[Title 17 CFR 8]
[Code of Federal Regulations (annual edition) - April 1, 2003 Edition]
[Title 17 - COMMODITY AND SECURITIES EXCHANGES]
[Chapter I - COMMODITY FUTURES TRADING COMMISSION]
[Part 8 - EXCHANGE PROCEDURES FOR DISCIPLINARY, SUMMARY, AND MEMBERSHIP DENIAL ACTIONS]
[From the U.S. Government Printing Office]
17COMMODITY AND SECURITIES EXCHANGES12003-04-012003-04-01falseEXCHANGE PROCEDURES FOR DISCIPLINARY, SUMMARY, AND MEMBERSHIP DENIAL ACTIONS8PART 8COMMODITY AND SECURITIES EXCHANGESCOMMODITY FUTURES TRADING COMMISSION
PART 8--EXCHANGE PROCEDURES FOR DISCIPLINARY, SUMMARY, AND MEMBERSHIP DENIAL ACTIONS--Table of Contents
Subpart A--General Provisions
Sec.
8.01 Scope of rules.
8.02 Implementing exchange rules.
8.03 Definitions.
Subpart B--Disciplinary Procedure
8.05 Enforcement staff.
8.06 Investigations.
8.07 Investigation reports.
8.08 Disciplinary committee.
8.09 Review of investigation report.
8.10 Predetermined penalties.
8.11 Notice of charges.
8.12 Right to representation.
8.13 Answer to charges.
8.14 Admission or failure to deny charges.
8.15 Denial of charges and right to hearing.
8.16 Settlement offers.
8.17 Hearing.
8.18 Decision.
8.19 Appeal.
8.20 Final decision.
Subpart C--Summary Actions
8.25 Member responsibility actions.
8.26 Procedure for member responsibility actions.
8.27 Violations of rules regarding decorum, submission of records or
other similar activities.
8.28 Final decision.
Authority: 7 U.S.C. 6c, 7a, 12a and 12c, unless otherwise noted.
Source: 43 FR 41950, Sept. 19, 1978, unless otherwise noted.
Subpart A--General Provisions
Sec. 8.01 Scope of rules.
This part sets forth the standards to be followed by an exchange in
establishing procedures for investigating and adjudicating possible rule
violations within the disciplinary jurisdiction of the exchange, for
taking summary action in member responsibility cases and in cases
involving violations of rules regarding decorum, submission of records
or other similar activities, and for adjudicating membership denial
determinations. Nothing in this part shall be construed to prohibit an
exchange from adopting additional rules and practices not inconsistent
with those set forth herein.
Sec. 8.02 Implementing exchange rules.
(a) Each exchange shall submit to the Commission for its approval
rules implementing the following regulations: Secs. 8.11, 8.13, 8.15,
8.17, 8.18 and 8.20 of subpart B and Secs. 8.26 and 8.28 of subpart C.
Any such rule not previously submitted to the Commission shall not be
put into effect prior to Commission approval.
(b) An exchange may adopt rules implementing any or all of the
following regulations: Secs. 8.10, 8.16 and 8.19 of subpart B and
Sec. 8.27 of subpart C. Each rule so adopted and not previously
submitted to the Commission shall be submitted to the Commission for its
approval and shall not be put into effect prior to Commission approval.
Sec. 8.03 Definitions.
For purposes of this part:
(a) Board of appeals means that body provided for in Sec. 8.19.
(b) Charge or charges means any charge or charges contained in the
notice of charges.
(c) Disciplinary committee means that body or bodies provided for in
Sec. 8.08.
[[Page 202]]
(d) Disciplinary procedure means the rules of an exchange governing
the investigation and adjudication of possible rule violations and the
imposition of appropriate penalties under subpart B of this part.
(e) Enforcement staff means that body provided for in Sec. 8.05.
(f) Exchange means any board of trade which has been designated as a
contract market for one or more commodities pursuant to section 5 of the
Act or to trade commodity options pursuant to part 33 of this chapter.
(g) Investigation report means the report required by Sec. 8.07.
(h) Notice of charges means the notice required by Sec. 8.11.
(i) Penalty means any restriction, limitation, censure, fine,
expulsion, suspension, revocation, reprimand, cease and desist order,
sanction or any other disciplinary action for any amount or of any
definite or indefinite period imposed upon any person within the
disciplinary jurisdiction of an exchange upon a finding by the
disciplinary committee that a violation has been committed or pursuant
to the terms of a settlement agreement.
(j) Person(s) within the jurisdiction of an exchange means any
exchange employee, staff member or official, any member or person with
membership privileges or any person employed by or affiliated with a
member or person with membership privileges, including any agent or
associated person, and any other person under the supervision or control
of the exchange or of any member.
(k) Record of the proceeding means all testimony, exhibits, papers
and records produced at or filed in a disciplinary or summary proceeding
or served on a respondent or an exchange.
(l) Respondent means any person named in a notice of charges who has
been served with such notice or who is the subject of a summary action.
(m) Rule(s) of an exchange means any constitutional provision,
article of incorporation, bylaw, rule, regulation, resolution,
interpretation, stated policy or instrument corresponding thereto.
(n) Violation means any violation within the disciplinary
jurisdiction of the exchange.
[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 54525, Nov. 3, 1981]
Subpart B--Disciplinary Procedure
Sec. 8.05 Enforcement staff.
(a) Each exchange shall establish an adequate enforcement staff
which shall be authorized by the exchange to initiate and conduct
investigations, to prepare reports incident to such investigations and
to prosecute possible rule violations within the disciplinary
jurisdiction of the exchange. The enforcement staff shall consist of
employees of the exchange and/or persons hired on a contract basis. It
may not include either members of the exchange or persons whose
interests conflict with enforcement duties. When carrying out any
responsibility under this part 8 or any rule adopted pursuant thereto, a
member of the enforcement staff may not operate under the direction or
control of any person or persons with trading privileges.
(b) Each exchange is responsible for assuring the effective and
diligent enforcement of all rules within its disciplinary jurisdiction,
regardless of whether its enforcement staff consists of employees or
persons hired on a contract basis.
Sec. 8.06 Investigations.
(a) Each exchange shall establish and maintain a disciplinary
procedure which requires the enforcement staff of the exchange to
conduct investigations of possible rule violations within the
disciplinary jurisdiction of the exchange. Such an investigation shall
be commenced:
(1) Upon the receipt of a request from the Commission, its Executive
Director or his delegee, or
(2) Upon the discovery or receipt of information by the exchange
which, in the judgment of the enforcement staff, indicates a possible
basis for finding that a violation has occurred or will occur.
(b) Each enforcement staff investigation shall be completed within
four months, unless there exists significant
[[Page 203]]
reason to extend it beyond such period. If for any reason the
enforcement staff closes an investigation before determining whether a
reasonable basis exists for finding that a violation has occurred, the
staff shall fully set forth the reasons for so closing the investigation
in its report.
Sec. 8.07 Investigation reports.
(a) The enforcement staff shall submit a written investigation
report to the disciplinary committee of the exchange in every instance
in which the enforcement staff has determined from surveillance or from
an investigation that a reasonable basis exists for finding a violation.
The investigation report shall include the reason the investigation was
initiated, a summary of the complaint, if any, the relevant facts, the
enforcement staff's conclusions and a recommendation as to whether the
disciplinary committee should proceed with the matter.
(b) If after conducting an investigation the enforcement staff has
determined that no reasonable basis exists for finding a violation, it
shall prepare a written report including the reason the investigation
was initiated, a summary of the complaint, if any, the relevant facts,
the enforcement staff's conclusions and, if applicable, any
recommendation that the disciplinary committee issue a warning letter in
accordance with paragraph (c) of this section. The report shall become
part of the investigation file which thereafter may be closed.
(c) In addition to the action required to be taken under either
paragraph (a) or (b) of this section, the rules of an exchange may
authorize the enforcement staff to issue a warning letter to a person
under investigation or to recommend that the disciplinary committee
issue such a letter. A warning letter issued in accordance with this
section is not a penalty or an indication that a finding of a violation
has been made. A copy of such warning letter issued by the enforcement
staff shall be included in the investigation report required by
paragraph (a) or (b) of this section.
(Approved by the Office of Management and Budget under control number
3038-0022)
[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 63036, Dec. 30, 1981]
Sec. 8.08 Disciplinary committee.
Each exchange shall establish one or more disciplinary committees
which shall be authorized by the exchange to determine whether
violations have been committed, to accept offers of settlement and to
set and impose appropriate penalties. Each such disciplinary committee
shall consist of one or more members of the exchange or persons on the
staff of the exchange; however, persons on the enforcement staff may not
serve on a disciplinary committee.
Sec. 8.09 Review of investigation report.
The disciplinary committee shall promptly review each investigation
report. In the event the disciplinary committee determines that
additional investigation or evidence is needed, it shall promptly direct
the enforcement staff to conduct its investigation further. Within a
reasonable period of time not to exceed 30 days after the receipt of a
completed investigation report, the disciplinary committee shall take
one of the following actions:
(a) If the disciplinary committee determines that no reasonable
basis exists for finding a violation or that prosecution is otherwise
unwarranted, it may direct that no further action be taken. Such
determination must be in writing and contain a brief statement setting
forth the reasons therefor.
(b) If the disciplinary committee determines that a reasonable basis
exists for finding a violation which should be adjudicated, it shall
direct that the person alleged to have committed the violation be served
with a notice of charges and shall proceed in accordance with the rules
of this subpart.
(Approved by the Office of Management and Budget under control number
3038-0022)
[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 63036, Dec. 30, 1981]
[[Page 204]]
Sec. 8.10 Predetermined penalties.
An exchange may adopt rules which set specific maximum penalties for
particular violations. If the rules of an exchange establish
predetermined penalties, the disciplinary committee shall have
discretion in each case whether to employ the predetermined penalty. If
the predetermined penalty is employed, it shall be stated in the notice
of charges. In such case, after a hearing on a denied charge where a
respondent is found to have committed the violation charged, the
disciplinary committee shall impose the predetermined penalty or an
appropriate lesser penalty.
Sec. 8.11 Notice of charges.
The notice of charges shall:
(a) State the acts, practices, or conduct in which the person is
alleged to have engaged;
(b) State the rule alleged to have been violated (or about to be
violated);
(c) State the predetermined penalty, if any;
(d) Prescribe the period within which a hearing on the charges may
be requested;
(e) Advise the person charged that:
(1) He is entitled, upon request, to a hearing on the charges;
(2) If the rules of the exchange so provide, failure to request a
hearing within the period prescribed in the notice, except for good
cause, shall be deemed a waiver of the right to a hearing; and
(3) If the rules of the exchange so provide, failure in an answer to
deny expressly a charge shall be deemed to be an admission of such
charge.
(Approved by the Office of Management and Budget under control number
3038-0022)
[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 63036, Dec. 30, 1981]
Sec. 8.12 Right to representation.
Upon being served with a notice of charges the respondent shall have
the right to be represented by legal counsel or any other representative
of his choosing in all succeeding stages of the disciplinary proceeding.
Sec. 8.13 Answer to charges.
The respondent shall be given a reasonable period of time to file an
answer to the charges. The rules of an exchange may provide that:
(a) The answer must be in writing and include a statement that the
respondent admits, denies or does not have and is unable to obtain
sufficient information to admit or deny each allegation. A statement of
a lack of sufficient information shall have the effect of a denial of an
allegation.
(b) Failure to file an answer on a timely basis shall be deemed an
admission of all allegations contained in the notice of charges.
(c) Failure in an answer to deny expressly a charge shall be deemed
to be an admission of such charge.
Sec. 8.14 Admission or failure to deny charges.
(a) The rules of an exchange may provide that if the respondent
admits or fails to deny any of the charges the disciplinary committee
may find that the rule violation alleged in the notice of charges for
which the respondent admitted or failed to deny any of the charges has
been committed. If the exchange rules so provide, then:
(1) The disciplinary committee shall impose a penalty no greater
than the predetermined penalty, if any, stated in the notice of charges
for the corresponding violation found to have been committed.
(2) If no predetermined penalty was stated, the disciplinary
committee shall impose a penalty for each violation found to have been
committed.
(b) The disciplinary committee shall promptly notify the respondent
in writing of any penalty to be imposed pursuant to paragraph (a) of
this section and shall advise him that he may request a hearing on such
penalty within a reasonable period of time, which shall be stated in the
notice, but that except for good cause shown no hearing shall be
permitted on a penalty imposed pursuant to subparagraph (a)(1) of this
section.
(c) The rules of an exchange may provide that if a respondent fails
to request a hearing within the period of
[[Page 205]]
time stated in the notice he shall be deemed to have accepted the
penalty.
(Approved by the Office of Management and Budget under control number
3038-0022)
[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 63036, Dec. 30, 1981]
Sec. 8.15 Denial of charges and right to hearing.
In every instance where the respondent has requested a hearing on a
charge which is denied, or on a penalty set by the disciplinary
committee under Sec. 8.14(a)(2), he shall be given an opportunity for a
hearing in accordance with the requirements of Sec. 8.17. The exchange
rules may provide that, except for good cause, the hearing shall be
concerned only with those charges denied and/or penalties set by the
disciplinary committee under Sec. 8.14(a)(2) for which a hearing has
been requested.
Sec. 8.16 Settlement offers.
(a) The rules of an exchange may permit a respondent to submit a
written offer of settlement to the disciplinary committee at any time
after the investigation report is completed. The disciplinary committee
may accept the offer of settlement, but may not alter its terms unless
the respondent agrees.
(b) The rules of an exchange may provide that the disciplinary
committee, in its discretion, may permit the respondent to accept a
penalty without either admitting or denying the rule violations upon
which the penalty is based.
(c) If an offer of setlement is accepted by the disciplinary
committee, it shall issue a written decision specifying the rule
violations it has reason to believe were committed and any penalty to be
imposed. Where applicable, the decision shall also include a statement
that the respondent has accepted the penalties imposed without either
admitting or denying the rule violations.
(d) The respondent may withdraw his offer of settlement at any time
before final acceptance by the disciplinary committee. If an offer is
withdrawn after submission, or is rejected by the disciplinary
committee, the respondent shall not be deemed to have made any
admissions by reason of the offer of settlement and shall not be
otherwise prejudiced by having submitted the offer of settlement.
(Approved by the Office of Management and Budget under control number
3038-0022)
[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 63036, Dec. 30, 1981]
Sec. 8.17 Hearing.
(a) The following minimum requirements shall apply to any hearing
required by this subpart:
(1) The hearing shall be fair and shall be conducted before members
of the disciplinary committee. The hearing may be conducted before all
of the members of the disciplinary committee or a panel thereof, but no
member of the disciplinary committee may serve on the committee or panel
if he or any person or firm with which he is affiliated has a financial,
personal, or other direct interest in the matter under consideration.
(2) The respondent shall be entitled in advance of the hearing to
examine all books, documents, or other tangible evidence in the
possession or under the control of the exchange which are to be relied
upon by the enforcement staff in presenting the charges contained in the
notice of charges or which are relevant to those charges.
(3) The hearing shall be promptly convened after reasonable notice
to the respondent.
(4) The formal rules of evidence need not apply; nevertheless, the
procedures for the hearing may not be so informal as to deny a fair
hearing.
(5) The enforcement staff shall be a party to the hearing and shall
present its case on those charges and penalties which are the subject of
the hearing.
(6) The respondent shall be entitled to appear personally at the
hearing.
(7) The respondent shall be entitled to cross-examine any persons
appearing as witnesses at the hearing.
(8) The respondent shall be entitled to call witnesses and to
present such evidence as may be relevant to the charges.
(9) The exchange shall require persons within its jurisdiction who
are called as witnesses to appear at the hearing and to produce
evidence. It shall make reasonable efforts to secure the presence of all
other persons called
[[Page 206]]
as witnesses whose testimony would be relevant.
(10) If the respondent has requested a hearing, a substantially
verbatim record of the hearing shall be made and shall become a part of
the record of the proceeding. The record must be one that is capable of
being accurately transcribed; however, it need not be transcribed unless
the transcript is requested by Commission staff or the respondent, the
decision is appealed under Sec. 8.19, or is reviewed by the Commission
pursuant to section 8c of the Act or part 9 of this chapter. In all
other instances a summary record of a hearing is permitted.
(i) The rules of an exchange may provide that the cost of
transcribing the record of the hearing shall be borne by a respondent
who requests the transcript, appeals the decision pursuant to Sec. 8.19,
or whose application for Commission review of the disciplinary action
has been granted under part 9 of this chapter. In all other instances,
the cost of transcribing the record shall be borne by the exchange.
(b) The rules of an exchange may provide that a penalty may be
summarily imposed upon any person within its jurisdiction whose actions
impede the progress of a hearing.
(Approved by the Office of Management and Budget under control number
3038-0022)
[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 63036, Dec. 30, 1981]
Sec. 8.18 Decision.
Promptly following a hearing conducted in accordance with Sec. 8.17,
the disciplinary committee shall render a written decision based upon
the weight of the evidence contained in the record of the proceeding and
shall provide a copy to the respondent. The decision shall include:
(a) The notice of charges or a summary of the charges;
(b) The answer, if any, or a summary of the answer;
(c) A brief summary of the evidence produced at the hearing or,
where appropriate, incorporation by reference of the investigation
report;
(d) A statement of findings and conclusions with respect to each
charge, including the specific rules which the respondent is found to
have violated; and
(e) A declaration of any penalty imposed and the effective date of
such penalty.
(Approved by the Office of Management and Budget under control number
3038-0022)
[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 63036, Dec. 30, 1981]
Sec. 8.19 Appeal.
The rules of an exchange may permit a respondent to appeal promptly
an adverse decision of a disciplinary committee in all or in certain
classes of cases. Such rules may require a respondent's notice of appeal
to be in writing and to specify the findings, conclusions, and/or
penalty to which objection is taken. If the rules of an exchange permit
appeal, they shall provide for the following:
(a) The exchange shall establish a board of appeals which shall be
authorized to hear appeals of respondents. In addition, the rules of an
exchange may provide that the board of appeals may, on its own
initiative, order review of a decision by the disciplinary committee
within a reasonable period of time after the decision has been rendered.
(b) No member of the board of appeals shall serve on an appeal or
review panel if such member participated in any prior stage of the
disciplinary proceeding or if he or any person or firm with which he is
affiliated has a financial, personal, or other direct interest in the
matter. The rules of an exchange may provide that the appeal or review
proceeding may be conducted before all of the members of the board of
appeals or a panel thereof. Except for good cause shown, the appeal or
review shall be conducted solely on the record before the disciplinary
committee, the written exceptions filed by the parties, and the oral or
written arguments of the parties.
(c) Promptly following the appeal or review proceeding, the board of
appeals shall issue a written decision and shall provide a copy to the
respondent. The decision shall include a statement of findings and
conclusions with respect to each charge or penalty reviewed, including
the specific rules which the respondent was found to have violated by
[[Page 207]]
the disciplinary committee, and a declaration of any penalty imposed and
the effective date of such penalty.
(Approved by the Office of Management and Budget under control number
3038-0022)
[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 63036, Dec. 30, 1981]
Sec. 8.20 Final decision.
Each exchange shall establish rules setting forth when a decision
rendered pursuant to this subpart B shall become the final decision of
such exchange.
Subpart C--Summary Actions
Sec. 8.25 Member responsibility actions.
An exchange may suspend at any time, or take other summary action
against, a person subject to its jurisdiction upon a reasonable belief
that such immediate action is necessary to protect the best interest of
the marketplace.
Sec. 8.26 Procedure for member responsibility actions.
An action pursuant to Sec. 8.25 shall be taken in accordance with an
exchange procedure which provides for the following:
(a) The respondent shall, whenever practicable, be served with a
notice before the action is taken. If prior notice is not practicable,
the respondent shall be served with a notice at the earliest possible
opportunity. The notice shall:
(1) State the action,
(2) Briefly state the reasons for the action, and
(3) State the effective time and date and the duration of the
action.
(b) The respondent shall have the right to be represented by legal
counsel or any other representative of his choosing in all proceedings
subsequent to the summary action taken pursuant to Sec. 8.25.
(c) The respondent shall promptly be given opportunity for a
subsequent hearing. The hearing shall be fair and shall be held before
one or more persons authorized by the exchange to conduct hearings
pursuant to this section. The hearing shall be conducted in accordance
with the requirements set forth in Secs. 8.17(a)(4)-(9) and (b).
(d) Promptly following the hearing provided for in paragraph (c) of
this section, the exchange shall render a written decision based upon
the weight of the evidence contained in the record of the proceeding and
shall provide a copy to the respondent. The decision shall include:
(1) A description of the summary action taken,
(2) The reasons for the summary action,
(3) A brief summary of the evidence produced at the hearing,
(4) Findings and conclusions,
(5) A determination that the summary action should be affirmed,
modified or reversed, and
(6) A declaration of any action to be taken pursuant to the
determination specified in paragraph (d)(5) of this section and the
effective date and duration of such action.
(e) The rules of an exchange may permit the respondent to appeal
promptly an adverse decision. Such rules shall be established in
accordance with the requirements set forth in Sec. 8.19.
(Approved by the Office of Management and Budget under control number
3038-0022)
[43 FR 41950, Sept. 19, 1978, as amended at 46 FR 63036, Dec. 30, 1981]
Sec. 8.27 Violations of rules regarding decorum, submission of records or other similar activities.
An exchange may adopt rules which permit the enforcement staff or a
designated committee of officials to summarily impose minor penalties
against persons within its jurisdiction for violating rules regarding
decorum, attire, the timely submission of accurate records required for
clearing or verifying each day's transactions or other similar
activities.
Sec. 8.28 Final decision.
Each exchange shall establish rules setting forth when a decision
rendered pursuant to this subpart C shall become the final decision of
such exchange.
[[Page 208]]