Weekly Advisory

Commission Meetings

On June 4, 1999, the Commission held a closed meeting to discuss surveillance matters.

On June 11, 1999, the Commission will hold a closed meeting to discuss surveillance matters.

On June 14, 1999, the Commission will hold a closed meeting to discuss adjudicatory matters.

CFTC News Releases

Release:              #4275-99
For Release:     June 7, 1999

Commodity Futures Trading Commission Issues Advisory on Alternative Execution, or Block Trading, Procedures for the Futures Industry

Washington, D.C. ­ The Commodity Futures Trading Commission (Commission) today issued an Advisory on Alternative Execution, or Block Trading, Procedures for the Futures Industry. The Advisory follows up on the Commission's Concept Release concerning the Regulation of Noncompetitive Transactions Executed on or Subject to the Rules of a Contract Market. 63 FR 3708 (January 26, 1998). Through the Advisory, the Commission is announcing its intention to consider contract market proposals to adopt alternative execution, or block trading, procedures for large size or other types of orders on a case-by-case basis under a flexible approach to the requirements of the Commodity Exchange Act and the Commission's regulations.

Under this approach, each contract market would retain the discretion to permit alternative execution procedures. Additionally, each contract market would have the ability to develop procedures that reflect the particular characteristics and needs of its individual markets and market participants. In the Advisory, the Commission encourages contract markets to solicit the input of, and coordinate with, various interested parties in the development of such alternative execution procedures for large orders, including its membership, futures commission merchants, end-users, and industry associations. Based on its experience in reviewing such contract market proposals, the Commission will determine whether any further Commission action is appropriate.

The Commission's Advisory is effective immediately and will be published in the Federal Register shortly. Copies of the Advisory may be obtained by contacting the Commission's Office of the Secretariat, Three Lafayette Centre, 1155 21^st Street, N.W., Washington, D.C. 20581, (202) 418-5100, or by accessing the Commission's website, www.cftc.gov.

Release:                  #4276-99
For Release:         June 7, 1999

CFTC Amends Order Granting the Chicago Board of Trade a Dual Trading Exemption for the Treasury Bond Futures Contract on its Project A Electronic Trading System to Include the Project A Ten-Year Treasury Note Futures Contract

On June 4, 1999, the Commodity Futures Trading Commission (Commission) amended its February 26, 1999 Order granting an exemption from the statutory dual trading prohibition to the Chicago Board of Trade (CBT) for its U.S. Treasury Bond (T-Bond) futures contract traded on CBT's Project A electronic trading system. The Order was amended to include within the exemption, the Ten-Year U.S. Treasury Note (Ten-Year T-Note) futures contract traded on Project A. The Commission took this action based on CBT's representation that there have been no material changes in facts concerning the operation of the Project A system or CBT's trade monitoring system since the Commission issued its February 26, 1999 Order.

Subject to CBT's continuing ability to demonstrate that it meets applicable requirements, the Commission has determined, with respect to CBT's electronically traded T-Bond and Ten-Year T-Note futures contracts, that CBT maintains a trade monitoring system that is capable of detecting and deterring, and is used on a regular basis to detect and to deter, all types of violations attributable to dual trading and, to the full extent feasible, all other types of trading violations, as required by Section 5a(b) of the Commodity Exchange Act and Commission Regulation 155.5. In issuing the Order and the amended Order, the Commission specifically took into account the ability of the Project A electronic trading system to provide a precise, comprehensive, and unalterable audit trail. The electronic audit trail appears to reduce the opportunity for trading abuse, and facilitates the detection and prosecution of any possible wrongdoing that may occur.

The amended Order will be published shortly in the Federal Register. Copies of the amended Order may be obtained by contacting the Commission's Office of the Secretariat, Three Lafayette Centre, 1155 21^st Street, N.W., Washington, D.C., 20581, (202) 418-5100 or by accessing the Commission's website at www.cftc.gov.

Release:                      #4277-99
For Release:              June 7, 1999

Commodity Futures Trading Commission Provides Guidance to Commission Registrants Regarding Contingency Planning for Y2K

Washington, D.C. The Commission, on June 7, 1999, issued an advisory to provide certain Commission registrants (i.e., futures commission merchants, introducing brokers, commodity pool operators and commodity trading advisors) with guidance concerning their need to make appropriate plans to address business continuity issues that may arise during the transition to the new millennium. Toward that end, the advisory sets out important issues that should be considered when constructing such a plan.

The Commission recognizes that these plans will be subject to ongoing modification, as appropriate, leading up to the millennium change and that each plan will vary in form and content to reflect the unique circumstances of a particular registrant. Nonetheless, beginning on September 1, 1999, each such registrant must have a plan that can be made available to the Commission or the registrant's designated self-regulatory organization upon request.

The advisory is posted on the Commission's home page (www.cftc.gov). Copies of the advisory may be obtained by contacting the Office of Secretariat, Three Lafayette center, 1155 21st Street, N.W., Washington, D.C. 20581, (202) 418-5100.

Release:                   #4278-99 (7:96-cv-61 (WDO))
For Release:              June 8, 1999

Georgia Court Orders Payment of Over $11.5 Million and Permanent Injunction In Default Order Against Estate of Donald B. Chancey, Southeastern Venture Partners Group, in Commodity Pool Fraud Case

WASHINGTON -- The Commodity Futures Trading Commission (CFTC) announced today that the estate of Donald B. Chancey and Southeastern Venture Partners Group, Inc. (SVPG) have been ordered to pay over $11.5 million as part of an order of default judgment entered against them for violations of the anti-fraud and registration provisions of the Commodity Exchange Act (CEA).

The order bars Chancey's estate and Southeastern from soliciting new customers or customer funds in connection with commodities trading, and orders them to pay restitution to customers of over $2.9 million and a civil monetary penalty of over $8.8 million. Judge Wilbur D. Owens, Jr. of the Middle District of Georgia signed the order on May 13, 1999.

The court's action stems from a six-count civil injunctive complaint, filed on July 1, 1996 (see CFTC News Release 3929-96, August 6, 1996), charging, among other things, that the defendants violated the anti-fraud provisions of the CEA and CFTC regulations. Specifically, the CFTC complaint alleged that SVPG, a commodity pool operator, and Donald B. Chancey, SVPG's chief executive officer, fraudulently solicited at least 19 customers to invest more than $3 million in an unregistered commodity pool and that Chancey fled with customer funds and did not respond to the CFTC's complaint. In addition, the complaint charged that Chancey and SVPG operated an unregistered commodity pool and violated numerous disclosure, reporting, and record keeping requirements.

On the same day the complaint was filed, the court froze the defendants' assets, appointed a receiver to take charge of the business operations, and issued a Writ of Ne Exeat, a court order directing the U.S. Marshals Service to locate Chancey and hold him in custody until he posted a $3 million bond. As part of the effort to locate Chancey, the CFTC posted his photograph on its Worldwide Web site, and sought information on his whereabouts from members of the public (see CFTC News Release 3956-96, October 15, 1996). The FBI also indicted Chancey on October 22, 1997. In June 1998, Chancey's body was found in a Louisiana cabin with a gunshot wound. The coroner for the State of Louisiana concluded that it was an apparent suicide.

The court's order of default judgment also directs that all proceeds obtained from the defendants be distributed in accordance with a proposal previously submitted by the court-appointed receiver.

Opinions Updates

No Opinions Updates were issued during this period.

Advisories

Advisory:                 24-99
For Release:         June 7, 1999

COMMODITY FUTURES TRADING COMMISSION YEAR 2000 CONTINGENCY PLANNING FOR COMMISSION REGISTRANTS

In Advisory 55-97, dated November 4, 1997, the Commodity Futures Trading Commission (Commission) reminded futures commission merchants (FCMs) and introducing brokers (IBs) of their duty under Commission Regulation 1.16(e)(2) to report any "material inadequacies" vis-à-vis Year 2000 (Y2K) preparation. The Commission also reminded commodity pool operators (CPOs) and commodity trading advisors (CTAs) of their duty under Commission Regulations 4.24(w) and 4.34(o), respectively, to disclose "material information" pertaining to Y2K preparation. That Advisory listed the following four minimum phases for a sound Y2K preparedness plan: (1) Identification of systems that are Y2K vulnerable; (2) Update of the systems; (3) Testing; and (4) Contingency planning. This Advisory addresses contingency planning, the final phase of Y2K preparation. The Commission is issuing this Advisory to provide registrants with more detailed guidance and to diminish the potential of any serious Y2K disruption that could warrant Commission action to maintain or restore orderly markets.

There are a multitude of potential events within the futures industry, across other sectors in the United States and internationally that could impair the functions of registrants. A written contingency plan is critical in planning to address malfunctions. Accordingly, each FCM, IB, CPO and CTA must have a written contingency plan no later than September 1, 1999, and must be prepared to provide its contingency plan to the Commission and the registrant's self-regulator upon request. Because FCMs, IBs, CPOs and CTAs range from large multinational organizations to one-person operations, the Commission recognizes that the scope and contents of each contingency plan will vary to reflect the individual circumstances of the particular registrant. However, at a minimum:

• Each contingency plan must address all mission critical business functions including preservation of accurate books and records immediately prior to, and during the millennium transition.
  
• Each clearing FCM's plan should address what steps may be appropriate to facilitate the transfer of positions by exchanges, should events make this necessary.
  
• Each clearing FCM must establish a "command center" (see more details below).
  

The Commission is aware that many registrants already have begun planning to address disruptive events that may occur during the transition to the new millennium and in particular over the millennium weekend. These contingency plans likely will continue to be modified throughout the year. The principles set forth in this advisory are intended to provide guidance to registrants in developing their Y2K contingency plan. The manner in which the principles are implemented will vary greatly based on the category of registrant, its size and its dependencies on third parties.

1.        Command center

• Registrants are strongly encouraged (and clearing FCMs are required) to establish a command center to operate during the transition to the new millennium. As appropriate, the command center would provide on-site supervisors to authorize needed actions, technical staff to carry out their instructions and special lines of communications to keep information flowing. Essentially, registrants need to have in place a clearly identified channel for making decisions and processing material information.
  

2.        Critical Systems

    For each critical system:

• Appropriate supervisory personnel should be designated to authorize needed action along with sufficient technical staff to perform the necessary tasks should a Y2K-related problem occur; and
  
• A strategy should be planned to address dysfunctions (e.g., quick fix, partial replacement, full redundancy or replacement and outsourcing).
  

3.        Notification Chain

• A list of persons and entities to be notified in the event of a dysfunction (e.g., regulators, customers and interfacing parties) should be prepared.
  

4.        Customer Relations Issues

• The contingency plan should designate persons responsible for disclosure to customers consistent with the registrant's fiduciary duties.
  

5.        Third Party Contingencies

• The registrant should plan a course of action, including trigger dates, in the event a service provider, bank, counterparty or other party upon which a registrant relies to carry out its critical functions fails to achieve Y2K readiness. Each registrant, to the extent practicable and relevant, should endeavor to take into account the contingency plans of those third parties.
  

6.        Validating the Contingency Plan

     Registrants should validate their contingency plan, as appropriate, by:

• Conducting "dry-runs" for the dual purpose of testing the plan and training the personnel that will be in charge of its implementation; and
  
• Arranging for the contingency plan to be reviewed by qualified internal or external parties who have not participated in the construction of the plan.

Questions regarding this Advisory should be addressed to France M.T. Maca (202) 418-5482 [fmaca@CFTC.gov]; Susan Elliott (202) 418-5464 [selliott@CFTC.gov]; or Martha A. Mensoian (202) 418-5246 [mmensoian@CFTC.gov]

Seriatim Actions

On June 4, 1999, the Commission authorized for publication in the Federal Register an Advisory on Alternative Execution, or Block Trading, Procedures for the Futures Industry.

On June 4, 1999, the Commission amended a previously issued order granting statutory dual trading exemption for the Project A T-Bond futures contract at the Chicago Board of Trade to include the Ten-Year T-Note futures contract.

On June 4, 1999, the Commission approved an Advisory regarding Year 2000 contingency planning for Commission registrants.

Federal Register Notices

The Commission, on April 22, 1999 (64 FR 19730), proposed to reduce fees for a limited class of simultaneously submitted multiple contract designation application filings. Effective Date: June 8, 1999. Vol. 64, No. 109, 06/08/99, p. 30384.

The Commodity Futures Trading Commission authorized the National Futures Association to revoke, after thirty days written notice, the confirmation of rule 30.10 relief for any firm that fails to comply with the terms and conditions on which relief was confirmed. In addition, the Commission authorized NFA to withdraw the confirmation of rule 30.10 relief from any firm that notifies NFA of its decision to forfeit such relief. Effective Date: July 8, 1999. Vol. 64, No. 109, 06/08/99, p. 30489.

Comment Periods

NOTE:

All Comment Letters must be received by the Commission no later than the closing date specified in the applicable Federal Register release. Any requests for an extension of the comment period must be made in writing - - before the expiration of the comment period - - to the Commission's Office of the Secretariat.

Comment period concerning the New York Mercantile Exchange's application to trade crude oil average price options, heating oil average price options, and unleaded gasoline average price options ends, June 18, 1999.

Comment period concerning the Chicago Mercantile Exchange's application to trade futures and options on three-month Eurodollar FRAs (forward rate agreements) ends, July 24, 1999.

Initial Decisions

Emad Masadeh v. Sukhmeet Dhillon a/k/a Micky Dhillon, Main Street Trading Company, Newhall Discount Futures & Options, Inc., The Ken Roberts Company, and Alan David Yee. Filed June 9, 1999. After a careful review of the record it was determined that complainant had established that respondents: The Ken Roberts Company, Newhall Discount Futures and Options, and Alan David Yee had violated the CEAct. Further, respondent Dhillon was found liable as a principal of Newhall under the CEAct. Accordingly, respondents The Ken Roberts Company, Sukhmeet Dhillon, Newhall Discount Futures & Options, Inc., and Alan David Yee were ordered to pay reparations to complainant Emad Masadeh in the amount of $50,483.73, plus the filing fee of $50.00. Complainant was not able to demonstrate any violations of the CEAct by Main Street Trading Company and, therefore, the complaint against Main Street was dismissed. Joel E. Maillie, Judgment Officer. CFTC Docket No. 99-R019.

Opinions and Orders

No Opinions and Orders were issued during this period.

CFTC Letters

99-24; Interpretation; June 3, 1999; Denial of request for waiver from including in liabilities the aggregate settlement amount entered into with NFA in calculating adjusted net capital. [Division of Trading and Market's Regulation 1.17] (T&M).