No. 32-99
July 30, 1999



Weekly Advisory

Commodity Futures Trading Commission Three Lafayette Centre 1155 21st Street, NW Washington, DC 20581 Telephone: (202) 418-5080 Facsimile: (202) 418-5525
Home Page:
http://www.cftc.gov
Antoinette B. McCoy, Editor


Events

On July 28, 1999, Commissioner Thomas Erickson was the keynote luncheon speaker at the FIA's Law & Compliance Section monthly meeting.

Commission Meetings

On July 23, 1999, the Commission held a closed meeting to discuss surveillance matters.

On July 29, 1999, the Commission held a closed meeting to discuss enforcement matters.

On July 30, 1999, the Commission will hold a closed meeting to discuss surveillance matters.

CFTC News Releases

Release:                      #4291-99
For Release:               July 23, 1999

Commodity Futures Trading Commission Issues Advisories and Delegation Order Regarding the Filing and Maintenance of Exchange Disciplinary or Access Denial Action Notices

Washington, D.C. - The Commodity Futures Trading Commission (Commission) today issued two Advisories regarding exchange disciplinary information, and a Notice and Order delegating to the National Futures Association (NFA) certain responsibilities under Commission Regulation 9.11 related to the receipt and maintenance of this information. The advisories reflect the Commission's continued commitment to minimize regulatory reporting burdens and to recognize advances in electronic media technology. The Regulation 9.11 Advisory and Notice and Order eliminate a duplicative reporting obligation while providing exchanges with a simple, electronic method of reporting.

The Regulation 9.11 Advisory will permit exchanges to forego the requirement that notices of disciplinary or access denial actions be provided to the Commission. Instead, exchanges may file these notices directly with the NFA, either electronically or in writing. All information from Regulation 9.11 notices will be stored in the Background Affiliation Status Information center (BASIC), the NFA's database of disciplinary histories.

The Commission is also publishing a Regulation 3.31 Advisory. It is intended to eliminate a potential duplicative regulatory reporting obligation by exempting registrants, and applicants for registrant status, from the requirement to file a Form 3-R with the Commission, if the information to be reported on Form 3-R is solely the result of an exchange disciplinary or access denial action. That filing will be unnecessary since the NFA processes registration information and already will be in receipt of such information as a result of exchanges filing notices of disciplinary or access denial actions directly with the NFA.

The Commission's two Advisories and Notice and Order will become effective shortly, upon written notification by the NFA to the Commission that the NFA is prepared to assume the responsibilities contained in the Notice and Order. The Advisories and the Notice and Order will be published in the Federal Register. Copies of the publications may be obtained by contacting the Commission's Office of the Secretariat, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, (202) 418-5100, or by accessing the Commission's website, http://www.cftc.gov.

Release:                          #4292-99
For Release:                  July 23, 1999

Statement of I. Michael Greenberger, Director, Division of Trading and Markets

Washington, D.C. -- The process for the Division of Trading and Markets to review the applications by foreign exchanges for placement of screen based terminals in the U.S. will be as follows:

Because of their special circumstances, the following four exchanges will be reviewed and finalized for possible no-action letters by the Division as soon as possible but no later than within the next 21 days, barring unforeseen circumstances and assuming cooperation of the exchange:

            *      LIFFE
            *      SYCOM
            *      EUREX
            *      MATIF

Thereafter, applications will be processed on a first in, first out basis to the extent practicable.

Release:                      #4293-99
For Release:              July 27, 1999

CFTC NOTIFIES THE COMMODITY EXCHANGE, INC. DIVISION OF THE NEW YORK MERCANTILE EXCHANGE OF THE RESULTS OF A RULE ENFORCEMENT REVIEW

The Commodity Futures Trading Commission (Commission) has notified the Commodity Exchange, Inc. Division (COMEX) of the New York Mercantile Exchange of the results of a limited-scope rule enforcement review completed by the Commission's Division of Trading and Markets (T&M). The purpose of the review was to evaluate COMEX's trade practice surveillance and disciplinary programs, and certain aspects of its audit trail. The target period for the review was July 1, 1997 to June 30, 1998.

T&M found that COMEX generally maintains adequate trade practice surveillance and disciplinary programs. T&M also found that COMEX generally maintains an adequate program for conducting order ticket and trading card recordkeeping reviews.

COMEX's trade practice investigations are thorough, well-documented, and generally completed in a timely manner. In addition, COMEX members generally demonstrate a high level of compliance with respect to order ticket content requirements. T&M found, however, that although members generally demonstrate a high level of compliance with a number of trading card recordkeeping standards, compliance needs to improve regarding several important requirements.

Accordingly, T&M recommended that COMEX increase its required trading card compliance level similar to that in place for its order ticket compliance, and issue a notice to members reminding them of their trading card responsibilities. In addition, although T&M found evidence that trading cards are routinely reviewed during trade practice investigations, several investigation files did not include work papers documenting the review. Therefore, T&M recommended that COMEX ensure that these workpapers are included in investigation files.

In regard to COMEX's disciplinary program, disciplinary matters are promptly referred to a disciplinary committee and findings appear to be supported by the evidence. During the target period, fines totaling $115,000 and membership suspensions totaling 370 days were imposed. However, T&M also found that restitution was not ordered in cases where customer harm was determined. T&M therefore recommended that COMEX order restitution in all settlements and disciplinary decisions where the amount of customer harm can be determined.

COMEX will have 60 days to respond to these and other recommendations set forth in the report. Copies of the report are available from the Commission's Office of Public Affairs, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, (202) 418-5080, or by accessing the Commission's website at www.cftc.gov.

Opinions Updates

No Opinions Updates were issued during this period.

Seriatim Actions

On July 22, 1999, the Commission approved the Chicago Mercantile Exchange's application to trade the Three-Month Eurodollar FRA futures contract and options on that futures contract (99-205).

On July 22, 1999, the Commission approved the appointment of David Merrill as Acting General Counsel effective August 1, 1999.

On July 23, 1999, the Commission approved for publication in theFederal Register a notice seeking comment on proposed amendments to the Commission's Part 4 Rules regarding performance data and disclosure for commodity trading advisors.

Federal Register Notices

The Commodity Futures Trading Commission added three systems of records to be maintained under the Privacy Act: Freedom of Information Act requests, Privacy Act requests, and requests for Confidential Treatment. The new systems of records will be effective August 29, 1999, unless the Commission receives comments which would result in a contrary determination. Vol. 64, No. 138, 07/20/99, p. 38893.

The Commodity Futures Trading Commission advised registrants and applicants for registrant status that they are relieved of filing a Form 3-R, as required under Commission regulation 3.31, if the information to be reported is solely the result of an exchange disciplinary or access denial action. Effective Date: July 23, 1999. Vol. 64, No. 141, 07/23/99, p. 39912.

The Commission delegated to the National Futures Association the duty to receive and to process exchange disciplinary and access denial action information, in accordance with procedures established by the Commission. Effective Date: July 23, 1999. Vol. 64, No. 141, 07/23/99, p. 39913.

The Commodity Futures Trading Commission issued guidance concerning alternative methods of compliance with the requirements of Commission regulation 9.11(a) concerning the disclosure of information to the Commission by exchanges regarding disciplinary action and access denial actions. Exchanges may now electronically transmit the required notice to the National Futures Association through NFA's Background Affiliation Status Information center (BASIC) system. Effective Date: July 23, 1999. Vol. 64, No. 141, 07/23/99, pp. 39915-39916.

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 Commodity Futures Trading Commission's proposal to approve automatically certain exchange rule amendments upon adoption and to require their subsequent submission to the Commission in a single summary filing, rather than individually as currently mandated ends, August 16, 1999.

Comment period concerning the three systems added to the Commodity Futures Trading Commission's systems of records to be maintained under the Privacy Act ends, August 19, 1999.

Initial Decisions

In the Matter of Alfred R. Piasio and Donald W. Wilson. Filed July 21, 1999. The Commission issued its complaint against Piasio and Wilson on June 24, 1997. The complaint charged respondent Wilson with offering to enter, entering, or confirming wash sales in violation of the CEAct and charged respondent Piasio with offering to enter into wash sales in violation with the CEAct. Respondents filed timely answers and denied any wrongdoing. After a careful review of the record, it was determined that the transactions were bona fide sales, not wash sales. Accordingly, the complaint against respondents Alfred R. Piasio and Donald W. Wilson was dismissed. Administrative Law Judge, George H. Painter. CFTC Docket No. 97-9.

Dennis L. Wood v. LFG, L.L.C. Filed July 21, 1999. After a careful review of the parties' submissions, it was concluded that complainant had failed to establish any violations causing damages. Accordingly, this matter was dismissed. Philip V. McGuire, Judgment Officer. CFTC Docket No. 99-R68.

Robert S. Foo, Trustee for the Robert S. Foo Family Trust v. Alaron Trading Corporation and Alan Captain. Filed July 22, 1999. The complainant in this action contended that the respondent had misrepresented how successful the trading would be and had disregarded complainant's trading guidelines. After a careful review of the record, it was determined that the misrepresentation claim was without merit and respondent effectively rebutted allegations of fraud. Accordingly, the complaint was dismissed. Joel R. Maillie, Judgment Officer. CFTC Docket No. 99-R006.

Donald Eugene Baker v. Gary Louis Yarusso. Filed July 23, 1999. Donald Baker alleged that Gary Yarusso defrauded him during the solicitation and trading of his options account with American Futures Group, and sought to recover $24,634.39 in out-of-pocket losses. Yarusso denied any violations. After a careful review of the record, it was concluded that Gary Yarusso had violated the CEAct and that the violations caused $24,634.39 in damages. Accordingly, Gary Yarusso was ordered to pay Donald Baker reparations of $24,634.39, plus interest at 4.966% compounded annually from September 19, 1996, to the date of payment, plus $125 in costs for the filing fee. Philip V. McGuire, Judgment Officer. CFTC Docket No. 98-R160.

Opinions and Orders

Stephen Briggs v. New York Mercantile Exchange. Filed July 21, 1999. Stephen Briggs sought reconsideration of the Commission's order dismissing his unperfected appeal from a final decision of the New York Mercantile Exchange. For good cause shown, that order was vacated and Brigg's appeal was reinstated. CFTC Docket No. 98-E-2.

CFTC Letters

99-26; No-Action; July 7, 1999; The Division of Trading and Markets issued a no-action position to a registered CTA to permit it to treat a commodity pool with assets of less than $5,000,000 as an eligible customer for purposes of bunched orders placed, executed, and allocated pursuant to Rule 1.35(a-1)(5). The no-action position was issued based upon representations that: 1) the CTA will employ an electronic block order allocation system, which uses an average price methodology, for the allocation of orders executed pursuant to Rule 1.35(a-1)(5) and allocated on a post-execution basis; 2) the CPO of the commodity pool also acts as the CPO of a pool which meets the assets requirement and satisfies the definition of a QEP in Rule 4.7; and 3) participants in the pool are current and former employees of the CTA or its affiliates or immediate family members of employees of the CTA. [Rule 1.35(a-1)(5) -- Orders Eligible for Post-Execution Allocation.] (T&M).

99-27; No-Action; Exemption; July 14, 1999; The Division permitted a CPO to claim relief under Rule 4.7 with respect to a commodity pool that had both QEP and non-QEP participants based upon, among others, representation that: 1) 93% of the capital of the participants in the Partnership was attributable to QEPs; and 2) the non-QEPs would not participate in investments by the Partnership in commodity interests, would not share in any profits and losses from the Partnership's commodity interest trading and would not have any Partnership assets allocable to them subject to claim by the Partnership's FCM. While not having non-QEP assets subject to claim by the FCM might implicate Rule 1.56, based upon such factors as the purpose of that rule, the nature of the arrangement and the capitalization of the parties to the arrangement, the Division took a "no-action" position under Rule. 1.56 with respect to the FCM. [Rule 4.7 (Exemption) and Rule 1.56 (No-Action)] (T&M).

99-28; No-Action; July 9, 1999; The Division of Trading and Markets (Division) declined to grant an FCM's no-action request regarding introducing broker (IB) registration requirements as applied to grain elevators with which the FCM wished to enter into a fee-splitting arrangement. Specifically, the FCM wanted to split the flat fee paid by a customer of the FCM's agricultural marketing service with the grain elevator that originally referred the customer to the FCM's service. The agricultural marketing service helped agricultural producers develop individualized marketing plans for those agricultural products that could be hedged using exchange-traded futures and options contracts. The Division noted that given positions set forth in previous no-action and interpretative letters, the grain elevators, in referring customers to the FCM for compensation, would be engaged in behavior that constituted indirect solicitation of customer orders and required them to register as IBs, even though the users of the market services were under no obligation to open a trading account with the FCM or use futures or options in marketing their agricultural products. [Section 4d of the Act] (T&M).