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June 14, 2001

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

Re: File No. S7-10-01; Registration of National Securities Exchanges Pursuant to Section 6(g) of the Securities Exchange Act of 1934 and Proposed Rule Changes of National Securities Exchanges and Limited Purpose National Securities Associations

Dear Mr. Katz:

National Futures Association (NFA) is a registered futures association under the Commodity Exchange Act and is the only entity in the process of qualifying as a limited purpose national securities association (limited purpose NSA) under the Securities Exchange Act, as amended by the Commodity Futures Modernization Act of 2000 (CFMA). NFA appreciates this opportunity to comment on the Securities and Exchange Commission's (SEC) proposed rules regarding rule filings by limited purpose NSAs. We will limit our comments to proposed Rule 19b-7 and proposed Form 19b-7, which will apply to NFA.

As a general matter, NFA notes that the submission requirements proposed by the SEC are significantly more time-consuming and detailed than those that NFA is subject to when submitting rule proposals to the Commodity Futures Trading Commission (CFTC). For example, the SEC estimates that an average Form 19b-7 would require approximately 12.5 hours of legal work and four hours of clerical work to complete. Although we do not keep records of the time spent on individual rule submissions, we estimate that a typical rule submission to the CFTC requires less than a third of that time.

Obviously, rule submissions to the CFTC must include all of the information necessary for the CFTC to determine whether the proposal meets the requirements imposed by the Commodity Exchange Act. These submissions indicate the differences between the current text and the proposed text and describe the basis and purpose for the proposed rule change. They also address the effect on competition and the public interest if the rule proposal raises those concerns. Therefore, we believe that the submissions filed under the Commodity Exchange Act are sufficient to meet the Section 19(b)(7)(A) requirement that rule submissions be accompanied by "a concise general statement of the basis and purpose of [the] proposed rule change." Furthermore, except for the requirement that rule proposals be published in the Federal Register, the general requirements imposed by the Commodity Exchange Act—and the grounds for refusing to approve or abrogating self-regulatory organization (SRO) rules—are essentially the same as those imposed by the Securities Exchange Act. For all of these reasons, NFA believes that the expedited review provisions of Section 19(b)(7) could be met by sending the SEC a copy of the submission letter sent to the CFTC (with references to the relevant securities laws and a copy formatted for filing in the Federal Register), and this is the approach we would prefer.

Nonetheless, NFA is aware of the short deadlines that the CFMA imposes and recognizes that, given the time constraints SEC staff is working under, it may be more efficient in the short-term for the SEC to work from the model that it already has in place. We also understand that some of the more detailed requirements imposed by proposed Rule 19b-7 and proposed Form 19b-7 are dictated by Federal Register publication requirements imposed by the Securities Exchange Act but not the Commodity Exchange Act. Therefore, we do not object to the SEC's proposed Rule 19b-7 and proposed Form 19b-7. We would, however, like clarification on some of the specific provisions of the proposed Form 19b-7.

First, proposed Rule 19b-7(b)(2)(ii) requires a summary of any written comments received by the Section 6(g) national securities exchange or the limited purpose NSA, and Exhibit 1 to proposed Form 19b-7 would include copies of all written comments on the proposed rule change received by the SRO, even if the SRO did not solicit comments. Exhibit 1 would also include copies of all correspondence or other memorialized communications prepared or received by the SRO concerning the proposed rule change.

NFA's rule-making process can generate a number of drafting or editing comments from members of the committees that develop the rule proposal or from other groups that we ask for informal input. Furthermore, correspondence and other communications can include all of the memos between staff and the various committees and exploratory communications between NFA and CFTC (or SEC) staff. We have no objection to summarizing substantive comments (requested or otherwise) and providing them to the SEC or providing the SEC with memos to a committee or the Board of Directors relating to the final version of the proposal. However, providing copies of communications that relate to earlier versions of the proposal would be both burdensome to NFA and of little value to the SEC. Therefore, NFA asks that the SEC limit the information that must be summarized under proposed Rule 19b-7(b)(2)(ii) and included in Exhibit 1 to substantive comments and communications regarding the version of the proposal that is submitted to the SEC.

Second, the introduction and Section III of the proposed Form 19b-7 Notice require the SRO to provide information regarding the date on which it filed a written certification with the CFTC under Section 5c(c) of the Commodity Exchange Act, if applicable. The form does not appear to ask for information regarding filing and approval dates when the rule submission has not been filed under Section 5c(c). As the SEC recognizes, there are three different filing options under the Commodity Exchange Act and Section 19(b)(7)(B) of the Securities Exchange Act, including asking the CFTC to affirmatively approve the proposal or submitting the proposal without making it immediately effective (in which case the rules can become effective 10 days after filing unless the CFTC chooses to take review). We believe that the SRO should state what type of submission the SRO has made with the CFTC. If the submission is not made under Section 5c(c), the form should provide instructions on how the SRO should notify the SEC when the rules are approved by the CFTC or otherwise become effective.

Third, the Federal Register release language provides information on filing comments with the SEC but does not mention the CFTC. While NFA realizes that only the SEC is required to publish the rule proposals for comment, we believe that the CFTC would be interested in receiving copies of any comments filed with the SEC. Therefore, we recommend that Section IV of the Notice request that commenters also send copies of their comments to the CFTC.

Finally, the release indicates that the SEC believes that Section 6(g) national securities exchanges and limited purpose NSAs could file a copy of the same form with the CFTC in order to eliminate unnecessary duplication. NFA would like to follow this procedure. In order to do so, however, NFA may need to make minor modifications to the form (e.g., by adding references to the CFTC and the Commodity Exchange Act to the cover page). We assume that the form is flexible enough to allow us to do so, assuming we retain the same basic format and include all of the information required by the SEC.

Although NFA does not object to the SEC's current proposal regarding rule submissions by limited purpose NSAs, we believe that experience will show that many of the more detailed requirements of proposed Rule 19b-7 and proposed Form 19b-7 are not necessary under the expedited review process of Section 19(b)(7). Therefore, we recommend that the SEC re-evaluate these requirements after it gains experience with rule filings by limited purpose NSAs and Section 6(g) national securities exchanges.

If you have any questions concerning this letter, please contact me (312-781-1390, or Kathryn Camp of my staff (312-781-1393,

Respectfully submitted,

Daniel R. Roth
Senior Executive Vice President,
Chief Operating Officer, and
General Counsel

cc: Elizabeth King, Esq. (Division of Market Regulation, SEC)
Elizabeth L.R. Fox, Esq. (Office of the General Counsel, CFTC)
John C. Lawton, Esq. (Division of Trading and Markets, CFTC)

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