Federal Register, Volume 83 Issue 9 (Friday, January 12, 2018)

[Federal Register Volume 83, Number 9 (Friday, January 12, 2018)]

[Rules and Regulations]

[Pages 1548-1550]

From the Federal Register Online via the Government Publishing Office [www.gpo.gov]

[FR Doc No: 2018-00468]



17 CFR Part 9

Performance of Certain Functions by the National Futures

Association With Respect to the Receipt and Processing of Exchange

Disciplinary and Access Denial Action Information

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice and order; delegation of authority.


SUMMARY: The Commodity Futures Trading Commission (``Commission'' or

[[Page 1549]]

``CFTC'') is updating the delegation it issued in 1999 to the National

Futures Association (``NFA'') regarding the duty to receive and to

process exchange disciplinary and access denial action information. The

delegation is being updated to clarify, among other things, that

designated contract market (``DCM'') and swap execution facility

(``SEF'') disciplinary and access denial notices must be filed with the

NFA instead of the Commission. The NFA will continue to serve as the

official custodian of records for exchange disciplinary filings.

DATES: This notice and order takes effect on March 13, 2018.

FOR FURTHER INFORMATION CONTACT: Rachel Berdansky, Deputy Director,

202-418-5429 or [email protected]; David Steinberg, Associate

Director, 202-418-5102 or [email protected]; Division of Market

Oversight, Commodity Futures Trading Commission, Three Lafayette

Centre, 1151 21st Street NW, Washington, DC 20581.


I. Introduction

In a separate document published elsewhere in this issue of the

Federal Register, the Commission issued final rules that update its 17

CFR part 9 rules (``Final Part 9 Rules''), including Sec. 9.11, that

sets forth the notice requirements for an exchange regarding

disciplinary and access denial actions. Section 9.11 was first

established in 1978 to carry out certain mandates of section 8c of the

Commodity Exchange Act (``Act'' or ``CEA'').\1\ Section 8c of the Act

generally: (i) Requires exchanges to discipline members and to notify

the disciplined individuals, the Commission, and the public of

disciplinary actions; and (ii) grants the Commission the authority to

review exchange disciplinary actions. Section 9.11 sets forth the

manner in which an exchange is to provide that notice.


\1\ 43 FR 59343 (Dec. 20, 1978).


In 1999, the Commission delegated authority to the NFA to receive

and to process exchange disciplinary and access denial information

(``Part 9 Delegation'').\2\ Consequently, the NFA currently serves as

the official custodian of records for exchange disciplinary filings. In

1999, concurrent with the Part 9 Delegation, the Commission published

an advisory permitting exchanges to file 9.11 notices with the

Commission or the NFA (``Part 9 Advisory'').\3\ While permitting filing

with the Commission, the Part 9 Advisory encourages exchanges to file

the required notice with the NFA. The Final Part 9 Rules, among other

things, codify the Part 9 Advisory and replace the Sec. 9.11

requirement that written notice be provided to the Commission with a

requirement that notice be provided to the NFA via the NFA's Background

Affiliation Status Information Center (``BASIC'') system.\4\ Moreover,

because SEFs did not exist when the Commission issued the initial

delegation in 1999, this Notice and Order is being updated to reflect

that the NFA will receive disciplinary and access denial action notices

from SEFs in addition to DCMs.\5\ For purposes of this Notice and

Order, the term ``exchange'' includes DCMs and SEFs.


\2\ 64 FR 39913 (July 23, 1999).

\3\ Id. at 39915.

\4\ The NFA's BASIC system allows the public to access

disciplinary information contributed by the NFA, CFTC, DCMs, and

SEFs pertaining to the types of violations committed, penalties

imposed, the effective date of the action, and summary of the

disciplinary action. The BASIC system enables the public to conduct

a search by NFA identification number, individual name, or firm


\5\ The Final Part 9 Rules amend the definition of ``exchange''

in Sec. 9.2 to include SEFs in addition to DCMs.


II. Delegation of Duties to the NFA

A. Processing Regulation 9.11 Filings

The NFA must process exchange Sec. 9.11 notices in a manner

consistent with Sec. 9.11. For purposes of this Notice and Order, the

term ``process'' generally refers to receipt of filings and review of

filings for compliance with applicable requirements. Section 9.11(a)

requires that whenever an exchange decision, pursuant to which a

disciplinary or access denial action to be imposed has become final,

the exchange must provide written notice of such action to the NFA

within 30 days. In addition, Sec. 9.11 notices filed with the NFA must

satisfy all of the content requirements set forth in Sec. 9.11(b).

Toward that end, notices filed with the NFA will be deemed certified

when an authorized exchange employee verifies the accuracy of the

information entered into BASIC.

B. Commission Access to BASIC and Reports

The NFA must provide the Commission with access to the BASIC system

so that the Commission can diligently carry out its legislative

mandate. This includes access to a Management Report that includes the

following for each disciplinary or access denial action:

Name of Contributor (i.e., an exchange, the NFA, or the


Name of Respondent;

Contributor Reference Number (i.e., disciplinary case

number generated by contributor);

Date of Decision or Order;

Date of Notification of NFA;

Total Number of Days for Data to be Released into BASIC

(i.e., number of days from the date of an exchange final action until

the date of exchange verification/certification); and

Name of Staff Person Entering Data (i.e., initials).

The Commission currently has access to the BASIC system and the

ability to generate 26 standardized reports that are customizable with

respect to the timeframe selected (e.g., January 1, 2017 to May 31,

2017), including the Management Report. Among other things, the

Commission is able to analyze the data maintained in BASIC by:

Disciplinary actions against firms or individuals resulting in fines,

suspensions, or expulsions; disciplinary actions issued by each

exchange; and the type of rule violations across all exchanges. The

Commission generates these reports on an as needed basis. As the

Commission needs these reports for effective oversight of the

exchanges, the NFA must continue to provide the Commission with the

capability to generate each of these reports from BASIC. The NFA shall

continue working with the Commission to develop additional query

capabilities as the Commission deems necessary to fulfill its

regulatory and oversight responsibilities.

C. BASIC Maintenance

The NFA shall maintain, and serve as the official custodian of,

records for exchange Sec. 9.11 filings. The NFA shall fulfill this

obligation by continuing to maintain the BASIC system and further

developing it as necessary to comply with the terms of this Notice and

Order. The NFA shall also implement such additional procedures (or

modify existing procedures) as are necessary to reasonably ensure the

security and integrity of these records.

III. Authority

Pursuant to section 8a(10) of the Act, the Commission has issued

numerous orders authorizing the NFA to perform various portions of the

Commission's registration functions and responsibilities under the

Act.\6\ In this connection, the Commission has previously issued orders

authorizing the

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NFA to perform the full range of registration processing functions with

respect to applicants for and persons registered as a: futures

commission merchant, commodity pool operator, or commodity trading

advisor; \7\ introducing broker; \8\ leverage transaction merchant; \9\

floor broker; \10\ floor trader; \11\ retail foreign exchange dealer;

\12\ and swap dealer or major swap participant (collectively,

registrants).\13\ Additionally, the NFA has adopted, and the Commission

has approved, rules that govern the performance of the registration

functions. For example, NFA Rule 501 pertains to the NFA's authority to

deny, condition, suspend, and revoke registration for registrants. NFA

Rule 504 sets forth the procedures governing applicants and registrants

disqualified from registration under sections 8a(2), 8a(3), or 8a(4) of

the Act.


\6\ 7 U.S.C. 12a(10) (2014). Further, CEA section 17(o) provides

that the Commission may require a registered futures association

(``RFA'') to perform Commission registration functions in accordance

with the Act and the RFA's rules. 7 U.S.C. 21(o) (2014).

\7\ See 49 FR 39593 (Oct. 9, 1984).

\8\ See 48 FR 35158 (Aug. 3, 1983).

\9\ See 54 FR 19556 (May 8, 1989).

\10\ See 51 FR 34490 (Sep. 29, 1986).

\11\ See 58 FR 19657 (Apr. 15, 1993).

\12\ See 75 FR 55310 (Sep. 10, 2010).

\13\ See 77 FR 2708 (Jan. 19, 2012).


In light of NFA's experience in processing and maintaining exchange

disciplinary and access denial actions on behalf of the Commission, the

Commission has determined that it will continue to delegate these

functions to the NFA. This Notice and Order is in accord with the

Commission's previous delegations to the NFA to perform registration

processing functions with respect to applicants and registrants, in

that, an individual's or firm's disciplinary history clearly is a

factor that must be considered in any fitness determination. Deeming

the NFA as the custodian of all exchange Sec. 9.11 filings, and

delegating to the NFA the responsibility for processing such filings

and generating reports with the information amassed, should ensure that

the NFA has the necessary information to continue to make appropriate

registration determinations. Further, the Commission believes that this

delegation order will enhance efficiency by permitting the Commission

to carry out its statutory responsibilities under the CEA, while also

freeing up Commission resources to be directed to other parts of its

regulatory mandate.

IV. Conclusion and Order

The Commission has determined, in accordance with section 8a(10) of

the Act, to delegate to the NFA the authority to perform the following


(1) To process exchange disciplinary information filed with it by

an exchange or the Commission for inclusion in the BASIC system;

(2) To provide the Commission with access to a Management Report

summarizing all recent exchange disciplinary information and to provide

the Commission with the capability to generate standardized reports on

the BASIC system;

(3) To assist the Commission in enforcing exchange compliance with

regulation 9.11 filing requirements; and

(4) To serve as the official custodian of a database containing

records of all exchange disciplinary and access denial actions filed

with the NFA for inclusion in the BASIC system.

The NFA is authorized to perform all functions specified herein

until such time as the Commission orders otherwise. Nothing in this

Notice and Order shall affect the Commission's oversight authority of

exchange disciplinary programs. The Commission is retaining all of its

oversight authority, including its authority to review and to modify

exchange disciplinary actions and to take enforcement or other remedial

action against exchanges for noncompliance with Sec. 9.11. The NFA may

submit to the Commission for clarification any specific matters that

have been delegated to it, and

Commission staff will be available to discuss with NFA staff issues

relating to implementation of this Notice and Order.

Issued in Washington, DC, on January 9, 2018, by the Commission.

Christopher J. Kirkpatrick,

Secretary of the Commission.

Appendix to Performance of Certain Functions by the National Futures

Association With Respect to Regulation 9.11--Commission Voting Summary

On this matter, Chairman Giancarlo and Commissioners Quintenz

and Behnam voted in the affirmative. No Commissioner voted in the


[FR Doc. 2018-00468 Filed 1-11-18; 8:45 am]




Last Updated: January 12, 2018