7 U.S.C. § 21 : US Code - Section 21: Registered futures associations

Search 7 U.S.C. § 21 : US Code - Section 21: Registered futures associations

(a) Registration statement
Any association of persons may be registered with the Commission
as a registered futures association pursuant to subsection (b) of
this section, under the terms and conditions hereinafter provided
in this section, by filing with the Commission for review and
approval a registration statement in such form as the Commission
may prescribe, setting forth the information, and accompanied by
the documents, below specified:
(1) Data as to its organization, membership, and rules of
procedure, and such other information as the Commission may by
rules and regulations require as necessary or appropriate in the
public interest; and
(2) Copies of its constitution, charter, or articles of
incorporation or association, with all amendments thereto, and of
its bylaws, and of any rules or instruments corresponding to the
foregoing, whatever the name, hereinafter in this section
collectively referred to as the "rules of the association".
(b) Standards for registration; Commission findings
An applicant association shall not be registered as a futures
association unless the Commission finds, under standards
established by the Commission, that - 
(1) such association is in the public interest and that it will
be able to comply with the provisions of this section and the
rules and regulations thereunder and to carry out the purposes of
this section;
(2) the rules of the association provide that any person
registered under this chapter, registered entity, or any other
person designated pursuant to the rules of the Commission as
eligible for membership may become a member of such association,
except such as are excluded pursuant to paragraph (3) or (4) of
this subsection, or a rule of the association permitted under
this subparagraph. The rules of the association may restrict
membership in such association on such specified basis relating
to the type of business done by its members, or on such other
specified and appropriate basis, as appears to the Commission to
be necessary or appropriate in the public interest and to
carryout the purpose of this section. Rules adopted by the
association may provide that the association may, unless the
Commission directs otherwise in cases in which the Commission
finds it appropriate in the public interest so to direct, deny
admission to, or refuse to continue in such association any
person if (i) such person, whether prior or subsequent to
becoming registered as such, or (ii) any person associated within
the meaning of "associated person" as set forth in section 6k of
this title, whether prior or subsequent to becoming so
associated, has been and is suspended or expelled from a
registered entity or has been and is barred or suspended from
being associated with all members of such registered entity, for
violation of any rule of such registered entity;
(3) the rules of the association provide that, except with the
approval or at the direction of the Commission in cases in which
the Commission finds it appropriate in the public interest so to
approve or direct, no person shall be admitted to or continued in
membership in such association, if such person - 
(A) has been and is suspended or expelled from a registered
futures association or from a registered entity or has been and
is barred or suspended from being associated with all members
of such association or from being associated with all members
of such registered entity, for violation of any rule of such
association or registered entity which prohibits any act or
transaction constituting conduct inconsistent with just and
equitable principles of trade, or requires any act the omission
of which constitutes conduct inconsistent with just and
equitable principles of trade;
(B) is subject to an order of the Commission denying,
suspending, or revoking his registration pursuant to sections 9
and 15 of this title, or expelling or suspending him from
membership in a registered futures association or a registered
entity, or barring or suspending him from being associated with
a futures commission merchant;
(C) whether prior or subsequent to becoming a member, by his
conduct while associated with a member, was a cause of any
suspension, expulsion, or order of the character described in
clause (A) or (B) which is in effect with respect to such
member, and in entering such a suspension, expulsion, or order,
the Commission or any such registered entity or association
shall have jurisdiction to determine whether or not any person
was a cause thereof; or
(D) has associated with him any person who is known, or in
the exercise of reasonable care should be known, to him to be a
person who would be ineligible for admission to or continuance
in membership under clause (A), (B), or (C) of this paragraph;
(4) the rules of the association provide that, except with the
approval or at the direction of the Commission in cases in which
the Commission finds it appropriate in the public interest so to
approve or direct, no person shall become a member and no natural
person shall become a person associated with a member, unless
such person is qualified to become a member or a person
associated with a member in conformity with specified and
appropriate standards with respect to the training, experience,
and such other qualifications of such person as the association
finds necessary or desirable, and in the case of a member, the
financial responsibility of such a member. For the purpose of
defining such standards and the application thereof, such rules
may - 
(A) appropriately classify prospective members (taking into
account relevant matters, including type or nature of business
done) and persons proposed to be associated with members;
(B) specify that all or any portion of such standard shall be
applicable to any such class;
(C) require persons in any such class to pass examinations
prescribed in accordance with such rules;
(D) provide that persons in any such class other than
prospective members and partners, officers and supervisory
employees (which latter term may be defined by such rules and
as so defined shall include branch managers of members) of
members, may be qualified solely on the basis of compliance
with specified standards of training and such other
qualifications as the association finds appropriate;
(E) provide that applications to become a member or a person
associated with a member shall set forth such facts as the
association may prescribe as to the training, experience, and
other qualifications (including, in the case of an applicant
for membership, financial responsibility) of the applicant and
that the association shall adopt procedures for verification of
qualifications of the applicant, which may require the
applicant to be fingerprinted and to submit, or cause to be
submitted, such fingerprints to the Attorney General for
identification and appropriate processing. Notwithstanding any
other provision of law, such an association may receive from
the Attorney General all the results of such identification and
processing; and
(F) require any class of persons associated with a member to
be registered with the association in accordance with
procedures specified by such rules (and any application or
document supplemental thereto required by such rules of a
person seeking to be registered with such association shall,
for the purposes of sections 9 and 15 of this title, be deemed
an application required to be filed under this section);
(5) the rules of the association assure a fair representation
of its members in the adoption of any rule of the association or
amendment thereto, the selection of its officers and directors,
and in all other phases of the administration of its affairs;
(6) the rules of the association provide for the equitable
allocation of dues among its members, to defray reasonable
expenses of administration;
(7) the rules of the association are designed to prevent
fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, in general, to protect the
public interest, and to remove impediments to and perfect the
mechanism of free and open futures trading;
(8) the rules of the association provide that its members and
persons associated with its members shall be appropriately
disciplined, by expulsion, suspension, fine, censure, or being
suspended or barred from being associated with all members, or
any other fitting penalty, for any violation of its rules;
(9) the rules of the association provide a fair and orderly
procedure with respect to the disciplining of members and persons
associated with members and the denial of membership to any
person seeking membership therein or the barring of any person
from being associated with a member. In any proceeding to
determine whether any member or other person shall be
disciplined, such rules shall require that specific charges be
brought; that such member or person shall be notified of, and be
given an opportunity to defend against, such charges; that a
record shall be kept; and that the determination shall include - 
(A) a statement setting forth any act or practice in which
such member or other person may be found to have engaged, or
which such member or other person may be found to have omitted;
(B) a statement setting forth the specific rule or rules of
the association of which any such act or practice, or omission
to act, is deemed to be in violation;
(C) a statement whether the acts or practices prohibited by
such rule or rules, or the omission of any act required
thereby, are deemed to constitute conduct inconsistent with
just and equitable principles of trade; and
(D) a statement setting forth the penalty imposed; (!1)
In any proceeding to determine whether a person shall be denied
membership or whether any person shall be barred from being
associated with a member, such rules shall provide that the
person shall be notified of, and be given an opportunity to be
heard upon, the specific grounds for denial or bar which are
under consideration; that a record shall be kept; and that the
determination shall set forth the specific grounds upon which the
denial or bar is based;
(10) the rules of the association provide a fair, equitable,
and expeditious procedure through arbitration or otherwise for
the settlement of customers' claims and grievances against any
member or employee thereof: Provided, That (A) the use of such
procedure by a customer shall be voluntary, (B) the term
"customer" as used in this paragraph shall not include another
member of the association, and (C) in the case of a claim arising
from a violation in the execution of an order on the floor of a
registered entity, such procedure shall provide, to the extent
appropriate - 
(i) for payment of actual damages proximately caused by such
violation. If an award of actual damages is made against a
floor broker in connection with the execution of a customer
order, and the futures commission merchant which selected the
floor broker for the execution of the customer order is held to
be responsible under section 2(a)(1) of this title for the
floor broker's violation, such futures commission merchant may
be required to satisfy such award; and
(ii) where the violation is willful and intentional, for
payment to the customer of punitive or exemplary damages, in
addition to losses proximately caused by the violation, in an
amount equal to no more than two times the amount of such
losses. If punitive or exemplary damages are awarded against a
floor broker in connection with the execution of a customer
order, and the futures commission merchant which selected the
floor broker for the execution of such order is held to be
responsible under section 2(a)(1) of this title for the floor
broker's violation, such futures commission merchant may be
required to satisfy the award of punitive or exemplary damages
if the floor broker fails to do so, except that such
requirement shall apply to the futures commission merchant only
if it willfully and intentionally selected the floor broker
with the intent to assist or facilitate the floor broker's
violation; and (!2)
(11) such association provides for meaningful representation on
the governing board of such association of a diversity of
membership interests and provides that no less than 20 percent of
the regular voting members of such board be comprised of
qualified nonmembers of or persons who are not regulated by such
association.(!3)
(12)(A) (!4) such association provides on all major
disciplinary committees for a diversity of membership sufficient
to ensure fairness and to prevent special treatment or preference
for any person in the conduct of disciplinary proceedings and the
assessment of penalties.(!5)
(13) A (!6) major disciplinary committee hearing a disciplinary
matter shall include - 
(A) qualified persons representing segments of the
association membership other than that of the subject of the
proceeding; and
(B) where appropriate to carry out the purposes of this
paragraph, qualified persons who are not members of the
association.
(c) Suspension of registration
The Commission may, after notice and opportunity for hearing,
suspend the registration of any futures association if it finds
that the rules thereof do not conform to the requirements of the
Commission, and any such suspension shall remain in effect until
the Commission issues an order determining that such rules have
been modified to conform with such requirements.
(d) Fees and charges
In addition to the fees and charges authorized by section 12a(1)
of this title, each person registered under this chapter, who is
not a member of a futures association registered pursuant to this
section, shall pay to the Commission such reasonable fees and
charges as may be necessary to defray the costs of additional
regulatory duties required to be performed by the Commission
because such person is not a member of a registered futures
association. The Commission shall establish such additional fees
and charges by rules and regulations.
(e) Registered persons not members of registered associations
Any person registered under this chapter, who is not a member of
a futures association registered pursuant to this section, in
addition to the other requirements and obligations of this chapter
and the regulations thereunder shall be subject to such other rules
and regulations as the Commission may find necessary to protect the
public interest and promote just and equitable principles of trade.
(f) Denial of registration
Upon filing of an application for registration pursuant to
subsection (a) of this section, the Commission may by order grant
such registration if the requirements of this section are
satisfied. If, after appropriate notice and opportunity for
hearing, it appears to the Commission that any requirement of this
section is not satisfied, the Commission shall by order deny such
registration.
(g) Withdrawal from registration; notice of withdrawal
A registered futures association may, upon such reasonable notice
as the Commission may deem necessary in the public interest,
withdraw from registration by filing with the Commission a written
notice of withdrawal in such form as the Commission may by rules
and regulations prescribe.
(h) Commission review of disciplinary actions taken by registered
futures associations
(1) If any registered futures association takes any final
disciplinary action against a member of the association or a person
associated with a member, denies admission to any person seeking
membership therein, or bars any person from being associated with a
member, the association promptly shall give notice thereof to such
member or person and file notice thereof with the Commission. The
notice shall be in such form and contain such information as the
Commission, by rule or regulation, may prescribe as necessary or
appropriate to carry out the purposes of this chapter.
(2) Any action with respect to which a registered futures
association is required by paragraph (1) to file notice shall be
subject to review by the Commission on its motion, or on
application by any person aggrieved by the action. Such application
shall be filed within 30 days after the date such notice is filed
with the Commission and received by the aggrieved person, or within
such longer period as the Commission may determine.
(3)(A) Application to the Commission for review, or the
institution of review by the Commission on its own motion, shall
not operate as a stay of such action unless the Commission
otherwise orders, summarily or after notice and opportunity for
hearing on the question of a stay (which hearing may consist solely
of the submission of affidavits or presentation of oral arguments).
(B) The Commission shall establish procedures for expedited
consideration and determination of the question of a stay.
(i) Notice; hearing; findings; cancellation, reduction, or
remission of penalties; review by court of appeals
(1) In a proceeding to review a final disciplinary action taken
by a registered futures association against a member thereof or a
person associated with a member, after appropriate notice and
opportunity for a hearing (which hearing may consist solely of
consideration of the record before the association and opportunity
for the presentation of supporting reasons to affirm, modify, or
set aside the sanction imposed by the association) - 
(A) if the Commission finds that - 
(i) the member or person associated with a member has engaged
in the acts or practices, or has omitted the acts, that the
association has found the member or person to have engaged in
or omitted;
(ii) the acts or practices, or omissions to act, are in
violation of the rules of the association specified in the
determination of the association; and
(iii) such rules are, and were applied in a manner,
consistent with the purposes of this chapter,
the Commission, by order, shall so declare and, as appropriate,
affirm the sanction imposed by the association, modify the
sanction in accordance with paragraph (2), or remand the case to
the association for further proceedings; or
(B) if the Commission does not make any such finding, the
Commission, by order, shall set aside the sanction imposed by the
association and, if appropriate, remand the case to the
association for further proceedings.
(2) If, after a proceeding under paragraph (1), the Commission
finds that any penalty imposed on a member or person associated
with a member is excessive or oppressive, having due regard for the
public interest, the Commission, by order, shall cancel, reduce, or
require the remission of the penalty.
(3) In a proceeding to review the denial of membership in a
registered futures association or the barring of any person from
being associated with a member, after appropriate notice and
opportunity for a hearing (which hearing may consist solely of
consideration of the record before the association and opportunity
for the presentation of supporting reasons to affirm, modify, or
set aside the action of the association) - 
(A) if the Commission finds that - 
(i) the specific grounds on which the denial or bar is based
exist in fact;
(ii) the denial or bar is in accordance with the rules of the
association; and
(iii) such rules are, and were applied in a manner,
consistent with the purposes of this chapter,
the Commission, by order, shall so declare and, as appropriate,
affirm or modify the action of the association, or remand the
case to the association for further proceedings; or
(B) if the Commission does not make any such finding, the
Commission, by order, shall set aside the action of the
association and require the association to admit the applicant to
membership or permit the person to be associated with a member,
or, as appropriate, remand the case to the association for
further proceedings.
(4) Any person aggrieved by a final order of the Commission
entered under this subsection may file a petition for review with a
United States court of appeals in the same manner as provided in
sections 9 and 15 of this title.
(j) Changes or additions to association rules
Every registered futures association shall file with the
Commission in accordance with such rules and regulations as the
Commission may prescribe as necessary or appropriate in the public
interest, copies of any changes in or additions to the rules of the
association, and such other information and documents as the
Commission may require to keep current or to supplement the
registration statement and documents filed pursuant to subsection
(a) of this section. A registered futures association shall submit
to the Commission any change in or addition to its rules and may
make such rules effective ten days after receipt of such submission
by the Commission unless, within the ten-day period, the registered
futures association requests review and approval thereof by the
Commission or the Commission notifies such registered futures
association in writing of its determination to review such rules
for approval. The Commission shall approve such rules if such rules
are determined by the Commission to be consistent with the
requirements of this section and not otherwise in violation of this
chapter or the regulations issued pursuant to this chapter, and the
Commission shall disapprove, after appropriate notice and
opportunity for hearing, any such rule which the Commission
determines at any time to be inconsistent with the requirements of
this section or in violation of this chapter or the regulations
issued pursuant to this chapter. If the Commission does not approve
or institute disapproval proceedings with respect to any rule
within one hundred and eighty days after receipt or within such
longer period of time as the registered futures association may
agree to, or if the Commission does not conclude a disapproval
proceeding with respect to any rule within one year after receipt
or within such longer period as the registered futures association
may agree to, such rule may be made effective by the registered
futures association until such time as the Commission disapproves
such rule in accordance with this subsection.
(k) Abrogation of association rules; requests to associations by
Commission to alter or supplement rules
(1) The Commission is authorized by order to abrogate any rule of
a registered futures association, if after appropriate notice and
opportunity for hearing, it appears to the Commission that such
abrogation is necessary or appropriate to assure fair dealing by
the members of such association, to assure a fair representation of
its members in the administration of its affairs or effectuate the
purposes of this section.
(2) The Commission may in writing request any registered futures
association to adopt any specified alteration or supplement to its
rules with respect to any of the matters hereinafter enumerated. If
such association fails to adopt such alteration or supplement
within a reasonable time, the Commission is authorized by order to
alter or supplement the rules of such association in the manner
theretofore requested, or with such modifications of such
alteration or supplement as it deems necessary if, after
appropriate notice and opportunity for hearing, it appears to the
Commission that such alteration or supplement is necessary or
appropriate in the public interest or to effectuate the purposes of
this section, with respect to - 
(A) the basis for, and procedure in connection with, the denial
of membership or the barring from being associated with a member
or the disciplining of members or persons associated with
members, or the qualifications required for members or natural
persons associated with members or any class thereof;
(B) the method for adoption of any change in or addition to the
rules of the association;
(C) the method of choosing officers and directors.
(l) Suspension and revocation of registration; expulsion of
members; removal of association officers or directors
The Commission is authorized, if such action appears to it to be
necessary or appropriate in the public interest or to carry out the
purposes of this section - 
(1) after appropriate notice and opportunity for hearing, by
order to suspend for a period not exceeding twelve months or to
revoke the registration of a registered futures association, if
the Commission finds that such association has violated any
provisions of this chapter or any rule or regulation thereunder,
or has failed to enforce compliance with its own rules, or has
engaged in any other activity tending to defeat the purposes of
this chapter;
(2) after appropriate notice and opportunity for hearing, by
order to suspend for a period not exceeding twelve months or to
expel from a registered futures association any member thereof,
or to suspend for a period not exceeding twelve months or to bar
any person from being associated with a member thereof, if the
Commission finds that such member or person - 
(A) has violated any provision of this chapter or any rule or
regulation thereunder, or has effected any transaction for any
other person who, he had reason to believe, was violating with
respect to such transaction any provision of this chapter or
any rule or regulation thereunder; or
(B) has willfully violated any provision of this chapter, or
of any rule, regulation, or order thereunder, or has effected
any transaction for any other person who, he had reason to
believe, was willfully violating with respect to such
transaction any provision of this chapter or rule, regulation,
or order; and
(3) after appropriate notice and opportunity for hearing, by
order to remove from office any officer or director of a
registered futures association who, the Commission finds, has
willfully failed to enforce the rules of the association, or has
willfully abused his authority.
(m) Rules requiring membership in associations
Notwithstanding any other provision of law, the Commission may
approve rules of futures associations that, directly or indirectly,
require persons eligible for membership in such associations to
become members of at least one such association, upon a
determination by the Commission that such rules are necessary or
appropriate to achieve the purposes and objectives of this chapter.
(n) Reports to Congress
The Commission shall include in its annual reports to Congress
information concerning any futures associations registered pursuant
to this section and the effectiveness of such associations in
regulating the practices of the members.
(o) Delegation to futures associations of registrative functions;
discretionary review by Commission; judicial appeal
(1) The Commission may require any futures association registered
pursuant to this section to perform any portion of the registration
functions under this chapter with respect to each member of the
association other than a registered entity and with respect to each
associated person of such member, in accordance with rules,
notwithstanding any other provision of law, adopted by such futures
association and submitted to the Commission pursuant to subsection
(j) of this section, and subject to the provisions of this chapter
applicable to registrations granted by the Commission.
(2) In performing any Commission registration function authorized
by the Commission under section 12a(10) of this title, this
section, or any other applicable provisions of this chapter, a
futures association may issue orders (A) to refuse to register any
person, (B) to register conditionally any person, (C) to suspend
the registration of any person, (D) to place restrictions on the
registration of any person, or (E) to revoke the registration of
any person. If such an order is the final decision of the futures
association, any person against whom the order has been issued may
petition the Commission to review the decision. The Commission may
on its own initiative or upon petition decline review or grant
review and affirm, set aside, or modify such an order of the
futures association; and the findings of the futures association as
to the facts, if supported by the weight of the evidence, shall be
conclusive. Unless the Commission grants review under this section
of an order concerning registration issued by a futures
association, the order of the futures association shall be
considered to be an order issued by the Commission.
(3) Nothing in this section shall affect the Commission's
authority to review the granting of a registration application by a
registered futures association that is performing any Commission
registration function authorized by the Commission under section
12a(10) of this title, this section, or any other applicable
provision of this chapter.
(4) If a person against whom a futures association has issued a
registration order under this subsection petitions the Commission
to review that order and the Commission declines to take review,
such person may file a petition for review with a United States
court of appeals, in accordance with sections 9 and 15 of this
title.
(p) Establishment of rules for futures associations; approval by
Commission
Notwithstanding any other provision of this section, each futures
association registered under this section on January 11, 1983,
shall adopt and submit for Commission approval not later than
ninety days after such date, and each futures association that
applies for registration after such date shall adopt and include
with its application for registration, rules of the association
that require the association to - 
(1) establish training standards and proficiency testing for
persons involved in the solicitation of transactions subject to
the provisions of this chapter, supervisors of such persons, and
all persons for which it has registration responsibilities, and a
program to audit and enforce compliance with such standards;
(2) establish minimum capital, segregation, and other financial
requirements applicable to its members for which such
requirements are imposed by the Commission and implement a
program to audit and enforce compliance with such requirements,
except that such requirements may not be less stringent than
those imposed on such firms by this chapter or by Commission
regulation;
(3) establish minimum standards governing the sales practices
of its members and persons associated therewith for transactions
subject to the provisions of this chapter; and
(4) establish special supervisory guidelines to protect the
public interest relating to the solicitation by telephone of new
futures or options accounts and make such guidelines applicable
to those members determined to require such guidelines in
accordance with standards established by the Commission
consistent with this chapter. Such guidelines may include a
requirement that, with respect to a customer with no previous
futures or commodity options trading experience, the member may
not enter an order for the account of such customer for a period
of three days following opening of the account and receipt of a
signed acknowledgment by the customer of receipt of a risk
disclosure statement.
(q) (!7) Major disciplinary rule violations
(1) The Commission shall issue regulations requiring each
registered futures association to establish and make available to
the public a schedule of major violations of any rule within the
disciplinary jurisdiction of such registered futures association.
(2) The regulations issued by the Commission pursuant to this
subsection shall prohibit, for a period of time to be determined by
the Commission, any member of a registered futures association who
is found to have committed any major violation from service on the
governing board of any registered futures association or registered
entity, or on any disciplinary committee thereof.
(q) (!7) Program for implementation of rules
Each futures association registered under this section shall
develop a comprehensive program that fully implements the rules
approved by the Commission under this section as soon as
practicable but not later than September 30, 1985, in the case of
any futures association registered on January 11, 1983, and not
later than two and one-half years after the date of registration in
the case of any other futures association registered under this
section.
(r) Rules to avoid duplicative regulation of dual registrants
Consistent with this chapter, each futures association registered
under this section shall issue such rules as are necessary to avoid
duplicative or conflicting rules applicable to any futures
commission merchant registered with the Commission pursuant to
section 6f(a) of this title (except paragraph (2) thereof), that is
also registered with the Securities and Exchange Commission
pursuant to section 78o(b) of title 15 (except paragraph (11)
thereof), with respect to the application of - 
(1) rules of such futures association of the type specified in
section 6d(3) of this title involving security futures products;
and
(2) similar rules of national securities associations
registered pursuant to section 78o-3(a) of title 15 involving
security futures products.