Bunched Orders and Account Identification

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1

Bunched Orders and Account Identification

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of Interpretation and Approval Order.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'')

hereby is issuing an Interpretation regarding the account

identification requirement of Commission Regulation

[[Page 25471]]

1.35(a-1)(2)(i) as it pertains to the practice of combining orders for

different accounts into a single order for placement and execution,

i.e., ``block'' or ``bunched'' orders. The Commission simultaneously is

issuing an Order approving the National Futures Association (``NFA'')

Interpretive Notice to NFA Compliance Rule 2-10 Relating to the

Allocation of Block Orders for Multiple Accounts (``NFA Notice'').\1\

This Interpretation provides that, with respect to bunched orders,

compliance with the guidance provided in the NFA Notice, incorporated

herein, and with the Commission guidance provided in this

Interpretation, will be deemed by the Commission to be compliance with

the account identification requirement of the above-cited regulation.

The Commission also is providing an opportunity for comment prior to

this Interpretation and Approval Order becoming effective.

\1\ The NFA Notice is published herein as paragraph III to this

Interpretation and Approval Order.

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DATES: This Interpretation and Approval Order, subject to the

Commission's consideration of any comments received, shall become

effective simultaneously on June 9, 1997.

ADDRESSES: Interested person should submit their views and comments to

Jean A. Webb, Secretary, Commodity Futures Trading Commission, Three

Lafayette Centre, 1155 21st St., NW., Washington, DC 20581. In

addition, comments may be sent by facsimile transmission to facsimile

number (202) 418-5521, or by electronic mail to [email protected].

Reference should be made to bunched orders and account identification.

FOR FURTHER INFORMATION CONTACT:

Duane C. Andresen, Special Counsel, Division of Trading and Markets,

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

St., NW., Washington, DC 20581. Telephone: (202) 418-5490.

SUPPLEMENTARY INFORMATION:

I. Introduction

This Interpretation sets forth certain account documentation

procedures under which bunched orders may be placed, recorded,

executed, ``given up'' to multiple clearing firms, where applicable,

and allocated to customer accounts, which the Commission will deem as

sufficient to satisfy the account identification requirement of

Regulation 1.35(a-1)(2)(i). By this Approval Order, the Commission,

pursuant to Section 17(j) of the Commodity Exchange Act, is approving

the NFA Notice. The Commission also is setting forth additional

guidance under which bunched orders may be handled, to include

situations where certain of the NFA procedures may not be applicable in

that they do not apply to registrants who are not members of the NFA or

under the supervision of NFA members.\2\

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\2\ The interpretation reflected herein pertains only to bunched

orders as defined in this Interpretation or the NFA Notice. All

other customer orders placed for execution must be documented in

accordance with the express terms of Regulation 1.35(a-1)(2)(1) and

applicable exchange rules.

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The Commission's issuance of this Interpretation and Approval Order

is based on its understanding that (1) commodity trading advisors

(``CTA''), futures commission merchants (``FCM''), introducing brokers

(``IB''), consistent with their responsibilities hereunder, will

maintain documentation sufficient to demonstrate that the procedures

authorized hereby are in fact followed, and (2) affected registrants,

exchanges and the NFA will have effective systems in place that are

used to monitor compliance and that appropriate procedures will be in

place to address apparent noncompliance. In this connection, Commission

staff recently has reviewed relevant audit and compliance procedures at

the NFA and exchanges with respect to account identification for

bunched orders. Commission staff also, on an ongoing basis, has

encouraged the implementation of audit enhancements to address the

types of allocation abuses observed in connection with exchange and

Commission investigations regarding preferential allocation and other

forms of allocation fraud.

In general, as specified herein with respect to bunched orders, the

floor order account identification requirement of Commission Regulation

1.35(a-1)(2)(i) may be met by prefiling the appropriate order

allocation procedures with a registrant clearing or executing the

trades, the NFA or an exchange. That regulation's account

identification requirement also may be met by the contemporaneous

transmission of such allocation instructions with the order to a

registrant clearing or executing the trades, either verbally or,

consistent with the methodology described in the NFA Notice,

electronically. These prefiled procedures or contemporaneous

instructions also must include a methodology to allocate to those

accounts orders that may be filled at multiple prices (``split fills'')

or at less than specified quantities (``partial fills'') and, where

applicable, to allocate give ups to multiple clearing firms, including

a methodology to allocate split and partial fills among those clearing

firms. CTAs, FCMs, IBs, their respective associated persons (``AP''),

and FBs, as applicable, who do not identify the ultimate customer(s)

and appropriate quantity on a floor order must satisfy the standards

set forth in the NFA Notice and the Commission guidance provided herein

to be in compliance with Commission Regulation 1.35(a-1)(2)(i).

Compliance with the express terms of Regulation 1.35(a-1)(2)(i) will

continue to be required in all cases where the procedures referenced in

this Interpretation are not applicable or are not followed.

II. Background

Commission Regulation 1.35(a-1)(1) requires that each FCM and each

IB receiving a customer order immediately prepare a written record of

the order which includes certain account identification. Regulation

1.35(a-1)(2)(i) requires that each member of a contract market who

receives a customer's order on the floor of a contract market that is

not in the form of a written record also immediately prepare a written

record of such order, including certain account identification. Under

that rule, the floor order must include the account number for the

ultimate customer for whom the order is placed or an identifying code

which is directly linked to that specific customer account. This

requirement has existed since Regulation 1.35(a-1)(2) became effective

March 24, 1972.\3\ Since this regulation was adopted, there have been

changes in the manner in which orders are placed, executed and cleared

on the futures markets that reflect changes in the manner of doing

business and in the types of entities using these markets. With the

growth of managed funds business, in which multiple accounts are

advised by one adviser using one or more trading strategies, the

practice of bunching multiple orders for different accounts into a

single order for placement and execution has increased dramatically. In

addition, the unbundling of clearing and execution services has

resulted in the increasingly common use of give up arrangements,

whereby orders are executed by one or more FCMs and given up for

clearing to other FCMs. While the CTA selects the executing FCM, the

CTA's customers may select different FCMs for clearing purposes.

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\3\ 37 FR 3802 (February 23, 1972). Regulation 1.35(a-1)(2) was

amended effective August 30, 1993 and was redesignated as 1.35(a-

1)(2)(i). 58 FR 31162 (June 1, 1993). The requirement to include

customer account identification on the floor order remained

unchanged.

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[[Page 25472]]

Previously, to accommodate these changes in industry practice,

Commission staff interpreted Regulation 1.35(a-1)(2)(i) to permit the

placement and execution of bunched orders provided that the person

placing the bunched order provided at the time of entry a single series

designation that identified all accounts included in the bunched order

and a predetermined allocation formula. That interpretation required

that the allocation formula be provided to the FCM prior to or

contemporaneously with the placement of the bunched order, specify by

account number those accounts to which it would apply, specify the

number of contracts to be allocated to each account, and be designed to

provide fair and equitable treatment of the accounts such that no

account or group of accounts received consistently favorable or

unfavorable treatment. That interpretation of Regulation 1.35(a-

1)(2)(i) consistently has been provided in response to specific

inquiries and, in recognition that written regulatory guidance in this

area may be necessary, was published in the Federal Register as

paragraph (5) of a proposed amendment to Regulation 1.35(a-1).\4\ In

issuing this Interpretation, the Commission expressly is adopting

procedures consistent with the staff interpretation as clarified herein

and withdrawing proposed Regulation 1.35(a-1)(5).

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\4\ 58 FR 26270 (May 3, 1993).

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III. The NFA Notice

The NFA Notice addresses three primary issues: (1) The manner and

timing of the identification of the allocation formula; (2) principles

that govern the allocation of trades; and (3) bunched orders executed

on a give up basis, and reads in full as follows:

NFA Compliance Rule 2-10; Interpretive Notice Relating to the

Allocation of Block Orders for Multiple Accounts

CFTC Regulation 1.35, which NFA Compliance Rule 2-10 adopts by

reference, requires that each FCM receiving a customer order

immediately prepare a written record of the order which includes an

appropriate account identification. NFA Compliance Rule 2-4 requires

CTA Members to provide FCMs with that required information. The

purpose of the regulation is to prevent various forms of customer

abuse, such a fraudulent allocation of trades, by providing an

adequate audit trail which allows customer orders to be tracked at

every step of the order processing system. Since this regulation was

originally adopted, however, there have been dramatic changes in the

way business is done. With the explosive growth of the managed funds

business and the increasing use of ``give-up'' agreements, it is not

at all uncommon for some CTAs to place block orders for hundreds of

accounts on markets around the world, with orders executed by one or

more FCMs and cleared by other FCMs. How the basic requirements of

CFTC Regulation 1.35 apply to block orders for multiple accounts

(``block or bunched order'') has been the source of considerable

difficulty and confusion. While this Notice does not attempt to

address all of the issues which can arise in this context, it does

provide guidance on commonly recurring questions.

With respect to block orders, CFTC Regulation 1.35 has been

interpreted to require that, at or before the time the order is

placed, the FCM must be provided with information which identifies

the accounts included in the block order and which specifies the

number of contracts to be allotted to each account. In most

instances, a CFTA can verbally provide all of that information

contemporaneously with the placement of the order. Some of the time,

however, this is not practical. Verbal transmission of numerous

account numbers and allocation information could result in price

slippage in filling block market orders. Most CTAs can deal with

this problem by pre-filing with the FCM standing instructions which

contain all of the necessary information.

For a limited number of larger and more sophisticated CTAs,

however, pre-filing standing instructions may not be practicable

either. For these CTAs, although their basic allocation methodology

does not change, the specific allocation instructions produced by

the methodology may change on a daily basis. For example, a large

CTA with a dynamic trading program may regularly change its order

size based upon market volatility and historical price data.

Certainly, if a CTA changes its order size, then the precise number

of contracts allocated to each account within the CTA's trading

program will also change. Other factors could cause regular changes

to a CTA's order size and/or allocation breakdowns such as the

number of accounts which open and close and any additions and

withdrawals made in existing accounts. In the above instances,

although the specific application of a CTA's allocation methodology

to the universe of its accounts may cause allocation adjustments,

the allocation methodology itself remains constant. Because the

methodology must meet the standards of this Notice, it must be

designed to provide non-preferential treatment for all accounts.

Though these CTAs could provide the allocation information to their

FCMs in advance of each order, this information could disclose their

trading strategies, which they are obviously reluctant to do.

In general, then, there are two alternatives to the verbal

filing of all account identification data contemporaneously with

order placement:

(1) pre-filing of instructions for identification of accounts

included in block orders and the allocation of executed block orders

to accounts; and

(2) under the stringent requirements described below, the

contemporaneous filing of allocation instructions via electronic

transmission.

This Interpretive Notice clarifies how either approach can be

implemented consistent with the requirements of CFTC Regulation

1.35.

Pre-Filing of Allocation Instructions

Allocation instructions for trades made through block orders for

multiple accounts must deal with two separate issues. The first,

which arises in all such orders, involves the question of how the

total number of contracts should be allocated to the various

accounts included in the block order. The second involves the

allocation of split or partial fills. For example, a CTA may place a

block order of 100 contracts for multiple accounts. In many

instances, however, a market order for 100 contracts may be filled

at a number of different prices. Similarly, if an order is to be

filled at a particular price, the FCM may be able to execute some

but not all of the 100 lot order. In either example, the question

arises of how the different prices or the contracts in the partial

fill should be allocated among the accounts included in the block

order.

The same set of core principles govern the procedures to be used

in handling both of these issues. Any procedure for the general

allocation of trades or the allocation of split and partial fills

must be:

Designed to meet the overriding regulatory objective

that allocations are non-preferential, such that no account or group

of accounts receive consistently favorable or unfavorable treatment;

Sufficiently objective and specific that the

appropriate allocation for any given trade can be verified in any

audit by NFA, an exchange DSRO, the CFTC or the FCM's and CTA's own

accountant; and

Consistently applied by the Member firm.

In performing audits, we have noted that Members employ a wide

variety of methods to allocate split and partial fills, some of

which satisfy the standards stated above and some of which do not.

The following examples of procedures for the allocation of split and

partial fills generally satisfy the standards stated above.

Example #1--Rotation of Accounts

One basic allocation procedure involves a rotation of accounts

on a regular cycle, usually daily or weekly, which receive the most

favorable fills. For example, if a firm has 100 accounts trading a

particular trading program, in the first phase of the cycle, Account

#1 receives the best fill, Account #2 the second best, etc. In phase

2 of the cycle, Account #2 receives the best fill and Account #1

moves to the end of the line and receives the least favorable fill.

Example #2--Random Allocation

Some firms prepare on a daily basis a computer generated random

order of accounts and allocate the best price to the first account

on the list and the worst to the last. This method would satisfy the

standards stated above.

Example #3--Highest Prices to the Highest Account Numbers

Some firms rank accounts in order of their account numbers and

then allocate the highest fill prices to the accounts with the

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highest account numbers. Any advantage the higher numbered accounts

enjoy on the sell order are theoretically offset by the disadvantage

on the buy orders. Although under certain market conditions this may

not always be true, the method generally complies with the

standards.

Example #4--Average Price and Quantity

With regard to split and partial fills, allocations made

pursuant to exchange rules which provide for the allocation of

average prices and quantities in block orders for multiple accounts

would, of course, be acceptable. In addition, certain firms may have

internal programs which calculate the average price for each block

order and allocate the actual fill prices among the accounts

included in the order to approximate, as closely as possible, the

average fill price. These internal programs must specifically

satisfy the standards stated above and be documented by the Member

firm.

Though the examples cited above are the ones NFA most commonly

sees in audits, others may offer comparable treatment. We would also

note that the appropriateness of any particular method for

allocating split and partial fills depends on the CTA's overall

trading approach. For example, a daily rotation of accounts may

satisfy the general standards for CTAs who trade on a daily basis

but inappropriate for CTAs who trade less frequently. In addition,

certain variations of these basic methods would not satisfy those

requirements. For example, it would not be acceptable for the CTA to

deviate from the regular rotation to accommodate an account whose

performance is lagging behind others in the same program. This would

inject the CTA's subjective judgment into the process, would render

the allocation impossible to duplicate in the audit process and

would open the potential for customer abuse.

One related issue which has generated some confusion is whether

the responsibility for the allocation of split and partial fills

rests with the CTA or with the FCM. The CTA certainly has the sole

responsibility for ensuring that the procedures are appropriate in

light of its approach to trading. With respect to the actual

implementation of the procedures, since the CTA is directing the

trading in the accounts, the responsibility for allocating split and

partial fills among the accounts should rest with the CTA. However,

there is nothing under NFA rules to preclude an FCM from agreeing to

undertake this responsibility, whether it clears or executes the

trades, pursuant to either its own procedures or to those supplied

by the CTA. Any division of responsibilities agreed to by the FCM

and CTA should be clearly documented.

There is also good deal of confusion on how the basic principles

of CFTC Regulation 1.35 apply to block orders executed on a ``give-

up'' basis, a process which was essentially unknown when Regulation

1.35 was originally adopted. Subject to exchange rules, in any given

block order there may be multiple executing FCMs, multiple clearing

FCMs or multiple FCMs serving each of these functions. The exact

form of customer identification which the FCM must receive from the

CTA under Regulation 1.35 may vary depending on the FCM's role in

filling the order. Essentially, each FCM must receive sufficient

information to allow it to perform its function. For executing FCMs,

this includes, at a minimum, the number of contracts to be given up

to each clearing FCM and instructions for allocation of split and

partial fills among these FCMs. Information concerning the number of

contracts to be allocated to each account included in the block

order must be provided to the FCM which will carry out those

instructions, which, in most cases, will be the FCM clearing the

accounts. All of this information must be provided at or before the

time the order is placed and could be provided by pre-filing a set

of instructions. If the pre-filed instructions for the general

allocation or the allocation of split and partial fills meet the

standards set forth in this Notice, then the clerical task of

implementing the instructions could be performed by either the FCM

or the CTA.

If that clerical function is performed by the CTA, this does not

suggest that the FCM is relieved of any further responsibility. The

FCM has certain basic duties to its customers, including the duty to

supervise its own activities in a way designed to ensure that it

treats its customers fairly. Specifically, the FCM would violate

this duty if it has actual or constructive notice that allocations

for its customers may be fraudulent and fails to take appropriate

action. The FCM with such notice must make a reasonable inquiry into

the matter and, if appropriate, refer the matter to the proper

regulatory authorities (e.g., the CFTC or the NFA or its DSRO).

Obviously, whether an FCM has such notice depends upon the

information that the FCM has or should have, which, in turn, is

based upon the FCM's role in the executing and clearing process. For

example, an FCM that both executes and clears an entire block order

will possess more information than an FCM that executives or clears

only a portion of an order. In order to fulfill its duties, and FCM

at any level of the process should implement appropriate compliance

measures. For example, an FCM may choose to spot check the

allocations made to its customer accounts for conformity with the

prefiled instructions it has received from the CTA and/or review the

performance of accounts being traded pursuant to the same trading

program.

Contemporaneous Filing of Instructions Via Electronic Transmission

Instructions for the allocation of contracts to accounts

included in a block order can also be given at the time the CTA

places the trade. NFA notes, however, that as a general rule

allocation procedures for split and partial fills should be pre-

filed with the appropriate FCM. For instructions on the number of

contracts to be assigned to each account in the block order, many

CTA's simply provide the necessary allocation information by phone

when they call in the block order. For certain CTAs, however,

providing allocation instructions verbally when the block order is

placed may not be a practicable option. These CTAs may have hundreds

of accounts included in the block order and providing detailed

allocation information by phone may be extremely time consuming.

Delaying the execution of the order while that process drags on

might ultimately harm customers through market price slippage. For

most of these CTAs, the prefiling of instructions provides an

adequate alternative. However, for a limited number of CTAs, it may

not be practicable to pre-file with the FCM a standing set of

allocation instructions. The trading programs used by these CTAs are

complex and dynamic. Given the fine tuning adjustments that are made

on a daily basis, the exact number of contracts these CTAs allocate

to any given account may vary from one day to the next, and may make

the prefiling of instructions impracticable.

Under these circumstances, one way the CTA may provide the

account identification information required under CFTC Regulation

1.35 would be to send the FCM, by facsimile or other form of

electronic transmission, the breakdown of contracts to be assigned

to each account included in the block order. The CTA would have to

begin to send that information at the time the order is placed.

Given the possibility of busy signals, paper jams and other

limitations of electronic transmissions, there may be momentary

delays in the completion of the transmission. Such delays should be

neither commonplace nor lengthy, and the CTA should maintain

appropriate documentation whenever such delays occur. When those

delays do occur, however, CFTC Regulation 1.35 does not necessarily

require the FCM to delay execution of the order until the electronic

transmission of the allocation information is completed. To avoid

delays in execution due to such transmission difficulties, the CTA

must have provided the FCM with a written certification that:

(1) the CTA will begin the transmission to the FCM of the

allocation breakdown contemporaneously with the placement of the

order and will maintain appropriate documentation regarding any

delays experienced in such transmission;

(2) prior to the placement of an order, the CTA has also

generated a non-preferential allocation breakdown for each order

which has been computer time-stamped indicating the date on which

the order is to be placed and the date and time the allocation

breakdown was printed;

(3) the CTA maintains with either their executing or clearing

FCMs a complete list of all accounts traded by the CTA, by trading

program if applicable;

(4) if a bunched order does not include all accounts within a

particular trading program, then prior to the execution of the order

these CTAs will identify for their FCMs the accounts which are

included, by account identifier or designation;

(5) on a daily basis, these CTAs confirm that all their accounts

have the correct allocation of contracts; and

(6) at least once a month, these CTAs analyze each trading

program to ensure that the allocation method has been fair and

equitable. If divergent performance results exist over time, then

such results must be shown to be attributable to factors other than

[[Page 25474]]

the CTA's trade allocation or execution procedures. Additionally, a

CTA must document its internal audit procedures and the results of

its monthly analysis and maintain these audit procedures and results

as firm records subject to review during an NFA audit.

An FCM which relies in good faith on the above certification

would be deemed to be in compliance with CFTC Regulation 1.35. The

CTA must also file a copy of that certification with NFA at least

thirty days prior to implementing these procedures. This time period

will provide NFA with an opportunity to review and verify the

information contained in the certification.

For most block orders, the pre-filing of allocation instructions

is the most practicable and preferred course of action. The

procedure described herein relating to the contemporaneous filing of

instructions via electronic transmission is an alternative available

to those relatively few CTAs that can demonstrate a need for this

alternative and meet the requirements of the certification. Each CTA

availing itself of this alternative must not only adhere to the

requirements of this Notice, but also demonstrate on a continuing

basis to the appropriate regulator or self-regulator both its need

to use this alternative and that the information in the

certification is correct. If a CTA utilizes this alternative, it

must adhere to this Notice's requirements or may face disciplinary

action for its failure to do so. If any Member has questions

concerning how this Interpretive Notice would apply to its

operations, please contact NFA's Compliance Department.

IV. Commission Guidance

In any instance in which a CTA bunches multiple orders for

different accounts into a single order for placement and execution, the

antifraud provisions of Sections 4b and 4o of the Commodity Exchange

Act may be violated if the resulting allocation is not fair, equitable

and consistent in its treatment of the accounts included in the order.

A CTA may bunch orders and provide, at the time of order placement with

an executing registrant,\5\ an allocation designator, as defined

herein, that the Commission will find to constitute compliance with the

account identification requirement of Regulation 1.35(a-1)(2)(i) for

the accounts included in the order, by the CTA or the executing

registrant, respectively, provided that, consistent with the NFA Notice

and the following:

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\5\ ``Executing registrant'' refers to the registrant with whom

the CTA places the bunched order for execution, and may be either an

FCM or a floor broker.

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1. The CTA provides to each carrying FCM to which fills are to be

allocated, either by prefiling allocation procedures or (consistent

with the guidance set forth in the NFA Notice) contemporaneously

providing allocation instructions with the placement of the order, a

methodology to allocate contracts to customer accounts that identifies

the ultimate customer account numbers and includes procedures for

allocating prices and quantities for split and partial fills to those

customers;

2. The order pertains to a group of specified accounts previously

or contemporaneously identified to the carrying firm(s); and

3. The order is intended to provide fills for all accounts included

in a single trading program.

4. The executing registrant documents the order as follows:

a. For purposes of the documentation required pursuant to this

paragraph 4., an allocation designator means a symbol which represents

all or any portion of the following information not reflected on the

floor order as may be necessary to identify the ultimate customers,

quantities and prices: that is, the trading program and the allocation

procedures or methodology, including procedures for allocating prices

and quantities for split and partial fills among carrying firms and/or

among ultimate customers.

b. If the bunched order is to be allocated to customer accounts at

one carrying FCM, prior to the time the order is executed, the floor

order must reflect (1) the carrying FCM, (2) the order quantity, and

(3) an allocation designator.

c. If the bunched order is to be given up for allocation to

customer accounts at more than one carrying FCM, prior to the time the

order is executed, the floor order must reflect (1) each carrying FCM,

(2) the quantity to be given up to each such FCM, and (3) an allocation

designator.\6\ Consistent with the guidance provided in the NFA Notice,

allocation instructions may be provided by electronic transmission to

the executing registrant contemporaneously with order placement.

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\6\ If the allocation instructions are provided

contemporaneously with order placement to a floor trading desk or

floor broker's clerk, the person receiving the order may immediately

transmit the order's terms (that is, contract, quantity and price)

to the executing broker, either by hand signals, verbal or written

communication, while continuing to record the allocation information

on the floor order. Order execution need not be delayed while such

information is being recorded.

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d. Alternatively, if the bunched order is to be given up for

allocation to customer accounts at more than one FCM and the CTA has

prefiled, consistent with exchange rules,\7\--with the NFA, a

designated clearing member, an executing registrant, or an exchange--a

set of allocation procedures which (1) Identifies each FCM to which

trades will be given up, (2) identifies a methodology to determine how

many contracts each FCM would receive, and (3) identifies an allocation

designator, prior to the time the order is executed, the floor order

must reflect the order quantity and the allocation designator

identifying the prefiled procedures.

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\7\ Any exchange which permits the prefiling of procedures with

the NFA or an exchange pursuant to this interpretation of Regulation

1.35(a-1)(2)(i) must have procedures in place for their executing

members to confirm that CTA allocation procedures, including

designators, are in fact prefiled.

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e. Prefiled procedures ordinarily would be standing procedures that

would remain unchanged for a reasonable period of time.

5. Any time a CTA prefiles allocation procedures as provided herein

and the CTA, rather than the executing or clearing registrant, provides

specific allocations, after the execution of an order, implementing

those prefiled procedures, the CTA must provide those allocations as

soon as practicable.

Consistent with the NFA Notice, if an executing registrant has

notice, based upon the information available to that registrant, that

(1) allocation procedures are not prefiled, (2) the CTA's instructions

do not conform to the prefiled procedures of (3) the give up and/or

split and partial fill procedures or instructions result in allocations

that are not being made in a fair, equitable and consistent manner,

either by quantity or price, the executing registrant must make

reasonable inquiry into the matter and, if appropriate, refer the

matter to the proper regulatory authorities.

V. Conclusion

Based on the foregoing, FCMs, IBs, CTAs, their respective APs, and

FBs who handle bunched orders for multiple accounts shall be deemed to

be in compliance with the account identification requirement of

Commission Regulation 1.35(a-1)(2)(i) if such orders are placed,

recorded, executed, given up to multiple clearing firms, if applicable,

and allocated to customer accounts in accordance with the provisions

set forth in the NFA Notice and in compliance with the above-stated

Commission guidance.

This Interpretation and Approval Order is based upon the

Commission's understanding that (1) affected registrants, consistent

with their responsibilities as set forth herein, will maintain

documentation sufficient to demonstrate that the procedures thus

authorized are in fact followed and (2) affected registrants, exchanges

and the NFA will have effective systems in place to monitor compliance

and to address apparent noncompliance with

[[Page 25475]]

the terms hereof. The Commission intends to monitor the procedures and

practices followed pursuant hereto, including through review of the

results of audits of registrants handling bunched orders. Based

thereon, the Commission may provide further guidance as appropriate.

Dated: May 5, 1997.

By the Commission.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 97-12161 Filed 5-8-97; 8:45 am]

BILLING CODE 6351-01-M