Advisory: 28-96

For Release: May 28, 1996

ELECTRONIC FILING OF FINANCIAL REPORTS

On March 8, 1996, the Commodity Futures Trading Commission issued Advisory 12-96 to inform the industry that the Commission's Division of Trading and Markets (Division) had issued a no-action letter to the Chicago Board of Trade (CBT) concerning the attestation of financial reports where a futures commission merchant (FCM) is organized as a partnership. That Advisory was intended to advise other FCMs, introducing brokers (IBs) and self-regulatory organizations (SROs) that they would be granted similar no-action treatment if they act in accordance with the Division's letter to the CBT.

In the CBT's request for relief, it stated that the request was prompted by the fact that the CBT was in the process of issuing Personal Identification Numbers (PINs) to those individuals who are eligible to provide the required attestations in connection with the CBT's upcoming implementation of the electronic filing of financial reports. Such filing is permitted by CBT Capital Rule 311, which has been approved by the Commission.

The Commission is issuing this Advisory to alert FCMs, IBs and SROs that in connection with any SRO program for electronic filing of financial reports approved by the Commission, and to the extent the SRO program does not provide for a manual signature for purposes of attestation, the use of a PIN would be deemed to be the equivalent of a manual signature for purposes of attestation under Commission Rule 1.10(d)(4). Therefore, in those situations, the transmission of a financial report to an SRO under a PIN will constitute a representation that the person whose PIN is used in such transmission attests that, to the best knowledge and belief of that person, the information contained in the financial report is true, correct and complete. The Commission's position is consistent with its prior consideration of this issue in connection with the approval of CBT and Chicago Mercantile Exchange (CME) rules to permit electronic filing of financial reports, as well as with other agencies' acceptance of a signature in electronic form. In addition, any SRO program allowing use of PINs in connection with the electronic transmission of financial reports must require, as do the CBT and the CME, (1) that a manually signed request form acknowledging that use of the PIN will be deemed the equivalent of a manual signature for purposes of attestation under Commission Rule 1.10(d)(4) be submitted in order to obtain a PIN; and (2) that SRO rules provide that use of the PIN would be a substitute for the signature attesting to the accuracy of the financial data transmitted.

The Commission wishes to advise all persons who may use PINs in this context and their firms that such PINs should be safeguarded so that unauthorized use is not made of such PINs. In any event, the Commission would treat electronic transmission of a financial report to an SRO by means of a PIN in the same manner as it would treat submission of the report in hardcopy with a manual signature for purposes of determining compliance with minimum financial and related reporting requirements, and could take action under Commission Rule 1.10(d)(4) accordingly.

The Commission notes that it also plans to implement procedures that would permit firms filing electronically with an SRO to submit financial reports to the Commission via electronic transmission and would encourage firms to do so when those procedures are in place. Initially, the Commission would also continue to require that firms file with the Commission a paper copy of the financial report. The Commission contemplates that, following some experience with electronic transmission of financial data and the adoption of appropriate amendments to the Commission's rules, it may be permissible for firms to submit uncertified financial reports to the Commission solely via electronic transmission.

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