Ethics Training for Registrants

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 3

Ethics Training for Registrants

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: On July 22, 1994, the Commodity Futures Trading Commission

(Commission) published for comment proposed amendments to Rule 3.34,

which governs ethics training for Commission registrants. 59 FR 37446.

Based upon its review of the comments received and its own

reconsideration of the proposed amendments, the Commission has

determined to adopt the rule amendments as proposed, with certain

modifications discussed herein.

EFFECTIVE DATE: These rule amendments will become effective January 12,

1996. However, with respect to existing ethics training providers, the

provision of Sec. 3.34(b)(5) relating to promotional and instructional

materials, including videotape and computer presentations, will become

applicable March 12, 1996.

FOR FURTHER INFORMATION CONTACT: Lawrence B. Patent, Associate Chief

Counsel, or Myra R. Silberstein,

[[Page 63908]]

Attorney-Advisor, Division of Trading and Markets, Commodity Futures

Trading Commission, 1155 21st Street, N.W., Washington, D.C. 20581.

Telephone (202) 418-5450.

SUPPLEMENTARY INFORMATION:

I. Background

Section 210 of the Futures Trading Practices Act of 1992 added a

new paragraph (b) to Section 4p of the Commodity Exchange Act (Act),

mandating ethics training for all persons registered under the Act.\1\

On April 15, 1993, the Commission adopted Rule 3.34 to implement this

Congressional mandate.\2\ By Federal Register release issued on

September 13, 1993, the Commission provided further guidance with

respect to the contents of applications to be submitted by persons

seeking to provide ethics training to registrants.\3\

\1\ This provision of the Act is codified at 7 U.S.C.

6p(b)(1994) and states that:

The Commission shall issue regulations to require new

registrants, within 6 months after receiving such registration, to

attend a training session, and all other registrants to attend

periodic training sessions, to ensure that registrants understand

their responsibilities to the public under this Act, including

responsibilities to observe just and equitable principles of trade,

any rule or regulation of the Commission, any rule of any

appropriate contract market, registered futures association, or

other self-regulatory organization, or any other applicable Federal

or state law, rule or regulation.

\2\ 58 FR 19575, 19584-19587, 19593-19594 (April 15, 1993).

\3\ 58 FR 47890 (September 13, 1993). The Commission has

reviewed applications from more than twenty-five persons seeking to

provide ethics training to registrants.

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Proposed amendments to Rule 3.34, published in July 1994, would:

(1) require a certification by persons seeking to provide ethics

training that they would not be disqualified from registration under

the Act; (2) limit certain representations that ethics training

providers may make concerning their status as such; (3) facilitate the

use of videotape and electronic presentations; and (4) enhance the

ability of a registered futures association to track the ethics

training attendance dates of registrants. The Commission received four

comment letters on the proposed rule amendments. The commenters

included a registered futures association, a computer-based ethics

training provider and two other ethics training providers. The

commenters generally supported, or acknowledged their understanding of,

the objectives of the proposed rule amendments. Some commenters,

however, criticized the scope of the proposed rule amendments. Further,

one of the ethics training providers who submitted comments requested

additional time to update its program materials to comply with the

changes that would be required by the rule amendments. Comments

addressed to specific provisions of the proposed rule amendments and

the Commission's resolution of the issues raised therein are discussed

below in the context of the relevant rule provision.

Based upon its review of the comments received on the proposed

amendments and in light of its experience in administering this

program, the Commission has adopted amendments to Rule 3.34 regarding

ethics training providers. The provisions of Rule 3.34 relating to the

topics to be covered in ethics training and the minimum requirements

for attendance at such training remain unchanged. The amendments

adopted herein will, subject to proposed amendments to Rule 3.34

published in this edition of the Federal Register, permit a person to

be included by a registered futures association on a list of authorized

providers of such training upon filing of a notice with a registered

futures association certifying that: (1) he is not subject to a

statutory disqualification from registration under the Act; \4\ (2)

barred from service on self-regulatory organization (SRO) governing

boards or committees pursuant to Commission Rule 1.63 or SRO rules; or

(3) subject to a pending proceeding with respect to possible violations

of the Act or rules or orders promulgated thereunder. These amendments

will also prohibit certain representations with respect to a person's

status as an ethics training provider; allow wider use of ethics

training presentations by videotape and computer; and require ethics

training providers to furnish records of attendees to a registered

futures association upon request.

\4\ Sections 8a (2) and (3) of the Act, 7 U.S.C. 12a (2) and (3)

(1994).

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By separate release published in this edition of the Federal

Register, the Commission is proposing several additional amendments to

Rule 3.34 to address certain further issues relating to ethics training

providers. These amendments would require ethics training providers

other than SROs: (1) To satisfy the same proficiency testing

requirements as registrants; and (2) have at least three years of

pedagogical or relevant industry experience.

II. Amendments to Commission Rule 3.34

A. Required Certifications by Applicants to Become Ethics Training

Providers

Currently, three categories of persons may provide ethics training

to Commission registrants pursuant to Rule 3.34: (1) SROs; (2) entities

accredited to conduct continuing education programs by a state

professional licensing authority in the fields of law, finance,

accounting or economics; or (3) any other person whose program ``is

approved by the Commission for this purpose.'' \5\ The amendments to

Rule 3.34 proposed in July 1994 would have continued to permit SROs and

state-accredited continuing education providers to act as ethics

training providers without compliance with any additional requirements.

With respect to persons other than SROs or state-accredited entities,

the proposed amendments would permit such persons to provide ethics

training upon filing of a notice with a registered futures association

certifying that the person, all principals thereof (as defined in

Commission Rule 3.1(a)) \6\ and any individuals who, on behalf of such

person, conduct in-person ethics training sessions or prepare ethics

training videotape or electronic presentations,\7\ are not subject to:

(1) any statutory disqualification from registration under Sections

8a(2) or (3) of the Act; \8\ (2) a bar from service on SRO governing

boards or committees arising from relevant disciplinary history, as

specified in Commission Rule 1.63 \9\ or any SRO rule adopted

thereunder; or (3) a pending adjudicatory proceeding under Sections

6(c), 6(d), 6c, 6d, 8a or 9 of the Act or

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Commission Rules 3.55, 3.56 or 3.60.\10\ This certification procedure

will replace the existing application procedure for entities that are

not SROs or state-accredited providers of continuing education in the

fields of law, finance, accounting or economics.

\5\ 17 CFR 3.34(b)(3)(1995).

\6\ 17 CFR 3.1(a)(1995).

\7\ Thus, if an entity organizes a corporation to offer ethics

training and hires an instructor to conduct the lectures, the notice

must include within its coverage the entity, the corporation and the

instructor. Such notice must also be amended as necessary to cover

any additional instructors required to handle the number of persons

enrolling in the ethics training program.

\8\ 7 U.S.C. 12a(2) or (3)(1994). The Act specifies several

grounds for disqualification from registration including, among

others, a prior revocation of registration, felony conviction, and

an injunction relating to futures or securities activities.

\9\ Pursuant to Rule 1.63, each SRO must maintain in effect

rules which render a person ineligible to serve on its governing

boards, disciplinary committees, or arbitration panels who, among

other things, has been found within the prior three years to have

committed a disciplinary offense or entered into a settlement

agreement where the charge involved a ``disciplinary offense,'' is

currently suspended from trading on any contract market, is

suspended or expelled from membership in any SRO, or is currently

subject to an agreement with the Commission or an SRO not to apply

for registration or membership. A ``disciplinary offense'' for these

purposes means any violation of the Act or the rules promulgated

thereunder or SRO rules other than those relating to (1) decorum or

attire, (2) financial requirements, or (3) reporting or

recordkeeping, unless resulting in fines aggregating more than

$5,000 in a calendar year, provided such SRO rule violations did not

involve fraud, deceit or conversion, or result in a suspension or

expulsion. 17 CFR 1.63 (1995).

\10\ A pending proceeding is a basis to bar a person whose

registration has expired within the preceding sixty days from

obtaining a temporary license upon mailing a new registration

application (see 17 CFR 3.11(c)(1)(i)(B), 3.11(c)(1)(ii)(B),

3.12(d)(1)(iv), and 3.12(i)(1)(iv)(1995)), to bar a person from

serving as a sponsor or special supervisor of a conditioned or

restricted registrant (see 17 CFR 3.60(b)(2)(i)(A)(1995)), and to

prevent withdrawal from registration (see 17 CFR 3.33(f)(1) (1995)).

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The Commission believes that it is appropriate to require persons

seeking to act as ethics trainers to provide a certification of the

nature outlined above in order to assure a minimum level of fitness to

act as ethics trainers.\11\ The statutory requirement for ethics

training is intended ``to ensure that registrants understand their

responsibilities to the public under [the] Act, including

responsibilities to observe just and equitable principles of trade, any

rule or regulation of the Commission, any rules of any appropriate

contract market, registered futures association, or other self-

regulatory organization or any other applicable Federal or State law,

rule or regulation.'' \12\ The Commission believes that, generally, it

would be inconsistent with this Congressional mandate and contrary to

the public interest for a person to instruct others about their

responsibilities under the Act and other applicable requirements if

such person has a disciplinary history that reflects a failure to

comply with such provisions.

\11\ The requirements discussed above apply to a certification

from any ethics training provider. As discussed below, if the ethics

training provider will offer training by means of videotape or

electronic presentation, the provider's certification would also be

required to include a statement with respect to verification of

registrants' attendance.

\12\ Section 4p(b) of the Act.

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The Commission has used several objective, established benchmarks

to identify persons with disciplinary histories that call into question

their suitability to provide ethics training. Disqualifying

disciplinary histories for this purpose would be those which constitute

disqualifications from registration under the Act or bars from service

on SRO governing boards or committees, pending adjudicatory

proceedings, including disqualification proceedings relating to

possible violations of the Act or Commission rules. The Commission has

also provided in the final rules, as in the proposed rules, that the

certification requirement imposes a continuing duty; consequently, if

the certification becomes inaccurate, the provider must so inform the

registered futures association, which shall then refuse to include such

person on, or remove such person from, the list of ethics training

providers.13

\13\ However, if a firm is subject to a pending adjudicatory

proceeding as described above, the firm may submit a certification

to a registered futures association with an explanation describing

the circumstances of the proceeding, particularly with respect to

the scope and nature of the proceeding in relation to the size of

the firm. For example, a proceeding that is limited to a single

branch office of a firm and that does not involve fraud or failure

to supervise might be treated differently than a proceeding

involving allegations extending to the overall operations of the

firm or making claims of fraud. The Commission would expect the

registered futures association to consult the Commission concerning

specific certifications in cases involving an ethics provider that

is or becomes subject to a proceeding.

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One effect of these amendments is to permit the National Futures

Association (NFA), currently the only registered futures association,

to maintain a list of eligible ethics training providers for purposes

of Commission Rule 3.34. In its comment letter on the proposed

amendments, NFA recommended that the rule amendments provide procedural

protection for ethics training providers who are either rejected or

removed from the list by NFA. In particular, NFA recommended that

providers rejected or removed from the list be afforded a hearing

before NFA with an opportunity to appeal to the Commission. The

Commission believes such a procedure to be appropriate and,

accordingly, has incorporated it in the final rules as subparagraph

3.34(b)(3)(v). The Commission contemplates that the hearing before NFA

in these circumstances could be limited to written submissions and that

any subsequent appeal to the Commission would be based on the record

before NFA.

NFA also stated in its comment letter that it was uncertain how

information regarding statutory disqualifications could be verified,

particularly if it could not require that fingerprints be provided and

thus would be unable to access the Federal Bureau of Investigations

criminal records database. Although cognizant of this limitation, the

Commission believes that, in the first instance, NFA should employ the

other existing databases that it uses to verify applications of

registrants, including the Clearinghouse of Disciplinary Information

which NFA maintains with respect to futures industry data and the

Securities and Exchange Commission database on securities industry

violations.

Another commenter stated that all ethics training providers,

including state-accredited continuing education entities and SROs,

should be subject to prior approval by the Commission. The Commission's

ethics training rule has not previously required state-accredited

entities and SROs to file an application before providing ethics

training to registrants. When the Commission originally adopted Rule

3.34(b), it did not require applications for authorization to provide

ethics training by SROs and state-accredited entities because SROs are

subject to the Commission's regulatory framework and oversight, while

state-accredited entities are subject to certification and review by

the relevant state. However, in the proposed rule amendments published

elsewhere in this edition of the Federal Register, the Commission is

now proposing that state-accredited entities be subject to

certification and monitoring applicable to other ethics training

providers, as discussed above. The Commission believes that in the

absence of such compliance, given the lack of uniformity in state

continuing education accreditation requirements, it will not have

sufficient assurance that such providers have a minimum level of

knowledge of relevant statutory and regulatory requirements or of

fitness to provide ethics training.14

\14\ In the proposing release, the Commission also is inviting

comments concerning the continued appropriateness of permitting SROs

to offer ethics training without qualifying to do so in the same

manner as other providers.

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One commenter stated that those ethics training providers whose

applications to provide ethics training have already been granted by

the Commission should be exempt from the certification process set

forth in the proposed amendments to Rule 3.34. The Commission agrees

with this view and will provide NFA with the current list of authorized

ethics training providers for inclusion in the list of authorized

providers. However, NFA will be expected to monitor existing providers

as well as new providers and may remove any provider for cause as

contemplated by subparagraph (b)(3)(iv). As noted above, if

circumstances change such that an ethics provider's certification

becomes inaccurate, the provider must so inform the NFA. Upon such

notice from the provider (or otherwise), NFA shall refuse to include

such person on or remove such person from the list of authorized

providers.

B. Delegation of Authority

The purposes of subparagraphs (b)(3)(iii) through (b)(3)(v) of Rule

3.34 are to permit NFA to maintain a list of eligible ethics training

providers.

[[Page 63910]]

Therefore, the Commission hereby delegates authority to NFA: (1) To

maintain the list of eligible ethics training providers for purposes of

Commission Rule 3.34, including the authority to refuse to include

persons on such list pursuant to the criteria set forth in Rule

3.34(b)(3)(iii) or criteria established by NFA and approved by the

Commission; (2) to establish guidelines as to the required proficiency

and experience of ethics training providers; (3) to receive and

evaluate complaints concerning such providers and conduct other

appropriate reviews of providers' operations, subject to Commission

oversight; (4) to develop appropriate procedures to verify

certifications filed by potential ethics training providers; and (5) to

require that such certifications be updated periodically. NFA's

procedures must be submitted to the Commission for review pursuant to

Section 17(j) of the Act,15 which governs Commission review and

approval of registered futures association rules.

\15\ 7 U.S.C. 21(j)(1994).

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In its comment letter on the proposed amendments to Rule 3.34, NFA

supported the Commission's proposal to delegate responsibility to NFA

for the processing and review of applications of prospective ethics

training providers and confirmed its willingness to assume this

responsibility. However, NFA suggested that the Commission establish

objective standards for NFA to follow in discharging these

responsibilities. NFA expressed the view that ethics training providers

should satisfy a proficiency standard that is objective, readily

measurable and would assure that providers possess a working knowledge

of the industry and its regulations.

As noted above, the Commission is proposing, by separate Federal

Register release, certain minimum requirements with respect to

proficiency testing and experience to be applicable to ethics training

providers other than SROs. These proposals include a requirement that

ethics training providers be subject to the same proficiency testing

requirements as the registrants they propose to instruct. This

proficiency test will generally be the National Commodity Futures

Examination (Series 3 Exam).

The Commission is also proposing to require that ethics training

providers other than SROs demonstrate that they have at least three

years of pedagogical or relevant industry experience. The Commission's

delegation of authority to NFA includes authority to establish

guidelines concerning the specific types of pro-ficiency tests and

experience necessary to satisfy these requirements.16 Of course,

NFA may submit to the Commission for decision any specific matters

which have been delegated to it and Commission staff will be available

to discuss with NFA staff issues relating to the implementation of

these rules, including the review of operations of ethics training

providers.

\16\ In comparable areas, such as registration and review of

promotional material, the Commission has delegated authority to NFA

to develop and implement specific standards and, in those instances,

NFA has established standards above the minimum levels previously

established by the Commission or set forth in the Act. See, e.g.,

NFA Rule 2-8(d) (minimum experience requirements for an associated

person to exercise discretion over an account).

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C. Permissible Representations

To date, in granting the applications of persons seeking to provide

ethics training, the Commission has made clear that it is not approving

the specific content of the proposed ethics training program or

expressing any opinion as to the program's quality or accuracy. The

Commission believes that it is appropriate to clarify by rule the

effect of authorization to provide ethics training under Rule 3.34 for

all providers. Accordingly, the Commission proposed in Rule 3.34(b)(5)

to prohibit any representation or implication that an ethics training

provider has been sponsored, recommended or approved, or the provider's

abilities or qualifications or the content, quality or accuracy of the

training program provided, has in any respect been passed upon or

endorsed by the Commission, a registered futures association, or any

representative thereof.

The commenters voiced no objections to this proposed provision.

However, one commenter requested that the effective date of these rule

amendments be delayed for ninety days for existing ethics training

providers to enable them to modify their presentations and materials to

comply with the adopted changes. The Commission believes that all

providers should be given ninety days in which to comply with the

requirement to include the specified statement in promotional and

instructional material. Therefore, the effective date of Rule

3.34(b)(5) will be ninety days following publication, rather than

thirty days following publication, which is the effective date for all

other provisions.

Accordingly, the Commission has adopted Rule 3.34(b)(5) to provide

that no SRO, state-accredited continuing education entity or other

person included on a list of ethics training providers ``may represent

or imply in any manner whatsoever that such person has been sponsored,

recommended or approved, or that such person's abilities or

qualifications, the content, quality or accuracy of his training

program, or the positions taken in the course of resolving any actual

or hypothetical situations presenting ethical or legal issues,17

have in any respect been passed upon or endorsed, by the Commission or

a registered futures association.'' Rule 3.34(b)(5) further provides

that any promotional or instructional material used in connection with

ethics training ``must prominently state that the Commission and any

registered futures association have not reviewed or approved the

specific content of the training program and do not recommend the

provider of such training.'' 18

\17\ This additional language has been added to clarify the

proposal and is consistent with the intent of Rule 3.34.

\18\ Rule 3.34(b)(5) also contains a proviso that it ``shall not

be construed to prohibit a statement that a person is included on a

list of ethics training providers maintained by a registered futures

association if such statement is true in fact and if the effect of

such a listing is not misrepresented.''

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In the July 1994 release, the Commission also proposed to limit the

use an ethics training provider may make of that status in certain

adjudicatory proceedings. As stated in the proposing release, the

Commission did not believe that a person should be able to use his or

her status as an ethics training provider to qualify as an expert

witness or to present expert testimony in an adjudicatory proceeding

before the Commission or to which the Commission is a party. While the

commenters voiced no objections to this provision, the Commission, upon

reconsideration of this issue, has determined that the prohibitions of

the representations specified in paragraph (b)(5) should suffice to bar

inappropriate use of status as an ethics training provider. Therefore,

the Commission has not adopted proposed paragraphs (b)(5)(ii) and

(b)(5)(iii) of Rule 3.34, which would have limited certain uses of

status as an ethics training provider. However, the Commission

emphasizes that inclusion on the list of authorized ethics training

providers should not be viewed as a warranty of expertise and that in

its view such status should not be accorded weight in determinations of

the provider's qualifications as an expert witness.

D. Videotape and Electronic Presentations

Commission Rule 3.34(b)(3) provides that a program of ethics

training may be

[[Page 63911]]

offered by videotape or electronic presentation. In adopting Rule 3.34,

the Commission initially provided that videotape or computer training,

in lieu of in-person ethics training, should only be available when

geographical inconven-ience or other factors made in-person training

impracticable.19 However, in proposing amendments to Rule 3.34 in

July 1994, the Commission indicated that any registrant may meet his

ethics training requirement through in-person courses or through the

use of videotape or computer presentations regardless of

circumstances.20

\19\ 58 FR 19575, 19586-19587.

\20\ 59 FR 37446, 37448.

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The Commission also wishes to make clear, however, that if

videotape or electronic training is offered, the provider must be able

to verify that the video has been viewed or the electronic training

completed by the registrant before the provider issues a certificate of

attendance to the registrant.21 Therefore, Rule

3.34(b)(3)(iii)(B), as revised by the amendments adopted herein,

requires that, if a provider will conduct training by means of

videotape or electronic presentations, either exclusively or in

addition to in-person training, the provider's certification required

under Rule 3.34(b)(3)(iii) must be supplemented to include a

representation that the provider will maintain documentation reasonably

designed to verify that registrants have properly completed ethics

training for the minimum time required (one, two or four hours).

\21\ 58 FR 19575, 19586-19587.

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The Commission envisages that an appropriate verification regime

for a provider would include procedures such as the following. The

provider would maintain a list of the computer-based ethics program

purchasers and match each completed program with a record of purchase.

Registrants would be required to enter identifying information, such as

name, firm's name, business address, telephone number, date of birth,

NFA and/or Social Security number, on the control disk and return a

signed statement with the completed computer disk certifying that he

did in fact complete the ethics training course in the manner set out

in the instructions.

With respect to the fulfillment of the minimum time requirements

and verification of the registrants' participation in the program, the

ethics training provider could use a computer-based test to assure that

the registrant has attained a minimum level of understanding of the

materials covered, drawing upon matters covered in video and written

materials, as well as the computer program, to the extent applicable.

To assure that each section of the program is completed, registrants

would be required to pass each section of the test prior to answering

questions in later sections of the test. While those who fail the test

would be required to retake it until it is successfully completed, only

the time spent on the first test could be credited toward the ethics

training time required by Rule 3.34. Registrants answering quickly

would be given additional questions to answer, and the program would

cease recording elapsed time for those slow to answer questions. Thus,

registrants would be monitored both as to time spent and material

covered. If a provider wished to follow a different verification

regime, he could do so if such steps had been submitted to and not

found objectionable by a registered futures association.

The Commission contemplates that an ethics training provider would

be able to document that a registrant had undertaken the various steps

required for the provider to verify completion. The provider would be

required under revised Rule 3.34(b)(4) to maintain documentation

substantiating its determination that ethics training has been properly

completed by a registrant and to support its issuance of a certificate

of attendance.22

\22\ Revised Rule 3.34(b)(4) also requires that records of

trainer evaluations be maintained.

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As noted above with respect to the limitations upon representations

concerning authorization to provide ethics training, certain commenters

requested that the effective date of the rule amendments be delayed for

ninety days for existing ethics training providers to enable the

providers to modify their video or electronic presentations and

materials to comply with the rule amendments. Since new paragraph

(b)(5) of Rule 3.34 concerning permissible representations applies to

all promotional or instructional materials, that provision encompasses

videotape and electronic presentations. Accordingly, the deferred

effective date for the provision discussed above should accommodate any

concerns of these commenters with respect to videotape or electronic

presentations and materials.

E. Recordkeeping

Rule 3.34(b)(4), which governs recordkeeping by an ethics training

provider, requires ethics training providers to maintain records of

materials used in and attendees at such training in accordance with

Commission Rule 1.31, i.e., for a five-year period.23 The

Commission proposed to add a provision to these recordkeeping

requirements to require providers of ethics training to furnish records

of attendees at such training to a registered futures association in

such format as the registered futures association may request. As noted

in the proposing release, NFA is willing to compile information on

ethics training attendance for inclusion in the registration database

and believes that ethics training providers should cooperate with NFA

requests for the information which providers are already required to

maintain. In its comment letter, NFA stated that it was confident that

the Commission's amendment to Rule 3.34(b), requiring providers to

furnish a list of ethics training attendees to NFA, will streamline the

recordkeeping needed in this area. Further, NFA believes that this

requirement will reduce the burden borne by registrant firms in

determining whether a prospective employee has satisfied his ethics

training requirement. The Commission believes compilation of ethics

training attendance data by NFA (or other registered futures

associations) will produce a central repository of such information,

which should benefit all registrants and facilitate oversight of

compliance with the ethics training requirement. To facilitate NFA's

incorporation of this data in the registration database, ethics

training providers should include appropriate identifiers of

registrants, such as NFA identification number, and follow other format

conventions requested by NFA.

\23\ 17 CFR 1.31 (1995). When the Commission adopted Rule 3.34,

it stated that it would monitor the effectiveness of the requirement

for maintaining a record of ethics training attendance and might

reconsider the issue at a later date if appropriate. 58 FR 19575,

19587.

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One commenter requested that ethics training providers be permitted

to use identifiers other than NFA identification numbers, e.g., name,

date of birth or social security number, in reporting attendees to NFA.

While this comment may have merit, the final rule amendments require

providers to respond to NFA requests for information and to furnish to

NFA the information that providers are already required to maintain.

The specific data needed by NFA to maintain and compile its database

may be decided by NFA. The Commission does not believe that it should

be unduly burdensome for ethics training providers to obtain NFA

identification numbers from attendees, unless such persons have not yet

registered or filed an application for

[[Page 63912]]

registration.24 However, NFA should arrange with providers to

accomplish this task by the most efficient means for all concerned.

\24\ Ethics training may be taken up to six months prior to the

date of application for registration. See 58 FR 19575, 19585.

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III. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA), 5 U.S.C. 601-611 (1988),

requires that agencies, in proposing rules, consider the impact of

those rules on small businesses. The rule amendments discussed herein

will affect only those ethics training providers that are not SROs or

entities accredited to conduct continuing education programs by a state

professional licensing authority in the fields of law, finance,

accounting or economics. The Commission believes that the impact of

these rule amendments on other providers of ethics training or persons

seeking to become providers of ethics training should be minimal. The

procedure for becoming an ethics training provider will be simplified.

The restrictions upon permissible representations by ethics training

providers concerning their status as such essentially codify conditions

already imposed by the Commission to date in granting applications of

individual ethics training providers. Finally, since ethics training

providers are already required to maintain records of attendees,

furnishing such information to NFA upon request should not be unduly

burdensome. Therefore, these rules will not have significant economic

impact on a substantial number of small entities.

B. Paperwork Reduction Act

The Paperwork Reduction Act of 1980 (PRA), 44 U.S.C. 3501 et seq.,

imposes certain requirements on federal agencies (including the

Commission) in connection with their conducting or sponsoring any

collection of information as defined by the PRA. In compliance with the

PRA, the Commission has previously submitted this rule and its

associated information collection requirements to the Office of

Management and Budget. While the amendments adopted herein have no

burden, Rule 3.34 is a part of a group of rules which has the following

burden:

Rules 3.16, 3.32 and 3.34 (3038-0023, approved June 2, 1993):

Average Burden Hours Per Response--1.13

Number of Respondents--60,980

Frequency of Response--On Occasion and Triennially

Persons wishing to comment on the information which will be

required by these rules as amended should contact Jeff Hill, Office of

Management and Budget, room 3228, NEOB, Washington, D.C. 20503, (202)

395-7340. Copies of the information collection submission to OMB are

available from Joe F. Mink, CFTC Clearance Officer, 1155 21st St. N.W.,

Washington, D.C. 20581, (202) 418-5170.

List of Subjects in 17 CFR Part 3

Registration, Ethics training

Accordingly, the Commission, pursuant to the authority contained in

the Commodity Exchange Act and, in particular, Sections 1a, 4d, 4e, 4g,

4m, 4p, 8a and 17 thereof (7 U.S.C. 1a, 6d, 6e, 6g, 6m, 6p, 12a and 21

(1994)), hereby amends Part 3 of Chapter I of Title 17 of the Code of

Federal Regulations as follows:

PART 3--REGISTRATION

1. The authority citation for Part 3 continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 4, 4a, 6, 6b, 6d, 6e, 6f, 6g, 6h, 6i,

6k, 6m, 6o, 6p, 8, 9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21 and 23;

5 U.S.C. 552, 552b.

2. Section 3.34 is amended by revising paragraphs (b)(3) and (b)(4)

and by adding paragraph (b)(5) to read as follows:

Sec. 3.34 Mandatory ethics training for registrants.

* * * * *

(b) * * *

(3) The training required by this section must be provided by or

pursuant to a program of training (including videotape or electronic

presentation) sponsored by:

(i) A self-regulatory organization;

(ii) An entity accredited to conduct continuing education programs

by a state professional licensing authority in the fields of law,

finance, accounting or economics; or,

(iii) A person included on a list maintained by a registered

futures association who has filed a notice with the registered futures

association certifying that:

(A) Such person, any principals thereof (as defined in Sec. 3.1(a))

and any individuals, on behalf of such person, who present ethics

training or who prepare an ethics training videotape or electronic

presentation are not subject to:

(1) Statutory disqualification from registration under Sections

8a(2) or (3) of the Act;

(2) A bar from service on self-regulatory organization governing

boards or committees based on disciplinary histories pursuant to

Sec. 1.63 of this chapter or any self-regulatory organization rule

adopted thereunder; or

(3) A pending adjudicatory proceeding under Sections 6(c), 6(d),

6c, 6d, 8a or 9 of the Act, or Secs. 3.55, 3.56 or 3.60; and

(B) If the person will conduct training via videotape or electronic

presentation, either exclusively or in addition to in-person training,

he will maintain documentation reasonably designed to verify the

attendance of registrants at such videotape or electronic presentation

for the minimum time required.

(iv) The certification required by paragraph (b)(3)(iii) of this

section is continuous and if circumstances change which result in the

certification becoming inaccurate, the person must promptly so inform

the registered futures association. Upon notice of such inaccuracy, the

registered futures association shall refuse to include such person on

or remove such person from the list referred to in paragraph

(b)(3)(iii) of this section.

(v) The registered futures association shall develop and submit to

the Commission in accordance with Section 17(j) of the Act rules to

provide reasonable procedures for making determinations not to include

or to remove persons from the list referred to in paragraph (b)(3)(iii)

of this section. Such rules shall permit a hearing before the

registered futures association with an opportunity for appeal to the

Commission. Such appeal shall consist solely of consideration of the

record before the registered futures association and the opportunity

for the presentation of supporting reasons to affirm, modify, or set

aside the decision of the registered futures association.

(4) Any person providing ethics training under this section must

maintain records of the materials used in such training, and of the

attendees at such training, documentation to verify completion by a

registrant of training through videotape or electronic presentation and

evaluations of trainers in accordance with Sec. 1.31 of this chapter.

All such books and records shall be open to inspection by any

representative of the Commission or the U.S. Department of Justice and

persons providing ethics training shall be subject to audit by any

representative of the Commission. Records of attendees at such training

shall be provided upon request to a registered futures association in

such format as specified by the registered futures association.

(5) No person referred to in paragraph (b)(3) of this section may

represent or

[[Page 63913]]

imply in any manner whatsoever that such person has been sponsored,

recommended or approved, or that such person's abilities or

qualifications, the content, quality or accuracy of his training

program, or the positions taken in the course of resolving any actual

or hypothetical situations presenting ethical or legal issues, have in

any respect been passed upon or endorsed, by the Commission, a

registered futures association, or any representative thereof. Any

promotional or instructional material used in connection with the

training required by this section must prominently state that the

Commission and any registered futures association have not reviewed or

approved the specific content of the training program and do not

recommend the provider of such training: Provided, however, that this

paragraph shall not be construed to prohibit a statement that a person

is included on a list of ethics training providers maintained by a

registered futures association if such statement is true in fact and if

the effect of such a listing is not misrepresented.

* * * * *

Issued in Washington, D.C. on December 7, 1995, by the

Commission.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 95-30358 Filed 12-12-95; 8:45 am]

BILLING CODE 6351-01-P