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From the Chairman's Desk: CFTC's proposed rule changes will redefine futures industry regulation

On June 22, 2000, the Commodity Futures Trading Commission (CFTC) published proposed changes to its rules designed to implement a new regulatory framework for the U.S. futures industry. The proposed changes reflect the recommendations the CFTC submitted in a report to its Congressional oversight committees in February.

Specifically, the proposed rule changes establish three categories of trading facilities with differing levels of oversight. The proposals also recommend the Commission's current "one size fits all" regulations be replaced with broad, flexible core principles supplemented with best practices guidance.

NFA applauds the Commission for recognizing the need to keep up with the technological and business developments that are invigorating the futures industry. We also agree with the CFTC that the use of core principles supplemented by interpretive guidance is the right approach to provide the flexibility necessary to meet the needs of a rapidly changing industry.

NFA strongly supports the concept of core principles, supplemented with interpretive guidance, as an alternative to the rigid, detailed rules currently in place. However, we are concerned that the Commission's proposal does not carry this approach through in relating to the firms and individuals who make up NFA's membership-FCMs, CPOs, CTAs and IBs. We encourage the Commission to revisit its proposal and eliminate existing regulations where appropriate, relying more on regulation through core principles and supplemental guidance.

For example, NFA believes that the Commission should replace its current Rule 1.31 regarding the use of information technology for recordkeeping purposes with a core principle and acceptable practice guidance. Specifically, the acceptable practice guidance would not contain any reference to specific technology but would require the registrant to meet general reliability and accessibility standards.

We also encourage the Commission to look to the industry, through its self-regulatory process, to develop the acceptable practices for satisfying many of those core principles. NFA's rulemaking process, for example, maximizes industry involvement and invites input from the end users who would be the primary beneficiaries of this guidance. That same process should be the primary means of developing the interpretive guidance applicable to NFA Members. The Commission, of course, would retain the authority to approve the interpretive guidance developed by NFA.

NFA's formal response to the CFTC's proposed rule changes can be found in the comment letter dated August 7, 2000. The entire text of the comment letter can be found in the "Online News" section of NFA's web site (www.nfa.futures.org). I encourage all NFA Members to familiarize yourself with NFA's position on these important issues.

NFA is the premier independent provider of efficient and innovative regulatory programs that safeguard the integrity of the derivatives markets.
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