Rules Relating to Reparation Proceedings

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 12

Rules Relating to Reparation Proceedings

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: Pursuant to the Futures Trading Practices Act of 1992, the

Commodity Futures Trading Commission (``Commission'' or ``CFTC'')

published for comment a notice of proposed rulemaking setting forth new

regulations (the ``Class Action Proposal''),1 to implement class

action suits against registered persons. The Commission also invited

the public to respond to specific questions. Upon consideration of the

comments received and the Commission's own review of the proposed rule,

it has determined not to adopt the Class Action Proposal.

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\1\58 FR 17369 (April 2, 1993).

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In order to update and streamline Commission procedures in light of

its experience, the Commission published for comment a notice of

proposed rulemaking to amend and correct its rules relating to

reparation proceedings (the ``Reparation Rules Proposal'').2 This

notice sets forth the regulations in final form.

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\2\58 FR 44623 (August 24, 1993).

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Additionally, the Commission has received inquiries about punitive

damages which suggest that the current regulations need to be

clarified. Consequently, the Commission clarified the regulations to

reflect Section 222 of the Futures Trading Practices Act of 1992.

EFFECTIVE DATE: The effective date of the regulations is May 2, 1994

and the revised regulations apply only to cases filed on and after that

date. The Commission will consider comments from the public about the

revisions of the regulations concerning punitive damages until the

effective date.

ADDRESSES: Comments should be sent to Jean A. Webb, Secretary of the

Commission, Commodity Futures Trading Commission, 2033 K Street NW.,

Washington, DC 20581.

FOR FURTHER INFORMATION CONTACT: Merry Lymn, Assistant General Counsel,

Office of the General Counsel, Commodity Futures Trading Commission,

2033 K Street NW., Washington, DC 20581. Telephone: (202) 254-9880.

SUPPLEMENTARY INFORMATION:

I. Background

In reviewing the reparations proposals, the Commission carefully

considered all of the comments and the pertinent regulatory and

legislative history. In addition, the Commission evaluated the

proposals in light of the National Performance Review (``NPR''), which

among other things, requires government agencies to develop a clear

sense of mission, inject competition into the conduct of government

business, and to measure success by customer satisfaction. To further

the goals of NPR, the Commission has engaged in an effort to streamline

its bureaucracy, to cut costs, and serve the public in the best way

possible. As a part of this effort, the Commission identified the

reparations program as one area of review. With the promulgation of

these rules, the Commission's purpose is to improve the rules so as to

facilitate efficient and just deliberations of reparations complaints

in accordance with the Commission's regulatory mission to protect the

public and the markets from price manipulation and fraud.

A. The Class Action Proposal

1. Proposed Rules

Section 224 of the Futures Trading Practices Act of 1992 (102

Cong., 2d Sess., Pub. L. 102-546) authorizes an action in reparations

to be brought by any one or more persons for and in behalf of such

person or persons and other persons similarly situated, if the

Commission permits such actions pursuant to a final rule issued by the

Commission.

The Futures Trading Practices Act does not mandate that the

Commission adopt final rules providing for class actions unless the

Commission decides such a rule should be permitted after considering

``the potential impact of such actions on resources available to the

reparations system * * * and the relative merits of bringing such

actions in Federal court.'' Because the Commission was unsure of the

desirability and need for class action suits in reparations it sought

comments on the Class Action Proposal and raised several questions to

which it requested responses.

2. Comments Received

The Commission received six written comments in response to the

Class Action Proposal. The commenters included futures industry

associations, bar associations, a law firm, and a futures commission

merchant. None of the participants favor the implementation of class

action suits in reparations, although their reasons differ.

Overall, the commenters agree that given the ability to pursue

class actions in federal court, there would be no benefit to the public

by the adoption of procedures to implement class actions before the

Commission. While the parties agree that the Commission has more

expertise in administering the Commodity Exchange Act than do federal

courts, this advantage is considered insignificant compared to the

resources and procedural advantages available in the federal courts.

Some parties point out that the highly individualized, fact-

intensive cases in reparations are the type of case which courts have

often refused to certify for class actions. One commenter notes that

because class action suits settle only liability issues and individual

hearings would still be required for each class member, judicial

economy would not be furthered. Other participants contend that the

procedural and administrative requirements of class action suits would

increase both the costs to the Commission and the time necessary for

resolution of such cases. The parties consider class actions out of

place in the reparation forum because it was designed for quick and

inexpensive resolution of disputes whereas class action litigation must

be conducted with formality and strict attention to procedural issues

and is often lengthy.

3. Disposition

The Commission has carefully considered all the comments received

in response to the Class Action Proposal and the issues involved. The

Commission finds that it should not implement class action suits in

reparations at this time because its resources would be used more

effectively elsewhere and because the Commission cannot offer a useful

alternative to the federal courts. Further, this result is consistent

with the NPR because it appears that class actions would not improve

service to futures customers and would result in unnecessary spending

by the Commission and litigants. Accordingly, the Commission has

decided not to adopt the proposed rules implementing class action suits

against registered persons.

B. The Reparation Rules Proposal

1. Introduction

In light of the passage of the Futures Trading Practices Act of

1992 and its experience with the reparation rules since they were last

amended in 1984, the Commission reexamined the regulations governing

reparation proceedings and found a need for certain corrections. Some

references are outdated and need to be deleted or updated. Commission

practice has disclosed that certain time limits can be compressed and

procedures streamlined. Additionally, the Commission considered raising

jurisdictional and fee levels and whether the voluntary decisional

procedure should be retained. The Commission's notice of proposed

rulemaking set forth the needed corrections and revisions and requested

public comment.

2. Comments Received

The Commission received 14 written comments in response to the

Reparation Rules Proposal. Commenters included futures industry

associations, an investor protection organization, two Commission

Administrative Law Judges, a Commission Judgment Officer, a professor

of law, attorneys representing both claimants and registrants in

reparation cases, and registrants which have participated in reparation

actions as respondents. The Commission has reviewed each of these

comments and, based upon that review, is adopting the rules as proposed

with certain modifications.

The Commission is also modifying its rules to clarify any questions

arising from implementation of section 222 of the Futures Trading

Practices Act of 1992. That section amended Section 14 of the Commodity

Exchange Act to provide for punitive damages in a limited class of

reparation cases.

II. Reparation Rules

A. Corrections to Regulations

The current regulations became applicable to matters filed on or

after April 23, 1984. Since there are no matters pending before the

Commission which date back to April 23, 1984, the date reference is

unnecessary and is being deleted.

The definitional section was not in alphabetical order. The

Commission believes that re-ordering the definitions alphabetically

will make it easier for the user and facilitate adding or deleting

definitions in the future. Consequently, the definitional section is

re-ordered alphabetically.

The Office of Government Ethics established uniform standards of

ethical conduct for officers and employees of the Federal Government

(57 FR 35006, Aug. 7, 1992). These were published as new government-

wide regulations superseding certain individual agency regulations.

Consequently, the reference in Sec. 12.7 to 17 CFR 140.735-3(b)(3) is

updated to 5 CFR 2635.101(b).

Additionally, the current regulations refer to the ``Chief of the

Opinions Section.'' There is no longer an ``Opinions Section.''

Consequently, references to the ``Chief of the Opinions Section'' are

changed to the ``Deputy General Counsel for Opinions'' and references

to ``Opinions Section'' have been changed to ``Office of the General

Counsel.''

There were no comments regarding the proposed corrections.

Accordingly, the Commission is making the corrections as indicated in

its prior notice. Typographical errors also have been corrected.

B. Revision of Rules

1. Response to Complaint

Rule 12.16 affords a respondent 45 days to respond to a reparation

complaint and permits the Director of the Office of Proceedings to

extend the filing deadline for an additional 15 days. In providing such

a lengthy period, the Commission had expected parties to pursue early

settlement discussions. Unfortunately, this has not been the

case.3

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\3\See 41 FR 3994, 3995 (January 27, 1976).

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In contrast to the 45 day period in the Commission rule, Rule 12(a)

of the Federal Rules of Civil Procedure requires that an answer to a

complaint be filed within 20 days after service of the summons and

complaint. The Commission reviewed the relative generosity of the

length of time for filing a response in its rules, and found that

adjudicating reparation claims could be expedited. Thus, to further the

express purpose of the reparation procedures ``to provide a just,

speedy and inexpensive determination of the issues'' (Sec. 12.1(a)),

the Commission proposed to reduce the time for filing the response to

the complaint set forth in Sec. 12.16 to 25 days, and the additional

time that the Director of the Office of Proceedings could extend that

deadline to ten days. The Commission believed that this would reduce

the amount of total time in which to file a response from a maximum of

60 days to about half that time without infringing on the ability of

the parties to present their cases. Moreover, this reduction also would

shorten the total time for adjudicating claims. The Commission proposed

to revise Sec. 12.16 to compress the filing deadlines accordingly.

a. Comments received. Only two parties commented on this issue.

They disagree as to whether reducing the time for response to a

complaint afforded by Rule 12.16 would infringe upon a respondent's

ability to defend an action.

b. Disposition. The Commission has considered the comments and has

determined that since defendants in federal court are required to

respond in 20 days, affording respondents in reparations 25 days to

respond is not onerous, especially since an extension of ten days is

available. Consequently, for the reasons set forth in the Reparation

Rules Proposal, and because it should improve service by compressing

overall time for adjudicating complaints, the Commission has decided to

adopt the time frame proposed.

2. Discovery

Section 12.30(d) provides that all discovery notices and requests

be served within 40 days after the Proceedings Clerk notifies the

parties of the commencement of a proceeding. Because the Commission

believes that the disposition of proceedings can be expedited by

compressing the discovery period, it proposed to amend Sec. 12.30(d) to

reduce the time for serving discovery notices and requests to 20 days

after notification by the Proceedings Clerk of the commencement of a

proceeding.

a. Comments received. Only three persons expressed an opinion. One

contends that the present rules do not cause significant delays and

another points out that extra time is needed when respondents and their

attorneys reside in different states and rely on the postal system. The

parties point out that defendants, who do not know beforehand that a

complaint will be filed, will be disadvantaged if there is too little

time to prepare discovery requests. The third commenter argues that the

reduction in time is too drastic and would invite an increase in

motions for extensions of time and untimely discovery requests. It

suggests reducing the time for serving discovery notices and requests

to 30 days.

b. Disposition. The Commission has reconsidered its proposal to

reduce the time for serving discovery requests from 40 days to 20 days

after notification by the Proceedings Clerk of the commencement of a

proceeding and has decided to amend Rule 12.30(d) to reduce that period

to 30 days. The Commission believes that this compromise responds to

the needs of the public as expressed in the comments and will reduce

the total time to adjudicate a significant number of cases without

inviting an increase in the number of motions for extensions of time.

3. The Voluntary Decisional Procedure

At the time it was instituted, the voluntary procedure was seen as

meeting the desires of customers for an arbitration style forum. In the

Reparation Rules Proposal, the Commission discussed the voluntary

procedure at length. It pointed out the advantages of the voluntary

procedure and compared it to the arbitration programs of NFA, the

exchanges, and other private forums. At the same time, the Commission

questioned the continuing need for the voluntary procedure and sought

public comment as to its usefulness.

The public was encouraged to focus attention on the general nature

of the reparation program as one of the significant antifraud tools and

customer protections created by Congress in the Commodity Exchange Act.

The Commission also invited comment on whether the elimination of

voluntary proceedings as an option in reparations would shift cases

away from the public record to private decisionmakers, and if so, what

the impact would be on the benefits and costs of these proceedings.

a. Comments received. Virtually all of the parties addressed this

issue: about half favor retention of the voluntary procedure and half

are opposed. Several of the parties who favor elimination of the

voluntary procedure also question the continuing need for the entire

reparations program.

Those who favor retention of the program are primarily those who

use it. A respondent with experience in several voluntary proceedings

asserts that proceedings before Judgment Officers compare favorably to

private arbitrations. The parties who favor retention of the program

contend that the voluntary procedure is vital to preserving the

confidence of small investors who harbor doubts about the fairness of

industry-sponsored arbitration. Others note that reparation proceedings

in general as well as voluntary proceedings are an effective tool for

monitoring registrants' behavior and keeping complaints about the

industry in the public eye.

Several parties contend that industry sponsored arbitration is fair

and at least as efficient as the voluntary procedure. These parties

assert that the Commission resources invested in the voluntary

procedure could be put to better use without harming customers. They

point to statistics which, they argue, show that complainants have as

good a chance, if not better, of prevailing before industry arbitration

as before the Commission. These parties also suggest that the

Commission evaluate the continuing need for the entire reparations

program in light of the alternative fora available to customers.

b. Disposition. The Commission reviewed all the comments carefully

and has decided to retain the voluntary procedure. In the Commission's

view retention of the program is consistent with the goals of NPR.

Members of the public who use the voluntary procedure appear pleased

with it and are not in favor of being forced to rely on the private

sector for redress of their complaints. Thus, the goal of customer

satisfaction would be furthered by retention of the voluntary

procedure.

In addition, the Commission's Mission Statement includes oversight

of the commodity futures industry and protection of the public and the

markets from price manipulation and fraud. The reparation program and

the voluntary procedure specifically address fraud committed upon

futures customers. Consequently, retention of the program is important

to carry out this mandate. Moreover, industry proceedings are

confidential whereas complaints brought before the Commission and its

decisions are on the public record. Accordingly, the Commission is able

to influence industry behavior and thereby further its mandate to

oversee the industry. For all of these reasons, the Commission has

determined to retain the voluntary procedure.

4. Filing Fees

Filing fees of $25 for the voluntary decisional procedure, $100 for

the summary decisional procedure, and $200 for the formal decisional

procedure were set in 1984 (49 FR 6602, February 22, 1984). In the

Reparation Rules Proposal, the Commission proposed raising the filing

fees for the voluntary decisional procedure to $50, for the summary

decisional procedure to $125, and to $250 for the formal decisional

procedure and to amend Sec. 12.25 accordingly. Additionally, the

Commission proposed to amend Sec. 12.106 to authorize Judgment Officers

to assess the cost of the filing fee as part of the damage award in

voluntary proceedings.

a. Comments received. Only a few parties addressed this proposal.

These parties contend that the fees should be raised even higher in

order to discourage frivolous claims. One party urges the Commission to

adopt fees more commensurate with the cost of administering the

reparation program.

b. Disposition. The purpose of the reparation program is to provide

a service to commodity futures customers and, at the same time, to

exercise oversight of the industry. Thus, it is in the Commission's

interest to assess fees which reimburse costs to some extent. However,

the Commission recognizes that if fees are too high they may discourage

customers from seeking redress with the Commission, thereby impeding

its important oversight mission. The Commission believes that the

proposed fee structure will address its twin goals of service and

oversight. Accordingly, the Commission is adopting the fees as

proposed.

5. Summary Decisional Procedure

The summary decisional procedure was created by the Commission

based upon the belief that parties with smaller claims should be

entitled to a less expensive, more expeditious procedure which offers a

greater likelihood of an early damage award and recovery. The

Reparation Rules Proposal sets forth a brief history of the ceiling for

damage claims eligible for summary proceedings. In short, the ceiling

was originally $2,500, was raised to $5,000, and is now $10,000.

Upon examination of the workload of the Office of Proceedings, the

Commission proposed raising the ceiling from $10,000 to $30,000 in

order to increase the efficiency of that office. In its notice, the

Commission stated: ``Allowing Judgment Officers to hear a greater

number of cases will free the Administrative Law Judges to concentrate

on enforcement proceedings and cases in which the damages claimed are

greater than $30,000. Should the Judgment Officers become overburdened,

ALJ's can be assigned cases below $30,000.'' 58 FR 44623, 44625.

Cases under the summary decisional procedure are usually decided

based upon the written submissions of the parties. The current rules

allow a Judgment Officer to order a hearing only upon motion of a

party. The Commission proposed modifying the rules to authorize

Judgment Officers to order oral hearings on their own motion. Hearings

are conducted by telephone unless the parties agree to a hearing in

Washington, DC.

Currently, the rules require that the parties be given 60 days

notice prior to a hearing. The proposed rules require that the Judgment

Officers schedule the hearing with consideration for the convenience of

the parties and allow for 15 days notice for telephonic hearings and 30

days notice for in-person hearings. The proposed rules also make it

clear that failure to appear at telephonic and in-person hearings or to

provide correct telephone numbers is subject to sanctions, including

possible default or dismissal.

a. Comments received. Only the proposal to raise the ceiling from

$10,000 to $30,000 inspired comments. Both Administrative Law Judges

object. One party even suggests lowering the ceiling to $2,500.

Some parties express the opinion that raising the ceiling will have

a significant detrimental impact on the ability of a respondent to

adequately defend an action. They argue that parties to a proceeding

are entitled to the greatest procedural protection which includes an

in-person hearing.

On the other hand, one commenter contends that it is unlikely that

there will be any significant negative impact on affected claimants and

respondents because the continued availability of an oral hearing will

safeguard against any infringement on a fair fact-finding process.

b. Disposition. Since there were no objections to the proposal to

improve telephonic hearings under the summary decisional procedure by

authorizing Judgment Officers to order a telephonic hearing on their

own motion, compressing the notice period, and providing for sanctions,

these modifications are adopted as proposed. As explained in the

Reparation Rules Proposal, the modifications will give the Judgment

Officers needed flexibility and accelerate the disposition of

proceedings. Because the new rules provide for telephonic hearings upon

the initiation of the Judgment Officer, the Commission believes that

summary proceedings will provide due process more efficiently than in

the past. The Commission anticipates some cost savings from this.

Further, telephonic hearings save money for the litigants since no one

has to travel to the hearing site. Thus, consistent with NPR, the

Judgment Officers are given enhanced powers, customers are better

served, and efficiency is promoted.

The parties which oppose raising the ceiling do not address the

matter directly. Rather, they generally call into question the adequacy

of the procedural protections available in a summary decisional

proceeding. The Commission determined that telephonic hearings are

consistent with the requirements of fundamental fairness when it

instituted this procedure in 1984. See 49 FR 6602, 6614 (February 22,

1984). As the Commission explained in adopting this regulation (id.):

* * * The Commission is confident that a Judgment Officer will

be able to assess the demeanor of witnesses from listening to their

voices. Because the Judgment Officer can be expected to hold doubts

about the credibility of any telephone witness whose testimony does

not sound genuine, because he has the authority to conduct his own

examination of such witnesses to confirm or dispel those doubts, and

because telephone assertions can be measured against the documentary

evidence of record, the Commission does not believe that the

potential for the coaching of witnesses will have any effect on the

Judgment Officer's ability to discern the truth.

The Commission recognizes that fundamental fairness requires a

process that safeguards the reliability of the fact-finding process.

Telephonic hearings include representation by counsel and cross-

examination. Frequently the presiding officers clarify the factual

record through their examination of witnesses. The Commission's

experience has shown that telephonic hearings provide for fair and

reliable fact-finding and an adequate and appropriate basis for a

credibility determination. Compare, Sterling v. District of Columbia

Department of Social Services, 513 A. 2d 253, 255 (D.C. 1986) (``[W]e

believe that telephone hearings are a reasonable means of conserving

fiscal and administrative resources.''). See also, Casey v. O'Bannon,

536 F. Supp. 350, 353 (E.D. Pa. 1982) (refusing to enjoin a telephonic

hearing program on due process grounds and holding that ``hearing

officers can effectively judge credibility over the phone by noting

voice responses, pauses, levels of irritation and other factors'').

As the Commission said in 1984 (49 FR 6602, 6614 supra):

* * * [T]he Commission believes that its Judgment Officers will

possess the ability to comprehend the often complex factual contexts

of commodity-related disputes, to recognize critical issues of fact

and law in the proceeding, to evaluate oral testimony and to conduct

oral examination, and to render a well-considered initial decision

in the proceeding. Accordingly, the Commission believes that there

is no basis for precluding Judgment Officers from exercising any

functions performed by Administrative Law Judges.

Since the Judgment Officers have demonstrated their competence to

decide cases from the time the summary procedure was instituted,

neither the Commission nor the parties should be deprived of the

savings in both cost and time which will inure to their benefit by

raising the ceiling from $10,000 to $30,000.

Accordingly, in order to increase the efficiency of the Office of

Proceedings, the Commission is raising the ceiling from $10,000 to

$30,000.

C. Clarification

Section 222 of the Futures Trading Practices Act of 1992 amended

Section 14 of the Commodity Exchange Act to provide for punitive

damages in reparation cases. Section 14 of the Commodity Exchange Act,

as amended, provides that any person complaining of any violation of

any provision of this Act or any rule, regulation, or order issued

pursuant to this Act by any person who is registered under this Act

may, at any time within two years after the cause of action accrues,

apply to the Commission for an order awarding--(A) actual damages

proximately caused by such violation. If an award of actual damages is

made against a floor broker in connection with the execution of a

customer order, and the futures commission merchant which selected the

floor broker for the execution of the customer order is held to be

responsible under section 2(a)(1) for the floor broker's violation,

such futures commission merchant may be required to satisfy such award;

and (B) in the case of any action arising from a willful and

intentional violation in the execution of an order on the floor of a

contract market, punitive or exemplary damages equal to no more than

two times the amount of such actual damages. If an award of punitive or

exemplary damages is made against a floor broker in connection with the

execution of a customer order, and the futures commission merchant

which selected the floor broker for the execution of the customer order

is held to be responsible under section 2(a)(1) for the floor broker's

violation, such futures commission merchant may be required to satisfy

such award if the floor broker fails to do so, except that such

requirement shall apply to the futures commission merchant only if it

willfully and intentionally selected the floor broker with the intent

to assist or facilitate the floor broker's violation.

On its face, this statutory provision appears to be self-executing.

However, some questions have arisen regarding its implementation.

Consequently, the Commission has determined that it should clarify its

regulations in order to notify the public as to how it intends to

administer this provision.4

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\4\In this connection, the Commission wishes to make clear that

it does not view this provision as requiring actual execution of an

order before punitive damages may be awarded.

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The first question is whether punitive damages will affect the type

of proceeding accorded under the regulations. For example, in a case

with claimed actual damages of $20,000 and claimed punitive damages of

$40,000, which level of proceeding would be instituted? The Commission

has determined that the governing factor in all cases should be total

damages claimed; therefore, in the example above, the case would be

assigned to the formal decisional procedure. Sections 12.2, 12.13,

12.18, 12.25, 12.204, 12.210, and 12.314 have been revised accordingly.

Second, in order to put a claimant on notice as to the

prerequisites for such an award, and assure that respondents have

requisite notice to defend claims for punitive damages, the Commission

has revised sections 12.2 and 12.13. As a prerequisite to an award of

punitive damages, a complainant must claim actual and punitive damages,

prove actual damages, and demonstrate that punitive damages are

appropriate. Claimants will thus be on notice as to the requirements;

respondents will have requisite notice to defend claims for punitive

damages.

The Administrative Procedure Act, 5 U.S.C. 553(b) requires in most

instances that a notice of proposed rulemaking be published in the

Federal Register and that opportunity for comment be provided when an

agency promulgates new regulations or changes to existing regulations.

Section 553(b) sets forth an exception, however, for rules of agency

organization, procedure, or practice. The Commission has determined

that these revisions to its reparation rules to clarify its

interpretation of the punitive damage provision of the Act constitute

rules of agency practice or procedure and, accordingly, that notice and

comment procedures are not required.

III. Related Matters

Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.

(1988), requires that agencies, in adopting rules, consider the impact

of those rules on small businesses. The Commission has previously

determined that part 12 reparation rules are not subject to the

provisions of RFA because they relate solely to agency organization,

procedure, and practice.5 Nevertheless, because they do not impose

regulatory obligations on commodity professionals and small commodity

firms, and because the corrections and amendments will expedite and

improve the reparation procedures, the Commission does not expect the

rule to have a significant economic impact on a substantial number of

small business entities.

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\5\49 FR 6602, 6621 (February 22, 1984).

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Accordingly, pursuant to Rule 3(a) of the RFA (5 U.S.C. 605(b)),

the Acting Chairman, on behalf of the Commission, certifies that this

rule will not have a significant economic impact on a substantial

number of small entities. The Commission received no comments

concerning its determination in this regard.

List of Subjects in 17 CFR Part 12

Administrative practice and procedure, Commodity exchanges,

Commodity futures, Reparations

PART 12--RULES RELATING TO REPARATIONS

Part 12 of chapter I of title 17 of the Code of Federal Regulations

is amended as follows:

1. The authority citation for part 12 is revised to read as

follows:

Authority: 7 U.S.C. 4a(j), 12(a)(5), and 18.

Sec. 12.1 [Corrected]

2. In the first sentence of Sec. 12.1(c) the comma after

``complaints'' is removed; the comma after ``thereto'' is removed and a

period is added in its place. The rest of the paragraph is removed.

3. Section 12.2 is revised to read as follows:

Sec. 12.2 Definitions.

For purposes of this part:

Act means the Commodity Exchange Act, as amended, 7 U.S.C. 1, et

seq.;

Administrative Law Judge means an administrative law judge

appointed pursuant to the provisions of 5 U.S.C. 3105;

Commission means the Commodity Futures Trading Commission;

Commission decisional employee means an employee or employees of

the Commission who are or may reasonably be expected to be involved in

the decisionmaking process in any proceeding, including, but not

limited to: A Judgment Officer; members of the personal staffs of the

Commissioners, but not the Commissioners themselves; members of the

staffs of the Administrative Law Judges, but not an Administrative Law

Judge; members of the staffs of the Judgment Officers; members of the

Office of the General Counsel; members of the staff of the Office of

Proceedings; and other Commission employees who may be assigned to hear

or to participate in the decision of a particular matter.

Complainant means a person who, individually or jointly with

others, has applied to the Commission for a reparation award pursuant

to section 14(a) of the Act, but shall not include a cross claimant or

any other type of third party claimant. The term ``complainant'' under

these rules applies equally to two or more persons who have applied

jointly for a reparation award;

Complaint means any document which constitutes an application for a

reparation award pursuant to section 14(a) of the Act, regardless of

whether it is denominated as such;

Counterclaim means an application for a reparation award by a

respondent against a complainant which satisfies the requirements of

Sec. 12.19. A counterclaim does not mean a cross claim or other type of

third party claim;

Director of the Office of Proceedings means an employee of the

Commission who serves as the administrative head of that Office, with

responsibility and authority to assure that these part 12 Reparation

Rules are administered in a manner which will effectuate the purposes

of section 14(b) of the Act. The Director is authorized to convene

meetings of all personnel in the Office of Proceedings, including

Administrative Law Judges and their personally assigned law clerks. The

Director shall have the authority to delegate his duties to administer

Secs. 12.15, 12.24, 12.26 and 12.27, and, shall have the authority to

assign and, if necessary, reassign the duties of, and set reasonable

standards for performance for, all personnel in the Office, including

the Judgment Officers, but not including Administrative Law Judges and

their personally assigned law clerks;

Ex parte communication means an oral or written communication not

on the public record with respect to which reasonable prior notice to

all parties is not given, but does not include:

(1) A discussion, after consent has been obtained from all of the

named parties, between a party and a Judgment Officer or Administrative

Law Judge, or the staffs of the foregoing, pertaining solely to the

possibility of settling the case without the need for a decision;

(2) Requests for status reports, including questions relating to

service of the complaint, and the registration status of any persons,

on any matter or proceeding covered by these rules; or

(3) Requests made to the Office of Proceedings or the Office of the

General Counsel for interpretation of these rules.

Formal decisional procedure means, where the amount of total

damages claimed exceeds $30,000, exclusive of interest and costs, a

procedure elected by the complainant or a respondent where the parties

may be granted an oral hearing. A formal decisional proceeding is

governed by subpart E;

Hearing means that part of a proceeding which involves the

submission of proof, either by oral presentation or written submission;

Interested person means any party, and includes any person or

agency permitted limited participation or to state views in a

reparation proceeding, or other person who might be adversely affected

or aggrieved by the outcome of a proceeding (including the officers,

agents, employees, associates, affiliates, attorneys, accountants or

other representatives of such persons), and any other person having a

direct or indirect pecuniary or other interest in the outcome of a

proceeding;

Judgment Officer means an employee of the Commission who is

authorized to conduct the proceeding and render a decision in a summary

decisional proceeding or a voluntary decisional proceeding. In

appropriate circumstances, the functions of a Judgment Officer may be

performed by an Administrative Law Judge;

Office of the General Counsel refers to the members of the

Commission's staff who provide assistance to the Commission in its

direct review of any proceeding conducted pursuant to these rules;

Office of Proceedings means that Office within the Commission

comprised of the Administrative Law Judges, Judgment Officers, the

Director of that Office, the Proceedings Clerk, and members of the

staffs of the foregoing, which administers these part 12 Reparation

Rules, other than the rules authorizing direct review by the

Commission;

Order means the whole or any part of a final procedural or

substantive disposition of a reparation proceeding by the Commission,

an Administrative Law Judge, a Judgment Officer, or the Proceedings

Clerk;

Party means a complainant, respondent or any other person or agency

named or admitted as a party in a reparation matter;

Person means any individual, association, partnership, corporation

or trust;

Pleading means the complaint, the answer to the complaint, any

supplement or amendment thereto, and any reply to the foregoing;

Proceeding means a case in which the pleadings have been forwarded

and in which a procedure has been commenced pursuant to Sec. 12.26;

Proceedings Clerk means that member of the Commission's staff in

the Office of Proceedings who shall maintain the Commission's

reparation docket, assign reparation cases to an appropriate

decisionmaking official, and act as custodian of the records of

proceedings;

Punitive damages means damages awarded (no more than two times the

amount of actual damages) in the case of any action arising from a

willful and intentional violation in the execution of an order on the

floor of a contract market. An order does not have to be actually

executed to render a violation subject to punitive damages. As a

prerequisite to an award of punitive damages, a complainant must claim

actual and punitive damages, prove actual damages, and demonstrate that

punitive damages are appropriate;

Registrant means any person who--

(1) Was registered under the Act at the time of the alleged

violation;

(2) Is subject to reparation proceedings by virtue of section 4m of

the Commodity Exchange Act, regardless of whether such person was ever

registered under the Act; or

(3) Is otherwise subject to reparation proceedings under the Act;

Reparation award means the amount of monetary damages a party may

be ordered to pay;

Respondent means any person or persons against whom a complainant

seeks a reparation award pursuant to section 14(a) of the Act;

Summary decisional procedure means, where the amount of total

damages claimed does not exceed $30,000, exclusive of interest and

costs, a procedure elected by the complainant or the respondent wherein

an oral hearing need not be held and proof in support of each party's

case may be supplied in the form and manner prescribed by Sec. 12.208.

A summary decisional proceeding is governed by subpart D;

Voluntary decisional procedure means, regardless of the amount of

damages claimed, a procedure which the complainant and the respondent

have chosen voluntarily to submit their claims and counterclaims,

allowable under these rules, for an expeditious resolution by a

Judgment Officer. By electing the voluntary decisional procedure,

parties agree that a decision issued by a Judgment Officer shall be

without accompanying findings of fact and shall be final without right

of Commission review or judicial review. A voluntary decisional

proceeding is governed by subpart C of these rules.

Sec. 12.6 [Corrected]

4. In Sec. 12.6(b) the word ``the'' is added between ``expiration

of'' and ``time''.

Sec. 12.7 [Corrected]

5. In Sec. 12.7(b) introductory text, the phrase ``communication

prohibited by paragraph (b)'' is revised to read ``communication

prohibited by paragraph (a)''.

6. In Sec. 12.7(c)(3) the reference to ``17 CFR 140.735-3(b)(3).''

is revised to read ``5 CFR 2635.101(b).''.

Sec. 12.10 [Corrected]

7. In Sec. 12.10(a)(1) add ``a'' between ``course of'' and

``proceeding''.

8. In Sec. 12.10(a)(3) the phrase ``Chief of the Opinions Section''

is revised to read ``Deputy General Counsel for Opinions''.

Sec. 12.13 [Corrected and Amended]

9. In Sec. 12.13(a) the phrase ``(as defined in Sec. 12.2(y))'' is

revised to read ``(as defined in Sec. 12.2)''.

10. Sec. 12.13(b)(1)(v) and (viii) are revised to read as follows:

Sec. 12.13 Complaint; election of procedure.

* * * * *

(b) * * *

(1) * * *

(v) The amount of damages the complainant claims to have suffered

and the method by which those damages have been computed, the amount of

punitive damages (no more than two times the amount of such actual

damages) the complainant claims, if any, and how complainant plans to

demonstrate that punitive damages are appropriate;

* * * * *

(viii) An election of a decisional procedure pursuant to subpart C,

D, or E. (A procedure pursuant to subpart D may be elected only if the

total amount of damages claimed, exclusive of interest and costs, does

not exceed $30,000. A procedure pursuant to subpart E may be elected

only if the total amount claimed as damages, exclusive of interest and

costs, exceeds $30,000); and

* * * * *

11. In Sec. 12.13(b)(2) the phrase ``believes that'' is revised to

read ``believes the''.

12. Sec. 12.16 is revised to read as follows:

Sec. 12.16 Response to complaint.

Within 25 days after the complaint has been served by the Office of

Proceedings on the registrant, or within such additional time (not to

exceed 10 days absent extraordinary circumstances) as the Director of

the Office of Proceedings, or his/her delegee may grant, for good cause

shown, each registrant shall either--

(a) Satisfy the complaint in accordance with Sec. 12.17 of these

rules; or

(b) Answer the complaint in the manner prescribed by Sec. 12.18 of

these rules.

13. Sec. 12.18(a)(7) is revised to read as follows:

Sec. 12.18 Answer; election of procedure.

* * * * *

(a) * * *

(7) An election of an alternative decisional procedure pursuant to

subparts C, D, or E of these rules. (A proceeding pursuant to subpart D

may be elected only if the amount of actual damages claimed in the

complaint or as counterclaims, exclusive of interest, costs, and

punitive damages, does not exceed $30,000. A procedure pursuant to

subpart E may be elected only if the amount of actual damages claimed

in the complaint or as counterclaims, exclusive of interest, costs, and

punitive damages exceeds $30,000;

* * * * *

Sec. 12.25 [Amended]

14. In Sec. 12.25(a)(1) ``$25.00;'' is revised to read ``$50.00;''.

15. In Sec. 12.25(a)(2) ``$10,000,'' is revised to read

``$30,000,'' and ``$100.00.'' is revised to read ``$125.00.''.

16. In Sec. 12.25(a)(3) ``$10,000,'' is revised to read

``$30,000,'' and ``$200.00.'' is revised to read ``$250.00.''

17. In Sec. 12.25(b)(1) ``$10,000'' is revised to read ``$30,000''.

18. In Sec. 12.25(b)(2) ``$10,000'' is revised to read ``$30,000'',

and ``$175.00.'' is revised to read ``$200.00.''.

19. In Sec. 12.25(c) ``$175.00'' is revised to read ``$200.00''.

Sec. 12.26 [Amended]

20. In Sec. 12.26(a) ``within 60 days thereafter.'' is revised to

read ``within 50 days thereafter.''.

21. In Sec. 12.26(b) ``$10,000,'' is revised to read ``$30,000,'',

and ``within 60 days thereafter.'' is revised to read ``within 50 days

thereafter.''.

22. In Sec. 12.26(c) ``$10,000,'' is revised to read ``$30,000'',

``within 60 days thereafter.'' is revised to read ``within 50 days

thereafter.'', and the words ``forward the pleadings and materials of

record to a Proceedings Officer for discovery purposes, and'' are

removed.

Sec. 12.30 [Amended]

23. In Sec. 12.30(d) the phrase ``within forty (40) days (and all

discovery shall be completed within sixty (60) days'' is revised to

read ``within 30 days (and all discovery shall be completed within 50

days)'' and the last sentence is removed.

Sec. 12.106 [Amended]

24. In Sec. 12.106(c) the phrase ``(other than costs assessed as a

sanction for abuse of discovery)'' is revised to read ``(other than the

filing fee and costs assessed as a sanction for abuse of discovery)''.

25. Section 12.201(g) is revised to read as follows:

Sec. 12.201 Functions and responsibilities of the Judgment Officer.

* * * * *

(g) If an oral hearing is ordered, to preside at the hearing, which

shall include the authority to receive relevant evidence, to administer

oaths and affirmations, to examine witnesses, and to rule on offers of

proof;

* * * * *

Sec. 12.204 [Amended]

26. In Sec. 12.204(a) ``$10,000'' is revised to read ``$30,000''.

27. In Sec. 12.204(b) ``$10,000'' is revised to read ``$30,000''.

28. Section 12.208(b) is revised to read as follows:

Sec. 12.208 Submissions of proof.

* * * * *

(b) Oral testimony and examination. The Judgment Officer may order

an oral hearing for the presentation of testimony and examination of

the parties and their witnesses when appropriate and necessary for the

resolution of factual issues, upon motion by either a party or the

Judgment Officer. An oral hearing held under this section will be

convened by conference telephone call as provided in Sec. 12.209(b),

except that an in-person hearing may be held in Washington, D.C., under

the circumstances set forth in Sec. 12.209(c).

29. Sec. 12.209 is revised to read as follows:

Sec. 12.209 Oral testimony.

(a) Generally. When the Judgment Officer determines that an oral

hearing is necessary and appropriate, such oral hearing will be held

either by telephone or in person in Washington, D.C., as set forth

below. The Judgment Officer, in his or her discretion with

consideration for the convenience of the parties and their witnesses,

will determine the time and date of such hearing. During an oral

hearing, in his or her discretion, the Judgment Officer may regulate

appropriately the course and sequence of testimony and examination of

the parties and their witnesses and limit the issues.

(b) Telephonic hearings. When a Judgment Officer has determined to

hold an oral hearing by telephone, an order to that effect will be

issued at least 15 days prior to the hearing notifying the parties of

the date and time of the hearing. The order will direct the parties to

confirm, at least 48 hours in advance of the hearing, that the correct

telephone numbers for the parties and their witnesses are on file with

the Office of Proceedings, and warn that failure to provide correct

telephone numbers may be deemed waiver of that party's right to

participate in the hearing, to present evidence, or to cross-examine

other witnesses. If a party is unavailable by telephone at the

appointed time, any other party in attendance may present testimony,

and the Judgment Officer also may impose any appropriate sanction

listed in Sec. 12.35. All telephonic hearings will be recorded

electronically but will be transcribed only upon direction of the

Judgment Officer (if necessary) or in the event of Commission review.

The parties may secure a copy of the recording of the hearing from the

Proceedings Clerk upon written request and payment of the cost of the

recording.

(c) Washington, D.C. hearings. In exceptional circumstances and

when an in-person hearing is determined to be necessary in resolving

the issues, the Judgment Officer may order an in-person hearing in

Washington, D.C. upon written request by a party and the agreement of

at least one opposing party. The Judgment Officer will issue notice of

the time, date, and location of an in-person hearing to the parties at

least 30 days in advance of the hearing. Except as otherwise provided

herein, an in-person hearing will be held and recorded in the manner

prescribed in Sec. 12.312(c) through (f) of these rules. A party not

agreeing to appear at the hearing in Washington, D.C., may be ordered

to participate by telephone. Any party not appearing in person or by

telephone will be deemed to have waived the right to participate in the

hearing, to present evidence, or to cross-examine other witnesses;

further, that party may be subject to such action under Sec. 12.35 as

the Judgment Officer may find appropriate. The Judgment Officer may

order any party who requests or agrees to appear at a hearing in

Washington, D.C. and fails to appear without good cause, to pay any

reasonable costs unnecessarily incurred by parties appearing at such a

hearing.

(d) Compulsory process. An application for a subpoena requiring a

non-party to participate in a telephonic hearing or to appear at an in-

person hearing in Washington, D.C., may be made in writing to the

Judgment Officer without notice to the other parties. The standards for

issuance or denial of an application for a subpoena, the service and

travel fee requirements, and the method for enforcing such subpoenas

are set forth at Sec. 12.313 of these rules.

Sec. 12.210 [Corrected and Amended]

30. In Sec. 12.210(a) the phrase ``pay reparation award'' is

revised to read ``pay a reparation award''.

31. In Sec. 12.210(b)(4) ``respondent's violations, which'' is

revised to read ``respondent's violations, the amount of punitive

damages, if any, for which respondent is liable to complainant, which''

and ``$10,000,'' is revised to read ``$30,000,'' both times that it

appears.

Sec. 12.314 [Amended]

32. In Sec. 12.314(b)(4) ``violations, and the amount,'' is revised

to read ``violations, the amount of punitive damages if warranted, and

the amount,''

Sec. 12.315 [Amended]

33. In the heading of Sec. 12.315 ``$10,000.'' is revised to read

``$30.000.''.

34. In Sec. 12.315 ``$10,000,'' is revised to read ``$30,000,''

both times that it appears.

Sec. 12.404 [Corrected]

35. In Sec. 12.404 the phrase ``of proceeding on appeal of review

before'' is revised to read ``of proceedings on appeal before''.

Sec. 12.408 [Corrected]

36. The heading of Sec. 12.408 is revised to read ``Delegation of

authority to the Deputy General Counsel for Opinions.''

37. In the first sentence of Sec. 12.408 revise the phrase ``Chief

of the Opinions Section'' to read ``Deputy General Counsel for

Opinions''.

38. In Sec. 12.408(b) revise the phrase ``Chief of the Opinions

Section'' to read ``Deputy General Counsel for Opinions''.

Issued by Order of the Commission.

Dated: February 23, 1994.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 94-4574 Filed 2-28-94; 8:45 am]

BILLING CODE 6351-01-P