Comment Text:
By Electronic Mail
April 30, 2010
Mr. David A. Stawick
Secretary
Commodity Futures Trading Commission
1155 21 sl Street NW
Washington DC 20581
Futures Industry Association
2001 Pennsylvania Ave. NW
Suite 600
Washington, DC 20006-1823
Re:
Delegation of Authority to Disclose Confidential Information
75 Fed.Reg. 15635 (March 30, 2010)
Dear Mr. Stawick:
202.466.5460
202.296.3184 fax
www.futuresindustry.org
The Futures Industry Association ("FIN') J is pleased to respond to the Commodity Futures
Trading Commission's ("Commission's") request for comments on the proposed amendments
to Commission Rules 140.72 and 140.73 relating to the delegation to Commission staff of its
authority to disclose confidential information. 2
With the exception of the Commission's
proposal to repeal Rule 140.73(b), we generally support the proposed amendments.
As
discussed below, however, we believe the Commission should adopt enhanced policies and
procedures to guide Commission staff in the exercise of their authority under the proposed
rules.
FIA is a principal spokesman for the commodity futures and options industry. FIA's regular membership
is comprised of approximately 30 of the largest futures commission merchants ("FCMs") in the United States.
Among FIA's associate members are representatives from virtually all other segments of the futures industry, both
national and international. Reflecting the scope and diversity of its membership, FIA estimates that its members
effect more than eighty percent of all customer transactions executed on United States contract markets.
2
Although section 8(a) of the Commodity Exchange Act ("Act") generally prohibits the Commission from
disclosing "data and information that would separately disclose the business transactions or market positions of
any person and trade secrets or names of customers," the Commission is nonetheless authorized under sections
8a(6) and 8(e) of the Act to disclose such information to any (i) registered entity, (ii) registered futures association
or self-regulatOlY organization (as defined in section 3(a)(26) of the Securities Exchange Act of 1934), and (iii)
federal, state and foreign governmental authority, subject to the terms and conditions sets fOlih in the applicable
provision", of the Act. (For convenience, registered entities, registered futures associations and self-regulatory
organizations are sometimes collectively referred to herein as "SROs"). Mr. David A. Stawick
April 30, 2010
Page 2
The proposed amendments are primarily non-substantive, intended to assure that the rules
reflect the changes to the Act adopted in the Commodity Futures Modernization Act of 2000
and the CFTC Reauthorization Act of 2008, as well as the reorganization of the Commission's
operating divisions since the rules were last amended. In this regard, the proposed amendments
would: (1) extend the scope of the rules beyond contract markets to all registered entities, as
defined in section 1 a(29) of the Act, as well as registered futures associations and self-
regulatory organizations; (2) clarify the limited purposes for which an SRO may use
confidential information;3 (3) require each SRO to file with the Commission annually a list of
all employees authorized to receive confidential information; (4) require the chief executive
officer of each SRO to notify the Commission within 10 days of any change in the authorized
list; and (5) remove the specific titles of Commission staff authorized to disclose confidential
information.
We appreciate and suppOli the Commission's desire to facilitate the disclosure of confidential
information as authorized under the Act. Nonetheless, we are concerned by the broad authority
proposed to be delegated, without further Commission guidance, to the directors of the several
Divisions "and to such other employees in their respective Divisions and Offices as they may
designate from time to time." Proposed Rule 140.72(a). Although Congress has yet to take
final action on financial regulatory. reform legislation, each of the pending bills would require
over-the-counter derivatives market participants to submit to the Commission a substantial
amount of confidential information to which the Commission to date has not had routine
access. The Commission would be authorized to disclose this information to any SRO in
accordance with the provisions of section 8a(6) of the Act. Since this information will be new
to the Commission as well as to the SROs that will be receiving it, it is particularly important
that the Commission adopt an agency-wide policy statement to guide the staff in determining
which confidential information to release and for which purpose. Such a policy statement
would afford the Commission appropriate flexibility, while providing staff necessary direction.
FIA appreciates that section 8a(6) of the Act and the Commission 140.72 restricts the purposes
for which an SRO may use confidential information.
However, the Commission's rules
provide no penalty for an SRO or SRO employee that violates these provisions of the Act and
rules.
Separately, the rules provide no mechanism by which a market pm1icipant whose
confidential information is improperly disclosed is notified or may seek appropriate redress.
Before adopting the proposed amendments to Rule 140.72, the Commission should propose
rules to address these critical issues.
Disclosure of Information to Governmental Authorities
For similar reasons, we cannot support the Commission's proposal to repeal Rule 140.73(b),
which currently provides that the Director of Enforcement, or the director's designee, must
In the Federal Register release accompanying the proposed amendments, the Commission further clarifies
that confidential information may not be used for business development purposes. 75 Fed.Reg. 15635, 15636
(March 30, 2010). , Mr. David A. Stawick
April 30, 2010
Page 3
approve the disclosure of confidential information to other federal, state and foreign regulatory
authorities.
To the extent confidential information is disclosed to other governmental
authorities, both within and outside of the US, it is essential that one office at the Commission
act as a central clearinghouse to make an initial determination that the requesting agency is
acting within the scope of its authority and to assure that only the information that is responsive
to the request is being disclosed. Moreover, in these circumstances, even more so than when
the Commission discloses information to an SRO, the Commission's policies governing the
release of confidential information must be consistently applied. Requiring the concurrence of
the Director of the Division of Enforcement, or the director's designee, before such data is
released will assure this result.
We understand that confidential information disclosed to foreign governmental authorities is
generally released pursuant to the May 2002 IOSCO Multilateral Memorandum of
Understanding Concerning Consultation and Cooperation and the Exchange of Information
("MOU"). The MOU describes (i) specific procedures that a requesting authority must follow
in requesting the disclosure of confidential information, (ii) the limited purposes for which such
information may be used, and (iii) the obligations of the requesting authority to maintain the
confidentiality of the information provided. The procedures established in the MOU reaffirm
the importance of having one office at the Commission through which all requests for
information are processed.
Disclosure of Confidential Information not Obtained from the Government
In the Federal Register release accompanying the proposed amendments, the Commission notes
that the requirements of section 8 do not apply to confidential information that registered
entities independently collect, and the Commission requests comment on whether restrictions
similar to those set out in the proposed amendments should be applied to confidential
information generated internally. FIA strongly believes that all confidential information of the
type described in section 8(a) and these rules should be subject to the same restrictions on
disclosure.
Commission rules should prohibit a registered entity: (i) from using such
information except in connection with the performance of its market surveillance, audit,
investigative or rule enforcement responsibilities; and (ii) from disclosing such inforrriation,
except in connection with any self-regulatory action or proceeding.
In this latter regard,
Commission rules should specifically prohibit a registered entity that generates confidential
information internally from using such information for business development purposes or from
disclosing such information to a third party for any purpose.4
As above, Commission rules should require an SRO to notify a market participant if confidential
information is misused and provide an opportunity for redress. Further, in the event a registered entity receives a
subpoena for such confidential information, the registered entity should be required to notify the Commission and
the individual or entity with respect to which confidential information is being sought before responding. Such a
requirement would be consistent with the Commission's obligations under the provisions of section 8(e) of the
Act. Mr. David A. Stawick
April 30, 2010
Page 4
We urge the Commission to use such statutory authority as it deems appropriate to assure that
registered entities do not disclose or use confidential information except as authorized under
section 8(a). If the Commission believes it needs additional statutory authority to impose these
obligations on registered entities, it should request Congress to provide such authority in
connection with the pending financial reform legislation.
In 2004, FIA submitted a comment letter on the revised Joint Audit Agreement, in which we
encouraged the Commission to take steps to assure that registered entities do not misuse
confidential information. Our comments bear repeating:
The information that DSROs obtain in the course of their examinations of
member firms and the records they prepare obviously contain confidential
proprietary and business information that an FCM would not otherwise disclose.
FIA is concerned that the confidentiality provisions set forth in paragraph 8 of
the Proposed Agreement do not provide sufficient assurance that such
information will not be shared with other divisions of the DSRO or with other
SROs except for appropriate cause. Since FCMs are not parties to the Proposed
Agreement and otherwise appear to have no cause of action against an SRO that
may improperly disclose confidential information, it is particularly important
that the responsibilities of SROs in this regard be clearly circumscribed.
In a press release dated February 6, 2004, the Commission announced that it has
"encourage[d] every SRO to reexamine its policies and procedures, employee
training efforts, and its day-to-day practices to confirm that there are adequate
safeguards in place to prevent the inappropriate use of confidential information
obtained by SROs during audits, investigations, or other self-regulatory
activities."
The Commission also encouraged SROs "to publicize these
safeguards so that market participants continue to have full faith in the integrity
of the self-regulatory process and participate enthusiastically in it, even as major
changes in the futures markets create new competitive pressures."
Consistent with the Commission's recommendations, FIA respectfully submits
that the Proposed Agreement governing confidentiality of FCM proprietary and
business information should be revised to describe specifically the limitations on
the use of such information. In addition, FIA believes the Commission should
consider adopting a rule requiring the confidential treatment of all proprietary
and confidential information collected during an examination.
Such a rule
would assure that violations of FCM confidentiality would be subject to
appropriate penalty.s
Letter from John M. Damgard, President, Futures Industry Association, to Jean A. Webb, Secretary to the
Commission, dated September 4, 2004.
Commission action on the revised Joint Audit Agreement remains
pending. Mr. David A. Stawick
April 30, 2010
Page 5
Conclusion
FIA appreciates the opportunity to submit these comments of the proposed amendments to
Commission Rule 140.72 and 140.73. If the Commission has any questions concerning the
matters discussed in this letter, please contact Barbara Wierzynski, FIA's Executive Vice
President and General Counsel, at (202) 466-5460.
Sincerely,
John M. Damgard
President
cc:
Honorable Gary Gensler, Chairman
Honorable Michael Dunn, Commissioner
Honorable Jill E. Sommers, Commissioner
Honorable Bart Chilton, Commissioner
Honorable Scott Q'Malia, Commissioner
