Refiled With Technical Corrections

January 18, 2011 REFILED WITH TECHNICAL CORRECTIONS
David A. Stawick
Secretary
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, NW
Washington, DC 20581
Re: Designation of a Chief Compliance Officer; Required Compliance Policies; and Annual
Report of a Futures Commission Merchant, Swap Dealer, or Major Swap Participant
Dear Mr. Stawick:
The Futures Industry Association (“FIA”) 1 and the Securities Industry and Financial Markets
Association (“SIFMA”) 2 (collectively, the “Associations”) are submitting this letter to provide our
comments on the proposal by the U.S. Commodity Futures Trading Commission (the “CFTC” or the
“Commission”) to adopt rules (the “Proposed Rules”) 3 relating to the chief compliance officers
(“CCOs”) of futures commission merchants (“FCMs”), swap dealers (“SDs”), and major swap
participants (“MSPs”), to implement certain requirements included in Title VII of the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the “DFA”) 4 that amend the Commodity
Exchange Act (the “CEA”). 5
As explained in detail below, the Proposed Rules would establish a compliance framework that is
significantly different from that currently in place in the financial services industry under the
regulations promulgated by other Federal regulators, including the Securities and Exchange
Commission (the “SEC”) and the several banking regulators, 6 as well as the compliance model
adopted by the Commission itself as recently as September 2010. Further, the CFTC has published
other rules for comment under the DFA that would impose additional obligations on CCOs. 7 In
1
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 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
SIFMA brings together the shared interests of hundreds of securities firms, banks and asset managers. SIFMA's
mission is to develop policies and practices which strengthen financial markets and which encourage capital
availability, job creation and economic growth while building trust and confidence in the financial industry.
SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial
Markets Association (GFMA).
3
See Designation of a Chief Compliance Officer; Required Compliance Policies; and Annual Report, 75 Fed. Reg.
70881 (proposed Nov. 19, 2010) (to be codified at 17 C.F.R. §§ 3.1 & 3.3) (the “Proposing Release”).
4
Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).
5
Commodity Exchange Act, 7 U.S.C. 1 et seq.
6
We note that the SEC is also charged with the duty to propose similar rules applicable to security-based SDs and MSPs
(see Section 764 of the DFA adding Section 15F “Registration and Regulation of Security-Based Swap Dealers and
Major Swap Participants” to the Securities Exchange Act of 1934, as well as Section 765 of the DFA).
7
See e.g., Protection of Collateral of Counterparties to Uncleared Swaps; Treatment of Securities in a Portfolio
Margining Account in a Commodity Broker Bankruptcy, 75 Fed. Reg. 75432, 75434 (proposed Dec. 3, 2010); see also
Core Principles and Other Requirements for Swap Execution Facilities, 76 Fed. Reg. 1231-35 (proposed Jan. 7, 2011);
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light of the Associations’ extensive comments on the Proposed Rules, and in order to afford
commenters the opportunity to assess adequately all of the obligations that the CFTC has proposed
to impose on CCOs, the Associations respectfully request that the Commission publish for an
additional short comment period any revisions that it may make to the Proposed Rules and any other
proposed rules that may impose obligations on CCOs. 8
Our comments: (1) highlight the instances where the Proposed Rules have gone beyond the DFA’s
mandate with respect to regulations relating to the duties of CCOs; (2) clarify what we believe was
Congress’s intent in promulgating Section 731(k) and 732(d) of the DFA 9; and (3) suggest
alternative language for the CFTC to consider in promulgating its final rules on CCOs. We hope
that our comments will foster the development of a new rule proposal that will achieve the DFA’s
goals of improving accountability and transparency, and its call for sound supervisory and
compliance practices, while avoiding unnecessary issues and burdens on firms. Additionally, we
believe that our suggested revisions would encourage a “system of effective self-regulation of …
market participants and market professionals under the oversight of the Commission,” the first
identified purpose of the CEA. 10
Executive Summary
While the Associations support the Commission’s efforts to provide a strong framework for the
compliance activities of FCMs, SDs, and MSPs, we believe that the rules proposed by the CFTC to
implement Sections 731(k) and 732(d) of the DFA go well beyond the mandate laid out in the DFA,
and in some ways the language of the Proposed Rules appear to misconstrue the provisions and the
intent of these sections. Most importantly, the Proposed Rules, as currently drafted, are not
consistent with the established compliance models applicable to financial services firms in the U.S.
Thus, as elaborated further below, we believe that:
• The Proposed Rules Should Not Ignore Well-Established Compliance Practices. In crafting
final rules, the Commission should closely examine and carefully consider existing precedents,
particularly the broker-dealer, investment adviser, and banking compliance models (collectively,
the “financial services model”). The financial services model is universal, broad-based, long
established, pervasive, robust, tested in courts and has been implemented by a wide range of
firms in the U.S. financial services industry, including FCMs, broker-dealers, banks, investment
advisers, and many others.
Governance Requirements for Derivatives Clearing Organizations, Designated Contract Markets, and Swap Execution
Facilities, 76 Fed. Reg. 722, 726, 730, 734 (proposed Jan. 6, 2011); Swap Data Repositories, 75 Fed. Reg. 80898,
80912-15 (proposed Dec. 23, 2010); Information Management Requirements for Derivatives Clearing Organizations, 75
Fed. Reg. 78185, 78195 (proposed Dec. 15, 2010); General Regulations and Derivatives Clearing Organizations, 75 Fed.
Reg. 77576, 77587-88 (proposed Dec. 13, 2010); Regulations Establishing and Governing the Duties of Swap Dealers
and Major Swap Participants, 75 Fed. Reg. 71397, 71406-07 (proposed Nov. 23, 2010); Registration of Foreign Boards
of Trade, 75 Fed. Reg. 70974, 70995 (proposed Nov. 19, 2010); Requirements for Derivatives Clearing Organizations,
Designated Contract Markets, and Swap Execution Facilities Regarding the Mitigation of Conflicts of Interest, 75 Fed.
Reg. 63732, 63721-42 (proposed Oct. 18, 2010); Regulation of Off-Exchange Retail Foreign Exchange Transactions and
Intermediaries; Final Rule, 75 Fed. Reg. 55410, 55413, 55447 (Sept. 10, 2010). All of these rules should be consistent.
8
As an aside, we also note that the Proposed Rules are misnumbered (see §3.3(d) and (d), et seq.).
9
Section 731(k) of the DFA (which adds Section 4s(k) to the CEA) and Section 732(d) of the DFA (which adds Section
4d(d) to the CEA) set forth requirements applicable to chief compliance officers of SDs, MSPs, and FCMs. Unless
otherwise noted, references to statutory sections in this letter use the DFA section reference (i.e., Section 731 rather than
4s).
10
See 7 U.S.C. § 5(b).
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• The Proposed Rules Should Not Make the CCO a Supervisor and Should Not
Fundamentally Change the Role of the CCO. Unless revised, the Proposed Rules will
fundamentally change the role of the CCO by causing the CCO to be deemed a business-line
“supervisor.” The CCO traditionally acts as an independent advisor to the firm’s business-line
supervisors, who have the authority to supervise the firm’s business activities and are ultimately
responsible for making sure that the firm’s employees act in compliance with Applicable Law
(as defined below). By eliminating the separation between supervision and Compliance
traditionally imposed by financial services firms, the Proposed Rules would put an end to the
independence necessary to perform the CCO function effectively, and would undermine the
long-standing regulatory principle that it is the business managers who have the supervisory
responsibility in the firm, not the CCO.
• The Proposed Rules Should Clarify the CCO’s Duty to “Ensure” Compliance. The
Proposed Rules impose on the CCO the duty of “reviewing and ensuring compliance.” Based on
our understanding of the common usage of the word “ensure,” i.e., to guarantee, 11 this
requirement goes well beyond any existing compliance model and creates a standard that is
impossible to satisfy. The Proposed Rules should be modified to make clear that the term
“ensuring compliance” means taking reasonable steps to adopt, review, test and modify
compliance policies and procedures, and not that the CCO guarantees absolute compliance by
the firm and every employee. We do not believe that Congress intended to use the term
“ensure” to mean “guarantee.”
• The Requirement to Resolve Conflicts Should be Clarified. The Proposed Rules require the
CCO to “resolve any conflicts of interest that may arise.” We do not believe that when Congress
used the term “resolve” in DFA Section 731(k)(2)(C), it intended to mean “resolve” in the
executive or the managerial sense such that the CCO alone would examine the facts and
determine and effect the course of action. We believe Congress intended to mean identify,
advise, escalate as appropriate and assist senior management in resolving conflicts, and to
require putting in place reasonable procedures for the resolution of conflicts. Again, the
authority to actually resolve conflicts, like the power to enforce compliance, is a duty that should
remain with the firm’s senior executives and supervisors.
• The CEO, not the CCO, Should Certify the Required Annual Report. The Proposed Rules
– but not the DFA – require the Annual Report (as defined below) to include a certification by
the CCO that, “to the best of his or her knowledge and reasonable belief, and under penalty of
law, the information contained in the annual report is accurate and complete.” While it is clear
from the DFA that the CCO must complete and sign the Annual Report, consistent with the
financial services model, established industry practices and the fact that it is the firm’s chief
executive officer (“CEO”) that has the ultimate authority to supervise the activities of the firm
and its employees, the Proposed Rules should specify that the required certification should be
11
Merriam-Webster explains that “[e]nsure, insure, assure, secure mean to make a thing or person sure. Ensure,
insure, and assure are interchangeable in many contexts where they indicate the making certain or inevitable of an
outcome, but ensure may imply a virtual guarantee <the government has ensured the safety of the refugees> . . ., while
insure sometimes stresses the taking of necessary measures beforehand <careful planning should insure the success of
the party>, and assure distinctively implies the removal of doubt and suspense from a person's mind <I assure you that
no harm will be done>. Secure implies action taken to guard against attack or loss <sent reinforcements to secure their
position>.” See http://www.merriam-webster.com/dictionary/ensure.
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made by the CEO, not the CCO. Further, we note that because the Annual Report may
potentially contain highly confidential information, the CFTC should clarify that the Annual
Report should not be publicly available and should not be subject to disclosure under the
Freedom of Information Act (“FOIA”). 12
• The Requirement for a Description of Policies and Procedures that “Ensure Compliance”
in the Annual Report Should Mean a Description of Reasonable Compliance Policies and
Procedures. The Proposed Rules require the Annual Report to contain a description of the
firm’s compliance with respect to the CEA and CFTC regulations, and each of the firm’s
compliance policies and procedures. We believe that Congress intended the phrase “description
of the compliance” of the firm in DFA Section 731(k)(3)(A) to mean a description of
compliance policies, procedures, programs and other measures reasonably designed to result in
compliance with the CEA and CFTC regulations. The Proposed Rules should be revised
accordingly. In addition, we do not believe that Congress intended the phrase “ensure
compliance” in DFA Section 731(k)(2)(E) to mean the absolute guarantee of compliance, but
rather – the implementation of compliance policies, procedures and programs that are reasonably
designed to result in compliance with the CEA and CFTC rules. The Proposed Rules should be
amended to reflect this.
• CCO Reporting and Supervision Should Be More Flexible. The Proposed Rules provide that
the CCO will report to the firm’s board or senior officer, which will approve the CCO’s
compensation, and that this authority may not be delegated. Given the wide variety of firms that
will be subject to the Proposed Rules (ranging from large integrated global financial institutions
to small proprietary firms), firms should be free to determine the most appropriate supervisory
structure for their CCO; provided that the structure preserves the CCO’s independence and
authority as a control function, does not result in the firm’s business units being able to impose
undue pressure on the CCO, and preserves the board’s and/or CEO’s ultimate supervisory
responsibility over CCOs, as required in the DFA. For example, the CCO could report to the
chief legal officer or the chief risk officer, or there could be several CCOs for various business
units that report to an overall CCO at the holding or parent company level.
• The CCO Requirements for FCMs, SDs and MSPs Can be Harmonized in a Single Regime
Based on the Existing Financial Services Model. Although the DFA does not expressly apply
Section 731(k) to FCMs, the CFTC has proposed to apply the Proposed Rules to FCMs in equal
measure. We believe that if the Proposed Rules are modified in the manner suggested herein, a
unified set of final rules, based on the existing financial services model, could potentially be
applied to FCMs, SDs and MSPs in a manner that is fully in accordance with DFA Sections
731(k) and 732(d).
• Alternative Regulatory Regime for FCMs. In the event that the Commission does not modify
the Proposed Rules as we suggest, the existing financial services model should at least apply to
FCMs, consistent with Section 732(d) of the DFA, particularly in view of the many dually
registered broker-dealer/FCMs in the financial services industry. Further, we believe that the
National Futures Association (the “NFA”) should have primary responsibility for setting
compliance standards for FCMs as well as SDs and MSPs, as may be delegated by the
Commission.
12
The Freedom of Information Act, 5 U.S.C. § 552.
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• CCOs Should Not Be Subject to Potential Criminal Liability. We believe that it is
inappropriate for the Commission to state that CCOs may be subject to criminal liability as a
result of carrying out their duties because: (i) there is no indication that Congress ever
considered the CCOs to be subject to criminal liability under the applicable sections of the DFA;
(ii) criminal liability is not specifically a part of the existing financial services compliance model
(either the broker-dealer, CFTC’s RFED or banking model); (iii) potential criminal liability will
make it much more difficult, if not impossible, for firms to hire competent employees who will
be willing to serve as CCOs; and (iv) imposition of criminal liability on CCOs with respect to
SDs, MSPs and FCMs would create a duplicative, inconsistent, burdensome and unpredictable
regulatory environment in many registrants that are subject to and have implemented the existing
financial services compliance model.
I. Background.
On November 19, 2010, the Commission published the Proposed Rules in an effort to implement
requirements imposed by the DFA regarding the compliance activities of certain registered entities.
The Proposed Rules: (1) require each FCM, SD, and MSP to designate a CCO; (2) prescribe the
qualifications and duties of the CCO; and (3) require the CCO to prepare an annual report (the
“Annual Report”) containing an assessment of the firm’s compliance efforts and the CCO’s
certification, under penalty of law, that the compliance report is accurate and complete. 13 While the
Associations support the Commission’s efforts to provide a strong framework for the compliance
activities of FCMs, SDs, and MSPs, we are concerned that the Proposed Rules go well beyond the
intent of Congress in adopting the DFA, and fail to give consideration to the robust and effective
compliance programs that our members already have in place – programs reasonably designed to
detect and deter violations of applicable laws, rules and regulations (referred to herein as
“Applicable Law”).
We also believe that the Proposed Rules will fundamentally alter the role of the CCO by conflating
it with the role of the firm’s business supervisors, which would result in a number of negative
consequences discussed below. To avoid these consequences, the Commission should harmonize
the Proposed Rules with existing practices and compliance models to the maximum extent possible,
consistent with the DFA. We suggest herein a number of ways in which this can be achieved.
II. Well-Established Compliance Practices of U.S. Financial Services Companies Provide a

Better Model for Implementing the DFA.
In developing rules for compliance programs and the CCO’s duties, the Commission is not without
ample and long-standing precedent. The existing financial services model is universal, broad-based,
long established, pervasive, robust, tested in courts, and has been implemented by any number of
various types of firms, such as FCMs, registered retail forex dealers (RFEDs), securities broker-
dealers, banks, registered investment advisers, and many others. Firms subject to these various
regulatory regimes are: (i) required to designate a CCO; (ii) establish and maintain a system to
supervise employees, which system is reasonably designed to achieve compliance with Applicable
Law; (iii) annually review firm policies and procedures; and (iv) provide a written report to the
firm’s board or senior management describing the operation of their compliance policies and
13
See Proposing Release, 75 Fed. Reg. at 70882-84.
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procedures, any material changes to them, and any material changes recommended as a result of the
review. 14
A. The Broker-Dealer Model
The most well-developed U.S. financial services compliance model, and the one most applicable to
our members (most of which are also broker-dealers or affiliated with broker-dealers), is the one
developed to comply with the requirements imposed on broker-dealers by the Financial Industry
Regulatory Authority (“FINRA”) under the oversight of the SEC (the “broker-dealer model”). It is
premised on two key concepts: (i) supervisory responsibility vested in business-unit managers, up to
the CEO; and (ii) an independent Compliance function. 15
The supervisory responsibility aspect is crucial, for business supervisors must understand that they
and not Compliance are responsible for the firm achieving compliance with Applicable Law through
their ability to hire, fire, compensate, and discipline firm personnel. On the other hand, to be free to
assess and to advise the firm’s supervisors with respect to compliance with Applicable Law in a
truly objective manner, Compliance must be independent of the business units. Moreover, the heart
of the broker-dealer model is that there should be processes, policies and procedures that are
“reasonably designed to achieve” compliance with laws and regulations.
The broker-dealer model is reflected primarily in three related rules -- FINRA (NASD) Rule 3010
and Interpretive Material 3010-1; FINRA (NASD) Rule 3012; and FINRA Rule 3130 and the
supplementary material thereto (collectively, the “FINRA Rules”). 16 Taken together, they
substantially address the objectives of the Proposed Rules. We note two key aspects of the FINRA
Rules. First, the required certification is made by the firm’s CEO – not the CCO. Second, the
FINRA Rules make clear that while the CCO has a “unique and integral role” in the process as “a
primary advisor to the [firm] on its overall compliance scheme and the particularized rules, policies
and procedures that the [firm] adopts,”17 the “supervisors with business line responsibility are
accountable for the discharge of [the firm’s] compliance policies and written supervisory
procedures.” 18 In other words, the FINRA Rules underscore the critical separation of the
supervision/CEO function and the compliance/CCO function.
FINRA (NASD) Rule 3010(a) requires broker-dealers to establish and maintain a system to
supervise personnel that is reasonably designed to achieve compliance with Applicable Law, which
includes designation of principal(s) with authority to carry out the supervisory responsibilities.
FINRA (NASD) Rule 3012(a)(1) requires designation of one or more principals to “establish,
maintain, and enforce a system of supervisory control policies and procedures” that test and verify
14
See, e.g., FINRA (NASD) Rules 3010 & 3012; FINRA Rule 3130; Investment Advisers Act Rule, 17 C.F.R. §
270.38a-1; Investment Advisers Act Rule, 17 C.F.R. § 275.206(4)-7; see also Regulation of Off-Exchange Transactions
and Intermediaries; Final Rule, 75 Fed. Reg. 55410, 55447 (Sept. 10, 2010) (to be codified at 17 C.F.R. § 5.18(j));
Securities Exchange Act § 15(b)(4)(E)(i); Board of Governors of the Federal Reserve System, SR 08-08 / CA 08-11,
Compliance Risk Management Programs and Oversight at Large Banking Organizations with Complex Compliance
Profiles (October 16, 2010) [hereinafter Fed Supervisory Letter 08-08] (further discussed below).
15
The compliance function at all but the smallest firms is overseen by a number of professionals. The duties and
responsibilities of the CCO and Compliance Department, as a unit, are referred to in this letter as “Compliance.”
16
FINRA is in the process of consolidating NASD rules and relevant NYSE rules into a single rulebook. Those rules
that have been incorporated into the consolidated rule book are referred to herein as “FINRA Rules” while those NASD
rules that have not yet been consolidated are referred to herein as “FINRA (NASD) Rules.”
17
FINRA Rule 3130.05 (emphasis added).
18
FINRA Rule 3130.07.
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that the firm’s procedures are reasonably designed to achieve compliance with Applicable Law.
Finally, FINRA Rule 3130(c) requires firms to designate and identify a CCO, and for the CEO to
certify annually that:
(1) the firm has processes to establish, maintain and review compliance policies and
procedures reasonably designed to achieve compliance with Applicable Law, modify them
as necessary, and test effectiveness periodically;
(2) the CEO had one or more meetings with the CCO in the preceding 12 months;
(3) the processes are evidenced in a report reviewed by the CEO, CCO, and other necessary
officers, which has been submitted to the board and audit committee or will be within a
specified period; and
(4) the CEO consulted with the CCO and such other employees, consultants, lawyers and
accountants, to the extent appropriate, in order to attest to statements in the certification.
We note that even though the FINRA Rules require the CCO to register as a “general securities
principal,” FINRA has explicitly stated that this “does not create the presumption that a chief
compliance officer has supervisory responsibilities or is otherwise a control person.” 19 Neither the
Proposed Rules nor the Proposing Release provide such a clarifying statement, even though there is
a fundamental difference in how the term “principal” is understood under the broker-dealer model
and in the Proposed Rules.
B. The CFTC RFED Model
The CFTC is also not without its own precedent in establishing standards for CCOs. For example,
as recently as September 2010, the CFTC promulgated rules applicable to retail foreign exchange
dealers (“RFEDs”) pursuant to the 2008 Farm Bill. 20 The RFED Rule requires each RFED to
designate a CCO who must certify that the RFED has in place policies and procedures “reasonably
designed to achieve compliance with the Act, rules, regulations and orders thereunder.” 21
In the adopting release for the RFED rule, the CFTC notes that “… no comparable requirement [to
designate CCOs with potential personal liability] exists for firms engaging in on-exchange
transactions….” 22 However, distinguishing from the on-exchange transactions, the CFTC explains
that the requirement to designate CCOs is necessary in the context of the retail foreign exchange
transactions “… given the history of fraudulent and improper behavior in the retail forex
business.” 23
Further, in the RFED Rule itself, the CFTC states that the RFED CCO must certify “… to the
Commission and [the NFA] that the [RFED] has in place processes to establish, maintain, review,
modify and test policies and procedures reasonably designed to achieve compliance with the Act,
rule, regulations and orders thereunder. The certification shall include a statement that the [RFED]
has in place compliance processes, and that the [CCO(s)] has apprised the chief executive officer of
19
See Notice to Members 01-51 n.2 (Aug. 2001); see also note 49, infra and accompanying text.
20
Food, Conservation, and Energy Act of 2008, Pub. L. No. 110-246 (2008); see also Regulation of Off-Exchange
Transactions and Intermediaries; Final Rule, 75 Fed. Reg. 55410, 55413 (Sept. 10, 2010) (the “RFED Rule”).
21
See 75 Fed. Reg. at 55447 (to be codified at 17 C.F.R. § 5.18(j)).
22
See id. at 55413.
23
Id. at 55413.
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the compliance efforts to date and identify and address significant compliance problems and plans to
address those problems.” 24
Note that the RFED requirement does not require the CCO to certify compliance, but only to certify
that compliance policies and procedures reasonably designed to achieve (not ensure) compliance
were put in place. Also, the RFED Rule recognizes that the certification should be made together
with the CEO (otherwise apprising the CEO would be meaningless) and that the NFA should have a
role in enforcing the CCO-related provisions of the RFED Rule. Finally, the RFED Rule
acknowledges that there could be more than one CCO at the registrant.
C. The Bank Regulation Model
Banks also have developed a well-established and effective compliance model, which again differs
significantly from the Proposed Rules and is in most respects very similar to the broker-dealer
model. The Basel Committee on Banking Supervision, for example, issued a paper on compliance
policies that has been widely followed globally and in the U.S. 25 In that paper, the first principle
applicable to Compliance is that “the bank’s compliance function should be independent.”
According to the Basel Committee, “[t]he independence of the head of compliance and any other
staff having compliance responsibilities may be undermined if they are placed in a position where
there is a real or potential conflict between their compliance responsibilities and their other
responsibilities.” 26 Thus, while the Basel Committee would permit a compliance officer to be a
member of senior management in some circumstances, the Committee cautioned that, in such
circumstances, “he or she should not have direct business line responsibilities.” 27
The Committee observed that the bank’s senior management, not Compliance, is responsible for
ensuring that the compliance policy is followed, including “responsibility for ensuring that
appropriate remedial or disciplinary action is taken if breaches are identified.” 28 The Basel
Committee recognized the significant differences between banks in terms of size and business
structure, expressly permitting flexibility in implementing the advice contained in the paper. 29 The
Basel Committee stated that the CCO should “have a formal status within the bank to give it the
appropriate standing, authority,” but should also have “independence.” 30 Thus, the Committee
states that the responsibilities of Compliance are to:
(1) provide advice, guidance and education;

(2) identify, measure, and assess compliance risk;
(3) monitor and test compliance;
(4) oversee the compliance program; and
(5) oversee any statutory responsibilities. 31
24
Id. at 55447 (to be codified at 17 C.F.R. § 5.18(j)).
25
Basel Committee on Banking Supervision, Compliance and the compliance function in banks (April 2005).
26
Id. at 12.
27
Id.
28
Id. at 9-10.
29
Id. at 7-8.
30
Id. at 11.
31
Id. at 13-14.
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Domestic bank regulators, including the Federal Reserve, follow the Basel Committee’s guidance.32
Fed Supervisory Letter 08-08 discusses the role of Compliance in a financial holding company
(FHC) and critically notes that the CCO is responsible for an enterprise-wide view of Compliance
risk. Although the FHC CCO has insight into the other control functions in the FHC and how they
are functioning (usually by virtue of being on firm-wide Risk Committees), the CCO is not
responsible for policies and procedures, or monitoring or testing of, regulatory risks that are owned
by the firm’s other control functions. 33 In other words, the CCO under Fed Supervisory Letter 08-08
would not be responsible for all regulatory compliance risks that the FHC firm encounters in its
daily business – just those that are traditionally defined for the CCO (i.e., rules regarding
compliance risks). 34
The FDIC takes a similar approach. According to the FDIC, “ultimate responsibility of overall
compliance with all statutes and regulations resides with the Board,” while a compliance officer
should develop and review compliance policies, train employees, assess emerging issues, report
compliance issues to the board, and ensure corrective action. 35
D. The Proposed Rules Should Follow the Financial Services Model
Rather than working from the long-standing financial services model already followed by most
FCMs, the Commission has proposed an entirely new set of requirements for SDs, MSPs, and
FCMs. We do not believe that Congress intended this and we note that, in specifying CCO
requirements for FCMs, Congress used far less prescriptive language than it did for SDs and
MSPs. 36 Moreover, we believe that the duties imposed by Congress on SDs and MSPs in the DFA
are fully consistent with the broker-dealer compliance model specifically, and the existing financial
services compliance model generally. We therefore submit that the better approach would be to
codify the existing, broker-dealer model-based FCM compliance regime, and incorporate those
principles into a corresponding regime for SDs and MSPs. Such a regime could satisfy the
requirements of the DFA without contradicting the current one.
32
See Fed Supervisory Letter 08-08, (“The Federal Reserve’s expectations for all supervised banking organizations are
consistent with the principles outlined in a paper issued in April 2005 by the Basel Committee on Banking
Supervision.”).
33
For example, in the context of a CCO for a SD or MSP, the CCO would not be responsible for drafting policies and
procedures around systems entitlements, or necessarily monitoring or testing the effectiveness of SD’s or MSP’s
entitlement policy (i.e., rights of access by various employees to firm’s systems containing trade, cleared or other
sensitive commercial data). If there are material issues from entitlements, then the CCO would become aware of them
through means such as being on the firm’s risk committee, or some similar type of firm-wide governance committee.
34
According to the Federal Reserve, “Compliance independence facilitates objectivity and avoids inherent conflicts of
interest that may hinder the effective implementation of a compliance program,” and senior management should
“implement and enforce the compliance policies and compliance risk management standards that have been approved by
the board….” and specifically identified for the Compliance. Fed Supervisory Letter 08-08.
35
FDIC Compliance Manual, Compliance Management System 2.1-2.2 (June 2009).
36
Section 732(d) of Dodd-Frank provides only that each FCM “shall designate an individual to serve as its Chief
Compliance Officer and perform such duties and responsibilities as shall be set forth in regulations to be adopted by the
Commission or rules to be adopted by a futures association registered under section 17.”
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The broker-dealer model reflects the practice of virtually every U.S. registered broker-dealer and
most other financial services firms and, because so many FCMs are also registered broker-dealers,
or are affiliated with registered broker-dealers, most FCMs have developed effective compliance
programs that closely follow the broker-dealer model, or have incorporated their FCM compliance
activities into their existing program. Indeed, many integrated firms also use specifically the broker-
dealer and generally the financial services model as a basis for Investment Advisers Act and other
compliance programs, or incorporate those programs into a single program and thus acknowledge
the distinction between business supervision and Compliance functions. There is great utility in
establishing a uniform program with centralized oversight (often by a single CCO). Most
importantly, the financial services model codifies long-standing principles regarding the role of
Compliance and the CCO in financial services firms – that of a trusted but independent adviser to
those responsible for running the firm and supervising the activities of its employees. The Proposed
Rules, as currently drafted, take the CCO function at FCMs, SDs and MSPs in a significantly
different direction from established industry practices.
E. The Proposed Rules Will Fundamentally Change the Role of the CCO
As currently drafted, the Proposed Rules would fundamentally change the traditional role of the
CCO of a financial services firm.
1. The Role of the CCO
Compliance provides many unique and critical services to the firm, supporting management’s
performance of its traditional supervisory responsibilities and the firm’s efforts to comply with
Applicable Law. Functions generally associated with Compliance include providing advice to
business units and other control functions; keeping business units apprised of regulatory
developments; advising on the regulatory requirements for new products; assisting management in
identifying and addressing conflicts of interest; identifying potential compliance risks and designing
ways to address them, including through policies and procedures; and identifying through
surveillance and testing improper behavior, material or systemic weaknesses, and potential
problems; and, recommending resolutions. 37 One of Compliance’s most important functions is
assisting firm management in developing policies and procedures for compliance with Applicable
Law, and monitoring regulatory developments to keep them up to date. 38
Compliance also monitors management responses to indications of improper activity, escalating

matters to senior levels (up to and including the CEO and/or the Board) if the response appears to be
inadequate. In providing each of these services, Compliance and the CCO are acting as advisors to,
not as supervisors of, the firm’s business units or personnel. They cannot enforce compliance with
policies and procedures by the firm’s employees and cannot hire or fire employees or set their
compensation. The CCO can only escalate compliance issues to firm’s senior business unit
management. 39
37
See Securities Industry Association, White Paper on the Role of Compliance 3-4 (October 2005).
38
See id. at 3. The Proposing Release also seeks comment on the need to insulate CCOs from undue pressure and
coercion, and to address possible conflicts among firms’ compliance, commercial, and ownership interests. 75 Fed. Reg.
at 70882. The broker-dealer model in fact does this by separating the roles of the CCO and supervisors.
39
Compliance may also perform a number of other functions, including registration of the firm and personnel; diligence
on new or potential employees; maintaining watch and restricted lists; handling “information barrier” issues; helping to
administer anti-money laundering programs; and acting as primary interface with regulators, handling and responding to
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2. The Role of Supervisors
In comparison, supervisors run the business, with the power to hire, fire, compensate, and discipline
employees who do not comply with firm procedures or Applicable Law. The SEC has said that a
supervisory relationship is found only when it is clear that the putative supervisor “was responsible
for the actions of another and that he could take effective action to fulfill that responsibility,” and
that “the most probative factor” indicating that a person is responsible for the actions of another is
“whether that person has the power to control the other’s conduct.” 40 In financial services firms, the
line of supervision is generally clear. Employees report to desk or branch supervisors, who report to
more senior managers up to the firm’s CEO (or equivalent officer). Each has authority, including
the power, alone or with others, to hire, fire, compensate and discipline those persons reporting to
them.
CEA Section 13(b) provides that “[a]ny person who, directly or indirectly, controls any person who
has violated any provision of this chapter or any of the rules, regulations, or orders issued pursuant
to this chapter may be held liable for such violation in any action brought by the Commission to the
same extent as such controlled person.” Control person liability applies to “one who directly or
indirectly controls any person who has violated any provision of the Act (or regulations promulgated
thereunder) and who either acted with a lack of good faith or knowingly induced the acts that
constitute the violation.” 41 In “interpreting Section 13(b) the CFTC has adopted the Securities
Exchange Commission's definition of ‘control’ as ‘the possession, direct or indirect, of the power to
direct or cause the direction of the management . . . of a person.’” 42
Similarly, CFTC Rule 166.3 provides that “[e]ach Commission registrant, except an associated
person who has no supervisory duties, must diligently supervise the handling by its partners,
officers, employees and agents (or persons occupying a similar status or performing a similar
function) of all commodity interest accounts . . . and all other activities of its partners, officers,
employees and agents (or persons occupying a similar status or performing a similar function)
relating to its business as a Commission registrant.” 43 The rule was intended to make the firm and
its supervisors liable for failing to supervise firm employees in that “… all senior APs with
management responsibilities are therefore responsible for the creation and maintenance of a
supervisory and compliance system and may be liable under [CFTC] Rule 166.3 for any failure in
that system, including any failure to diligently supervise other high ranking APs.” 44 According to
the Commission, “to establish that an individual supervisor violated regulation 166.3 . . . it is
necessary to show either that respondent had knowledge of wrongdoing and failed to take
reasonable steps to correct the problem, or that respondent failed to discharge specific
inquiries, reviewing documents, arranging meetings, and discussing potential findings with examiners. See Securities
Industry Association, White Paper on the Role of Compliance 1-7 (October 2005).
40
Arthur James Huff, Exchange Act Release No. 29,017 (Mar. 28, 1991) (concurring opinion of Commissioners
Lochner and Schapiro); see also Monieson v. CFTC, 996 F.2d 852, 859 (7th Cir. 1993) (control provisions of CEA
Section 13(b) are modeled on securities law provisions; thus, interpretations of securities statutes are relevant to
interpreting Section 13(b)).
41
In re Szach, [2000-2001 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶28,451 (CFTC Jan. 8, 2001).
42
Monieson, 996 F.2d at 862 (quoting In re Spiegel, [1987-1990 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶24,103 at
34,765 n.4 (CFTC Jan. 12, 1988)).
43
17 C.F.R. § 166.3 (emphasis added).
44
Secondary and Supervisory Liability Under the Commodity Exchange Act: An Update, The Record of the Association
of the Bar of the City of New York 240, 273 (Spring 2001) (emphasis added).
-11-
responsibilities of supervision,” 45 and it must first be proven that they “occupied positions that
triggered a duty to supervise.” 46
Compliance does not have these powers outside the Compliance Department. Supervisory control
over the business resides with those who run the business, from the CEO to business unit managers.
The CCO advises and assists them in carrying out their roles (including escalation to the business
unit managers), but supervisors decide whether, and if so how, to implement and enforce them.
3. The Proposed Rules Would Change the Role of the CCO
Imposing supervisory responsibilities on CCOs would interfere with their ability to provide
independent advice and counsel, and negatively affect their focus. 47 This is the reason that the
broker-dealer model contains numerous provisions making clear that the firm’s CEO, not the CCO,
is the person ultimately responsible for the firm’s compliance with Applicable Law. It also would
be confusing for integrated firms that share or centralize Compliance resources to be subject to a
fundamentally different compliance regime for their FCM, SD, and MSP entities. That is why the
broker-dealer model used by most FCMs and most other financial services firms is the one on which
the Proposed Rules should be based.
III. Analysis of the Proposed Rule and Suggested Revisions.
Below we address several specific issues addressed by the Proposed Rule and the Proposing Release
and suggest alternative ways to formulate the rules in compliance with the requirements of the DFA.
1. Defining the CCO as a Principal
The Associations do not object to designating a CCO. Indeed, most FCMs already have designated
a CCO or a person of equivalent function, and to the extent that they or their affiliates are engaged
in other financial services business, they already may be subject to similar requirements for those
businesses. 48 But the Proposed Rules would also amend the definition of “principal” that applies to
registrants under CFTC Regulation Section 3.1(a) to include CCOs, in a manner that could result in
them being deemed supervisors.
Section 3.1(a) would continue to list persons currently considered “principals” under CFTC rules,
such as general partners, corporate directors, presidents, CEOs, and persons in charge of business
units, divisions or functions. These are persons generally understood to be supervisors and have the
authority (alone or with others) to hire, fire, compensate, and discipline employees. But the
45
Bunch v. First Commodity Corp. of Boston, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶25352 at
39,168-39,169 (CFTC Aug. 5, 1992); see also Sanchez v. Crown, [2005-2007 Transfer Binder] Comm. Fut. L. Rep.
(CCH) ¶30,183 at 57,726 (CFTC Jan. 18, 2006).
46
Smith v. Betty, [2007-2009 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶30,605 (CFTC Aug. 15, 2007); see also
Monieson, 996 F.2d at 862 (CEO liable for failure to supervise under Rule 166.3 because “[h]e was the top link in the
supervisory chain, not a disconnected director”).
47
Where compliance officers have been treated as supervisors, they generally had power and authority beyond that
usually afforded to compliance officers. See, e.g., Kirk Montgomery, Exchange Act Release No. 45161 (Dec. 18, 2001)
(power to impose fines and cancel trades); James J. Pasztor, Exchange Act Release No. 42008 (Oct. 14, 1999) (power to
hire and fire); First Albany Corp., Exchange Act Release No. 30515 (Mar. 25, 1992) (power to remove commissions and
impose fines).
48
See, e.g., FINRA Rule 3130(a); Investment Advisers Act Rule, 17 C.F.R. § 275.206(4)-7; Investment Company Act
Rule, 17 C.F.R. § 270.38a-1.
-12-
Commission proposes to add CCOs, and to describe them as “any person occupying a similar status
or performing similar functions, such as the chief compliance officer, having the power, directly or
indirectly, through agreement or otherwise, to exercise a controlling influence over the entity’s
activities that are subject to regulation by the Commission,” thus implying that the CCO has “similar
status” to or performs “similar functions” as supervisors. This is not consistent with the CCO’s role
as explained above.
Requiring CCOs to register as principals goes beyond the requirements in the DFA, and is not
necessary in order to codify the CCO’s responsibilities. More importantly, defining the CCO with
the same term applied to general partners, presidents, CEOs, and persons in charge of business units
is incorrect and misleading, again implying that CCOs have supervisory authority when they do not.
We therefore submit that the proposed addition of the CCO as a principal should be deleted in its
entirety. The requirements of proposed Section 3.3(a) are sufficient to implement the DFA
requirement for the designation of a CCO.
Nevertheless, if the Commission believes that principal registration of CCOs is necessary, the
language in Section 3.1(a) should be changed to clarify the CCO’s distinct status:
“(1) If the entity is organized as a sole proprietorship, the proprietor; if a

partnership, any general partner; if a corporation, any director, the president, chief
executive officer, chief operating officer, chief financial officer, and any person in
charge of a principal business unit, division or function subject to regulation by the
Commission; if a limited liability company or limited liability partnership, any
director, the president, chief executive officer, chief operating officer, chief financial
officer, the manager, managing member or those members vested with the
management authority for the entity, and any person in charge of a principal
business unit, division or function subject to regulation by the Commission; and, in
addition, any person occupying a similar status or performing similar functions, such
as the [entity’s] chief compliance officer, [having the responsibility to establish,
maintain, review, modify, and test the entity’s compliance policies and procedures
relating to its activities under the Act, provided that the designation of the chief
compliance officer as a principal shall not result in the chief compliance officer
being deemed a business line supervisor or otherwise having supervisory authority
over business line personnel]; having the power, directly or indirectly, through
agreement or otherwise, to exercise a controlling influence over the entity's activities
that are subject to regulation by the Commission;” 49
49
We acknowledge that FINRA (NASD) Rule 1022(a) provides in relevant part that “each person designated as a Chief
Compliance Officer . . . shall be required to register . . . as a General Securities Principal,” but the use of the term is not
intended to make the CCO a supervisor. This has been clearly stated by FINRA (then NASD) since it first adopted the
requirement. See Notice to Members 01-51 n.2 (Aug. 2001) (“The chief compliance officer registration requirement
does not create the presumption that a chief compliance officer has supervisory responsibilities or is otherwise a control
person. As in the past, NASD Regulation will hold a chief compliance officer responsible for supervision only where
supervision is his or her responsibility.”). We also note that the list of persons defined as “principals” in FINRA
(NASD) Rule 1021(b) does not include CCOs. In any event, FINRA has been careful to make clear that “supervisors
with business line responsibility are accountable for the discharge of a member's compliance policies and written
supervisory procedures.” FINRA Rule 3130.07.
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2. Requiring the CCO to Enforce Policies and Procedures
Proposed Section 3.3(a) (emphasis added) requires the CCO to have “full responsibility and
authority to develop and enforce . . . appropriate policies and procedures to fulfill the duties set forth
in the Act and Commission regulations.” We believe that the word “enforce” should be clarified as
we have explained in this comment letter as it is inconsistent with the role of the CCO, and the duty
to “enforce” in its supervisory sense is not set forth in Section 731(k) of the DFA.
Given the Congressional intent and the appropriate interpretation of the term “enforce” in this
context, the proper way to characterize the CCO’s role in the Proposed Rules would be to state,
consistent with the broker-dealer model discussed above, that the CCO has responsibility and
authority “to establish, maintain, review, modify, and test the effectiveness of, in consultation with
the board of directors or the senior officer, appropriate policies and procedures reasonably
designed to achieve compliance with applicable parts of the CEA and the CFTC Regulations
thereunder. ” Moreover, given that the term “compliance policies” is defined in proposed Section
3.1(g) as those established “pursuant to the Act and Commission regulations,” we believe that this
subsection could simply read “full responsibility and authority to establish, maintain, review,
modify, and test, in consultation with the board of directors or the senior officer, appropriate
compliance policies.” 50
We suggest that the Commission consider the following revision to the language of the Proposed
Rule:
“§ 3.3 Chief compliance officer.

(a) Designation. Each futures commission merchant, swap dealer, and major swap
participant shall designate an individual to serve as its chief compliance officer, and
provide the chief compliance officer with the full responsibility and authority to
develop and enforce [establish, maintain, review, modify, and test the effectiveness
of], in consultation with the board of directors or the senior officer, appropriate
[compliance] policies and procedures [reasonably designed] to fulfill the duties set
forth in the Act and Commission regulations.”
3. CCO Reporting Line
Proposed Section 3.3(a) also provides that the CCO will report to the firm’s board or senior officer,
which will also approve the CCO’s compensation, and that the board or senior officer may not
delegate that authority. Given the wide variety of firms that will be subject to the Proposed Rules,
including large international integrated financial services firms, holding company structures with
multiple affiliated businesses in separate legal entities, smaller firms with narrower business models,
single-business firms, etc., prescribing a single reporting structure, or even a narrow range of
reporting structures, is neither workable nor desirable. Firms should be given the flexibility to
determine their own reporting structure, including the way in which CCOs are supervised.
50
Proposed Section 3.3(a) also requires the firm’s board or senior officer to meet with the CCO at least once a year to
discuss the firm’s compliance policies and the CCO’s administration thereof. Given the relevance of the broker-dealer
model to this requirement, and the fact that so many of our members are also registered broker-dealers or affiliated with
registered broker-dealers, and thus subject to the annual meeting requirement in FINRA Rule 3130, we suggest that
meetings conducted in accordance with the requirements of that rule be viewed as satisfying the Proposed Rules’
requirement, provided that the subject matter relates to or includes matters relating to the firm’s business, in addition to
any other matters that may be discussed at the meeting.
-14-
We note, for example, that in many firms CCOs report to the firm’s Chief Legal Officer, who in turn
may report to the firm’s senior management or, in some cases, the Audit Committee of the board of
directors or the Chief Risk Officer. So long as the structure is reasonably independent and does not
result in the firm’s business units being able to impose undue pressure on the CCO in terms of
compensation or other matters or restrict the CCO from elevating issues as appropriate, firms should
be free to determine the most appropriate reporting structure for their CCO.
We suggest that the Commission consider replacing Sections 3.3(a)(1) and (2) with the following
language:
[“… (1) The chief compliance officer shall report periodically to the board of
directors or the senior officer of the futures commission merchant, swap dealer, or
major swap participant with respect to the matters set forth in this section, and shall
meet with the board of directors or the senior officer at least once a year to discuss
and review the futures commission merchant’s, swap dealer’s, or major swap
participant’s compliance policies and procedures, as defined in Sec. 3.1(g), its
compliance efforts as of the date of such meetings; and any significant compliance
problems and plans for emerging business areas.
(2) With respect to the supervision of the chief compliance officer, including the
establishment of and approval of the chief compliance officer’s compensation, the
futures commission merchant, swap dealer, or major swap participant may in its
discretion determine the appropriate structure for such supervision, provided that
such structure: (a) is consistent with its system of supervision of other control
functions; (b) requires the chief compliance officer to be independent of business-line
supervision; and (c) provides for the chief compliance officer to have direct,
unrestricted access to the firm’s senior management and board of directors for the
escalation of compliance matters.”]
4. Specified Duties of the CCO
There are also certain items under proposed Section 3.3(d), “Chief compliance officer duties,” that
we believe should be modified, since they exceed the traditional scope of the CCO function.
Proposed Section 3.3(d)(3) makes the CCO responsible for “reviewing and ensuring” the firm’s
compliance with compliance policies, and “all applicable rules laws and regulations, including, but
not limited to the requirements set forth in the [CEA] and Commission regulations.” The latter
provision is far too vague and open-ended. It would sweep in, for example, federal, state, and local
tax, labor, and other laws and regulations beyond the Commission’s jurisdiction, making the CCO
responsible for ensuring compliance with those laws and regulations as well. We believe that this
provision is not consistent with the Congressional intent, and goes far beyond the proper role and
expertise of the CCO. In contrast, DFA Section 731(k)(2)(E) refers only to compliance with “this
Act [i.e., the CEA] (including regulations) relating to swaps, including each rule prescribed by the
Commission under this section.” The Proposed Rules’ reference to “all applicable laws” is clearly
overbroad and should be confined to the matters set forth in DFA Section 731(k)(2)(E).
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Section 3.3(d)(3) imposes on the CCO the duty of “reviewing and ensuring compliance.” 51
Obviously, the requirement for a CCO to “ensure” compliance goes well beyond the financial
services model – it is not a standard to which even supervisors would be held. The use of the term
to describe the CCO’s duties, without any guidance, limitation, or definition as to the meaning or
scope of the term in this context, would result in an obligation that is simply impossible to satisfy.
Indeed, the Commission makes the “fundamental acknowledgement” that the CCO can only
“ensure” compliance “to the full capacity of an individual person.” 52
We acknowledge that DFA Section 731(k)(2)(E) states that the CCO must “ensure compliance”;
however, we believe that in drafting that provision, Congress intended to require the CCO to oversee
the implementation of compliance policies, procedures and programs that are reasonably designed to
result in compliance with the CEA and CFTC rules and to report to management when issues arise,
not to require the CCO to guarantee absolute compliance or make the CCO a surety of absolute
compliance by the firm and every employee. 53 No one could conceivably do that. We therefore
submit that the Proposed Rules should include a provision that states:
[“For purposes of the Act and this Section 3.3, the term ‘ensuring compliance’ shall
mean taking reasonable steps to establish, maintain, review, modify, and test the
effectiveness of compliance policies as defined in Section 3.1(g).”]
Further, Section 3.3(d)(2) requires the CCO to resolve “any conflicts of interest that may arise.” We
believe that in inserting similar language in DFA Section 731(k)(2)(C), Congress meant to require
the establishment of reasonable procedures for the resolution of conflicts together with the
executives of the firm, not to require the CCO to resolve them alone. Again, the authority to
actually resolve conflicts, like the power to enforce compliance, is reserved to the firm’s senior
executives and supervisors.
5. The Annual Report
The Proposed Rules require the CCO to annually prepare a written report that covers the firm’s most
recently completed fiscal year, and provide it to the board or the senior officer. They set forth seven
detailed items to be included in the report, as well as a certification by the CCO that, “to the best of
his or her knowledge and reasonable belief, and under penalty of law, the information contained in
the annual report is accurate and complete.” There are certain critical issues with respect to the
Annual Report requirements 54 that the Commission must address.
51
See Proposing Release, 75 Fed. Reg. at 70887 (to be codified at 17 C.F.R. § 3.3(d)(3)).
52
Proposing Release, 75 Fed. Reg. at 70883.
53
We also note that Proposed Rules Section 3.3(d)(4) discusses the “remediation of non-compliance issues,” a clear
recognition that no CCO, supervisor, or anyone else will be able to “ensure” complete compliance all times with all
requirements, and that the “reasonableness” standard of the broker-dealer model is more appropriate. Furthermore,
Proposed Rules Section 3.3(d)(5) discusses “management response” to remediation of noncompliance issues. Not only
is this further recognition that non-compliance is inevitable, it also acknowledges that firm management has
responsibility for implementing supervisory and compliance policies.
54
The Proposing Release actually refers to two different subsections of the Proposed Rules as 3.3(d) – “Chief
compliance officer duties” and “Annual report.” We presume that the section titled “Annual report” should be
referenced as 3.3(e) and the section relating to “Furnishing the annual report to the Commission” as 3.3(f).
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a. Certification
We acknowledge that DFA Section 731(k)(3)(A) mandates the CCO to “annually prepare and sign a
report” describing the firm’s compliance with the CEA and its policies and procedures, and that
Section 731(k)(3)(B) requires the report to “include a certification, under penalty of law, that the
report is accurate and complete.” However, although Section 731(k)(3)(A) requires the CCO to
prepare and sign the report, Section 731(k)(3)(B) does not specifically state or mandate that the
required certification must itself be made by the CCO, only that it be included in the report.
There is an obvious comparison to be made with the annual certification required under the broker-
dealer model, where the certification is required to come from the CEO, because the CEO is the
firm’s senior officer and business manager and thus the person who ultimately should be responsible
for any certification regarding firm compliance. 55 In fact, in approving the FINRA requirement, the
SEC stated that the CEO certification requirement “will help motivate firms to keep their
compliance programs current with business and regulatory developments,” 56 a clear statement that
the best way to achieve the goal of robust, effective compliance programs is by making the most
senior officer ultimately responsible.
The onerous nature of the certification requirement is underscored by the potential of personal
criminal liability of CCOs, which is further discussed below.
Accordingly, we suggest that the Commission consider the following revision to the language of the
Proposed Rule in Section 3.3(e)(3) [to be renumbered (f)(3)]:
“(3) The report shall include a certification by the [chief executive officer] chief
compliance officer that, to the best of his or her knowledge and reasonable belief,
and under penalty of law, the information contained in the annual report is accurate
and complete.”
b. Elements of the Annual Report
The Proposed Rules’ content requirements for the Annual Report go well beyond those set forth in
DFA Section 731(k)(3), which, in addition to the aforementioned certification requirement, specifies
only that the report contain a description of the firm’s compliance with respect to the CEA and of
each firm policy and procedure (including its code of ethics and conflict of interest policies). In
contrast, the Proposed Rules specify 7 far more detailed requirements (provided immediately below
as underlined subheadings). 57
Further, the Associations would like to note that in proposing a core set of minimum requirements
for the mandatory items included in the Annual Report, the Commission should acknowledge that a
“one-size-fits-all” approach may not be universally appropriate for all registrants, given that some of
the SDs, MSPs and FCMs are: (i) public, while others are not public reporting companies; (ii)
entities with many customers, while others do not service customers and act only as proprietary
55
See FINRA Rule 3130(b).
56
Securities Exchange Act Release No. 50347, at 10.
57
See Proposing Release, 75 Fed. Reg. at 70887. The requirements for the annual report appear in proposed sections
3.3(d)(1)-(7). Note that the Proposed Rule incorrectly numbers both consecutive sections as (d), while the sub-section
contacting the 7 subheading should be correctly numbered as (e).
-17-
traders; (iii) entities with retail customers, while others deal only with other sophisticated
counterparties; and (iv) small local proprietorships, while others are large integrated financial
institutions with thousands of employees across the globe.
Apart from the time and effort required to prepare the report (which we believe will far exceed the
Commission’s estimates set forth in the Proposing Release 58), we believe that the Proposed Rules’
requirements raise several interpretative and judgmental questions as discussed below.
1) “Contain a description of the compliance by the futures commission merchant, swap dealer,
or a major swap participant with respect to the Act and Commission regulations and each of
the registrant’s compliance policies, as defined in §3.1(g)”. 59
We acknowledge that DFA Section 731(k)(3)(A)(i) requires the CCO prepare an annual report that
provides a “description” of the firm’s “compliance”; however, we believe that Congress used the
phrase “description of the compliance” to refer to the description of compliance policies,
procedures, programs and other measures that are reasonably designed to result in compliance with
the CEA, including the firm’s efforts to establish, maintain, review, modify, and test the
effectiveness of the firm’s compliance policies and procedures, and remedy any material
shortcomings identified in each compliance review. We do not believe that the term is meant to
require a description of “compliance” in the absolute sense.
Accordingly, we propose the following alternative definition of “compliance policies” in Section

3.1(g) of the Proposed Rule:
“(g) Compliance policies [and procedures]. Compliance policies [and procedures

means material written policies, procedures, codes (including a code of ethics),
safeguards, rules, programs, and internal controls required to be adopted or
established by a registrant pursuant to the Act and Commission regulations
reasonably designed to achieve compliance with applicable provisions of the Act,
Commission regulations or applicable rules adopted by a futures association
registered under Section 17 of the Act.]”
2) “Review each applicable requirement under the Act and Commission regulations, and with
respect to each: (i) Identify the policies and procedures that ensure compliance with the
requirement under the Act and Commission regulations; (ii) Provide an assessment as to the
effectiveness of these policies and procedures; and (iii) Discuss areas for improvement, and
recommend potential or prospective changes or improvements to its compliance program and
resources devoted to compliance”. 60
Again, as discussed above, we do not believe that the Proposed Rules should (or can) require a firm
to identify policies and procedures that “ensure” compliance with “each” applicable requirement of
the Act and the Commission regulations. Because it is impossible to actually ensure compliance, a
point made clear by the Proposed Rules’ requirement to describe non-compliance issues identified
by the firm, we believe that in using the phrase “ensure compliance” in DFA Section 731(k),
Congress was referring to the implementation of compliance policies, procedures and programs that
58
See our discussion below of expected costs and time expenditure to comply with the Proposed Rules.
59
See Proposing Release, 75 Fed. Reg. at 70887 (to be codified at 17 C.F.R. § 3.3(e)(1)).
60
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are reasonably designed to result in compliance with the CEA and CFTC rules, and we suggest that
the requirement be amended to reflect this.
We also recommend that the CFTC specify the key and material areas that should be discussed in
the report, at a minimum, in order to have consistency across all registrants (provided that there is
enough flexibility so that various forms of registrants are not subject to a “one-size-fits-all”
compliance model). 61
Alternatively, the CFTC could provide a specific list of topics that it expects to be included in the
Annual Report (while leaving room for customized compliance programs of various registrants), so
that there is less margin for errors of omission, or for “second guessing” with respect to the
adequacy of the Annual Report. 62
3) “Provide a statement of certification of compliance with sections 619 and 716 of the Dodd-
Frank Wall Street Reform and Consumer Protection Act, and any rules adopted pursuant
thereto”. 63
As drafted, this provision would require a certification of compliance with Sections 619 and 716 of
DFA – the “Volcker Rule” and the “Derivatives Push-Out” rule, respectively. Presently, there
remain significant open and unanswered questions as to the scope and requirements of Sections 619
and 716. Additionally, the effective dates of these sections of DFA are significantly later than the
Proposed Rules currently being considered by the Commission. Further, under the Volcker Rule,
the CFTC is expressly mandated to “consult and coordinate” with the other members of the
Financial Stability Oversight Counsel “for the purposes of assuring, to the extent possible, that such
regulations are comparable and provide for consistent application and implementation of the
applicable provisions of this section to avoid providing advantages or imposing disadvantages to the
companies affected by this section….” As to the Derivatives Push-Out rule, consultation and
consideration are also required among the CFTC, SEC and the applicable Federal Banking Agency.
In light of these significant considerations, we believe that any discussion of the type or nature of
certification with respect to these rules, including whether any such certification is feasible or
appropriate, should be conducted as part of the Volcker and Derivatives Push-Out rulemaking
processes. Consequently, this requirement to certify these provisions should be deleted from the
Proposed Rules and the items should be renumbered accordingly.
4) “List any material changes to compliance policies during the coverage period for the
report”. 64
We believe that materiality is an important qualifier in this item and that the Annual Report should
not describe all conceivable changes to all of the firm’s policies and procedures, only those directly
related to compliance with the CEA and related CFTC rules.
61
See, e.g., FINRA Rule 3130.10 (setting forth the required contents of an annual report).
62
See, e.g., NYSE Rule 342.30.
63
64
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5) “Describe the financial, managerial, operational, and staffing resources set aside for
compliance with respect to the Act and Commission regulations, including any deficiencies
in such resources”. 65
The Commission needs to clarify the scope of financial information that is subject to disclosure
under this provision (e.g., we do not believe that the firm’s budget must be disclosed under this
provision. See also our comments below relating to the confidential nature of the Annual Report).
6) “Describe non-compliance issues identified, and the corresponding action taken”. 66
This provision is overly broad as stated in the Proposed Rule and needs to be limited by the
materiality standard discussed in item (4), above. It should relate only to the matters covered by the
applicable provisions of the DFA and the CEA, not to compliance issues relating to finance,
operations, human resources, and other control functions of the firm.
Accordingly, we suggest that the proposed subheading (6) read as follows:
“(6) Describe [any material lack of compliance] non-compliance issues [identified

with respect to applicable provisions of the Act and related Commission regulations],
and the corresponding action taken”.
7) “Delineate the roles and responsibilities of its board of directors or senior officer, relevant
board committees, and staff in addressing any conflicts of interest, including any necessary
coordination with, or notification of, other entities, including regulators”. 67
Item (7) is troubling because of the time and effort required of each CCO to track and compile all of
the requested information. We note that this information is already required by the SEC from public
companies under the Sarbanes-Oxley Act. 68 We therefore propose that a public company’s filing
under Sarbanes-Oxley Act should be sufficient for an entity that is a part of such public company
with respect to these items that can be incorporated by reference from the applicable filings under
Sarbanes-Oxley Act. Further, we believe that the notion of materiality should be critical in this
item as well to limit the scope of information that is subject to disclosure under this subheading.
Accordingly, we suggest that the proposed subheading (7) read as follows:
“(7) Delineate the roles and responsibilities of its board of directors or senior officer,
relevant board committees, and staff in addressing any [material] conflicts of interest
[in respect of the Act and Commission regulations], including any necessary
coordination with, or notification of, other entities, including regulators.”
65
66
67
68
Sarbanes-Oxley Act of 2002, Pub. L. 107-204, 116 Stat. 745 (2002); see also, Asset-Backed Securities, 69 Fed. Reg.
26649, 26696 (May 13, 2004).
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8) Other Reportable Matters by the CCO under Other CFTC Rules.
We also note that a number of other CFTC’s rules recently proposed under the DFA contain
references to CCOs, in many different capacities and at different types of institutions. It is a
fundamental necessity to reconcile all these rules and to assess the extent of unintended
consequences that these rules may have on the existing financial services compliance model and all
types of registrants. 69
For example, the recently proposed CFTC Regulation 23.604 “Requirements for Non-Segregated
Collateral” states: “Section 4s(l)(4) of the CEA mandates that, if the counterparty does not choose to
require segregation, the SD or MSP shall report to the counterparty, on a quarterly basis, ‘that the
back office procedures of the swap dealer or major swap participant relating to margin and collateral
requirements are in compliance with the agreement of the counterparties.’” 70 This provision is
implemented in proposed Section 23.604(a), which requires that such reports be made by the CCO
no later than the fifteenth (15th) business day of each calendar quarter for the preceding calendar
quarter.
We believe, however, that the quarterly report pursuant to 23.604 should not be subject to the terms
of the Proposed Rules and that the Part 3 Annual Report does not need to include a certification to
the preceding years. Matters like these need further clarification and coordination.
c. Confidentiality
The Proposed Rules do not state whether the Annual Report will be a public or a confidential
document when filed with the CFTC or whether the report may be subject to FOIA 71 disclosure if
requested by the public. Indeed, the Commission’s FOIA regulations specifically include annual
reports as “educational material” which is publicly available and thus subject to public inspection.72
Because of the possibility that highly confidential and proprietary information may be described in
the Annual Report, the Proposed Rules should expressly state that Annual Reports shall be
confidential documents that are not subject to public disclosure by listing such Annual Reports as a
specifically exempt item in Regulation 145.5. 73
69
See Core Principles and Other Requirements for Swap Execution Facilities, 76 Fed. Reg. 1231-35 (proposed Jan. 7,
2011); Governance Requirements for Derivatives Clearing Organizations, Designated Contract Markets, and Swap
Execution Facilities, 76 Fed. Reg. 722, 726, 730, 734 (proposed Jan. 6, 2011); Swap Data Repositories, 75 Fed. Reg.
80898, 80912-15 (proposed Dec. 23, 2010); Information Management Requirements for Derivatives Clearing
Organizations, 75 Fed. Reg. 78185, 78195 (proposed Dec. 15, 2010); General Regulations and Derivatives Clearing
Organizations, 75 Fed. Reg. 77576, 77587-88 (proposed Dec. 13, 2010); Regulations Establishing and Governing the
Duties of Swap Dealers and Major Swap Participants, 75 Fed. Reg. 71397, 71406-07 (proposed Nov. 23, 2010);
Registration of Foreign Boards of Trade, 75 Fed. Reg. 70974, 70995 (proposed Nov. 19, 2010); Requirements for
Derivatives Clearing Organizations, Designated Contract Markets, and Swap Execution Facilities Regarding the
Mitigation of Conflicts of Interest, 75 Fed. Reg. 63732, 63721-42 (proposed Oct. 18, 2010); Regulation of Off-Exchange
Retail Foreign Exchange Transactions and Intermediaries; Final Rule, 75 Fed. Reg. 55410, 55413, 55447 (Sept. 10,
2010).
70
Protection of Collateral of Counterparties to Uncleared Swaps; Treatment of Securities in a Portfolio Margining
Account in a Commodity Broker Bankruptcy, 75 Fed. Reg. 75432, 75434 (proposed Dec. 3, 2010).
71
The Freedom of Information Act, 5 U.S.C. § 552.
72
See 17 C.F.R. § 145 app. A.
73
17 C.F.R. § 145.5(c).
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d. Criminal Liability
We are also concerned with the Commission’s statement in the Proposing Release that “[l]iability
for false, incomplete, or misleading statements or representations made in the annual report could
rest with the registrant or the chief compliance officer or both, either directly or vicariously, and
could be administrative, civil, and/or criminal.” The Proposing Release goes on to say that
“[c]riminal penalties could be sought by appropriate criminal authorities.” 74
We recognize, of course, that knowingly and willfully making a materially false or misleading
statement to the government can, in appropriate circumstances, lead to a civil or even criminal
liability, 75 and would never advocate excusing such conduct, but we are concerned by the
Commission’s specific emphasis on possible criminal sanctions in the context of signing and
certifying the Annual Report and making any statement (and particularly incomplete statements or
non-material statements) in the Annual Report. Furthermore, specific mention of vicarious and
failure to supervise liability may be a further extension of the liability that can potentially be
considered criminal.
Accordingly, we believe that it is inappropriate for the Commission to state that CCOs may be
subject to specific criminal liability as a result of carrying out their duties and/or signing the
Annual Report for the following reasons:
(1) there is no indication that Congress ever considered the CCOs to be subject to criminal
liability under the applicable sections of the DFA;
(2) criminal liability is not specifically a part of the existing financial services compliance
model (either the broker-dealer, CFTC’s RFED or banking model);
(3) potential criminal liability will make it much more difficult, if not impossible, for firms
to hire competent employees who will be willing to serve as CCOs; and
(4) imposition of criminal liability on CCOs with respect to SDs, MSPs and FCMs would
create a duplicative, inconsistent, burdensome and unpredictable regulatory environment for
many registrants that are subject to and have implemented the existing financial services
compliance model.
We note that it does not appear that Congress intended to impose criminal liability on CCOs. This is
evidenced by the fact that neither the House nor Senate committee responsible for drafting the
applicable DFA provisions consulted with the Congressional Judiciary Committee on this matter.
Any provision in proposed legislation that deals with criminal liability must be vetted with the
Judiciary Committee. Accordingly, we believe that imposition of criminal liability or even
suggesting that CCOs may be subject to criminal liability in discharge of their duties is inappropriate
and goes far beyond the statutory mandate of the CFTC.
74
Proposing Release, 75 Fed. Reg. at 70884 (emphasis added).
75
E.g., see Title 18, Chapter 47, Fraud and False Statements. “§1001. Statements or entries generally: (a) Except as
otherwise provided in this section, whoever, in any matter within the jurisdiction of the executive, legislative, or judicial
branch of the Government of the United States, knowingly and willfully— (1) falsifies, conceals, or covers up by any
trick, scheme, or device a material fact; (2) makes any materially false, fictitious, or fraudulent statement or
representation; or (3) makes or uses any false writing or document knowing the same to contain any materially false,
fictitious, or fraudulent statement or entry; shall be fined under this title, imprisoned not more than 5 years…”
(Emphasis added.)
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Indeed, the reference to criminal liability in the Proposed Rules has led to a significant degree of
concern by many of our members. The Associations therefore respectfully request that the
Commission carefully clarify the standard for determining when the CCO (or the CEO if, as we
recommend, certification responsibility is vested in the CEO) has engaged in conduct that may
subject him or her to liability, civil or criminal, and provide guidance with respect to which statutes
(especially criminal statutes) may apply. Otherwise, the threat of personal liability, especially
criminal liability, for what in hindsight may be adjudged as inappropriate or inadequate job
performance, could have extremely negative effects on firms’ compliance efforts (e.g., it may
become virtually impossible for firms to hire competent employees to perform the duties of CCOs).
Therefore we ask the Commission to clarify that criminal sanctions referenced in the Proposing
Release would be sought, if ever, only in circumstances where it has been determined that the CCO
has knowingly and willfully made a materially false and misleading statement, and that it is not the
Commission’s intent to extend criminal liability beyond the existing provisions referenced in
footnote 75.
IV. While the DFA Treats FCMs Differently Than SDs and MSPs, the Requirements Can be
Harmonized to Work in a Single Regime Based on the Broker-Dealer Model.
Finally, as noted above, although the Proposed Rules are intended to implement requirements of the
DFA relating to “the compliance activities of certain registrants,” 76 the DFA takes a markedly
different approach in mandating compliance procedures for FCMs than it does for SDs and MSPs.
It simply requires each FCM to “designate an individual to serve as its [CCO] and perform such
duties and responsibilities as shall be set forth in regulations to be adopted by the Commission or
rules to be adopted by a futures association registered under [CEA] section 17.”
Notwithstanding this flexibility to draft rules tailored to the business and activities of FCMs, or to
delegate that responsibility to the NFA (in much the same way that the SEC has let FINRA take the
laboring oar in developing a similar structure for broker-dealers), the Commission decided “to apply
the same duties and responsibilities to a chief compliance officer of a futures commission merchant
as are required for a chief compliance officer of a swap dealer or a major swap participant.” 77 While
the Associations recognize that there may be advantages for the Commission in creating uniform
rules for all types of entities under its jurisdiction, we are concerned that, in so doing, the
Commission is ignoring the model for compliance that FCMs have long followed – and the fact that
this model is consistent with the practices of many other types of financial institutions. 78
We understand that certain firms that operate solely as FCMs may be taking the position that the
Proposed Rules as currently drafted should not apply to FCMs, and that instead the Commission
should propose a separate FCM regime that follows the broker-dealer model. The Associations
believe that if the Proposed Rules are modified in the manner that we suggest herein, there would be
76
Proposing Release, 75 Fed. Reg. at 70881.
77
Proposing Release, 75 Fed. Reg. at 70881-70882.
78
See, e.g., FINRA (NASD) Rule 3012; FINRA Rule 3130; Investment Advisers Act Rule, 17 C.F.R. § 270.38a-1;
Investment Advisers Act Rule, 17 C.F.R. § 275.206(4)-7; see also Regulation of Off-Exchange Transactions and
Intermediaries; Final Rule, 75 Fed. Reg. 55410, 55432-49 (Sept. 10, 2010) (to be codified at 17 C.F.R. §§ 5.1-5.25);
Securities Exchange Act § 15(b)(4)(E)(i); Basel Committee on Banking Supervision, Compliance and the compliance
function in banks (April 2005); Board of Governors of the Federal Reserve System, SR 08-08 / CA 08-11, Compliance
Risk Management Programs and Oversight at Large Banking Organizations with Complex Compliance Profiles
(October 16, 2010); FDIC Compliance Manual, Compliance Management System 2.1-2.2 (June 2009).
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no reason that a unified set of rules, based on the broker-dealer model, could not be applied to
FCMs, SDs and MSPs in a manner that is fully in accordance with Congress’s goals in adopting
DFA Section 731(k).
Indeed, for many integrated firms that are registered as both broker-dealers and FCMs, and in which
futures and swaps are part of an integrated securities operation, having compliance procedures that
can be applied across businesses and overseen by people performing the same compliance function,
would be a far more desirable outcome. However, if the Commission does not modify the Proposed
Rules as suggested above, we believe that it must at least modify the rules as they apply to FCMs.
Otherwise, FCMs will be required to develop new and different compliance policies for FCMs that
diverge from existing, effective practices with respect to the duties and responsibilities of the CCO
and the Compliance Department.
V. Cost Estimates.
Finally, the Proposed Rule solicits public comments on the time and cost estimates for the
implementation of the Proposed Rule. Even though we have not conducted an exhaustive study on
these costs and estimates, and base our conclusion mostly on “back-of-the-envelope” numbers
polled from several of our members, we nevertheless believe that the estimate of the costs and time
required to comply with the Proposed Rule, set forth in the Proposing Release, 79 is not realistic.
We note that the potential imposition of criminal liability, a high degree of divergence of the
Proposed Rules from the existing financial services compliance model and the need for some
registrants to completely reorganize their existing compliance systems or implement a duplicative
compliance system – will likely impose a very significant cost on the industry.
Given that some, if not most, of the policies and procedures will be drafted by both the in-house
lawyers and compliance employees of the registrants, as well as by outside counsel, we assume that
the blended rate for each person-hour is roughly $400. Based on this, we believe that the following
estimates provide a more realistic assessment:
- Form 8-R and related matters are 10 hours, not 1 hour;
- Preparing, updating and maintaining policies and procedures is 1,000 not 80 hours;
- Preparing the Annual Report is 500 and not 40 hours;
- Annually amending the Annual Report is 50 and not 5 hours; and
- Recordkeeping for compliance policies and procedures and the Annual Report is closer to
500 and not 10 hours.
Thus, we believe that the cost per registrant would be closer to $800,000 and the total to the
industry, $350 million and not $6.2 million as originally estimated by the CFTC.
VI. Conclusion
As explained above, the Proposed Rules would establish a compliance framework that is
significantly different from that currently in place in the financial services industry under the
regulations promulgated by other Federal regulators, including the SEC and the several banking
regulators, as well as the compliance model adopted by the Commission itself as recently as
79
See Proposing Release, 75 Fed. Reg. at 70885-86.
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September 2010. Further, the CFTC has published other rules for comments under the DFA that
would impose additional obligations on CCOs. In light of the Associations’ extensive comments on
the Proposed Rules, and in order to afford commenters the opportunity to assess adequately all of
the obligations that the CFTC has proposed to impose on the CCOs, the Associations respectfully
request that the Commission publish for an additional short comment period any revisions that it
may make to the Proposed Rules and any other proposed rules that may impose obligations on
CCOs.
In conclusion, while the Associations support the Commission’s efforts to provide a strong
framework for the compliance activities of FCMs, SDs, and MSPs, we believe that the rules
currently proposed by the CFTC to implement Sections 731(k) and 732(d) of the DFA go well
beyond the mandate laid out in the DFA, and in some ways the language of the Proposed Rules
appear to misconstrue the provisions and the intent of these sections. Most importantly, the
Proposed Rules, as currently drafted, are not consistent with the established compliance models
applicable to financial services firms in the U.S.
Specifically, we believe that: (i) the CCO should not be considered a supervisor of the registrant; (ii)
the CEO, not the CCO, should be certifying the accuracy and completeness of the Annual Report;
(iii) no certifying officer, including the CEO and/or CCO should be subject to specific personal
criminal liability in the CCO requirements context; (iv) the Annual Report should be confidential
and not subject to FOIA disclosure; (v) the CFTC should clarify that the CCO need not “ensure”
compliance in the sense of “guarantee”, but to mean – ensure compliance by putting in place
policies and procedures reasonably designed to achieve compliance under the Act and the
Commission regulations; (vi) the term “resolve” conflicts of interest should mean for the CCO to
cooperate with the registrant’s top management and the board to achieve resolution of these
conflicts; (vii) the CFTC should not mandate certification of compliance with Sections 619 and 716
of the DFA in the Annual Report; (viii) the FCMs should not be subject to the Proposed Rules
unless the CFTC accepts our proposed revisions, and alternatively, FCMs’ CCOs should be subject
to the NFA rules promulgated under the DFA; and finally, (ix) the CFTC should consider adopting
the existing financial services model as its guide in promulgating the CCO rules under the DFA.
The Associations appreciate the opportunity to submit these comments regarding the CFTC’s
rulemaking on the CCOs for SDs, MSPs and FCMs.
Sincerely,
John M. Damgard Kenneth E. Bentsen, Jr.

President Executive Vice President
Futures Industry Association Public Policy and Advocacy
SIFMA
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cc: Honorable Gary Gensler, Chairman
Honorable Michael Dunn, Commissioner
Honorable Jill E. Sommers, Commissioner
Honorable Bart Chilton, Commissioner
Honorable Scott O’Malia, Commissioner
Division of Clearing and Intermediary Oversight,

Sarah E. Josephson, Associate Director
Claire Noakes, Attorney Advisor
-26-

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January 18, 2011 REFILED WITH TECHNICAL CORRECTIONS

Dear Mr. Stawick:

II. Well-Established Compliance Practices of U.S. Financial Services Companies Provide a

A. The Broker-Dealer Model

B. The CFTC RFED Model

C. The Bank Regulation Model

(1) provide advice, guidance and education;

D. The Proposed Rules Should Follow the Financial Services Model

1. The Role of the CCO

Compliance also monitors management responses to indications of improper activity, escalating

3. The Proposed Rules Would Change the Role of the CCO

III. Analysis of the Proposed Rule and Suggested Revisions.

1. Defining the CCO as a Principal

“(1) If the entity is organized as a sole proprietorship, the proprietor; if a

“§ 3.3 Chief compliance officer.

3. CCO Reporting Line

4. Specified Duties of the CCO

5. The Annual Report

b. Elements of the Annual Report

Accordingly, we propose the following alternative definition of “compliance policies” in Section

“(g) Compliance policies [and procedures]. Compliance policies [and procedures

6) “Describe non-compliance issues identified, and the corresponding action taken”. 66

Accordingly, we suggest that the proposed subheading (6) read as follows:

“(6) Describe [any material lack of compliance] non-compliance issues [identified

Accordingly, we suggest that the proposed subheading (7) read as follows:

John M. Damgard Kenneth E. Bentsen, Jr.

Division of Clearing and Intermediary Oversight,

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