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March 15, 2004

By E-Mail (rule-comments@sec.gov)

Mr. Jonathan G. Katz
Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609

Re: File No. S7-02-04; Amendments to the Penny Stock Rules

Dear Mr. Katz:

National Futures Association (NFA) is a limited purpose national securities association under the Securities Exchange Act of 1934 (Exchange Act) and a registered futures association under the Commodity Exchange Act. NFA appreciates this opportunity to comment on the Securities and Exchange Commission's proposed amendments to the penny stock rules. We file these comments to support the proposed exemption for security futures products.

Security futures products are subject to a comprehensive regulatory scheme that provides customers with protections that are at least as stringent as the protections provided by the Commission's penny stock rules.1 These protections include a separate risk disclosure statement, special account opening and approval procedures, and strict promotional material requirements. The regulatory requirements for these products are patterned after, and designed to be as least as stringent as, the regulatory requirements for exchange-traded securities options, which are excluded from the definition of "penny stock" under Rule 3a51-1(c).

As the Commission recognizes, applying the penny stock rules to security futures products would result in duplicative disclosure requirements and would be unnecessarily burdensome for both the customers and the industry. We agree with the Commission that disclosures should be "designed to be succinct and to catch the attention of readers by highlighting issues that call for investor caution."2 Requiring duplicative disclosure in this instance would be inconsistent with that goal.

For the reasons given above, we support the Commission's proposed amendment to exclude security futures contracts from the penny stock definition. If you have any questions concerning this letter, please contact me (312-781-1413 or tsexton@nfa.futures.org) or Kathryn Camp (312-781-1393 or kcamp@nfa.futures.org).

Respectfully submitted,

Thomas W. Sexton
Vice President and General Counsel


1 Security futures products are dually regulated: by the SEC under the Exchange Act and by the Commodity Futures Trading Commission under the Commodity Exchange Act.

2 69 Fed. Reg. 2531, 2541 (Jan. 16, 2004).

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