[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

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``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]