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November 27, 1996
Via Facsimile and Regular Mail
RE: Financial Reports of Futures Commission Merchants, Introducing Brokers and Leverage Transactions Merchants
Dear Ms. Webb:
National Futures Association ("NFA") respectfully submits the following comments in response to a release issued by the Commodity Futures Trading Commission ("Commission or CFTC") on October 25, 1996. [ 61 Fed. Reg. 55235] That release requested comments on certain proposed amendments to Commission Regulation 1.10 that establish requirements for the electronic filing of financial reports by futures commission merchants ("FCMs"), independent introducing brokers ("IBIs") and leverage transaction merchants ("LTMs").
As a general matter, NFA strongly supports the Commissions proposal to allow FCMs and IBIs to electronically file Form 1-FR financial reports. NFA believes that allowing firms to file financial reports electronically will ultimately ease the Commissions and self-regulatory organization ("SRO") financial reporting requirements for those firms electing to file electronically.
While the proposed amendments to Regulation 1.10 are a good initial step, NFA requests that the Commission clarify and revise several aspects of the proposed amendments. First, the Commissions release provides for an unspecified time period during which the Commission will presumably gain experience with an electronic filing system. During this test period, firms may electronically file non-certified financial reports but must also submit a hard-copy report as the official filing. While NFA understands that the Commission may want to test the reliability of its electronic filing system during this test period, NFA encourages the Commission to keep this pilot period brief. If the Commission wants to encourage firms to file electronically, it must give them an incentive to do so. Firms have little incentive to file electronically if they must continue to file a hard-copy report. NFA also requests that the Commission clarify that this pilot period is for the Commission to gain experience with the electronic filing program itself and is not meant to serve as a testing period for each individual firms use of the system.
Second, the proposed amendments to Regulation 1.10 require firms that file financial statements electronically to utilize a personal identification number ("PIN") assigned by the Commission. While NFA fully supports the use of PINs for the purpose described in the Commissions release, NFA believes that the Commission should avoid the situation where a firm needs to use multiple PINs to file financial reports with the Commission and its DSRO. Multiple PINs could be a disincentive to filing electronically with the Commission. To avoid this situation, NFA recommends that the Commission allow a firms DSRO to assign one PIN to be used by the firm to file financial reports with both the Commission and its DSRO. For example, if NFA serves as the DSRO for a firm, NFA would assign a PIN to the firm and provide the same PIN to the Commission. The firm could then utilize the same PIN to file financial reports electronically with both the Commission and NFA. The Commission would, of course, assign PINs to registrant firms that are not members of a DSRO.
Lastly, NFA requests that the Commission delete the proposed amendment to Commission Regulation 1.10 (b)(2)(iii), which provides that certified Form 1-FRs may not be filed electronically, and the reference in the middle of Regulation 1.10(c) to reports, which need not be certified. Since NFA recognizes that todays technology does not allow a certified Form 1-FR to be filed electronically in its entirety, NFA acknowledges that certified Form 1-FRs must be currently filed in hard-copy form. However, NFA believes that the filing instructions can include any restrictions on which forms can be filed electronically. The amendment to Commission Regulation 1.10 (b)(2)(iii) is unnecessary. Future technology may allow certified 1-FRs to be filed electronically, and it is much easier to revise the filing instructions than to amend Regulation 1.10. Therefore, NFA suggests that the Commission currently include the prohibition against electronically filing certified Form 1-FRs in its instructions for electronic filing and not in the provisions of Regulation 1.10 itself.
In conclusion, NFA again expresses strong support for the proposed amendments to Regulation 1.10, which establish requirements for the electronic filing of financial reports. However, NFA hopes that the Commission gives serious consideration to its comments relating to these proposed amendments.
Daniel J. Roth