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CFTC Wants Exchanges/SROs to Review Safeguards, Procedures

CFTC Wants Exchanges/SROs to Review Safeguards, Procedures

The Commodity Futures Trading Commission (CFTC) announced several new initiatives as part of its comprehensive review of the effectiveness of self-regulation in the futures industry.

The agency wants self-regulatory organizations (SRO), the largest being the New York Mercantile Exchange, to completely review their procedures, practices and policing efforts to ensure that they are in compliance with regulations and are providing the protections the public demands.

Chairman James E. Newsome announced in May 2003 his intent to review the roles, responsibilities, and capabilities of SROs to ensure that objectivity, confidentiality, and consistency continue to characterize the SRO process. Prior to completing the review, however, the CFTC would like to see SROs take action in a few important areas.

The CFTC is encouraging 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.

SROs are encouraged to publicize their safeguards so that market participants continue to have faith in the integrity of the SRO process and participate in it. They also are encouraged to cooperate in designating which SRO is responsible for conducting compliance examinations of individual futures commission merchants (FCMs). FCMs are examined for compliance in sales practices, record keeping, and anti-money laundering protections, among other things. The CFTC wants to avoid "redundant burdens" on FCMs.

With respect to its continuing study of futures self-regulation, the Commission confirmed that SRO governance issues are a key focus of the effort, noting both the strong national attention given to SRO governance issues and the fact that an SRO's governing body can significantly influence key aspects of self-regulation.

The Commission plans to solicit written comments on the topic of SRO governance from members of the public and will then decide what steps should be taken, if any, after a thorough review of all comments received.

For more details on the CFTC's ongoing review of self-regulation, visit the CFTC web site at http://www.cftc.gov.

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