrative practice and procedure, Brokers, Commodity futures,
Major swap participants, Reporting and recordkeeping requirements, Swap
dealers.
17 CFR Part 9
Administrative practice and procedure, Commodity exchanges,
Commodity futures.
For the reasons stated in the preamble, the Commodity Futures
Trading Commission proposes to amend 17 CFR chapter I as follows:
PART 3--REGISTRATION
0
1. The authority citation for part 3 continues to read as follows:
Authority: 5 U.S.C. 552, 552b; 7 U.S.C. 1a, 2, 6a, 6b, 6b-1, 6c,
6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 6s, 8, 9, 9a, 12, 12a,
13b, 13c, 16a, 18, 19, 21, and 23, as amended by Title VII of Pub.
L. 111-203, 124 Stat. 1376.
0
2. In Sec. 3.31, revise paragraph (a)(1) to read as follows:
Sec. 3.31 Deficiencies, inaccuracies, and changes, to be reported.
(a)(1) Each applicant or registrant as a futures commission
merchant, retail foreign exchange dealer, swap dealer, major swap
participant, commodity trading advisor, commodity pool operator,
introducing broker, floor trader that is a non-natural person or
leverage transaction merchant shall, in accordance with the
instructions thereto, promptly correct any deficiency or inaccuracy in
Form 7-R or Form 8-R that no longer renders accurate and current the
information contained therein, with the exception of any change that
requires withdrawal from registration under Sec. 3.33 or any change
resulting from an exchange disciplinary or access denial action. Each
such correction shall be prepared and filed in accordance with the
instructions thereto to create a Form 3-R record of such change.
* * * * *
PART 9--RULES RELATING TO REVIEW OF EXCHANGE DISCIPLINARY, ACCESS
DENIAL OR OTHER ADVERSE ACTIONS
0
3. The authority citation for part 9 is revised to read as follows:
Authority: 7 U.S.C. 1a, 2, 6b-1, 6c, 7, 7a-2, 7b-3, 8, 9, 9a,
12, 12a, 12c, 13b, 16a, 18, 19, 21.
0
4. In Sec. 9.1, revise paragraphs (b) and (c) to read as follows:
Sec. 9.1 Scope of rules.
* * * * *
(b) Matters excluded. This part does not apply to and the
Commission will not accept notices of appeal, or petitions for stay
pending review, of:
(1) Any arbitration proceeding, regardless of whether the
proceeding involved a controversy between members of an exchange;
(2) Except as provided in Sec. Sec. 9.11(a), 9.11(b)(3)(i) through
(v), 9.11(c), 9.12(a) and 9.13 (concerning the notice, effective date
and publication of a disciplinary or access denial action), any summary
action permitted under the provisions of part 37, appendix B, Core
Principle 2, paragraph (a)(13) of
[[Page 7749]]
this chapter or part 38, appendix B, Core Principle 13, paragraph
(a)(6) of this chapter imposing a minor penalty for the violation of
exchange rules relating to decorum or attire, or relating to the timely
submission of accurate records required for clearing or verifying each
day's transactions or other similar activities; and
(3) Any exchange action arising from a claim, grievance, or dispute
involving cash market transactions which are not a part of, or directly
connected with, any transaction for the purchase, sale, delivery or
exercise of a commodity for future delivery, a commodity option, or a
swap.
(4) The Commission will, upon its own motion or upon motion filed
pursuant to Sec. 9.21(b), promptly notify the appellant and the
exchange that it will not accept the notice of appeal or petition for
stay of matters specified in this paragraph. The determination to
decline to accept a notice of appeal will be without prejudice to the
appellant's right to seek alternate forms of relief that may be
available in any other forum.
(c) Applicability of these part 9 rules. Unless otherwise ordered,
these rules will apply in their entirety to all appeals, and matters
relating thereto.
0
5. In Sec. 9.2, revise paragraphs (b), (c), (f), and (k) to read as
follows:
Sec. 9.2 Definitions.
* * * * *
(b) Disciplinary action means any suspension, expulsion or other
penalty imposed on a person by an exchange for violations of rules of
the exchange, including summary actions.
(c) Exchange means a swap execution facility or any board of trade
which has been designated as a contract market.
* * * * *
(f) Member of an exchange means
(1) Any person who is admitted to membership or has been granted
membership privileges on an exchange; any employee, officer, partner,
director or affiliate of such member or person with membership
privileges including any associated person; and any other person under
the supervision or control of such member or person with membership
privileges; or
(2) Any person who has trading privileges on an exchange.
* * * * *
(k) Summary action means a disciplinary action resulting in the
imposition of a penalty on a person for violation of rules of the
exchange permitted under the provisions of part 37, appendix B, Core
Principle 2, paragraph (a)(10)(vi) of this chapteror part 38, appendix
B, Core Principle 13, paragraph (a)(4) (penalty for impeding progress
of hearing); part 37, appendix B, Core Principle 2, paragraph (a)(14)
of this chapter or part 38, appendix B, Core Principle 13, paragraph
(a)(7) (emergency disciplinary actions) of this chapter; part 37,
appendix B, Core Principle 2, paragraph (a)(13) (summary fines for
violations of rules regarding timely submission of records) of this
chapter; or part 38, appendix B, Core Principle 13, paragraph (a)(6)
(summary fines for violations of rules regarding timely submission of
records, decorum, or other similar activities) of this chapter.
0
6. Revise Sec. 9.3 to read as follows:
Sec. 9.3 Provisions referenced.
Except as otherwise provided in this part, the following provisions
of the Commission's rules relating to reparations contained in part 12
of this chapter apply to this part: Sec. 12.3 (Business address;
hours); Sec. 12.5 (Computation of time); Sec. 12.6 (Extensions of
time; adjournments; postponements); Sec. 12.7 (Ex parte communications
in reparation proceedings); and Sec. 12.12 (Signature).
0
7. In Sec. 9.4, revise paragraphs (a), (b), and (c) to read as
follows:
Sec. 9.4 Filing and service; official docket.
(a) Filing with the Proceedings Clerk; proof of filing; proof of
service. Any document that is required by this part to be filed with
the Proceedings Clerk must be filed by delivering it in person or by
mail to: Proceedings Clerk, Office of Proceedings, Commodity Futures
Trading Commission, Three Lafayette Centre, 1155 21st Street NW.,
Washington, DC 20581. To be timely filed under this part, a document
must be delivered or mailed to the Proceedings Clerk within the time
prescribed for filing. A party must use a means of filing which is at
least as expeditious as that used in serving that document upon the
other parties. Proof of filing must be made by attaching to the
document for filing a statement of service as provided in Sec.
10.12(a)(6) of this chapter.
(b) Formalities of filing--(1) Number of copies. Unless otherwise
specifically provided, an original and one conformed copy of all
documents filed with the Commission in accordance with the provisions
of this part must be filed with the Proceedings Clerk.
(2) Title page. All documents filed with the Proceedings Clerk must
include at the head thereof, or on a title page, the name of the
Commission, the title of the proceeding, the docket number (if one has
been assigned by the Proceedings Clerk), the subject of the particular
document and the name of the person on whose behalf the document is
being filed.
(3) Paper, spacing, type. All documents filed with the Proceedings
Clerk must be typewritten, must be on one grade of good white paper no
less than 8 or more than 8\1/2\ inches wide and no less than 10\1/2\ or
more than 11\1/2\ inches long, and must be bound on the top only. They
must be double-spaced, except for long quotations (3 or more lines) and
footnotes which should be single-spaced.
(4) Signature. The original copy of all papers must be signed in
ink by the person filing the same or by his or her duly authorized
agent or attorney.
(c) Service--(1) General requirements. All documents filed with the
Proceedings Clerk must, at or before the time of filing, be served upon
all parties. A party must use a means of service which is at least as
expeditious as that used in filing that document with the Proceedings
Clerk. One copy of all motions, petitions or applications made in the
course of the proceeding, all notices of appeal, all briefs, and
letters to the Commission or an employee thereof must be served by a
party upon all other parties.
(2) Manner of service. Service may be either personal or by mail.
Service by mail is complete upon deposit of the document in the mail.
Where service is effected by mail, the time within which the person
served may respond thereto will be increased by three days.
(3) Designation of person to receive service. The first document
filed in a proceeding by or on behalf of any party must state on the
first page the name and postal address of the person who is authorized
to receive service for the party of all documents filed in the
proceeding. Thereafter, service of documents must be made upon the
person authorized unless service on a different authorized person or on
the party himself or herself is ordered by the Commission, or unless
pursuant to Sec. 9.8 the person authorized is changed by the party
upon due notice to all other parties. Parties must file and serve
notification of any changes in the information provided pursuant to
this subparagraph as soon as practicable after the change occurs.
* * * * *
0
8. In Sec. 9.8, revise paragraph (a)(1) to read as follows:
Sec. 9.8 Practice before the Commission.
(a) Practice--(1) By non-attorneys. An individual may appear pro se
(on his or her own behalf); a general partner may represent the
partnership; a bona fide officer of a corporation, trust or
[[Page 7750]]
association may represent the corporation, trust or association.
* * * * *
0
9. In Sec. 9.9, revise paragraphs (b)(3) and (b)(4) to read as
follows:
Sec. 9.9 Waiver of rules; delegation of authority.
* * * * *
(b) * * *
(3) The General Counsel, or his or her designee, may submit to the
Commission for its consideration any matter which has been delegated
pursuant to paragraph (b)(1) of this section.
(4) Nothing in this section will be deemed to prohibit the
Commission, at its election, from exercising the authority delegated to
the General Counsel, or his or her designee, under this section.
0
10. Revise Sec. 9.11 to read as follows:
Sec. 9.11 Form, contents and delivery of notice of disciplinary or
access denial action.
(a) When required. Whenever an exchange decision pursuant to which
a disciplinary action or access denial action is to be imposed has
become final, the exchange must, within thirty days thereafter, provide
written notice of such action to the person against whom the action was
taken and notice to the National Futures Association (``NFA'') through
the NFA's Background Affiliation Status Information Center (``BASIC'')
system: Provided, That a designated contract market is not required to
notify the NFA of any summary action, as permitted under the provisions
of part 38, appendix B, Core Principle 13, paragraph (a)(6) of this
chapter, which results in the imposition of minor penalties for the
violation of exchange rules relating to decorum or attire. No final
disciplinary or access denial action may be made effective by the
exchange except as provided in Sec. 9.12.
(b) Contents of notice. For purposes of this part:
(1) The written notice of a disciplinary action or access denial
action provided to the person against whom the action was taken by a
designated contract market must be a copy of a written decision which
accords with:
(i) Part 38, appendix B, Core Principle 13, paragraph (a)(3) of
this chapter in the case of settlement offers;
(ii) Section 38.708 of this chapter in the case of decisions; or
(iii) Part 38, appendix B, Core Principle 13, paragraph (a)(5)(iv)
of this chapter in the case of appeal decisions of this chapter
(including copies of any materials incorporated by reference) or other
written notice which must include items listed in paragraphs (b)(3)(i)-
(vi) of this section.
(2) The written notice of a disciplinary action or access denial
action provided to the person against whom the action was taken by a
swap execution facility must be a copy of a written decision which
accords with:
(i) Part 37, appendix B, Core Principle 2, paragraph (a)(9) of this
chapter in the case of settlement offers;
(ii) Section 37.206(d) of this chapter in the case of decisions; or
(iii) Part 37, appendix B, Core Principle 2, paragraph (a)(11)(iv)
of this chapter in the case of appeal decisions of this chapter
(including copies of any materials incorporated by reference) or other
written notice which must include items listed in paragraphs (b)(3)(i)
through (vi) of this section.
(3) The notice of a disciplinary action or access denial action
provided to the NFA must include only the items listed in the following
paragraphs (i) through (v):
(i) The name of the person against whom the disciplinary action or
access denial action was taken;
(ii) A statement of the reasons for the disciplinary action or
access denial action, detailing the exchange product which was
involved, as applicable, and whether the violation that resulted in the
action also resulted in financial harm to any customers together with a
listing of any rules which the person who was the subject of the
disciplinary action or access denial action was charged with having
violated or which otherwise serve as the basis of the exchange action;
(iii) A statement of the conclusions and findings made by the
exchange with regard to each rule violation charged or, in the event of
settlement, a statement specifying those rule violations which the
exchange has reason to believe were committed;
(iv) The terms of the disciplinary action or access denial action;
(v) The date on which the action was taken and the date the
exchange intends to make the disciplinary or access denial action
effective; and
(vi) Except as otherwise provided in Sec. 9.1(b), a statement
informing the party subject to the disciplinary action or access denial
action of the availability of Commission review of the exchange action
pursuant to section 8c of the Act and this part.
(c) Delivery and filing of the notice. Delivery of the notice must
be made either personally to the person who was the subject of the
disciplinary action or access denial action or by mail to such person
at that person's last known address. Filing of the notice with the NFA
is accomplished when an authorized exchange employee verifies the
accuracy of the information entered into BASIC.
(d) Effect of delivery by mail. Delivery by mail to the person
disciplined or denied access will be complete upon deposit in the mail
of a properly addressed and postpaid document. Where delivery to the
person disciplined or denied access is effected by such mail, the time
within which a notice of appeal or petition for stay may be filed will
be increased by three days.
(e) Certification. Copies of the notice and the submission of any
additional information provided pursuant to this section must be
certified as true and correct by a duly authorized officer, agent or
employee of the exchange. Notice filed with the NFA is deemed certified
when an authorized exchange employee verifies the accuracy of the
information entered into BASIC.
0
11. Revise Sec. 9.12 to read as follows:
Sec. 9.12 Effective date of disciplinary or access denial action.
(a) Effective date. Any disciplinary or access denial action taken
by an exchange will not become effective until at least fifteen days
after the written notice prescribed by Sec. 9.11 is delivered to the
person disciplined or denied access; Provided, however, That the
exchange may cause a disciplinary action to become effective prior to
that time if:
(1) As permitted by part 37, appendix B, Core Principle 2,
paragraph (a)(14) of this chapter or part 38, appendix B, Core
Principle 13, paragraph (a)(7) (emergency disciplinary actions) of this
chapter, the exchange reasonably believes, and so states in its written
decision, that immediate action is necessary to protect the best
interests of the marketplace; or
(2) As permitted by part 37, appendix B, Core Principle 2,
paragraph (a)(10)(vi) of the chapter or part 38, appendix B, Core
Principle 13, paragraph (a)(4) (hearings) of this chapter, the exchange
determines, and so states in its written decision, that the actions of
a person who is within the exchange's jurisdiction has impeded the
progress of a disciplinary hearing; or
(3) As permitted by part 37, appendix B, Core Principle 2,
paragraph (a)(13) (summary fines for violations of rules regarding
timely submission of records) of this chapter or part 38, appendix B,
Core Principle 13, paragraph (a)(6) (summary fines for violations of
rules regarding timely submission of records, decorum, or other similar
activities) of
[[Page 7751]]
this chapter, the exchange determines that a person has violated
exchange rules relating to decorum or attire, or timely submission of
accurate records required for clearing or verifying each day's
transactions or other similar activities; or
(4) The person against whom the action is taken has consented to
the penalty to be imposed and to the timing of its effectiveness.
(b) Notice of early effective date. If the exchange determines in
accordance with paragraph (a)(1) of this section that a disciplinary
action will become effective prior to the expiration of fifteen days
after written notice thereof, it must notify the person disciplined in
writing, either personally or by email to the person's last known email
address, stating the reasons for the determination. The exchange must
also immediately notify the Commission by email to [email protected].
Where notice is delivered by email, the time within which the person so
notified may file a petition for stay pursuant to Sec. 9.24(a)(2) will
be increased by one day.
0
12. Revise Sec. 9.13 to read as follows:
Sec. 9.13 Publication of notice.
Whenever an exchange suspends, expels or otherwise disciplines, or
denies any person access to the exchange, it must make public its
findings by disclosing at least the information contained in the notice
required by Sec. 9.11(b). An exchange must make such findings public
as soon as the disciplinary action or access denial action becomes
effective in accordance with the provisions of Sec. 9.12 by posting a
notice on its Web site to which its members and the public regularly
have access. Such notice must be maintained and readily available on
the exchange's Web site.
0
13. In Sec. 9.24, revise paragraph (a)(2) to read as follows:
Sec. 9.24 Petition for stay pending review.
(a) * * *
(2) Within ten days after a notice of summary action has been
delivered in accordance with Sec. 9.12(b) to a person who is the
subject of a summary action permitted by part 37, appendix B, Core
Principle 2, paragraph (a)(14) or part 38, appendix B, Core Principle
13, paragraph (a)(7) (emergency disciplinary actions) of this chapter,
that person may petition the Commission to stay the effectiveness of
the summary action pending completion of the exchange proceeding.
* * * * *
0
14. Revise Sec. 9.31 to read as follows:
Sec. 9.31 Commission review of disciplinary or access denial action
on its own motion.
(a) Request for additional information. Where a person disciplined
or denied access has not appealed the exchange decision to the
Commission, upon review of the notice specified in Sec. 9.11, the
Division of Market Oversight or the Division of Swap Dealer and
Intermediary Oversight may request that the exchange file with the
Division the record of the exchange proceeding, or designated portions
of the record, a brief statement of the evidence and testimony adduced
to support the exchange's findings that a rule or rules of the exchange
were violated and such recordings, transcripts and other documents
applicable to the particular exchange proceeding as the Division may
specify. The exchange must promptly advise the person who is the
subject of the disciplinary or access denial action of the Division's
request. Within thirty days after service of the Division's request,
the exchange must file the information requested with the Division in
the manner requested by the Division and, upon request, deliver that
information to the person who is the subject of the disciplinary or
access denial action. Delivery to the person who is the subject of the
disciplinary or access denial action must be in the manner prescribed
by Sec. 9.11(c). A person subject to the disciplinary action or access
denial action requesting a copy of the information furnished to the
Division must, if the exchange rules so provide, agree to pay the
exchange reasonable fees for printing the copy.
(b) Review on motion of the Commission. The Commission may
institute review of an exchange disciplinary or access denial action on
its own motion. Other than in extraordinary circumstances, such review
will be initiated within 180 days after the NFA has received the notice
of exchange action provided for in Sec. 9.11. If the Commission should
institute review on its own motion, it will issue an order permitting
the person who is the subject of the disciplinary or access denial
action an opportunity to file an appropriate submission, and the
exchange an opportunity to file a reply thereto.
Issued in Washington, DC, on January 13, 2017, by the
Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.
Note: The following appendix will not appear in the Code of
Federal Regulations.
Appendix to Amendments to Parts 3 and 9 of the Commodity Futures
Trading Commission's Rules--Commission Voting Summary
On this matter, Chairman Massad and Commissioners Bowen and
Giancarlo voted in the affirmative. No Commissioner voted in the
negative.
[FR Doc. 2017-01232 Filed 1-19-17; 8:45 am]
BILLING CODE 6351-01-P