§ 155.2 Trading standards for floor brokers.

Each contract market shall adopt and submit to the Commission for approval pursuant to section 5a(12) of the Act and § 1.41 of the regulations, a set of rules which shall, at a minimum, with respect to each member of the contract market acting as a floor broker:

(a) Prohibit such member from purchasing any commodity for future delivery for his own account, or for any account in which he has an interest, while holding an order of another person for the purchase of the same commodity which is executable at the market price or at the price at which such purchase can be made for the member's own account or the account in which he has an interest.

(b) Prohibit such member from selling any commodity for future delivery for his own account, or for any account in which he has an interest, while holding an order of another person for the sale of the same commodity which is executable at the market price or at the price at which such sale can be made for the member's own account or the account in which he has an interest.

(c) Prohibit such member from executing any transaction for any account of another person for which buying and/or selling orders can be placed or originated, or for which transactions can be executed, by such member without the prior specific consent of the account owner, regardless of whether the general authorization for such orders or transactions is pursuant to a written agreement, except

that orders for such an account may be placed with another member for execution.

(d) Prohibit such member from disclosing at any time that he is holding an order of another person or from divulging any order revealed to him by reason of his relationship to such other person, except pursuant to paragraph (c) of this section or at the request of an authorized representative of the Commission or the contract market.

(e) Prohibit such member from taking, directly or indirectly, the other side of any order of another person revealed to him by reason of his relationship to such other person, except with such other person's prior consent and in conformity with contract market rules approved by the Commission.

(f) Prohibit such member from making any purchase or sale which has been directly or indirectly prearranged.

(g) Prohibit such member from allocating trades among accounts.

(h) Prohibit such member from withholding or withdrawing from the market any order or part of an order of another person for the convenience of another member.

(i) Require that every execution of a transaction on the floor by such member be confirmed promptly with the opposite floor broker or floor trader; such confirmation shall identify price, quantity, future and respective clearing members. In the event a contract market cannot require prompt identification of respective clearing members without seriously disrupting the functions of its marketplace, the contract market may petition the Commission for exemption from this requirement. Such petition shall include:

(1) An explanation of why the contract market cannot require the prompt identification of respective clearing members without seriously disrupting the functions of its marketplace, and

(2) A proposed contract market rule which will insure that the opposite sides of every trade executed on the contract market can be effectively matched and will be accepted by a

clearing member for clearance or will be otherwise sufficiently guaranteed. The Commission may, in its discretion and upon such terms and conditions as it deems appropriate, grant such petition for exemption upon finding that the functions of the contract market may be seriously disrupted by requiring the prompt identification of respective clearing members and that the contract market appears to have adequately insured that every trade executed thereon can be effectively matched and will be accepted by a clearing member for clearance or will be otherwise sufficiently guaranteed.

NOTE: For an interpretation document pertaining to paragraph (c) and (e) of § 155.2, see 42 FR 35004, July 7, 1977.

§ 155.3 Trading standards for futures commission merchants.

(a) Each futures commission merchant shall, at a minimum, establish and enforce internal rules, procedures and controls to:

(1) Insure, to the extent possible, that each order received from a customer which is executable at or near the market price is transmitted to the floor of the appropriate contract market before any order in the same commodity for any proprietary account or any other account in which an affiliated person has an interest or for which an affiliated person may originate orders without the prior specific consent of the account owner is transmitted or caused to be transmitted to the floor of a contract market by any affiliated person who gains knowledge of such customer order prior to its transmission to the floor of the appropriate contract market; and

(2) Prevent affiliated persons from placing orders, directly or indirectly, with another futures commission merchant in a manner designed to circumvent the provisions of paragraph (a)(1) of this section.

(b) No futures commission merchant or any of its affiliated persons shall:

(1) Disclose that an order of another person is being held by the futures commission merchant or any of its affiliated persons, unless such disclosure is necessary to the effective execution of such order or is made at the request

of an authorized representative of the Commission, the contract market on which such order is to be executed, or a futures association registered with the Commission pursuant to section 17 of the Act; or

(2) Knowingly take, directly or indirectly, the other side of any order of another person revealed to the futures commission merchant or any of its affiliated persons by reason of their relationship to such other person, except with such other person's prior consent and in conformity with contract market rules approved by the Commission.

(c) No futures commission merchant shall knowingly handle the account of any affiliated persons of another futures commission merchant unless the futures commission merchant:

(1) Receives written authorization from a person designated by such other futures commission merchant with responsibility for the surveillance over such account pursuant to paragraph (a)(2) of this section;

(2) Prepares immediately upon receipt of an order for such account a written record of such order, including the account identification and order number, and records thereon, by timestamp or other timing device, the date and time, to the nearest minute, the order is received; and

(3) Transmits on a regular basis to such other futures commission merchant copies of all statements for such account and of all written records prepared upon the receipt of orders for such account pursuant to paragraph (c)(2) of this section.

(d) No affiliated person of a futures commission merchant shall have an account, directly or indirectly, with another futures commission merchant unless:

(1) Such affiliated person receives written authorization to maintain such an account from a person designated by the futures commission merchant with which such person is affiliated with responsibility for the surveillance over such account pursuant to paragraph (a)(2) of this section; and

(2) Copies of all statements for such account and of all written records prepared by such other futures commission merchant upon receipt of orders

for such account pursuant to paragraph (c)(2) of this section are transmitted on a regular basis to the future commission merchant with which such person is affiliated.

[41 FR 56142, Dec. 23, 1976, as amended at 44 FR 71821, Dec. 12, 1979]

§ 155.10 Exemptions.

Except as otherwise provided in this part, the Commission may, in its discretion and upon such terms and conditions as it deems appropriate, exempt any contract market or other person from any of the provisions of this part.

PART 166-CUSTOMER PROTECTION RULES

Sec.

166.1 Definitions. 166.2

Authorization to trade. 166.3 Supervision.

AUTHORITY: Secs. 4b, 4c(b), 4g(1), 47, 40, and 8a(5), Commodity Exchange Act, 7 U.S.C. 6b, 6c(b), 6g(1), 61, 60, and 12a(5) (1976), and sec. 217, Commodity Futures Trading Commission Act of 1974, 88 Stat. 1405.

SOURCE: 43 FR 31886, July 24, 1978, unless otherwise noted.

(a) The term "Commission registrant" as used in this part means any person who is or is required to be registered with the Commission pursuant to the act or any rule, regulation, or order thereunder.

(b) The term "commodity interest" as used in this part means

(1) Any contract for the purchase or sale of any commodity for future delivery, traded on or subject to the rules of a contract market;

(2) Any agreement or transaction subject to Commission regulation under section 4c(b) of the act; or

(3) Any contract or transaction subject to Commission regulation under section 217 of the Commodity Futures Trading Commission Act of 1974 (7 U.S.C. 15a).

(c) The term "customer" as used in this part means any person trading, intending to trade, or receiving or seeking advice concerning any commodity

interest, including any existing or prospective client or subscriber of a commodity trading advisor or existing or prospective participant in a commodity pool, but the term does not include a person who is acting in the capacity of a Commission registrant with respect to the trade.

(d) The term "commodity account" as used in this part means the account of a customer in which any commodity interest is, or is intended to be, traded.

§ 166.2

Authorization to trade.

No futures commission merchant or associated person may directly or indirectly effect a transaction in a commodity interest for the account of any customer unless before the transaction the customer, or person designated by the customer to control the account

(a) Specifically authorized the futures commission merchant or associated person to effect the transaction (a transaction is “specifically authorized" if the customer or person designated by the customer to control the account specifies: (1) The precise commodity interest to be purchased or sold and (2) the exact amount of the commodity interest to be purchased or sold.)

(b) Authorized in writing the futures commission merchant or associated person to effect transactions in commodity interests for the account without the customer's specific authorization..

[43 FR 31890, July 24, 1978, as amended at 44 FR 4466, Jan. 22, 1979]

§ 166.3 Supervision.

Each Commission registrant, except an associated person who has no supervisory duties, must diligently supervise the handling of all commodity interest accounts carried, operated, or advised by the registrant and all other activities of its partners, officers, employees and agents (or persons occupying a similar status or performing a similar function) relating to its business as a Commission registrant

PART 170-REGISTERED FUTURES ASSOCIATIONS

Subpart A-Standards Governing Commission Review of Applications for Registration as a Futures Association Under Section 17 of the Act

Sec.

170.1 Demonstration of purposes (Section 17(b)(1) of the Act).

170.2 Membership restrictions (Section 17(b)(2) of the Act).

170.3 Fair and equitable representation of members (Section 17(b)(5) of the Act). 170.4 Allocation of dues (Section 17(b)(6) of the Act).

170.5 Prevention of fraudulent and manipulative practices (Section 17(b)(7) of the Act).

170.6 Disciplinary proceedings (Sections 17(b)(8) and (b)(9) of the Act).

170.7 Membership denial (Section 17(b)(9) of the Act).

170.8 Settlement of customer disputes (Section 17(b)(10) of the Act). 170.9 General standard.

Subpart B-Registration Statement of Futures Associations to be Submitted to the Commis

sion

170.11 Form of registration statement; review of registration statement. 170.12 Delegation of authority to Director

of the Division of Trading and Markets. AUTHORITY: Secs. 8a and 17 of the Commodity Exchange Act, 7 U.S.C. 12a and 21 as amended, 92 Stat. 876 (1978).

SOURCE: 44 FR 20651, Apr. 6, 1979, unless otherwise noted.

Subpart A-Standards

Governing

Commission Review of Applications for Registration as a Futures Association Under Section 17 of the Act

§ 170.1 Demonstration of purposes (Section 17(b)(1) of the Act).

A futures association must demonstrate that it will be able to carry out the purposes of section 17 of the Act. Since a basic purpose of a futures association is to regulate the practices of its members, an association should demonstrate that it will require its members to adhere to regulatory requirements governing their business practices at least as stringent as those imposed by the Commission. For example, the association should be pre

pared to establish and maintain in accordance with § 1.52 of this chapter, a financial compliance program for those members of the association who are futures commission merchants.

§ 170.2 Membership restrictions (Section 17(b)(2) of the Act).

If it appears to the Commission to be necessary or appropriate in the public interest and to carry out the purpose of section 17 of the Act, a futures association may restrict its membership to individuals registered by the Commission in a particular capacity-floor brokers, futures commission merchants, commodity trading advisors, commodity pool operators and associated persons-or to individuals doing business in a particular geographical region or to firms having a particular level of capital assets or which engage in a specified amount of business per year.

§ 170.3 Fair and equitable representation of members (Section 17(b)(5) of the Act).

A futures association must assure fair and equitable representation of the views and interests of all association members in the procedures providing for the adoption, amendment or repeal of any association rule, in an association's procedure for the selection of association officers and directors and in all other phases of the association's affairs and activities, including disciplinary and membership hearings. No single group or class of association members shall dominate or otherwise exercise disproportionate influence on any governing board of an association or on any disciplinary or membership panel of such an association. Nonmembers of the association shall be represented wherever practicable on any board or hearing panel of the association.

§ 170.4 Allocation of dues (Section 17(b)(6) of the Act).

Dues imposed on members of a futures association must be allocated equitably among members and may not be structured in a manner constituting a barrier to entry of any person seeking to engage in commodity-related business activities.

§ 170.5 Prevention of fraudulent and manipulative practices (Section 17(b)(7) of the Act).

A futures association must establish and maintain a customer protection program, including the adoption of rules to protect customers and customer funds and to promote fair dealing with the public. These rules shall set forth the ethical standards for members of the association in their business dealings with the public. An applicant association must also demonstrate its capability to foster a professional atmosphere among its members, including an acceptance of and adherence to the ethical standards, and to monitor and enforce compliance with the customer protection program and rules.

§ 170.6 Disciplinary proceedings (Section 17(b)(8) and (b)(9) of the Act).

A futures association must provide a fair and orderly procedure with respect to disciplinary actions brought against association members or persons associated with members. These rules governing such disciplinary actions shall contain, at a minimum, the procedural safeguards contained in section 17(b)(9) of the Act. In addition, an association, in disciplining its members should demonstrate that it will: (a) Take vigorous action against those who engage in activities in violation of association rules; (b) conduct proceedings in a manner consistent with the fundamental elements of due process; and (c) impose discipline which is fair and has a reasonable basis in fact.

§ 170.7 Membership denial (Section 17(b)(9) of the Act).

A futures association must provide a fair and orderly procedure for processing membership applications and for affording any person to be denied membership an opportunity to submit evidence in response to the grounds for denial stated by the association. The procedures governing denials of membership in the association shall contain, at a minimum, the procedural safeguards contained in section 17(b)(9) of the Act.