[Federal Register: September 10, 1997 (Volume 62, Number 175)]
[Proposed Rules]
[Page 47612-47617]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10se97-15]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 1, 30, 33 and 190
Distribution of Risk Disclosure Statements by Futures Commission
Merchants and Introducing Brokers
AGENCY: Commodity Futures Trading Commission.
ACTION: Proposed rules.
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SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or
``Commission'') is proposing to amend its Rule 1.55 in order that
futures commission merchants (``FCMs'') or introducing brokers
(''IBs'') would no longer be required to furnish the specified written
risk disclosure statement to certain categories of financially
accredited customers or to obtain from these customers written
acknowledgments of receipt of the risk disclosure statement before
opening a commodity futures account for such customers. In addition,
the Commission is proposing amendments to relieve FCMs and IBs from
requirements to furnish disclosure statements to these customers
pursuant to Rule 30.6(a) (risk disclosure pertaining to foreign futures
or foreign options), Rule 33.7(a) (risk disclosure pertaining to
domestic exchange-traded commodity options), Rule 1.65(a)(3) (risk
disclosure for customers whose accounts are transferred other than at
the customer's request to another FCM or IB) and Rule 190.10(c)
(disclosure pertaining to treatment in bankruptcy of non-cash margin
held by an FCM).
DATES: Comments must be received on or before November 10, 1997.
ADDRESSES: Comments on the proposed amendments should be sent to Jean
A. Webb, Secretary of the Commission, Commodity Futures Trading
Commission, 1155 21st Street, NW., Washington DC 20581. In addition,
comments may be sent by facsimile transmission to facsimile number
(202) 418-5221, or by electronic mail to [email protected]. Reference
should be made to ``FCM/IB Risk Disclosure Amendments.''
FOR FURTHER INFORMATION CONTACT: Thomas E. Joseph, Attorney-Adviser,
Division of Trading and Markets, Commodity Futures Trading Commission,
1155 21st Street, NW., Washington DC 20581. Telephone (202) 418-5450.
SUPPLEMENTARY INFORMATION:
I. Background
CFTC rules require FCMs and IBs to provide customers with
Commission-approved disclosure statements describing the risks of
trading in domestic (and, as applicable, foreign) commodity futures and
options and to receive written acknowledgment of receipt of such
statements prior to opening an account for the customer.\1\ In
addition, Commission Rule 190.10(c) requires an FCM to provide a
customer with a disclosure statement concerning the treatment in
bankruptcy of any non-cash property deposited as margin at the FCM by a
customer before the FCM may accept non-cash property from the customer
to margin, guarantee or secure any commodity contract.\2\
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\1\ See Rule 1.55(a) (risk disclosure requirement concerning
trading domestic commodity futures); rule 30.6(a) (risk disclosure
requirement concerning non-United States commodity futures or
options contracts); and rule 33.7(a) (risk disclosure requirement
concerning domestic, exchange-traded commodity options).
\2\ Commission rule 190.10 does not require an FCM to obtain a
customer's written acknowledgment of receipt of this statement.
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In 1993 and 1994, the Commission amended its rules to simplify
these disclosure requirements, reduce the potential for duplicative
disclosure requirements and ease administrative burdens on FCMs and IBs
without sacrificing the important customer protection purposes served
by these regulations. In this regard, the Commission adopted amendments
to consolidate the risk disclosures required by Rules 1.55(a) and
30.6(a) into a single, generic statement set forth in CFTC Rule 1.55(b)
satisfying risk disclosure obligations with respect to domestic futures
transactions and foreign futures and options transactions.\3\ In
addition, the Commission amended its rules to include the generic risk
disclosure statement set forth in Appendix A to CFTC Rule 1.55, which
may be used to satisfy the risk disclosure obligations under Commission
Rules 1.55(a), 30.6(a) and 33.7(a) for domestic futures and commodity
options transactions, foreign futures and commodity options
transactions and the CFTC Rule 190.10 disclosure concerning non-cash
property used to margin futures transactions, as well as to satisfy the
risk disclosure requirements of certain foreign jurisdictions.\4\
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\3\ See 58 FR 17495 (April 5, 1993) (amending rules to
consolidate foreign futures and foreign commodity options risk
disclosure statement required by Rule 30.6(a) with the domestic
futures risk disclosure statement required by Rule 1.55(a)).
\4\ See 59 FR 34376 (July 5, 1994) (amending rules so that
single risk disclosure statement set forth in Appendix A of Rule
1.55 would satisfy risk disclosure obligations under Rules 1.55(a),
30.6(a) and 33.7(a) as well as disclosure required pursuant to Rule
190.10(c)). The risk disclosure statement set forth at Appendix A to
Rule 1.55 also fulfills risk disclosure requirements in the United
Kingdom and Ireland for certain specified instruments. The rules
proposed herein would not alter an FCM's or IB's disclosure
obligations under the laws or regulations of any foreign
jurisdiction. Further, as the Commission has previously emphasized,
compliance with the risk disclosure obligations specified in CFTC
Rules 1.55, 30.6 and 33.7 does not relieve FCMs and IBs of
obligations under the Commodity Exchange Act (``Act''), state and
common law, or Commission rule 1.55(f) to disclose to customers all
material information concerning a transaction. See, e.g., it. at
34378. Nor does compliance with these Commission rules fulfill
individual exchange particularized risk disclosure requirements
related to linkage arrangement and other special products.
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When adopting the generic risk disclosure statement set forth in
Appendix A to Rule 1.55 and the related rule amendments, the Commission
noted that one commenter on the proposed rule amendments had suggested
that the Commission eliminate the requirement of receipt of a written
acknowledgment of disclosure with respect to sophisticated
investors.\5\ The Commission determined not to address the issues
raised by that comment at that time. However, since adopting the Rule
1.55 Appendix A risk disclosure statement, the Commission has assessed
the results of efforts in other contexts to reduce disclosure
requirements and other regulatory burdens on Commission registrants
without undermining consumer protection safeguards. For example, the
Commission has acquired substantial experience with the simplified
disclosure regime for sophisticated commodity pool investors and
clients of commodity trading advisors (``CTAs'') established in 1992 in
Rule 4.7.\6\ Under Rule 4.7, CPOs offering pool participations to
qualified participants and CTAs offering managed account programs to
qualifying clients may be exempted from the requirement to deliver a
disclosure document containing the disclosures specified in Rules 4.24
and 4.25 for CPOs and 4.34 and 4.35 for CTAs. However, they remain
subject to statutory and regulatory antifraud prohibitions and
[[Page 47613]]
are thus required to disclose all material information. In addition,
the Commission has been able to assess more fully its previous efforts
to consolidate and simplify risk disclosure obligations for FCMs and
IBs. Based upon this experience, the Commission believes that it is
appropriate to provide FCMs and IBs with relief from certain risk
disclosure and bankruptcy statement requirements in the context of
accounts for specified sophisticated customers and is thus proposing
these rule amendments.
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\5\ Id. at 34378.
\6\ Rule 4.7 became effective September 8, 1992. 57 FR 34853
(August 7, 1992) (adopting release for Rule 4.7). Among other
things, Rule 4.7 relieves commodity pool operators (``CPOs'') and
CTAs from most specified reporting and disclosure obligations,
including risk disclosure obligations, with respect to certain
qualified eligible participants (``QEPs) in rule 4.7 pools or
qualified eligible clients (``QECs'') of a CTA, as defined in the
rule.
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II. Discussion
The amendments proposed herein would eliminate the requirement that
FCMs and IBs provide specified, financially accredited customers with
the Commission-mandated risk disclosure statements pursuant to CFTC
Rules 1.55(a), 1.65(a)(3), 30.6(a), and 33.7(a) and obtain from such
customers a written acknowledgment of receipt of the risk disclosure
statement before opening a commodity futures or options account for
such customers. Additionally, the amendments would relieve FCMs of the
obligation to furnish these financially accredited customers with the
bankruptcy disclosure statement required by Rule 190.10(c) before
accepting non-cash property from such customers to margin a futures
contract. While the proposed amendments would relieve an FCM or IB of
the specific disclosure obligations discussed above in connection with
futures or options transactions by specified customers, these
amendments make clear that an FCM and IB would remain obligated to
provide such customers with all disclosures that are material in light
of the circumstances of the transaction in question. Under the proposed
amendments, FCMs or IBs would remain free to provide customers
specified in proposed Rule 1.55(f) with the Commission-approved risk
and bankruptcy disclosure statements without obtaining a written
acknowledgment of receipt of these statements from such qualified
customers.
A. Customers For Whom Relief May Be Claimed
The categories of customers specified in proposed Rule 1.55(f) for
whom an FCM or IB may claim the relief proposed herein are based
substantially upon the categories of eligible swap participants in Part
35 of the Commission rules \7\ and eligible participants in Part 36 of
the Commission rules.\8\ The Commission believes that the definitions
of eligible swap participants and eligible part 36 participants are
appropriate models for the definitions set forth in proposed Rule
1.55(f) inasmuch as the Part 35 and 36 rules exempt parties from
providing mandatory risk disclosure statements (as well as compliance
with other requirements) in connection with transactions covered by
those rules.\9\ However, certain minor differences between the proposed
categories of qualified customers in proposed Rule 1.55(f) and the
lists of eligible swap participants and eligible participants in parts
35 and 36, respectively, exist.
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\7\ See CFTC Rule 35.1(b)(2). Part 35 of the Commission rules
exempts certain swap agreements from most provisions of the Act and
Commission rules.
\8\ See CFTC Rule 36.1(c)(2). Part 36 of the Commission rules
exempts certain contract market transactions from specified
provisions of the Act and Commission regulations thereunder. Parts
35 and 36 of the Commission rules were adopted pursuant to authority
set forth in Section 4(c) of the Act, 7 U.S.C. 6(c). See 58 FR 5587
(January 22, 1993) (adopting part 35) and 60 FR 51323 (October 2,
1995) (adopting part 36). Section 4(c)(2) of the Act, 7 U.S.C.
6(c)(2), requires that, among other conditions, any agreement,
contract or transaction exempted from any provision of the Act
pursuant to Section 4(c) of the Act must ``be entered into solely
between appropriate persons,'' who are defined in Section 4(c)(3)
(A) through (J) of the Act, 7 U.S.C. 6(c)(3) (A)-(J). Thus, the
lists of eligible swap participants and eligible participants were,
in turn modeled closely on the list of appropriate persons provided
in Section 4(c) of the Act.
\9\ Part 35 exempts any eligible swap transaction from all
provisions of the Act, except Sections 2(a)(1)(B), 4b, and 4o of the
Act, 7 U.S.C. 2a, 6b, and 6o, Rule 32.9 and Sections 6(c) and
9(a)(2) of the Act, 7 U.S.C. 9 and 13(a)(2), to the extent these
provisions prohibit manipulation of the market price of any
commodity in interstate commerce or for future delivery on or
subject to the rules of any contract market. Rule 36.7 relieves an
FCM or IB from the requirement to provide an eligible participant
with a risk disclosure statement pursuant to Commission Rules 1.55,
1.65, 33.7 or 190.10 in connection with Section 4(c) contract market
transactions as defined in Rule 36.1(c)(1).
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First, proposed Rule 1.55(f) does not require a pool to have a
minimum asset level in order to qualify for the proposed relief. Such a
minimum asset test for pools is unnecessary in light of current Rule
1.55,\10\ which already relieves an FCM or IB from the obligation to
provide a Rule 1.55 risk disclosure statement to a commodity pool
operated by a CPO registered under the Act or exempt from such
registration.\11\ The Commission believes that it is appropriate to
extend this relief to the comparable risk disclosure obligations set
forth in CFTC Rules 1.65(a)(3), 30.6(a), 33.7(a) and 190.10(c). In
addition, proposed new Rule 1.55(f) (unlike Parts 35 and 36) would not
restrict relief to entities not formed for the specific purpose of
eligibility for the relief, since it is highly unlikely that any entity
would be formed specifically for the purpose of avoiding receipt of a
risk disclosure statement.
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\10\ See CFTC Rule 1.55(a)(1)(iii).
\11\ Commmission Rule 4.13 exempts a party from registration as
a CPO where: (1) the pool operator receives no compensation for
operating the pool, other than reimbursement of administrative
expenses, operates only one pool, is not otherwise required to
register under the Act and is not affiliated with any person
required to register under the Act, and no person involved with the
pool advertises in connection with the pool; or (2) the total gross
capital contributions for all pools a person operates or intends to
operate do not exceed $200,000, and none of the pools operated by
such person has more than 15 participants at any time. Persons who
wish to claim registration relief under Rule 4.13 must file a
statement of intent with the Commission before accepting funds or
soliciting customers for any pool operated by it and fulfill other
requirements specified in the rule.
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As under Parts 35 and 36, an investment company for which the
proposed relief may be claimed is defined as one ``subject to
regulation under the Investment Company Act.'' This provision will
permit FCMs and IBs to apply the proposed relief to hedge funds which,
although subject to the Investment Company Act, generally are not
regulated under it.\12\ Similarly, proposed Rule 1.55(f)(10) would
allow an FCM or IB to claim relief with respect to a customer who is a
``futures commission merchant * * * subject to regulation under the
Act.'' Thus, FCMs exempt from registration pursuant to Commission Rule
3.10(c) would nonetheless be qualifying customers within the meaning of
proposed Rule 1.55(f)(10) since such FCMs remain subject to regulation
under the Act.\13\
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\12\ Cf. 60 FR at 51329-51330 (discussing ``subject to
regulation'' criteria as applied to investment companies in
definition of eligible participants in Part 36 and eligible swap
participants in Part 35).
\13\ Rule 3.10(c) exempts from registration an FCM which is
``trading solely for proprietary accounts, as defined in [Commission
Rule] 1.3(y) * * * .'' Rule 3.10(c) states that such FCMs, although
exempt from registration, remain ``subject to all other provisions
of the Act, and of the rules, regulations and orders thereunder.''
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The categories of customers for whom an FCM or IB would be able to
claim the proposed disclosure relief include: (1) Regulated financial
intermediaries, such as banks, trust companies, savings associations,
credit unions, and insurance companies; (2) registered securities and
futures entities, such as broker-dealers regulated under the Securities
Exchange Act of 1934, investment companies with assets exceeding
$5,000,000 and subject to regulation under the Investment Company Act,
pools formed and operated by a CPO registered under the Act or exempt
from such registration, and FCMs, floor brokers or floor traders
regulated under the Act; (3) other financially sophisticated persons,
such as employee benefit plans with assets in
[[Page 47614]]
excess of $5,000,000 and subject to the Employee Retirement Income
Security Act of 1974, corporations, partnerships, proprietorships and
other entities with total assets exceeding $10,000,000 or a net worth
of at least $1,000,000, and natural persons with assets in excess of
$10,000,000; and (4) any governmental entity, including the United
States, any state or foreign government, or any political subdivision
thereof, or any multinational or supranational entity or any
instrumentality, agency or department of any of the foregoing.
Like the definitions of Part 35 eligible swap participant and Part
36 eligible participant, the categories of customers specified in
proposed Rule 1.55(f) would include certain regulated foreign entities
that perform roles or functions similar to those performed by one of
the enumerated, regulated United States entities. These foreign
entities must satisfy the same minimum asset or net worth criteria as
their United States counterparts and, although not required to be
subject to regulation under specified United States laws, they must be
subject to regulation in their home jurisdiction.\14\ Thus, an FCM or
IB would be able to claim the proposed relief in connection with
opening a futures or commodity option account for a foreign employee
benefit plan subject to applicable foreign regulations, a commodity
pool operated by a foreign person performing a function similar to that
of a CPO and subject to foreign regulation as such, or a foreign-
regulated entity performing a function similar to that of a United
States investment company, broker-dealer, FCM, floor broker or floor
trader, if such customers satisfy applicable minimum asset or net worth
criteria.
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\14\ In this regard, the Commission intends that the foreign
entity be subject to regulation based upon activities or functions
similar to those performed by a United States entity specified in
proposed Rule 1.55(f). For example, to be within the meaning of
proposed Rule 1.55(f)(10), the activities of a foreign FCM should be
governed by regulations dealing with its business as an FCM and not
by an unrelated regulatory regime.
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As proposed, these amendments require that a customer satisfy the
criteria set forth in proposed Rule 1.55(f) only at the time an account
is opened. An FCM or IB would be under no obligation to monitor a
customer's status to assure that the customer continues to satisfy the
Rule 1.55(f) criteria throughout the time an account remains open.
Moreover, the proposed amendment to Rule 1.65(a)(3), which addresses
accounts transferred other than at a customer's request, allows the FCM
or IB to whom such an account is transferred to claim the proposed
disclosure relief with respect to a customer who either: (1) as clearly
evidenced by information available to the transferee firm, satisfied
the proposed 1.55(f) criteria at the time the account was first opened
with the transferring FCM or IB; or (2) satisfies such criteria at the
time the account is transferred.
Proposed Rule 1.55(f) will provide FCMs and IBs with clear,
objective criteria for identifying the customers to whom delivery of
the Commission-approved disclosure statements pursuant to CFTC Rules
1.55(a), 1.65(a)(3), 30.6(a), 33.7(a) and 190.10(c) is not required.
These criteria should serve to minimize any administrative burdens
associated with implementing the proposed relief. In this regard, the
Commission notes that the proposed rule contains no specific
requirement that FCMs and IBs maintain with their books and records any
information in addition to that already required by other Commission
rules in order to identify a particular customer's eligibility for the
relief provided by the proposed amendments.\15\ However, FCMs and IBs
are required to assure that mandated disclosure statements are provided
to customers other than those to whom this relief applies. In order to
substantiate compliance with such disclosure requirements and exercise
meaningful supervision over customer accounts, FCMs and IBs should
assure that adequate records are maintained and reviewed on a regular
basis.\16\ Thus, FCMs and IBs should maintain documentation relevant to
the qualifications of the customers for whom the relief proposed herein
will be claimed and to confirm the identities of customers to whom
specified risk disclosures have been made and from whom acknowledgments
have been obtained.
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\15\ For example, FCMs and IBs would be required to obtain and
maintain the information required by CFTC Rule 1.37 concerning all
customers, including customers listed in proposed Rule 1.55(f).
\16\ Rule 166.3 requires FCMs and IBs to supervise diligently
the handling of commodity interest accounts.
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B. Relief
The proposed amendments will relieve FCMs and IBs from the
requirements to deliver disclosure statements pursuant to Commission
Rules 1.55(a), 1.65(a)(3), 30.6(a), and 33.7(a) to customers who, at
the time of account opening, are within the categories specified in
proposed Rule 1.55(f).\17\ FCMs and IBs also would no longer be
required to obtain and retain a signed statement from such customers
acknowledging that the customer received and understood the required
risk disclosure statement.
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\17\ The Commission also proposes to redesignate current Rule
1.55(f) as 1.55(g).
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Further, the Commission believes that it is appropriate to relieve
FCMs of the obligation to provide disclosure statements to these
specified customers pursuant to Rule 190.10(c). However, the Commission
requests comment concerning the proposed relief with respect to Rule
190.10(c), which requires that the disclosure statement specified
therein be given only when customers deposit non-cash property as
margin.\18\ The Commission also notes that the proposed rule amendments
do not provide FCMs with relief with respect to the subordination
agreement required by Financial and Segregation Interpretation No. 12
to be executed by a customer whose funds are held by an FCM in foreign
depositories, which may be incorporated in the Rule 190.10(c)
bankruptcy statement.\19\
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\18\ The commodity broker provisions of the Bankruptcy Code,
which mandate pro rata distribution of cash and non-cash customer
property, including property specifically identifiable to a
customer, have been in effect for approximately nineteen years, and
the Commission's bankruptcy rules for fourteen years.
\19\ 53 FR 46911 (November 21, 1988) (stating conditions under
which an FCM may hold funds of its United States domiciled customers
in a foreign depository). The Commission has stated that the
subordination agreement discussed in Financial and Segregation
Interpretation No. 12 may be incorporated in the Rule 190.10(c)
bankruptcy disclosure document or separately executed. Id. at 46914.
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C. Continuing Disclosure Obligations
The proposed amendments make clear that despite relief from the
specific disclosure obligations of CFTC Rules 1.55(a), 1.65(a)(3),
30.6(a), 33.7(a) or 190.10(c), FCMs and IBs remain obligated under
other statutory and regulatory provisions, including Section 4b of the
Act \20\ and current CFTC Rule 1.55(f),\21\ to provide customers with
all material information relating to a transaction, including
information relating to the risks involved in entering a particular
transaction. As the Commission stated when it adopted current Rule
1.55(f), these minimum disclosure obligations arise under the Act,
under state law and under common law.\22\ However, the required
[[Page 47615]]
disclosures may differ in particular cases, depending upon the nature
of the relationship between the FCM or IB and its customer and such
factors as whether the FCM or IB has discretionary authority over an
account or is merely executing trades according to a customer's
instructions.\23\
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\20\ 7 U.S.C. 6b.
\21\ Current Commission Rule 1.55(f), which would be
redesignated as Rule 1.55(g) under the proposed amendments, states
that compliance with Rule 1.55 does not relieve an FCM or IB of any
other disclosure obligations it may have under applicable law. See
50 FR 5380 (February 8, 1985) (adopting Rule 1.55(d), since
redesignated as Rule 1.55(f), and explaining FCMs' and IBs'
disclosure obligations under the Act).
\21\ Id. at 5381. Further, as the Commission noted when it
adopted Rule 1.55(d) ``the prescribed disclosure statement [of Rule
1.55] was not meant to be an exhaustive explanation of the mechanics
and risks of futures trading or of particular transactions, but
rather was designed to highlight some of the inherent risks of
futures trading for new customers.'' Id. at 5382.
\22\ See, e.g., Yameen v. Madda Trading Company, [1980-1982
Transfer Binder] Comm. Fut. L. Rep. (CCH) para.21,125 (CFTC 1980)
(FCM and its associated person (``AP'') breached duty to customer by
not disclosing limitations of stop loss orders after having
discussed favorable features of these orders); Ruddy v. First
Commodity Corp. of Boston, [1980-1982 Transfer Binder] Comm. Fut L.
Rep. (CCH) para.21,435 (CFTC 1981) (FCM and AP breached duty to
customer for whom they had discretionary authority by failing either
to contact him promptly or to remove the hedges entered for him once
the strategy under which the hedges had been recommended and placed
and failed), aff'd sub nom. First Commodity Corp. of Boston v. CFTC,
676 F.2d 1 (1st Cir. 1982); In the Matter of JCC, Inc., [1992-1994
Transfer Binder] Comm. Fut. L. Rep. (CCH) para.26,080 (CFTC 1994)
(omission and misrepresentation of material information about a
trading program, including information concerning applicable fees
and potential risks, violated antifraud provisions of Act), aff'd
sub nom. JCC, Inc. v. CFTC, 63 F.3d 1557 (11th Cir. 1995).
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III. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-611,
requires that agencies, in proposing rules, consider the impact of
those rules on small businesses. The rules discussed herein will affect
FCMs and IBs. The Commission has already established certain
definitions of ``small entities'' to be used by the Commission in
evaluating the impact of its rules on such small entities in accordance
with the RFA. FCMs have been determined not to be small entities under
the RFA.
With respect to IBs, the Commission has stated that it is
appropriate to evaluate within the context of a particular rule
proposal whether some or all IBs should be considered to be small
entities and, if so, to analyze the economic impact on such entities at
that time. The proposed rule amendments would not require any IB to
alter its current method of doing business. Instead the proposed
amendments would provide IBs with relief from certain disclosure and
recordkeeping requirements with respect to certain identified
customers. Presumably, an IB would only choose to make use of such
relief if it were cost-effective to do so. Further, these rule
amendments as proposed should impose no additional burden or
requirements on IBs and, thus, if adopted would not have a significant
economic impact on a substantial number of IBs.
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 \24\ imposes certain
requirements on federal agencies (including the Commission) in
connection with their conducting or sponsoring any collection of
information as defined by the Paperwork Reduction Act.
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\24\ Pub. L. 104-13 (May 13, 1995).
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There is no burden associated with the proposed rule amendments to
Rule 1.55 or Rule 1.65. While these proposed rule amendments have no
burden, the group of rules (3038-0024) of which these rules are a part
has the following burden:
Average burden hours per response 128
Number of Respondents 3,148
Frequency of response 36
Three OMB approved collections would be affected by the adoption of
these proposed rule amendments. In compliance with the Paperwork
Reduction Act, the Commission, through this rule proposal, solicits
comments to:
(1) Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including the validity of the methodology and assumptions used; (2)
evaluate the accuracy of the agency's estimate of the burden of the
proposed collection of information including the validity of the
methodology and assumptions used; (3) enhance the quality, utility,
and clarity of the information to be collected; and (4) minimize the
burden of the collection of the information on those who are to
respond, including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques
or other forms of information technology, e.g., permitting
electronic submission of responses.
The Commission has submitted this proposed rule and its associated
information collection requirements to the Office of Management and
Budget. Three OMB approved collections would be affected by the
adoption of this rule. These are:
3038-0007--Regulation of Domestic Exchange-Traded Commodity
Options. The burden associated with collection 3038-0007, including
this proposed rule, is as follows:
Average burden hours per response 50.57
Number of Respondents 190,422
Frequency of response 1,111
The burden associated with this specific proposed rule, is as
follows:
Average burden hours per response 0.08
Number of Respondents 175
Frequency of response 115
3038-0021--Regulations Governing Bankruptcies of Commodity
Brokers. The burden associated with collection 3038-0021, including
this proposed rule, is as follows:
Average burden hours per response 0.35
Number of Respondents 472
Frequency of response 34
The burden associated with this specific proposed rule, is as
follows:
Average burden hours per response 0.05
Number of Respondents 235
Frequency of response 8
3038-0035--Rules Relating to the Offer and Sale of Foreign
Futures and Options. The burden associated with collection 3038-
0035, including this proposed rule, is as follows:
Average burden hours per response 15.70
Number of Respondents 2,832
Frequency of response 48
The burden associated with this specific proposed rule, is as
follows:
Average burden hours per response 0.60
Number of Respondents 360
Frequency of response 4
Persons wishing to comment on the information which would be
required by this proposed/amended rule should contact the Desk Officer,
CFTC, Office of Management and Budget, Room 10202, NEOB, Washington, DC
20503, (202) 395-7340. Copies of the information collection submission
to OMB are available from the CFTC Clearance Officer, 1155 21st Street
NW., Washington, DC 20581, 202) 418-5160.
List of Subjects
17 CFR Part 1
Customer protection, Risk disclosure statements, Commodity futures.
17 CFR Part 30
Foreign futures and options transactions, Customer protection, Risk
disclosure statements.
17 CFR Part 33
Domestic exchange-traded commodity options transactions.
17 CFR Part 190
Bankruptcy.
In consideration of the foregoing and pursuant to the authority
contained in the Commodity Exchange Act and in particular sections
2(a)(1), 4b, 4c, 4d, 4f, 4g and 8a of the Act, as amended, 7 U.S.C. 2,
6b, 6c, 6d, 6f, 6g and 12a, the Commission hereby proposes to amend
Chapter I of title 17 of the Code of Federal Regulations as follows:
[[Page 47616]]
PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT
1. The authority citation for Part 1 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 2a, 4, 4a, 6, 6a, 6b, 6c, 6d, 6e, 6f,
6g, 6h, 6i, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a,
12c, 13a, 13a-1, 16, 16a, 19, 21, 23, 24.
2. Section 1.55 is amended by revising paragraph (a)(1), by
removing paragraph (a)(1)(iii), by redesignating paragraph (f) as
paragraph (g), and by adding new paragraph (f) to read as follows:
Sec. 1.55 Distribution of ``Risk Disclosure Statement'' by futures
commission merchants and introducing brokers.
(a)(1) Except as provided in Sec. 1.65, no futures commission
merchant, or in the case of an introduced account no introducing
broker, may open a commodity futures account for a customer, other than
for a customer specified in paragraph (f) of this section, unless the
futures commission merchant or introducing broker first:
* * * * *
(f) A futures commission merchant or, in the case of an introduced
account an introducing broker, may open a commodity futures account for
a customer without furnishing such customer the disclosure statements
or obtaining the acknowledgments required under paragraph (a) of this
section, Sec. 1.65(a)(3), and Sec. 30.6(a), Sec. 33.7(a), and
Sec. 190.10(c) of this chapter, provided that the futures commission
merchant or, in the case of an introduced account the introducing
broker, provides such customer with such disclosure as is material in
the circumstances and the customer is, at the time at which the account
is opened:
(1) A bank or trust company;
(2) A savings association or credit union;
(3) An insurance company;
(4) An investment company subject to regulation under the
Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, et seq.) or a
foreign entity performing a similar role or function subject as such to
foreign regulation, provided that such investment company has total
assets exceeding $5,000,000;
(5) A pool operated by a commodity pool operator registered under
the Commodity Exchange Act or exempt from such registration or by a
foreign person performing a similar function to that of a commodity
pool operator and subject as such to foreign regulation;
(6) A corporation, partnership, proprietorship, organization,
trust, or other entity: (A) which has total assets exceeding
$10,000,000; or (B) which has a net worth of $1,000,000;
(7) An employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, or a foreign person performing a similar
role or function and subject as such to foreign regulation, with total
assets exceeding $5,000,000 or whose investment decisions are made by a
bank, trust company, insurance company, investment adviser subject to
regulation under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1,
et seq.), or a commodity trading advisor subject to regulation under
the Commodity Exchange Act;
(8) Any governmental entity (including the United States, any
state, or any foreign government) or political subdivision thereof, or
any multinational or supranational entity or any instrumentality,
agency, or department of any of the foregoing;
(9) A broker-dealer subject to regulation under the Securities
Exchange Act of 1934 (15 U.S.C. 78a, et seq.) or a foreign person
performing a similar role or function subject as such to foreign
regulation, acting on its own behalf: provided, however, that if such
broker-dealer is a natural person or proprietorship, the broker-dealer
must also meet the requirements of paragraphs (f)(6) or (f)(11) of this
section;
(10) A futures commission merchant, floor broker, or floor trader
subject to regulation under the Commodity Exchange Act or a foreign
person performing a similar role or function subject as such to foreign
regulation; or
(11) Any natural person with total assets exceeding $10,000,000.
* * * * *
3. Section 1.65 is amended by redesignating paragraph (a)(3)(ii) as
(a)(3)(iii) and adding new paragraph (a)(3)(ii) to read as follows:
Sec. 1.65 Notice of bulk transfers and disclosure obligations to
customers.
(a) * * *
(3) * * *
(ii) As to customers for which the transferee futures commission
merchant or introducing broker has clear evidence that such customer
was at the time the account was opened by the transferring futures
commission merchant or introducing broker, or is at the time the
account is being transferred, a customer listed in section 1.55(f) of
this chapter; or
* * * * *
PART 30--FOREIGN FUTURES OR FOREIGN OPTIONS TRANSACTIONS
4. The authority citation for Part 30 continues to read:
Authority: 7 U.S.C. 1a, 2, 4, 6, 6c and 12a, unless otherwise
noted.
5. Section 30.6 is amended by revising paragraph (a) to read as
follows:
Sec. 30.6 Disclosure.
(a) Futures commission merchants and introducing brokers. Except as
provided in Sec. 1.65 of this chapter, no futures commission merchant,
or in the case of an introduced account no introducing broker, may open
a foreign futures or option account for a foreign futures or option
customer, other than for a customer specified in Sec. 1.55(f) of this
chapter, unless the futures commission merchant or introducing broker
first furnishes the customer with a separate written disclosure
statement containing only the language set forth in Sec. 1.55(b) of
this chapter or as otherwise approved under Sec. 1.55(c) of this
chapter (except for nonsubstantive additions such as captions), which
has been acknowledged in accordance with Sec. 1.55 of this chapter;
Provided, however, that the risk disclosure statement may be attached
to other documents as the cover page or the first page of such
documents and as the only material on such page.
* * * * *
PART 33--REGULATION OF DOMESTIC EXCHANGE-TRADED COMMODITY OPTION
TRANSACTIONS
6. The authority citation for Part 33 continues to read:
Authority: 7 U.S.C. 1a, 2, 4, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h,
6i, 6j, 6k, 6l, 6m, 6n, 6o, 7, 7a, 7b, 8, 9, 11, 12a, 12c, 13a, 13a-
1, 13b, 19, and 21, unless otherwise noted.
7. Section 33.7 is amended by revising paragraph (a)(1) to read as
follows:
Sec. 33.7 Disclosure.
(a)(1) Except as provided in Sec. 1.65 of this chapter, no futures
commission merchant, or in the case of an introduced account no
introducing broker, may open or cause the opening of a commodity option
account for an option customer, other than for a customer specified in
Sec. 1.55(f) of this chapter, unless the futures commission merchant or
introducing broker first:
* * * * *
PART 190--BANKRUPTCY
8. The authority citation for Part 190 continues to read:
[[Page 47617]]
Authority: 7 U.S.C. 1a, 2, 4a, 6c, 6d, 6g, 7a, 12, 19, and 24,
and 11 U.S.C. 362, 546, 548, 556 and 761-766, unless otherwise
noted.
9. Section 190.10 is amended by revising paragraph (c)(1) to read
as follows:
Sec. 190.10 General.
* * * * *
(c) Disclosure statement for non-cash margin. (1) Except as
provided in Sec. 1.65, no commodity broker (other than a clearing
organization) may accept property other than cash from or for the
account of a customer, other than a customer specified in Sec. 1.55(f)
of this chapter, to margin, guarantee, or secure a commodity contract
unless the commodity broker first furnishes the customer with the
disclosure statement set forth in paragraph (c)(2) of this section in
boldface print in at least 10 point type which may be provided as
either a separate, written document or incorporated into the customer
agreement, or with another statement approved under Sec. 1.55(c) of
this chapter and set forth in appendix A to Sec. 1.55 which the
Commission finds satisfies this requirement.
* * * * *
Issued in Washington, DC on September 3, 1997 by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 97-23882 Filed 9-9-97; 8:45 am]
BILLING CODE 6351-01-P
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