Use of Electronic Signatures by Customers, Participants and Clients of Registrants

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1

Use of Electronic Signatures by Customers, Participants and

Clients of Registrants

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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SUMMARY: As part of its ongoing efforts to facilitate the use of

electronic technology and media in the futures industry, the Commodity

Futures Trading Commission (``Commission'' or ``CFTC'') is proposing to

adopt new rules allowing the use of electronic signatures in lieu of

handwritten signatures for certain purposes under the Commission's

regulations.\1\ The Commission seeks comment on these rules and on

issues relating generally to the use of electronic media for

communications necessary to establish an account for trading commodity

interests.

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\1\ Commission regulations referred to herein are found at 17

CFR Ch. 1 et seq. (1999).

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DATES: Comments must be received on or before October 29, 1999.

ADDRESSES: Comments should be mailed to Jean A. Webb, Secretary,

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

Street, NW, Washington, DC 20581; transmitted by facsimile to (202)

418-5521; or transmitted electronically to ([email protected]).

Reference should be made to ``Internet Account-Opening Process.''

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

Counsel, or Christopher W. Cummings, Special Counsel, Division of

Trading and Markets, Commodity Futures Trading Commission, Three

Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581. Telephone

(202) 418-5430.

SUPPLEMENTARY INFORMATION:

I. Introduction

A. Background

Notwithstanding the rapid pace at which business transactions of

all kinds are being converted from paper-based to electronic formats,

the opening of accounts to trade investment products in the commodity

futures and option markets continues to involve exchange of paperwork

between the broker and the customer. Strictly speaking, there is

nothing in the Commodity Exchange Act (the ``Act'') \2\ and the

Commission's regulations issued thereunder that prevents a futures

commission merchant (``FCM'') or introducing broker (``IB'') from

opening electronically a customer account. There are ancillary rules,

however, that effectively require the parties to exchange paper, such

as the requirement that the FCM or IB obtain a signed acknowledgment

that the customer has received the required risk disclosure

statement,\3\ or the requirement that an agreement to arbitrate

disputes be entered into by a separate signature from that which

executes the account agreement.\4\ In the current session of Congress,

several bills have been introduced to authorize the use of electronic

signatures.\5\ In addition, the National Conference of Commissioners on

Uniform State Laws has prepared a ``Uniform Electronic Transactions

Act'' (``UETA'') with the goal that it will be adopted by the States,

giving legal certainty to

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electronic commerce, particularly from the perspective of contract law.

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\2\ 7 U.S.C. 1 et seq. (1994).

\3\ See Rule 1.55(a)(1).

\4\ See Rule 180.3(b)(6).

\5\See Senate Bills 761 (``Millennium Digital Commerce Act'')

and 921 (``Electronic Securities Transactions Act'') and House

Resolutions 1572 (``Digital Signature Act of 1999''), 1685

(``Internet Growth and Development Act of 1999'') and 1714

(``Electronic Signatures in Global and National Commerce Act'').

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Over the past several years, the Commission has modified or made

exception to rule provisions that were adopted originally with paper-

based transactions in mind in order to permit registrants to comply

with those provisions in the context of electronic commerce. For

example, as a result of such actions, the Commission now permits

commodity pool operators (``CPOs'') and commodity trading advisors

(``CTAs'') who deliver their prescribed Disclosure Documents by

electronic means to obtain the required acknowledgment of receipt by

electronic means that use a unique identifier to confirm the identity

of the recipient, including such means as a personal identification

number, or ``PIN.'' \6\ The Commission has accepted the use of PINs in

other contexts as well, such as in the attestation of financial reports

that FCMs are required to file with self-regulatory organizations.\7\

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\6\ See Rules 4.21(b) and 4.31(b), and 62 FR 39104, 39110 (July

22, 1997).

\7\ Rule 1.10(d)(4). See 62 FR 10441 (March 7, 1997).

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Recently, the Division was asked to interpret Commission rules to

permit an FCM to accept, in lieu of a prospective customer's manually

signed, paper acknowledgment that he received and understood the risk

disclosure statement specified in Rule 1.55, an electronic mail message

to that effect on which the customer has typed his name. The Commission

believes that customers of FCMs and IBs, as well as commodity pool

participants and clients of CTAs, should be permitted to use electronic

signatures in those instances where Commission regulations require the

customer's (or participant's or client's) manual signature. In

furtherance of this belief, the Commission is proposing Rule 1.4, ``Use

of electronic signatures.'' \8\

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\8\ As is discussed more fully below, the Commission also is

proposing to define in new Rule 1.3(tt) the term ``electronic

signature.''

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B. Current Regulatory Requirements Affecting the Account-Opening

Process

The process by which an FCM or IB actually establishes a customer

account to trade commodity interests primarily is governed by state

contract law. Neither the Act, the Commission's regulations nor the

rules adopted by commodity industry self-regulatory organizations

directly specify the steps to be taken to establish an account or the

manner in which those steps are to be taken, although certain

provisions of the Commission's regulations affect matters that are

pendant to the account opening process. The following discussion

highlights the CFTC rule provisions that may be implicated regarding

customer authorizations and endorsements necessary for opening and

maintaining a commodity interest trading account.

Rules 1.36 and 1.37

Rule 1.37(a) requires FCMs and IBs to keep permanent records, for

each commodity futures or option account, of the customer's true name,

address and principal occupation or business, as well as the name of

any person guaranteeing the account or exercising any trading control

with respect to the account. Rule 1.36 requires an FCM who receives

property other than cash to margin or secure futures or commodity

option transactions to keep a record of all such property and the name

and address of the customer (as well as information regarding the

segregation and ultimate disposition of the property).

Rules 1.55(a), (b), (c) and (f), and Rule 30.6

Rule 1.55(a) provides that prior to opening a commodity futures

account an FCM or IB must: (1) furnish the customer with a written

disclosure statement containing language specified in rule 1.55 (b) or

(c); and (2) obtain the customer's signed and dated acknowledgement

that he has received and understands the disclosure statement. Rule

30.6 extends a similar requirement to FCMs or IBs seeking to open

foreign futures trading accounts for customers. Rule 1.55(f) provides

that the FCM or IB may open a commodity interest account without

furnishing the customer with the disclosure statements required by

Rules 1.55(a), 30.6(a), 33.7(a) and 190.10(c) if the customer is among

a specified category of sophisticated customers.\9\

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\9\ A customer is considered sophisticated for purposes of Rule

1.55(f) if it is: a bank or trust company; a savings association or

credit union; an insurance company; an SEC-registered investment

company or a foreign investment company with total assets in excess

of $5 million; a pool operated by a registered (or foreign

registered) or exempt CPO; a corporation or other entity with total

assets in excess of $10 million or a net worth of $1 million; an

employee benefit plan subject to ERISA (or foreign person performing

similar functions and subject to foreign regulation) with assets in

excess of $5 million; a registered broker-dealer; a registered FCM,

floor broker or floor trader; or a natural person with total assets

exceeding $10 million.

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Rule 33.7

Where an FCM or IB seeks to open a commodity option account for a

customer, Rule 33.7 imposes requirements similar to those imposed by

Rule 1.55 for commodity futures accounts. As with Rule 1.55, the FCM or

IB must obtain a signed and dated acknowledgement that the required

disclosure statement was received and understood by the customer. As is

true for Rule 1.55(a), Rule 30.6 and Rule 190.10(c), this requirement

does not apply where the customer is one of the types of sophisticated

customers identified in rule 1.55(f).

Rule 190.10(c)

Rule 190.10(c) requires a commodity broker (other than a clearing

organization), before accepting property other than cash to margin or

secure a commodity contract, to furnish to the customer the bankruptcy

risk disclosure statement specified in Rule 190.10(c)(2). As is true of

Rule 1.55(a), Rule 30.6 and Rule 33.7, this requirement does not apply

where the customer is one of the types of sophisticated customers

identified in Rule 1.55(f).

Rule 190.06

Rule 190.06(d) requires that a commodity broker must provide an

opportunity for each customer to specify when undertaking the

customer's first hedging contract whether, in the event of the broker's

bankruptcy, the customer prefers that open commodity contracts held in

a hedging account be liquidated by the trustee in bankruptcy without

seeking instructions from the customer.

Rule 1.55(d)

Rule 1.55(d) provides that an FCM or IB may obtain the

acknowledgments required by rules 1.55, 33.7 and 190.06 by having the

customer sign once, provided that the customer has acknowledged on the

document he signs, by check or other indication, next to a description

of each required disclosure statement (or election) that the customer

has received and understood the disclosure statement (or made the

election).

Rule 180.3

Rule 180.3 regulates conditions under which FCMs and IBs \10\ may

enter agreements with customers requiring that disputes be submitted to

a settlement procedure, such as binding arbitration. Signing the

agreement to use the specified settlement procedure must not be made a

condition for the customer to utilize the services offered by the

registrant. The rule also provides that if the agreement is contained

as a clause or group of clauses in a broader agreement (e.g., an FCM's

customer agreement), the customer must

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separately endorse the clause or clauses containing the prescribed

language regarding available dispute resolution fora and other

cautionary material specified in rule 180.3.

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\10\ Rule 180.3 also applies to registered floor brokers, CPOs

and CTAs and their respective associated persons (``APs'').

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Rule 166.2

Rule 166.2 requires that before an FCM, an IB or one of their APs

effects a transaction in a customer's commodity interest account the

customer (or the person designated by the customer to control the

account) must specifically authorize the transaction or the customer

must have authorized the FCM, IB or AP in writing to effect

transactions in the account without specific authorization. Under the

rule, any such authorization to effect transactions without specific

further authorization must be expressly documented.

Several other rule provisions may, but do not necessarily, affect

the account opening process:

Rule 1.65

Rule 1.65 applies to bulk transfers of customer accounts to another

FCM or IB under circumstances other than at the request of the customer

(an event that generally occurs subsequent to the opening of an

account). The transferor FCM or IB must first obtain the customer's

specific consent to the transfer. If the customer agreement contains a

valid consent by the customer to prospective transfers of the account,

the customer must nevertheless be provided with written notice of the

transfer and must be given a reasonable opportunity to object to the

transfer. The transferee FCM or IB must provide the risk disclosure

statements required by rules 1.55, 33.7 and 190.10(c) unless: (1) The

FCM or IB has clear written evidence that the customer has received and

acknowledged the required disclosure statements; (2) the FCM or IB has

clear written evidence that at the time the account was opened the

customer was one of the sophisticated customers identified in rule

1.55(f); or (3) the transferor IB and the transferee IB are both

guaranteed by the same FCM, and that FCM maintains the relevant

acknowledgments required by Rules 1.55(a)(1)(ii) and 33.7(a)(1)(ii) and

can establish compliance with Rule 190.10(c).

Rule 155.3

Rule 155.3(b)(2) prohibits an FCM or any of its affiliated persons

from knowingly taking the other side of any order of another person

revealed to the FCM or affiliated person by reason of their

relationship to such person except with the other person's prior

consent and in accordance with Commission-approved contract market

rules.

Rule 1.20(a)

An FCM may not remove funds from a customer's segregated account

and transfer those funds to another non-segregated account (such as a

securities account) without a separate writing clearly evidencing the

customer's authorization for the removal of those funds. The Commission

has consistently declined to permit FCMs to include in the customer

account agreement the requisite authorization to transfer funds from a

customer's segregated account to another account of that customer

carried by the FCM.\11\

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\11\ See Protection of Commodity Customers; Risk Disclosure by

Futures Commission Merchants and Introducing Brokers to Customers;

Bankruptcy Disclosure. 63 FR 17495 (April 5, 1993) at 17499 n.18 and

Staff Letters referenced there.

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II. Proposed New Rules

A. Rule 1.3(tt)

Rule 1.3 contains definitions of various terms used in the Act and

the Commission's regulations. The Commission is proposing to add a new

paragraph (tt) to the rule, which would define the term ``electronic

signature'' as ``an electronic sound, symbol, or process attached to or

logically associated with a record and executed or adopted by a person

with the intent of signing the record.'' The proposed definition is

taken from the Uniform Electronic Transactions Act (``UETA'') approved

and recommended for enactment in all the States by the National

Conference of Commissioners of Uniform State Laws during that

Conference's July 23-30, 1999 annual meeting.\12\

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\12\ The UETA definition is a broad one and is likely to be

generally consistent with state and Federal laws adopted in the

future.

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The wording of the proposed definition is intended to be broad

enough to encompass electronic signatures created under a variety of

current and future technologies, while requiring that the person

employing an electronic signature does so with the intent to accomplish

the signing of a particular electronic document or record. The

definition also expressly provides that the ``sound, signal or

process'' that will constitute the electronic signature be attached to

or logically associated with an electronic record. As the drafters of

the UETA noted:

A key aspect of this definition lies in the necessity that the

electronic signature be linked or logically associated with the

electronic record. For example, in the paper world, it is assumed

that the symbol adopted by a party is attached to or located

somewhere in the same paper that is intended to be authenticated.

These tangible manifestations do not exist in the electronic

environment, and accordingly, this definition expressly provides

that the symbol must in some way be linked to or connected with, the

electronic record being signed.\13\

\13\ National Conference of Commissioners on Uniform State Laws

Uniform Electronic Transactions Act, Draft prepared for the July 23-

30, 1999 meeting (the ``Annual Meeting Draft'') at page 15. The

Annual Meeting Draft is available online at the following URL:

http://www.law.upenn.edu/library/ulc/uecicta/etaam99.htm The text of

the UETA as approved is available online at the following URL:

http://www.law.upenn.edu/bll/ulc/fnact99/1990s/ueta.htm.

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Thus, where a futures customer is required to sign or adopt a

particular phrase or statement (e.g., a specific disclosure statement

or portion thereof), the electronic signature must be linked or

associated in a logical way with that phrase or statement.

B. Rule 1.4

Proposed rule 1.4(a) would permit the customer of an FCM or IB, a

pool participant, or a client of a CTA to use an electronic signature

in lieu of a written signature in any situation in which a provision of

the Act or Commission regulations requires that person's signature. The

broad permission to use electronic signatures would be subject to

compliance with applicable Federal law and any standards regarding

electronic signatures that the Commission may later adopt and guidance

that Commission staff may provide.\14\ It would also be subject to the

futures commission merchant, introducing broker, commodity pool

operator or commodity trading advisor utilizing reasonable safeguards

regarding the use of electronic signatures (including, at a minimum,

measures to verify that the electronic signature belongs to the person

using it, procedures to prevent alteration of an electronically-signed

record, and procedures to detect changes or errors in an electronic

signature). The Commission continues to believe that it generally is

unwise to attempt to impose specific technological mandates or specific

system design criteria on registrants, and that requiring instead the

use of reasonable safeguards,

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to be identified and implemented by the registrant itself, is the

better approach.\15\

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\14\ Although the Commission presently is not proposing to adopt

specific standards regarding electronic signatures, it is possible

that legislation pending in Congress may require Federal agencies to

adopt such standards. For example, House Resolution 1572 would

direct the National Institute of Standards and Technology to

establish minimum technical criteria for the use by Federal agencies

of electronic certification and management systems and to

participate in a national policy panel intended to develop a

national digital signature infrastructure based on uniform

standards.

\15\ Among the potential security procedures for electronic

signatures identified in the UETA are ``the use of algorithms or

other codes, identifying words or numbers, encryption, or callback

or other acknowledgement procedures.'' See UETA Section 2(14).

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As is clear from the rule, it is not the Commission's intention

that registrants (particularly small businesses) be required to

implement electronic signature technology. Rather, if a registrant

elects generally to accept electronically signed documents, proposed

Rule 1.4 eliminates any uncertainty under the Act or Commission rules

or regulations regarding the validity of the signatures.

Until such time as the Congress and State legislatures enact

definitive legislation, there will be some question as to the

sufficiency of electronic signatures in various contexts, and persons

desiring to use them should know that this question exists and

consequently that they should use electronic signatures with care. In

particular, although the proposed rules will make clear that electronic

signatures provided pursuant to the rules will comply with Commission

regulations, the validity of such signatures under state contract law

will vary depending on the relevant jurisdiction (i.e., these proposed

rules do not purport to preempt state law). In light of the foregoing,

an FCM, IB, CPO or CTA who elects to receive, handle and store

documents or records that have been signed by means of an electronic

signature would be required by proposed Rule 1.4(b) to disclose to the

customer, participant or client that although an electronic signature

is sufficient for purposes of the Act and Commission regulations, it

may be insufficient for purposes of other Federal or State laws or

regulations (such as common law of contracts). For their own protection

and the protection of their customers, registrants obviously should

take reasonable care to determine whether an electronic signature

intended to consummate a binding contract will be valid in a particular

jurisdiction.

It should be noted that proposed Rule 1.4 would not relieve a

registrant from any other applicable requirement under the Act or the

Commission's rules--e.g., applicable requirements to maintain records

of certain signed documents (whether signed with pen and ink or with an

electronic signature) in a manner consistent with Commission Rule

1.31.\16\ Similarly, proposed Rule 1.4 would not relieve a registrant

from requirements regarding the scope or type of customer information

required to be kept--e.g., Rule 1.37's requirement that FCMs and IBs

keep permanent records, for each commodity futures or option account,

of the customer's true name, address and principal occupation or

business, as well as the name of any person guaranteeing the account or

exercising any trading control with respect to the account. Lastly,

registrants should be cognizant of their obligations, among other

things, to report material inadequacies in their accounting and

internal controls in accordance with Rule 1.16(e) and their duties

diligently to supervise the handling of all commodity interest accounts

they carry, operate, advise or introduce in accordance with Rule 166.3

when they determine the manner in which they will accept electronic

signatures and the procedures and safeguards that they establish and

use in connection with electronic signatures.

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\16\ Regardless of the form that an electronic signature takes,

where a registrant is required by Commission regulations to retain a

signed record in accordance with Rule 1.31, the registrant must be

able to make the record available (as a signed record) to Commission

representatives at any time during the retention period specified in

Rule 1.31. Under Rule 1.31, as recently amended (64 FR 28735 (May

27, 1999)) persons who store required records electronically must

provide facilities for immediate production or projection of those

records for examination by representatives of the Commission or the

Department of Justice upon request.

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III. Issues on Which the Commission Requests Comment

General

As noted previously, for the past several years the Commission has

been engaged in a process of reviewing its regulatory scheme and

modernizing and streamlining its regulations to adapt to developments

in the marketplace (including developments in technology and screen-

based trading). As part of this process, the Commission believes that

allowing for the use of electronic signatures will reduce paperwork and

promote efficient access to futures markets. These proposed rules have

been structured to be consistent with any future action by Congress or

various states in this area. Should the Commission issue rules in this

area now? Should the Commission defer rulemaking on electronic

signatures pending possible legislation by Congress?

Security

As indicated above, Commission rules require that an FCM or IB

obtain information (such as name, address and occupation) and signed

acknowledgments (such as an acknowledgment of receipt of the Risk

Disclosure Statement) from a new customer. Wholly-electronic

communications such as interactive transactions over the Internet lend

themselves to anonymous dealings and permit persons to adopt assumed

identities. Is opening a commodity interest trading account entirely by

electronic means inherently less conducive to establishing that a

customer is who he or she claims to be than current practice involving

exchange of paper documents and/or face-to-face dealings? What

safeguards, if any, are appropriate to counteract any loss of security

that may result from elimination of such vestiges of non-electronic

commerce as manual signatures on acknowledgments, exchange of paper

documents and face-to-face transactions? How and to what extent might

encryption, personal identification numbers, callbacks or other

security measures be employed to safeguard the integrity of information

provided to or received from customers of FCMs and IBs, pool

participants or clients of CTAs?

Much has been written on the development of so-called digital

signatures and other electronic identification procedures. But each

such method depends upon unambiguous establishment at the outset of the

identity of the person who will use the identification procedure. If a

digital signature or a personal identification number is assigned to a

person who is using a false identity in the first place, the purpose of

the process has been defeated. Would digital signatures or other

electronic identification procedures be any less safe than is the case

in the current ``paper world?'' Is the language of the proposed rules

contained in this release adequate for purposes of permitting FCMs,

IBs, CPOs and CTAs to accept electronic signatures from their customers

or clients? Are any additional safeguards warranted?

Customer Protection

Under current practice, a customer who wants to trade commodity

interests electronically must generally download and print out an

account agreement and perhaps other documents, to be signed and

returned before trading can commence. Does this built-in delay operate

as a beneficial safeguard against high-pressure sales tactics or ill-

considered entry into potentially risky markets? If a customer is able

to log on to his computer, sign up electronically for a commodity

interest trading account and immediately begin trading, does that make

the customer more

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susceptible to unscrupulous and deceptive sales tactics? Would there be

a benefit to customers if the Commission imposed a specific waiting

period (e.g., twenty-four hours) before trading can commence in an

electronically-opened account? Would a customer's ability to begin

trading almost immediately upon electronically opening an account

subject the FCM to new risks (e.g., would it be more difficult or

impossible for the FCM to run credit checks that may currently be part

of the account opening process)?

Contract law issues

The Commission is aware that in spite of the fact that under

Federal securities laws and regulations securities broker-dealers may

be able to open and trade accounts electronically, broker-dealers have

generally continued to require some exchange of signed paper documents

in connection with opening trading accounts, largely because of the

existing variations in state contract laws. Agreements to submit

disputes to arbitration, for example, must be executed in such a way as

to survive a court challenge, and to date, most broker-dealers have

been reluctant to accept an electronic signature for this purpose. The

Commission has elected in these proposed rules to allow electronic

signatures, but to require disclosure to customers to the effect that

an electronically executed arbitration agreement may be unenforceable

in certain states. Are there any other legal issues besides questions

of contract enforceability or issues concerning provisions of the Act

or the Commission's regulations that may be raised if registrants open

customer accounts electronically?

Coordination with self-regulatory organizations

To the extent that self-regulatory organizations (``SROs'')

overseen by the Commission (including the National Futures Association

and the designated contract markets) propose or adopt rules regarding

electronic signatures, conflicts may arise between the proposed rule

and such SRO rules. Should the Commission expressly provide that SRO

rules must be consistent with the proposed rule? Is this matter better

handled in the context of the process pursuant to which the Commission

reviews and approves SRO rule changes?

IV. Related Matters

A. Regulatory Flexibility Act

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

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

those rules on small businesses. The Commission has previously

established certain definitions of ``small entities'' to be used by the

Commission in evaluating the impact of its rules on such entities in

accordance with the RFA.\17\ The Commission has previously determined

that FCMs and CPOs are not small entities for the purpose of the

RFA.\18\ With respect to CTAs and IBs, the Commission has stated that

it would evaluate within the context of a particular rule proposal

whether all or some affected CTAs and IBs would be considered to be

small entities and, if so, the economic impact on them of any rule.\19\

In this regard the Commission notes that the regulations being proposed

herein do not change the obligations of CTAs and IBs under the Act and

Commission regulations, but permit CTAs and IBs to comply with certain

existing obligations by using electronic means as an acceptable

alternative to paper-based compliance. The Chair, on behalf of the

Commission hereby certifies, pursuant to 5 U.S.C. 605(b), that these

proposed regulations will not have a significant economic impact on a

substantial number of small entities. Nonetheless, the Commission

specifically requests comment on the impact these proposed rules may

have on small entities.

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\17\47 FR 18618-18621 (April 30, 1982).

\18\ 47 FR 18619-18620.

\19\ 47 FR 18618-18620.

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B. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq.

(Supp. I 1995)) 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.

The Office of Management and Budget (OMB) approved the collection

of information associated with this proposed rule (3038-0022, Rules

Pertaining to Contract Markets and Their Members) on October 24, 1998.

While the proposed rule discussed herein has no burden, the group of

rules (3038-0022) of which it is a part has the following burden:

Average Burden Hours Per Response: 3,609.89.

Number of Respondents: 15,893.

Frequency of Response: Annually and On Occasion.

Copies of the OMB-approved information collection submission are

available from the CFTC Clearance Officer, 1155 21st Street, NW,

Washington, DC 20581 (202) 418-5116.

List of Subjects in 17 CFR Part 1

Signatures, Commodity futures, Commodity brokers.

Accordingly, 17 CFR part 1 is proposed to be amended as follows:

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

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

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

6g, 6h, 6i, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a,

12c, 13a, 13a-1, 16, 16a, 19, 21, 23, 24.

2. Section 1.3 is proposed to be amended by adding new paragraph

(tt) to read as follows:

Sec. 1.3 Definitions.

* * * * *

(tt) Electronic signature means an electronic sound, symbol, or

process attached to or logically associated with a record and executed

or adopted by a person with the intent of signing the record.

3. Section 1.4 is proposed to be added to read as follows:

Sec. 1.4 Use of electronic signatures.

(a) For purposes of complying with any provision in the Commodity

Exchange Act or the rules or regulations in this Chapter I that

requires a document to be signed by a customer of a futures commission

merchant or introducing broker, a pool participant or a client of a

commodity trading advisor, an electronic signature executed by the

customer, participant or client will be sufficient, if the futures

commission merchant, introducing broker, commodity pool operator or

commodity trading advisor elects generally to accept electronic

signatures; Provided, however, That:

(i) The electronic signature must comply with applicable Federal

laws and such standards as the Commission may adopt and such guidance

as the Commission's staff may provide; and

(ii) The futures commission merchant, introducing broker, commodity

pool operator or commodity trading advisor must adopt and utilize

reasonable safeguards regarding the use of electronic signatures,

including at a minimum:

(A) Safeguards employed for the purpose of verifying that an

electronic signature is that of the person purporting to use it;

(B) Safeguards employed to prevent alteration of the electronic

record with which the electronic signature is associated, after such

record has been electronically signed; and

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(C) Safeguards employed for detecting changes or errors in a

person's electronic signature.

(b) Any futures commission merchant, introducing broker, commodity

pool operator or commodity trading advisor who elects to accept

documents that are executed by means of an electronic signature must

clearly disclose to the customer, participant or client using an

electronic signature that although an electronic signature is

sufficient for purposes of the Commodity Exchange Act and the rules or

regulations of this chapter, it may not be sufficient for purposes of

other Federal or State laws or regulations.

Issued in Washington D.C. on August 24, 1999.

Catherine D. Dixon,

Assistant Secretary of the Commission.

[FR Doc. 99-22461 Filed 8-27-99; 8:45 am]

BILLING CODE 6351-01-P