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January 22, 1999
Ms. Jean A. Webb
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, N.W.
Washington, D.C. 20581
RE: National Futures Association: Proposed Amendments to NFA Registration Rule 214
Dear Ms. Webb:
Pursuant to Section 17(j) of the Commodity Exchange Act, as amended, National Futures Association ("NFA") hereby submits to the Commodity Futures Trading Commission ("CFTC" or "Commission") proposed amendments to NFA Registration Rule 214. The amendments were approved by NFA's Board of Directors ("Board') on November 19, 1998. NFA respectfully requests Commission review and approval of the proposed amendments.
A) Proposed Amendments to NFA Registration Rule 214 (additions are underscored):
* * *
Rule 214. Termination of Associated Person Registration and Principal Affiliation
- (d) No Member or person connected therewith shall be liable for a defamation claim relating to an alleged untrue statement that is contained on a Form 8-T filed with NFA unless it can be shown by clear and convincing evidence that the Member or person connected therewith:
- (1) knew at the time the statement was made that it was false in any material respect; or
(2) acted in reckless disregard as to the statement's truth or falsity.
B. Explanation of Proposed Amendments to NFA Registration Rule 214
Subsection (d) is added to NFA Registration Rule 214 to provide that no Member or person connected therewith shall be liable for a defamation claim relating to an alleged untrue statement contained on a Form 8-T unless it can be shown by clear and convincing evidence that the Member or person connected therewith knew at the time the statement was made that it was false in any material respect or acted in reckless disregard as to the statement's truth or falsity. This provision is designed to alleviate a firm's reluctance to make complete disclosures on a Form 8-T because of the potential for defamation lawsuits.
The amendment to Registration Rule 214 is similar to a rule that the NASD had recently proposed in which its members are granted qualified immunity in arbitration proceedings for statements made in good faith relating to certain disclosures contained on Forms U-4 and U-5, the uniform registration and termination notices for registered persons.
The Board recognizes that there may be some question whether immunity protection contained within NFA's Registration Rules could supercede state law which provides less legal protection. There is case law which suggests that, given the pervasive federal regulation of the securities and futures industries, an SRO rule directly related to the SRO's regulatory activities may, in fact, supercede contrary state law. Despite this legal uncertainty, the Board believes that the adoption of this immunity standard is necessary to alleviate a Member's reluctance to make complete disclosures on the Form 8-T and falls within NFA's mandate under Section 17(b)(7) of the Commodity Exchange Act to protect the public interest and promote just and equitable principles of trade.
NFA respectfully requests that the Commission review and approve the proposed amendments referred to herein and requests that they be declared effective upon Commission approval.
Daniel J. Roth
cc: Chairman Brooksley Born
Commissioner Barbara Pedersen Holum
Commissioner John E. Tull, Jr.
Commissioner David D. Spears
Commissioner James E. Newsome
Geoffrey Aronow, Esq.
I. Michael Greenberger, Esq.
Alan L. Seifert, Esq.
Lawrence B. Patent, Esq.
David Van Wagner, Esq.