Release: 3873-95 For Release: November 3, 1995
In particular, the letters discuss each exchange's compliance with the heightened audit trail standards mandated by Congress in the Futures Trading Practices Act of 1992, which went into effect at the end of October. Those standards require that the exchanges capture unalterable, continuous, independent, and automatic or similarly reliable audit trail times and the precise sequence of all trades. The Commission has commended each of the exchanges for making material improvements to its audit trail consistent with those standards. The Commission's letters also reminded the exchanges that integration of the audit trail data into an aggressive enforcement program will improve the exchanges' ability to fulfill their self-regulatory responsibilities.
The Commission previously has provided each of those exchanges with detailed guidance regarding the improvements that should be made. This guidance was intended to define a safe harbor for compliance with the heightened audit trail standards. At that time, the Commission advised that an exchange which implemented all of the recommendations contained in its guidance would be within the safe harbor.
The CSCE and NYMEX have implemented or committed to implement all recommendations related to trade timing and sequencing accuracy. The CME and CBT have implemented a majority but not all of the recommendations. As a result, those two exchanges are not within the express terms of the safe harbor. The exchanges represent that they will have put into place improvements by January 1, 1996 that will demonstrate good faith efforts to meet the heightened audit trail standards.
Although the CBT and CME do not meet the express terms of the safe harbor, the Commission will defer a finding on the exchanges' good faith compliance pending the results of a second test. The Commission will test the two exchanges in February 1996, based on the new statutory standards, to ascertain whether the new improvements sufficiently address the issues identified by the Commission. If those tests do not demonstrate that the exchanges are in good faith compliance with the new standards, the Commission will take other appropriate action.