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Ms. Jean A. Webb
Office of the Secretariat
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, N.W.
Washington, DC 20581
Re: Petition for Rulemaking to Amend CFTC Regulations 1.10(b)(2)(iii) and 1.10(c)(2)
Dear Ms. Webb:
National Futures Association (NFA) respectfully petitions the Commission under CFTC Regulation 13.2 to amend CFTC Regulations 1.10(b)(2)(iii) and 1.10(c)(2) to eliminate the requirement that non-broker-dealer introducing brokers (IBs) file manually signed certified financial statements with NFA and replace it with a requirement that these IBs file their certified statements electronically. The information required by CFTC Regulation 13.2 follows.
I. Text of Proposed Rule Amendments
THE COMMODITY EXCHANGE ACT
* * *
(b) Filing of financial reports.
(iii) A Form 1-FR-FCM or FOCUS Report required to be certified by an independent public accountant in accordance with § 1.16
which is filed by a futures commission merchant, an introducing broker or an applicant for registration in either category, must be filed in paper form and may not be filed electronically. A Form 1-FR-IB required to be certified by an independent public accountant in accordance with § 1.16 must be electronically filed and affirmed in accordance with the requirements of National Futures Association's electronic filing system.
(c) Where to file reports.
(2) Any report filed pursuant to paragraph (b)(1) or (b)(4) of this section or § 1.12(a) which need not be certified in accordance with § 1.16 may be submitted to the Commission in electronic form using a Commission-assigned Personal Identification Number, and otherwise in accordance with instructions issued by the Commission, if the futures commission merchant, introducing broker, or a designated self-regulatory organization has provided the Commission with the means necessary to read and to process the information contained in such report. A Form 1-FR-IB required to be certified by an independent public accountant in accordance with § 1.16 may be submitted to the Commission in electronic form in accordance with instructions issued by the Commission, but the introducing broker must maintain a paper copy of the statement that includes the original, signed certification.
II. Nature of NFA's Interest
As you know, NFA is a futures association registered under Section 17 of the Commodity Exchange Act. IBs are required to be Members of and are regulated by NFA. Therefore, NFA is interested in ensuring that IBs are regulated in the most efficient and effective manner. NFA believes that requiring non-broker-dealer FCMs to file their Form 1-FR-IB certified financial statements electronically furthers that goal.
III. Supporting Arguments
IBs have been required to file interim financial statements electronically since January 2002, and IBs who file Form 1-FR-IBs make these filings through NFA's EasyFile system. Current CFTC rules do not, however, allow IBs to file their certified statements electronically. NFA believes that electronic filing will facilitate processing certified statements without losing any of the protections provided by CFTC and NFA rules.
Earlier this year, the Commission amended its rules to require commodity pool operators to file their annual financial reports electronically, regardless of whether those reports were certified or uncertified. NFA proposes using the same basic process for certified Form 1-FR-IB filings. In particular, the IB would upload the entire certified statement-including the financial information, footnotes, auditors' statement, and reconciliation (if necessary)-to EasyFile as a pdf document, and the IB would maintain the original signed document in its own files. Since the IB would have already entered the detailed figures from the unaudited Form 1-FR-IB into the system, the IB would not have to enter the figures from the certified statement unless that statement includes a reconciliation. If it does not include a reconciliation, the system would carry over the figures from the uncertified statement for staff's use in analyzing the certified statement.
CFTC Regulation 1.10(b)(2)(iii) currently requires IBs to file certified financial statements in paper form. Therefore, NFA requests that the Commission amend that regulation to require non-broker-dealer IBs to file their certified financial statements electronically with NFA.1 NFA also requests that the Commission amend CFTC Regulation 1.10(c)(2) to allow electronic filings with the Commission and to require the IB to maintain the original certified statement in its files.
Eliminating the paper filing will not affect any of the protections provided by the Commission's rules. NFA will receive, in pdf format, an electronic copy of the entire certified financial report. Furthermore, the original hard copy report, with the auditor's certification, will still exist and be available to the Commission and NFA upon request.
NFA respectfully petitions the Commission to amend Regulation 1.10(b)(2)(iii) and 1.10(c)(2) as described above.
Very truly yours,
Thomas W. Sexton, III
Vice President and General Counsel
1 NFA is not currently asking the Commission to apply the electronic filing requirement to broker-dealer IBs who file FOCUS Reports since EasyFile is not yet equipped to handle FOCUS Reports. We hope to add this capability in the future and will request similar changes at that time.