Proposed Rule

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Proposed Amendments to to NFA Registration Rules 501, 502, 504, 505, 507, 508, 509, and 510 (additions are underscored and deletions are stricken)

REGISTRATION RULES
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PART 500. PROCEEDINGS TO DENY, CONDITION, SUSPEND, RESTRICT, AND REVOKE REGISTRATION

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RULE 501. AUTHORITY TO DENY, CONDITION, SUSPEND, RESTRICT AND REVOKE REGISTRATION.

    (a) Registration of Futures Commission Merchants, Introducing Brokers, Commodity Pool Operators, Commodity Trading Advisors, Leverage Transaction Merchants, Agricultural Trade Option Merchants and Associated Persons. NFA may refuse to register or register conditionally any person registered or applying for registration as an FCM, IB, CPO, CTA, LTM, ATM, or as an AP of any of the foregoing, or as a floor broker or floor trader, or suspend restrict or revoke the registration of any registrant in those categories, based upon the standards of fitness set forth in the Act. Interim Orders and Final Orders denying, revoking, conditioning, or suspending or restricting registration shall be made by the Membership Committee or a designated Subcommit-tee in accordance with the procedures set forth in Part 500 of these Rules. Such designated Subcommittee shall consist of three members of the Membership Committee for all categories except floor brokers and floor traders. The designated Subcommittee for floor brokers/floor traders shall consist of at least three persons, the majority of whom are members of the Membership Committee and the remainder of whom are registered floor brokers or floor traders approved by NFA's Board of Directors to be a member of such Subcommittee. In cases submitted by the President to the Membership Committee or a designated Subcommittee, registration shall not be granted pending a final determination by the Membership Committee or a designated Subcommittee. No member of the Membership Committee or a designated Subcommittee shall either review a registration matter or participate in a registration action if the member, or any person with whom the member is connected, has a financial, personal or other direct interest in the matter under consideration or is disqualified under Bylaw 708(c).

    (b) Registration of Floor Brokers and Floor Traders. NFA may refuse to reg-ister or register conditionally any person applying for registration as a floor broker or floor trader, or suspend, restrict or revoke the registration of any person registered as a floor broker or floor trader, based upon the standards of fitness set forth in the Act. Interim Orders and Final Orders denying, revoking, conditioning, or suspending or restricting registration as a floor broker or floor trader shall be made by the Membership Committee or a designated Subcommittee in accordance with the procedures set forth in Part 500 of these Rules. Such designated Subcommittee shall consist of at least three persons, the majority of whom are members of the Membership Committee and the remainder of whom are registered floor brokers or floor traders approved by NFA's Board of Directors to be a member of such Subcommittee. In cases submitted by the President to the Membership Committee or a designated Subcommittee, registration shall not be granted pending a final determination by the Membership Committee or a designated Subcommittee. No member of the Membership Committee or a designated Subcommittee shall either review a registration matter or participate in a registration action if the member, or any person with whom the member is connected, has a finan-cial, personal or other direct interest in the matter under consideration or is disqualified under Bylaw 708(c).

RULE 502. GENERAL PROVISIONS.

    (a) Service.

    (1) (a) For purposes of any proceeding to deny, condition, suspend, restrict or revoke registration, service upon an applicant or registrant will be sufficient if mailed by certified mail return receipt requested, delivered to a generally recognized overnight courier service or delivered to a messenger service, properly addressed to the applicant or registrant at the address shown on his most recent registration application or any amendment thereto. Service will be complete upon mailing, delivery to a generally recognized overnight courier service or delivery to a messenger service. Where a party effects service by mail, the time within which the person served may respond thereto shall be increased by three days.

    (2) (b) A copy of any notice served in accordance with paragraph (a)(1) of this Rule shall also be served upon:

    (A) (1) any sponsor of the applicant or registrant, if the applicant or registrant is an individual registered as or applying for registration as an AP and such sponsor's guarantor, if any; or

    (B) (2) any FCM which has entered into a guarantee agreement pursuant to CFTC Regulation 1.10(j) with an applicant or registrant applying for registration as or registered as an IB; or

    (C) (3) any contract market that has granted or is reviewing an application for trading privileges if the applicant or registrant is an individual registered as or applying for registration as a floor broker or floor trader.

    (3) (c) Documents served by an applicant or registrant upon NFA under this Part 500 shall be considered served or filed only upon actual receipt by the Legal Docketing Department of National Futures Association, 200 West Madison Street, Chicago, Illinois 60606.

    (d) Documents may also be served by sending by e-mail to Legal Docketing Department at Docketing@NFA.Futures.Org. Parties who file documents by e-mail thereby consent to accept service of pleadings in the proceedings by e-mail and waive any objection based on authenticity and genuineness to the use and admissibility into evidence in the proceeding of any document that they file by e-mail. The first document that a party files by e-mail must identify that party's e-mail address at which NFA may serve pleadings in the proceeding. Parties who provide an e-mail address must advise Legal Docketing of any change to the e-mail address.

    (b) Extensions of Time for Filing.

    (1) (e) Except as otherwise provided by law or these Rules, for good cause shown, the Membership Committee or a designated Subcommittee before whom a proceeding brought under these Part 500 Rules is then pending, on their own motion or motion of a party, may at any time extend or shorten the time limit prescribed by such Rules for filing any document. In any instance in which a time limit is not prescribed for an action to be taken concerning any matter, the Membership Committee or a designated Subcommittee may set a time limit for that action.

    (2) Absent extraordinary circumstances, in any instance in which a time limit has been prescribed for an action to be taken exceeds seven days from the date of the order or Rule establishing the time limit, requests for extensions of time shall be filed at least five days prior to the expiration of the time limit and shall explain why an extension of time is necessary.

    (c) Section 8a(2)(E) Disqualification. NFA will not initiate a proceeding based on a statutory disqualification set forth in Section 8a(2)(E) of the Act if respondeat superior is the sole basis upon which an applicant or registrant may be found subject to such statutory disqualification.

RULE 503. WITHDRAWAL OF APPLICATION FOR REGISTRATION.

    (a) Whenever information comes to the attention of NFA that an applicant for registration in any capacity may be disqualified from registration under Section 8a(2), 8a(3) or 8a(4) of the Act, the Vice-President of Compliance or the Vice-President's designee may serve written notice upon the applicant which shall specify the statutory disqualifications to which the applicant may be subject and notify the applicant that:

    (1) the information, if true, is a basis upon which the applicant's registration may be denied;

    (2) unless the applicant voluntarily withdraws his application, it may be necessary to institute the denial procedures described in Part 500 of these Rules; and

    (3) if the applicant does not confirm in writing that he wishes to have his application given further consideration, his application will be deemed to have been withdrawn.

    (b) The applicant must serve the written confirmation referred to in paragraph (a)(3) of this Rule upon NFA's Legal Docketing Department within 20 days of the date the written notice from NFA was served.

RULE 504. PROCEDURES GOVERNING APPLICANTS AND REGISTRANTS, EXCEPT FLOOR BROKERS AND FLOOR TRADERS, DISQUALIFIED FROM REGISTRATION UNDER SECTION 8a(2), 8a(3) OR 8a(4) OF THE ACT. AND APPLICANTS, EXCEPT FLOOR BROKERS AND FLOOR TRADERS, DISQUALIFIED FROM REGISTRATION UNDER SECTION 8a(2) OF THE ACT.

    (a) Applicants subject to a Section 8a(2), 8a(3) or 8a(4) Disqualification and Registrants Subject to a Section 8a(3) or 8a(4) Disqualification.

    (1) (a) Notice of Intent. On the basis of information which NFA has obtained, the President of NFA may at any time serve a Notice of Intent upon any person registered or applying for registration in any capacity, except that of floor broker or floor trader, stating that:

    (A) (1) NFA alleges and is prepared to prove that the applicant or registrant is subject to one or more of the statutory disqualifications set forth in Section 8a(2), 8a(3) or 8a(4) of the Act;

    (B) (2) the allegations set forth in the Notice of Intent, if true, constitute a basis upon which registration can be denied, conditioned, suspended, restricted or revoked (if the Notice of Intent proposes conditioning or restricting registration, the Notice shall specify the proposed conditions or restrictions);

    (C) (3) the applicant or registrant is entitled to have the Membership Committee or a designated Subcommittee considers written evidence of the type set forth in paragraph (a)(2) (f) of this Rule. The Notice of Intent shall inform the applicant or registrant of the procedures which will be followed if no written submission is made in accordance with this Rule; and

    (D) (4) if an applicant for registration has been granted a temporary license, such temporary license shall terminate five days after service on the applicant of the Notice of Intent.

    (2) (b) Written Response to the Notice of Intent.

    (A) (1) In response to a Notice of Intent alleging a disqualification from registration set forth in Section 8a(2), 8a(3) or 8a(4) of the Act, the applicant or registrant may submit a written response challenging the accuracy of the allegations establishing the statutory disqualification, including evidence as to:

    (i) (A) the applicant's or registrant's identity;

    (ii) (B) the existence of a clerical error in any record documenting the statutory disqualification;

    (iii) (C) the nature or date of the statutory disqualification;

    (iv) (D) the post-conviction modification of any record of conviction; or

    (v) (E) the favorable disposition of any appeal.

    (B) (2) The applicant or registrant shall state the nature of each challenge in the response and submit an affidavit to support facts material to each challenge. In the response, if the person is not an AP or IB or an applicant for registration in either capacity, the applicant or registrant also shall state whether it he intends to show that, notwithstanding the accuracy of the allegations set forth in the Notice of Intent, its his registration would pose no substantial risk to the public. If the AP or IB or applicant for registration in either capacity intends to make such a showing, such person also must submit a letter signed by an officer or general partner authorized to bind the sponsor or guarantor. Such letter must state that the sponsor agrees to sign a Supplemental Sponsor Certification Statement or the guarantor agrees to sign a Supplemental Guarantor Certification Statement and supervise compliance with any conditions or restric-tions that may be imposed on the applicant or registrant by the Membership Committee or a designated Subcommittee: Provided, however, that with respect to such sponsor or guarantor:

    (i) an adjudicatory proceeding brought by or before:

    (a) the Commission, pursuant to the provisions of Sections 6(b), 6(c), 6c, 6d, 8a or 9 of the Act; or

    (b) NFA, pursuant to NFA Compliance Rules or these Rules, is not pending and the sponsor or guarantor is not subject to any special supervisory obligations imposed by NFA or agreed to by such sponsor or guarantor; and

    (ii) in the case of a sponsor which is an FCM or LTM, the sponsor is not subject to the reporting requirements of NFA Financial Requirements Section 6 or CFTC Regulation 31.7(b), respectively.

    (3) Time for Filing of Response. A written response to the Notice of Intent must be served upon NFA's Legal Docketing Department within 30 20 days of the date of the service of the Notice of Intent upon the applicant or registrant. Such response must be accompanied by All applicants and registrants, except floor brokers and floor traders, must include the disqualification fee required by Rule 203(a)(11) with their response.

    (4) Default of Applicant or Registrant to Notice of Intent. If the applicant or registrant fails to file a timely written response to the Notice of Intent, the applicant or registrant shall be deemed to have waived his right to submit such written response, and the facts stated in the Notice of Intent shall be deemed to be true for the purpose of finding that the applicant or registrant is disqualified from registration under Section 8a(2), 8a(3) or 8a(4) of the Act. The Membership Committee or a designated Subcommittee shall thereafter, after a finding that service was properly effected in accordance with Rule 502, enter a Final Order denying, conditioning, suspending, restricting or revoking the registration. Such finding shall be based upon the evidence of the statutory disqualification and the Notice of Intent with proof of service. In order to prevent injustice and on such conditions as may be appropriate, the Membership Committee or a designated Subcommittee may set aside a default order. Any motion to set aside a default shall be made within a reasonable time, shall state the reasons for the failure to file and shall specify the nature of the proposed defense.

    (4) (c) Reply to Response of a Registrant's Written Response Subject to an 8a(2) Disqualification. If a registrant who is alleged to be subject to an 8a(2) disqualification files submits a written response pursuant to paragraph (b)(2) of this Rule, challenging the accuracy of the allegations establishing the statutory disqualification, the Vice-President of Compliance may submit a written reply to the Membership Committee or a designated Subcommittee and serve such reply upon the registrant within 30 10 days of the date of such written response. The reply shall include evidence establishing the existence of the statutory disqualification.

    (6) (d) Initial Determination Interim Order. After the receipt of the a registrant's written response to the Notice of Intent and any reply thereto from the Vice-President of Compliance, the Membership Committee or a designated Subcommittee shall determine, based on the record before it, whether the registrant is disqualified from registration under Section 8a(2) of the Act. Such determination shall be based upon the evidence of the statutory disqualification, the Notice of Intent with proof of service, the written response, if any, filed by the registrant, any written reply submitted by the Vice-President of Compliance and such other papers as the Membership Committee or a designated Subcommittee may require or permit.

    (7) Interim Order.

    (B) (1) If the Membership Committee or a designated Subcommittee determines that the registrant is disqualified under Section 8a(2) of the Act, the Membership Committee or a designated Subcommittee, within 30 days after receipt of the registrant's written response, if any, and any reply thereto, shall issue an interim order suspending the registration of the registrant. and requiring him to show cause within 20 days of the date of such order why, notwithstanding the existence of the statutory disqualification, his registration should not be revoked. The interim order shall inform the registrant of the procedures which will be followed if no response is made in accordance with this Rule : that:

    (i) Tthe registration of the registrant shall be suspended, effective five days after the interim order is served upon the registrant, and such suspension shall remain in effect until a Final Order has been issued; .

    (ii) If the sole basis upon which the registrant is disqualified from registration is the existence of a temporary order, judgment or decree of the type described in Section 8a(2)(C) of the Act, the order to show cause shall not be issued and the registrant shall be suspended, until such time as the temporary order, judgment or decree shall have expired except that iIn no event shall the registrant be suspended for a period to exceed six months.

    (A) (2) If the Membership Committee or a designated Subcommittee determines that the registrant is not disqualified from registration under Section 8a(2) of the Act, the Membership Committee or a designated Subcommittee shall, within 30 days after receipt of the registrant's written response and any reply thereto, either issue a Withdrawal of Notice of Intent or, if the Membership Committee or a designated Subcommittee determines that the disqualification constitutes a Section 8a(3) disqualification, it may grant the Vice President leave to issue file an Amended Notice of Intent within thirty days. In either event, the Membership Committee or a designated Subcommittee shall make a finding that the registrant is not disqualified under Section 8a(2) of the Act.

    (7) (e) Oral Hearing. Within 30 days of the date NFA the applicant or registrant files its response in accordance with paragraph (a)(6) of this Rule to the applicant's or registrant's response and further submission, if any, to the Notice of Intent, the Chairman of the Membership Committee or a designated Subcommittee shall appoint a Chairman of the Subcommittee, who shall

    (A) if the Membership Committee or a designated Subcommittee finds, based on the motion for summary judgment, that a party is entitled to judgment as a matter of law, issue an order granting, denying, suspending or revoking the registration of the applicant or registrant or withdrawing the Notice of Intent (such order shall be made in accordance with the standards set forth in Rules 507(a) and (b)); or

    (B) if a motion for summary judgment is not filed or if such a motion is denied, notify the parties of the time and place of a hearing. At such hearing, the parties shall be limited in their case-in-chief to presentation of witnesses and documents listed in previous filings their submissions as described in (f) and (g) below, except for good cause shown.

    (5) (f) Further Submission in Accordance With Rule 504(a)(2)(B) Respondent's Witnesses and Evidence. If, in response to the Notice of Intent, the applicant or registrant states that he intends to make the showing referred to in paragraph (a)(2)(B) (b)(2) of this Rule, he shall, 15 at least 30 days before the date of the hearing, file with NFA's Legal Docketing Department a submission which includes a statement of the applicant or registrant or his attorney identifying and summarizing the testimony of each witness whom the applicant or registrant intends to have testify in support of facts material to his showing. Such submission also must include copies of all documents which the applicant or registrant intends to introduce to support facts material to his showing. In making a showing pursuant to paragraph (a)(2)(B) (b)(2) of this Rule, the applicant or registrant may present:

    (A) (1) mitigating evidence relating to the facts and circumstances surrounding the disqualifying conduct;

    (B) (2) evidence of rehabilitation since the disqualifying conduct; and

    (C) (3) if the person is an AP, an IB or an applicant for registration in either capacity, evidence that the applicant's or registrant's registration would be subject to supervisory controls, including proposed conditions or restrictions likely to detect future wrongdoing by the applicant or registrant and protect the public from any harm arising from such future wrongdoing.

    (7) (g) NFA's Response Witnesses and Evidence. Within At least 60 15 days of before of the later of the date of the hearing the applicant or registrant serves a copy of the response to the Notice of Intent on NFA (if no further submission is to be made in accordance with paragraph (a)(5) of this Rule) or the date the applicant or registrant serves a copy of the further submission made in accordance with paragraph (a)(5) of this Rule on NFA, the Vice-President of Compliance shall prepare a response thereto and serve, a copy of the response on the applicant or registrant., Such response shall include either:

    (A) a motion for summary judgment stating that, based upon the applicant's or registrant's response and further submission, if any, and any other materials which are attached to the response, there are no genuine issues of material fact to be determined and that registration should be denied or revoked; or

    (B) a description of the factual issues raised in the applicant's or registrant's response and further submission, if any, that NFA regards as material and disputed. Such reply also shall include the identity and a summary of the expected testimony of each witness whom NFA intends to have testify at its case-in-chief and copies of all documents which NFA intends to introduce at such hearing.

    (8) Order. After the conclusion of the hearing, the Membership Committee or a designated Subcommittee shall make a finding as to whether the applicant or registrant has shown that his registration should not be denied or conditioned or whether the registrant has shown that his registration should not be denied, suspended, restricted or revoked and shall issue an order accordingly, pursuant to the standards set forth in Rules 507(a) and

    (9) (h) Termination. In the event the sponsor of that an applicant or registrant's pending or current registration is terminated files a Form 8-T reflecting the termination of employment of such applicant or registrant after the issuance of a Notice of Intent but prior to the effective date of a Final Order, the Membership Committee or a designated Subcommittee may issue a Withdrawal of Notice of Intent indicating that because the applicant or registrant is no longer has a sponsor registered or pending registration, further proceedings are not warranted.

    (b) Registrants subject to a Section 8a(2) Disqualification.

    (1) Notice of Intent. On the basis of information which NFA has obtained, the President of NFA may at any time serve a Notice of Intent upon any person registered in any capacity, except that of floor broker or floor trader, stating that:

    (A) NFA alleges and is prepared to prove that the registrant is subject to one or more of the statutory disqualifications set forth in Section 8a(2) of the Act;

    (B) the allegations set forth in the Notice of Intent, if true, constitute a basis upon which registration can be suspended or revoked;

    (C) the registrant is entitled to have the Membership Committee or a desig-nated Subcommittee consider written evidence of the type set forth in paragraph (b)(2) of this Rule. The Notice of Intent shall inform the registrant of the procedures which will be followed if no written submission is made in accordance with this Rule;

    (D) the Membership Committee or a designated Subcommittee shall determine, based upon such written evidence, whether the registrant is subject to a statutory disqualification; and

    (E) if the registrant is found to be subject to a statutory disqualification, the registrant may be suspended and ordered to show cause why such registration should not be revoked.

    (2) Written Response to the Notice of Intent. In response to a written Notice of Intent alleging a disqualification from registration set forth in Section 8a(2) of the Act, the registrant may submit a written response limited in scope to evidence challenging the accuracy of the allegations establishing the statutory disqualification, including evidence as to:

    (A) the registrant's identity;

    (B) the existence of a clerical error in any record documenting the statutory disqualification;

    (C) the nature or date of the statutory disqualification;

    (D) the post-conviction modification of any record of conviction; or

    (E) the favorable disposition of any appeal.

    The registrant shall state the nature of each challenge in the response and submit an affidavit to support facts material to each challenge.

    (3) Time for Filing of Response. A written response to the Notice of Intent must be served upon NFA's Legal Docketing Department within 20 days of the date of service of the Notice of Intent upon the registrant. Such response must be accompanied by the disqualification fee required by Rule 203(a)(11).

    (4) Reply to Registrant's Written Response. If a registrant files a written response pursuant to paragraph (b)(2) of this rule, the Vice-President of Compliance may submit a written reply to the Membership Committee or a designated Subcommittee and serve such reply upon the registrant within 30 days of the date of such written response.

    (5) Default of Registrant to Notice of Intent. If the registrant fails to file a timely written response to the Notice of Intent, the registrant shall be deemed to have waived his right to submit such written response, and the facts stated in the Notice of Intent shall be deemed true for the purpose of finding that the registrant is disqualified from registration under Section 8a(2) of the Act. The Membership Committee or a designated Subcommittee shall thereafter, upon a finding that service was properly effected in accordance with Rule 502, issue an interim order suspending registration as described in paragraph (b)(7)(B) of this Rule. Such finding shall be based upon the evidence of the statutory disqualification and the Notice of Intent with proof of service. In order to prevent injustice and on such conditions as may be appropriate, the Membership Committee or a designated Subcommittee may set aside a default order. Any motion to set aside a default shall be made within a reasonable time, shall state the reasons for the failure to file and shall specify the nature of the proposed defense.

    (6) Initial Determination. After the receipt of the registrant's written response and any reply thereto from the Vice-President of Compliance, the Membership Committee or a designated Subcommittee shall determine whether the registrant is disqualified from registration under Section 8a(2) of the Act. Such determination shall be based upon the evidence of the statutory disqualification, the Notice of Intent with proof of service, the written response, if any, filed by the registrant, any written reply submitted by the Vice-President of Compliance and such other papers as the Membership Committee or a designated Subcommittee may require or permit.

    (7) Interim Order.

    (A) If the Membership Committee or a designated Subcommittee determines that the registrant is not disqualified from registration under Section 8a(2) of the Act, the Membership Committee or a designated Subcommittee shall, within 30 days after receipt of the registrant's written response and any reply thereto, either issue a Withdrawal of Notice of Intent or, if the Membership Committee or a designated Subcommittee determines that the disqualification constitutes a Section 8a(3) disqualification, issue an Amended Notice of Intent. In either event, the Membership Committee or a designated Subcommittee shall make a finding that the registrant is not disqualified under Section 8a(2) of the Act.

    (B) If the Membership Committee or a designated Subcommittee determines that the registrant is disqualified under Section 8a(2) of the Act, the Membership Committee or a designated Subcommittee, within 30 days after receipt of the registrant's written response, if any, and any reply thereto, shall issue an interim order suspending the registration of the registrant and requiring him to show cause within 20 days of the date of such order why, notwithstanding the existence of the statutory disqualification, his registration should not be revoked. The interim order shall inform the registrant of the procedures which will be followed if no response is made in accordance with this Rule:

    (i) The registrant of the registrant shall be suspended, effective five days after the interim order is served upon the registrant, and such suspension shall remain in effect until a Final Order has been issued.

    (ii) If the sole basis upon which the registrant is disqualified from registration is the existence of a temporary order, judgment or decree of the type described in Section 8a(2)(C) of the Act, the order to show cause shall not be issued and the registrant shall be suspended until such time as the temporary order, judgment or decree shall have expired, except that in no event shall the registrant be suspended for a period to exceed six months.

    (8) Default of Registrant. If the registrant fails to file a timely written response to the order to show cause, the registrant shall be deemed to have waived his right to submit evidence in writing on all issues. The Membership Committee or a designated Subcommittee shall thereafter, upon a finding that service was properly effected in accordance with Rule 502, enter a Final Order revoking, restricting or further suspending the registration. Such finding shall be based upon the evidence of the statutory disqualification, any written submission filed by the registrant in response to the Notice of Intent and any written reply thereto submitted by the Vice-President of Compliance. In order to prevent injustice and on such conditions as may be appropriate, the Membership Committee or a designated Subcommittee may set aside a default order. Any motion to set aside a default shall be made within a reasonable time, shall state the reasons for the failure to file and shall specify the nature of the proposed defense.

    (9) Termination. In the event that a sponsor of a registrant files a Form 8-T reflecting the termination of employment of such registrant after the issuance of the Notice of Intent but prior to the effective date of a Final Order, the Membership Committee or a designated Subcommittee may issue a Withdrawal of Notice of Intent or a Withdrawal of Notice of Intent and Interim Order indicating that because the registrant no longer has a sponsor, further proceedings are not warranted.

    (10) Further Proceedings. If an order to show cause is issued pursuant to paragraph (b)(7)(B) of this Rule, further proceedings with regard to such order shall be conducted before the Membership Committee or a designated Subcommittee in accor-dance with the provisions of Rules 504(a)(2)(B) through 504(a)(8), 506, 507, 508 and 509.

RULE 505. PROCEDURES GOVERNING FLOOR BROKER AND FLOOR TRADER APPLICANTS AND REGISTRANTS DISQUALIFIED FROM REGISTRATION UNDER SECTION 8a(2), 8a(3) OR 8a(4) OF THE ACT.

    (a) Applicants subject to a Section 8a(2), 8a(3) and 8a(4) Disqualification and Registrants Subject to a Section 8a(3) or 8a(4) Disqualification.

    (1) Notice of Intent. On the basis of information which NFA has obtained, the President of NFA may at any time serve a Notice of Intent upon any person registered or applying for registration as a floor broker or floor trader stating that:

    (A) NFA alleges and is prepared to prove that the applicant or registrant is subject to one or more of the statutory disqualifications set forth in Section 8a(2), 8a(3) or 8a(4) of the Act;

    (B) the allegations set forth in the Notice of Intent, if true, constitute a basis upon which registration can be denied, conditioned, suspended, restricted or revoked (if the Notice of Intent proposes conditioning or restricting registration, the Notice shall specify the proposed conditions or restrictions);

    (C) the applicant or registrant is entitled to have the Membership Committee or a designated Subcommittee consider written evidence of the type set forth in paragraph (a)(2) of this Rule. The Notice of Intent shall inform the applicant or registrant of the procedures which will be followed if no written submission is made in accordance with this Rule; and

    (D) if an applicant for registration has been granted a temporary license, such temporary license shall terminate five days after service on the applicant of the Notice of Intent.

    (2) Written Response to the Notice of Intent.

    (A) In response to a Notice of Intent alleging a disqualification from registration set forth in Section 8a(2), 8a(3) or 8a(4) of the Act, the applicant or registrant may submit a written response challenging the accuracy of the allegations establishing the statutory disqualification, including evidence as to:

    (i) the applicant's or registrant's identity;

    (ii) the existence of a clerical error in any record documenting the statutory disqualification;

    (iii) the nature or date of the statutory disqualification;

    (iv) the post-conviction modification of any record of conviction; or

    (v) the favorable disposition of any appeal.

    (B) The applicant or registrant shall state the nature of each challenge in the response and submit an affidavit to support facts material to each challenge. The applicant or registrant also shall state in the response whether he intends to show that, notwithstanding the accuracy of the allegations set forth in the Notice of Intent, his full, conditioned or restricted registration would pose no substantial risk to the public. If so, such person also may submit letters and other documents concerning what conditions or restrictions could be imposed by the Membership Committee or a designated Subcommittee.

    (C) If in the response to the Notice of Intent, the applicant or registrant states that he intends to make the showing referred to in paragraph (a)(2)(B) of this Rule, he or his attorney also shall submit a statement identifying and summarizing the testimony of each witness whom the applicant or registrant intends to have testify in support of facts material to his showing. Such submission also must include copies of all documents which the applicant or registrant intends to introduce to support facts material to his showing. In making a showing pursuant to paragraph (a)(2)(B) of this Rule, the applicant or registrant may present:

    (i) mitigation evidence relating to the facts and circumstances surrounding the disqualifying conduct;

    (ii) evidence of rehabilitation since the disqualifying conduct; and

    (iii) evidence that the applicant's or registrant's registration would be subject to controls, including proposed conditions or restrictions likely to detect future wrongdoing by the applicant or registrant and protect the public from any harm arising from such future wrongdoing.

    (3) Time for Filing of Response. A written response to the Notice of Intent and any submissions thereto must be served upon NFA's Legal Docketing Department within 45 days of the date of service of the Notice of Intent upon the applicant or regis-trant.

    (4) Default of Applicant or Registrant to Notice of Intent. If the applicant or registrant fails to file a timely written response to the Notice of Intent, the applicant or registrant shall be deemed to have waived his right to submit a written response, and the facts stated in the Notice of Intent shall be deemed to be true for the purpose of finding that the applicant or registrant is disqualified from registration under Section 8a(2), 8a(3) or 8a(4) of the Act. The Membership Committee or a designated Subcom-mittee shall thereafter, upon a finding that service was properly effected in accordance with Rule 502, enter a Final Order denying, conditioning, suspending, restricting or revoking the registration. Such finding shall be based upon the evidence of the statu-tory disqualification and the Notice of Intent with proof of service. In order to prevent injustice and on such conditions as may be appropriate, the Membership Committee or a designated Subcommittee may set aside a default order. Any motion to set aside a default shall be made within a reasonable time, shall state the reasons for failure to file and shall specify the nature of the proposed defense.

    (5) NFA's Response. Within 30 days after the date the applicant or registrant serves a copy of the response to the Notice of Intent on NFA, the Vice-President of Compliance shall prepare a response thereto and serve a copy of the response on the applicant or registrant. Such response shall include either:

    (A) a motion for summary judgment stating that, based upon the applicant's or registrant's response and further submission, if any, and any other materials which are attached to the response, there are no genuine issues of material fact to be determined and that registration should be denied or revoked; or

    (B) a description of the factual issues raised in the applicant's or registrant's response that NFA regards as material and disputed. The reply also shall include the identity and a summary of the expected testimony of each witness whom NFA intends to have testify at its case-in-chief and copies of all documents which NFA intends to introduce at the hearing.

    (6) Oral Hearing. Within 30 days after the date NFA files its response in accordance with paragraph (5) of this Rule to the applicant's or registrant's response, the Membership Committee or a designated Subcommittee shall:

    (A) if the Membership Committee or a designated Subcommittee finds, based on the motion for summary judgment, that a party is entitled to judgment as a matter of law, issue an order granting, denying, suspending or revoking the registration of the applicant or registrant or withdrawing the Notice of Intent (such order shall be made in accordance with the standards set forth in Rules 507(a) and (b)); or

    (B) if a motion for summary judgment is not filed or is denied, notify the parties of the time and place of a hearing. At the hearing, the parties shall be limited in their case-in-chief to presentation of witnesses and documents listed in previous filings, except for good cause shown.

    (7) Order. After the conclusion of the hearing, the Membership Committee or a designated Subcommittee shall make a finding as to whether the applicant has shown that his registration should not be denied or conditioned or whether the registrant has shown that his registration should not be suspended, restricted or revoked and shall issue an order accordingly, pursuant to the standards set forth in Rules 507(a) and (b).

    (8) Termination. In the event all exchanges currently sponsoring the applicant or registrant terminate the applicant's or registrant's trading privileges or reject his application after the issuance of the Notice of Intent but prior to the effective date of a Final Order, the Membership Committee or a designated Subcommittee may issue a Withdrawal of Notice of Intent indicating that further proceedings are not warranted.

    (b) Registrants subject to a Section 8a(2) Disqualification.

    (1) Notice of Intent. On the basis of information which NFA has obtained, the President of NFA may at any time serve a Notice of Intent upon any person registered as a floor broker or floor trader stating that:

    (A) NFA alleges and is prepared to prove that the registrant is subject to one or more of the statutory disqualifications set forth in Section 8a(2) of the Act;

    (B) the allegations set forth in the Notice of Intent, if true, constitute a basis upon which registration can be suspended or revoked;

    (C) the registrant is entitled to have the Membership Committee or a designated Subcommittee consider written evidence of the type set forth in paragraph (b)(2) of this Rule. The Notice of Intent shall inform the registrant of the procedures which will be followed if no written submission is made in accordance with this Rule;

    (D) the Membership Committee or a designated Subcommittee shall determine, based upon the written evidence, whether the registrant is subject to a statutory disqualification; and

    (E) if the registrant is found to be subject to a statutory disqualification, the registrant may be suspended and ordered to show cause why his registration should not be revoked.

    (2) Written Response to the Notice of Intent. In response to a Notice of Intent alleging a disqualification from registration set forth in Section 8a(2) of the Act, the registrant may submit a written response limited in scope to evidence challenging the accuracy of the allegations establishing the statutory disqualification, including evidence as to:

    (A) the registrant's identity;

    (B) the existence of a clerical error in any record documenting the statutory disqualification;

    (C) the nature or date of the statutory disqualification;

    (D) the post-conviction modification of any record of conviction; or

    (E) the favorable disposition of any appeal.

    The registrant shall state the nature of each challenge in the response and submit an affidavit to support facts material to each challenge.

    (3) Time for Filing of Response. A written response to the Notice of Intent must be served upon NFA's Legal Docketing Department within 20 days of the date of service of the Notice of Intent upon the registrant.

    (4) Reply to Registrant's Written Response. If a registrant files a written response pursuant to paragraph (b)(2) of this Rule, the Vice-President of Compliance may submit a written reply to the Membership Committee or a designated Subcommittee and serve the reply upon the registrant within 30 days of the date of such written response.

    (5) Default of Registrant to Notice of Intent. If the registrant fails to file a timely written response pursuant to the Notice of Intent, the registrant shall be deemed to have waived his right to submit a written response, and the facts stated in the Notice of Intent shall be deemed true for the purpose the registrant in response to the Notice of Intent and any written reply thereto submitted by NFA. In order to prevent injustice and on such conditions as may be appropriate, the Membership Committee or a designated Subcommittee may set aside a default order. Any motion to set aside a default shall be made within a reasonable time, shall state the reasons for the failure to file, and shall specify the nature of the proposed defense.

    (9) Termination. In the event that all exchanges currently sponsoring the registrant terminate the registrant's trading privileges after the issuance of the Notice of Intent but prior to the effective date of a Final Order, the Membership Committee or a designated Subcommittee may issue a Withdrawal of Notice of Intent or a Withdrawal of Notice of Intent and Interim Order indicating that further proceedings are not warranted.

    (10) Further Proceedings. If an order to show cause is issued pursuant to paragraph (b)(7)(B) of this Rule, further proceedings with regard to such order shall be conducted before the Membership Committee or a designated Subcommittee in accordance with the provisions of Rules 505(a)(2)(B) through 505(a)(8), 506, 507, 508 and 509.

RULE 505. MOTIONS.

    (a) All motions shall be in writing and served in accordance with these Rules. The Chairman of the Subcommittee may decide all pre-hearing motions concerning deadlines, location of the hearing, continuances, and requests for telephonic or video testimony. All other motions shall be decided by the full Subcommittee.

    (b) NFA may, at any time, make a motion for summary judgment stating that, based upon the respondent's response and further submission, if any, and any other materials that are attached to the response, there are no issues of material fact to be determined and that registration should be denied or revoked.

    (c) Both NFA and the respondent have a right to respond to any motion within ten days of service of the motion.

RULE 506. HEARING PROCEDURES.

    (a) When a hearing is held before the Membership Committee or a designated Subcommittee, a record of the hearing shall be kept. At such hearing, the applicant or registrant may be represented by counsel, submit evidence, call and examine witnesses, examine the evidence upon which the Membership Committee or a designated Subcommittee made a determination as well as any documentary evidence which NFA intends to present at the hearing and, at the discretion of the Membership Committee or a designated Subcommittee, present oral or written argument.

    (b) Upon notice of the time and place of an oral hearing, the parties may elect to participate by telephone. To effect such an election, a party shall file a notice with NFA's Legal Docketing Department and serve a copy on all opposing parties within 15 days of the date such notice is served. The filing of an election to participate by telephone will be deemed a waiver of the party's right to a full oral hearing on the parties' material disputes of fact. The Membership Committee or a designated Subcommittee shall order a telephonic hearing only if all parties to the proceeding elect such a procedure. Such telephonic hearing shall be held in accordance with the procedures set forth in the order. Following the telephonic hearing, the Membership Committee or a designated Subcommittee shall issue a written decision in accordance with the standards set forth in paragraphs (a) and (b) of Rule 507.

RULE 507. DECISION OF MEMBERSHIP COMMITTEE OR A DESIGNATED SUBCOMMITTEE.

    (a) Standards of Proof. The written decision of the Membership Committee or its designated Subcommittee shall specifically consider whether NFA has shown by a preponderance of the evidence that the applicant or registrant is subject to the statutory disqualification from registration set forth in the Notice of Intent and, where appropriate:

    (1) in actions involving statutory disqualifications set forth in Section 8a(2) of the Act, whether the applicant or registrant has made a clear and convincing showing that, notwithstanding the existence of the statutory disqualification, full, or conditioned or restricted registration would not pose a substantial risk to the public; or

    (2) in actions involving statutory disqualifications set forth in Sections 8a(3) or 8a(4) of the Act, whether the applicant or registrant has shown by a preponderance of the evidence that, notwithstanding the existence of the statutory disqualification, full, or conditioned or restricted registration would not pose a substantial risk to the public.

    (b) Findings. In making its written decision, the Membership Committee or a designated Subcommittee shall set forth facts material to its conclusion and provide an explanation of its decision in light of the statutory disqualification set forth finding that the applicant or registrant is, or is not, disqualified as alleged in the Notice of Intent and, where appropriate, its findings regarding:

    (1) evidence mitigating the seriousness of the wrongdoing underlying the applicant's or registrant's statutory disqualification;

    (2) evidence that the applicant or registrant has undergone rehabilitation since the time of the wrongful conduct underlying the statutory disqualification; and

    (3) if the person is an AP or an IB or an applicant for registration in either capacity, evidence that the applicant's or registrant's registration on a conditional or restricted basis would be subject to supervisory controls likely both to detect future wrongful conduct by the applicant or registrant and protect the public from any harm arising from such conduct. Any decision providing for a conditioned or restricted registration shall take into consideration the applicant's or registrant's statutory disqualification and the time period remaining on such statutory disqualification. Such decision shall describe the specific conditions being imposed and provide that any sponsor or guarantor of applicant or registrant must be "eligible" as that term is defined in Rule 509(b)(5). It shall also fix a time period after which the AP and his sponsor or the IB and its guarantor applicant or registrant may petition to lift or modify the conditions in accordance with Rule 510.

    (4) if the person is a floor broker or floor trader or an applicant for registration in either capacity, evidence that the applicant's or registrant's registration on a conditional or restricted basis would be subject to controls likely both to detect future wrongful conduct by the applicant or registrant and protect the public from any harm arising from such conduct. Any decision providing for a conditional or restricted registration shall take into consideration the applicant's or registrant's statutory disqualification and the time period remaining on the statutory disqualification. The decision shall fix a time period after which the floor broker or floor trader may petition to lift or modify the conditions or restrictions in accordance with Rule 510.

RULE 508. ORDERS.

    (a) Final Orders and Withdrawals of Notice of Intent. All orders granting, denying, conditioning, restricting, suspending or revoking registration under this Part 500 (except an interim order suspending registration pursuant to Rule 504(b)(7)(B) or Rule 505(b)(7)(B)(d)) and all orders denying motions to vacate default orders under this Part 500 (except orders denying motions to vacate default orders pursuant to Rule 504(b)(5) or Rule 505(b)(5)) shall become a Final Order of NFA on the date of service upon the applicant or registrant. All Withdrawals of Notice of Intent shall become final on the date of service upon the applicant or registrant. A copy of each Final Order and Withdrawal of Notice of Intent issued by NFA shall be served upon the Commission at the same time it is served upon the applicant or registrant. All Final Orders shall inform the applicant or registrant of his right to petition the Commission for review under Section 17(o) of the Act and applicable Commission Regulations and of the right to petition the Commission for a stay of the effective date of the Final Order in accordance with Commission Regulation 171.22.

    (b) Effective Date. Any Final Order of NFA or Withdrawal of Notice of Intent issued under this Part 500 shall become effective 30 days after the date of service of the order on the applicant or registrant, except as otherwise directed by the Commission pursuant to CFTC Regulations, Part 171.

RULE 509. SETTLEMENTS.

    (a) When Offers May be Made. Parties may propose offers of settlement at any time during the course of the proceeding. All offers of settlement shall be in writing.

    (b) Content of Offer. Each offer of settlement made by a respondent shall:

    (1) acknowledge service of the Notice of Intent;

    (2) admit the jurisdiction of NFA with respect to the matters set forth in the Notice of Intent;

    (3) include a waiver of:

    (A) a hearing;

    (B) all post-hearing procedures;

    (C) Commission and judicial review;

    (D) any objection to NFA staff's participation in the consideration of the offer by the Membership Committee or a designated Subcommittee;

    (4) stipulate the basis in the record on which a Final Order may be entered, which basis may consist solely of the Notice of Intent and any findings contained in the order of settlement; and

    (5) in a case where a respondent is offering to be registered subject to conditions, contain representations by the firm that will be sponsoring or guaranteeing the respondent that it will abide by any conditions imposed on the applicant's or registrant's registration and that it is eligible to sponsor or guarantee a registrant whose registration is subject to conditions. A firm is eligible to sponsor or guarantee a registrant whose registration is subject to conditions if it is not::

    (A) subject to a pending adjudicatory proceeding brought by or before the Commission pursuant to the provisions of Sections 6(b), 6(c), 6c, 6d, 8a or 9 of the Act; or

    (B) subject to a pending adjudicatory proceeding brought by or before NFA alleging fraud or failure to supervise; or

    (C) subject to any special supervisory obligations imposed by the Commission or NFA or agreed to by such sponsor or guarantor; or

    (D) subject to the reporting requirements of NFA Financial Requirements Section 6 or CFTC Regulation 31.7(b); or

    (E) subject to a finding within the last five years, in an action by the Commission or NFA, that the firm or any of its current principles have engaged in fraud or have failed to supervise its APs; and

    (6) consent to the entry of a Final Order reflecting the terms of settlement agreed upon, including where appropriate:

    (A) findings that the respondent is disqualified from registration under Section 8a(2), 8a(3) or 8a(4) of the Act; and

    (B) the revocation, suspension, denial or granting of full registration or imposition of conditioned or restricted registration.

    (c) Submission of Offer. Offers of settlement made by a respondent shall be submitted in writing to NFA staff, which shall present them to the Membership Committee or a designated Subcommittee with staff's recommendation. NFA staff shall inform the respondent if the recommendation will be unfavorable, in which case the offer will not be presented to the Membership Committee or a designated Subcommittee unless the respondent so requests. Any offer of settlement not presented to the Membership Committee or a designated Subcommittee shall be null and void with respect to any acknowledgment, admission, waiver, stipulation or consent contained therein and shall not be used in any manner in the proceeding by any party thereto.

    (d) Acceptance of Offer. The offer of settlement will only be deemed accepted upon issuance by the Membership Committee or a designated Subcommittee of a Final Order based on the offer. Upon issuance of the Final Order, the proceeding shall be terminated as to the respondent involved.

    (e) Rejection of Offer. When an offer of settlement is rejected by the Membership Committee or a designated Subcommittee, the party making the offer shall be notified by NFA staff and the offer of settlement shall be deemed withdrawn. A rejected offer of settlement and any documents relating thereto shall not constitute a part of the record in the proceeding. The offer will be null and void with respect to any acknowledgment, admission, waiver, stipulation or consent contained therein and shall not be used in any manner in the proceeding by any party thereto.

RULE 510. PROCEDURES TO LIFT OR MODIFY CONDITIONS OR RESTRICTIONS.

    (a) Petition. The registrant and, when applicable, his sponsor or guarantor may file a petition to lift or modify the conditions or restrictions on the registrant's registration.

    (1) The petition may be filed after the period specified in the Final Order imposing the conditioned or restricted registration.

    (2) In the petition, the registrant and, when applicable, his sponsor or guarantor shall be limited to a showing by affidavit that the applicant or registrant has not violated the Act or Regulations, or NFA Rules, since the time of his application and that the conditions or restrictions set forth in the Final Order have been satisfied. The affidavit of a sponsor or guarantor must be sworn to on behalf of the sponsor or guarantor by a person with actual knowledge of the registrant's activities.

    (b) Response.

    (1) Within 30 60 days of the date of receipt of the petition pursuant to paragraph (a) of this Rule, NFA staff shall file a response. The response shall include a recommendation by staff as to whether to continue the conditions or restrictions, modify the conditions or restrictions or allow for a full registration.

    (2) If NFA staff agrees with the petitioner's request to lift or modify conditions or restrictions on the petitioner's registration, it shall so recommend to the Membership Committee or a designated Subcommittee. Such recommendation will only be deemed accepted upon issuance by the Membership Committee or a designated Subcommittee of an order lifting or modifying the conditions or restrictions on the petitioner's registration.

    (c) Oral Hearing. If NFA staff requests a continuation or a modification of the conditions or restrictions on the registration other than in accordance with the terms of the petition, the Membership Committee or a designated Subcommittee shall, within 30 days of the date that the response is filed pursuant to paragraph (b) of this Rule, determine whether an oral hearing is appropriate to the resolution of the registrant's petition.

    (1) If the Membership Committee or a designated Subcommittee determines that an oral hearing is appropriate, it shall notify the parties of its determination and shall schedule and conduct an oral hearing in accordance with Rule 506. Following the hearing, the Membership Committee or a designated Subcommittee shall issue a written decision or an order.

    (2) If the Membership Committee or a designated Subcommittee concludes that an oral hearing is unnecessary, it shall notify the parties and issue a written decision or an order.

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