For Release: April 17, 2000
CFTC Revises Guidance on How NFA Should Use Exchange Disciplinary Actions as "Other Good Cause" to Affect Floor Broker/Floor Trader Registration
The Commodity Futures Trading Commission (Commission) is issuing and publishing CFTC Letter No. 00-56 that provides guidance on how the Commission expects the National Futures Association (NFA), the self-regulatory organization (SRO) of the futures industry, to exercise its delegated authority to grant or maintain floor broker (FB) or floor trader (FT) registration. The letter revises a Commission letter dated December 4, 1997 and advises NFA to cease using CFTC rule 1.63 as the basis for evaluating the impact of an FB’s or FT’s exchange disciplinary history on his or her fitness to be registered pursuant to the "other good cause" provision of section 8a(3)(M) of the Commodity Exchange Act (Act). Instead, the letter advises NFA to rely principally on the standard enunciated in In the Matter of Clark, [1996-1998 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶27,032 (CFTC April 22, 1997), that statutory disqualification may arise under section 8a(3)(M) of the Act if, among other things, the disciplinary history of the FB or FT consists of a pattern of exchange disciplinary actions alleging serious rule violations that resulted in significant sanctions.
Under the letter, the "pattern" should consist of at least two final exchange disciplinary actions, whether settled or adjudicated that occur within a five-year period. At least one of the actions forming the pattern, however, must have become final after Clark was decided by the Commission on April 22, 1997. "Exchange disciplinary actions" would continue to include disciplinary actions taken by both futures industry and securities industry SROs, e.g., NFA and the National Association of Securities Dealers. Finally, "serious rule violations" consist of, or are substantially related to, charges of fraud, customer abuse, other illicit trading practices, or the obstruction of an exchange investigation.
The letter has been sent to NFA and will be made available for publication. The letter also will be posted on the Commission’s home page at http://www.cftc.gov/tm/letters/00letters/tm00-56.htm. Copies of the letter also may be obtained by contacting the Office of the Secretariat, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, (202) 418-5000.