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ence set forth in $ 1.16(b)(2) with re- against the futures commission merspect to the registrant or applicant: chant adjudicatory proceeding Provided, however, That all informa- brought by or before the Commission tion which is required to be furnished pursuant to the provisions of sections on and submitted with Form 1-FR is 6(b), 6(c), 60, 60, 8a, or 9 of the Act. provided with such financial report, (3) A guarantee agreement filed in including a statement of the computa- connection with an application for inition of the minimum capital require- tial registration as an introducing ments pursuant to § 1.17: And, provid- broker in accordance with the provied further, That the balance sheet is sions of $ 3.15(a) of this chapter shall presented in a format as consistent as become effective upon the granting of possible with the Form 1-FR and a registration to the introducing broker. reconciliation is provided reconciling A guarantee agreement filed other such balance sheet to the statement of than in connection with an application the computation of the minimum cap- for initial registration as an introducital requirements pursuant to § 1.17. ing broker shall become effective as of Attached to each financial report filed the date agreed to by the parties. pursuant to this paragraph (i) must be (4)(i) If the introducing broker fails an oath or affirmation that to the best to renew its registration, or if such knowledge and belief of the individual registration is suspended, revoked, or making such oath or affirmation the withdrawn in accordance with the proinformation contained therein is true visions of $ 3.33 of this chapter, the and correct. If the applicant or regis- guarantee agreement shall expire as of trant is a sole proprietorship, then the the date of such failure, suspension, oath or affirmation must be made by revocation or withdrawal. the proprietor; if a partnership, by a (ii) If the futures commission mergeneral partner; or if a corporation, by chant fails to renew its registration, or the chief executive officer or chief fi- if such registration is suspended or renancial officer.

voked, the guarantee agreement shall (j) Requirements for guarantee expire 30 days after such failure, susagreement. (1) A guarantee agreement pension or revocation, or at such earlifiled pursuant to this section must be er time as may be approved by the signed in a manner sufficient to be a Commission, the introducing broker, binding guarantee under local law by and the introducing broker's designatan appropriate person on behalf of the ed self-regulatory organization. futures commission merchant and the (5) A guarantee agreement may be introducing broker, and each signature terminated at any time during the must be accompanied by evidence that term thereof: the signatory is authorized to enter (i) By mutual written consent of the the agreement on behalf of the fu- parties, signed by an appropriate tures commission merchant or intro- person on behalf of each party, with ducing broker and is such an appropri- prompt written notice thereof, signed ate person. For purposes of this para- by an appropriate person on behalf of graph (j), an appropriate person shall each party, to the Commission and to be the proprietor, if the firm is a sole the designated self-regulatory organi. proprietorship; a general partner, if zations of the futures commission merthe firm is a partnership; and either chant and the introducing broker; the chief executive officer or the chief (ii) For good cause shown, by either financial officer, if the firm is a corpo- party giving written notice of its intenration.

tion to terminate the agreement, (2) No futures commission merchant signed by an appropriate person, to may enter into a guarantee agreement the other party to the agreement, to if:

the Commission, and to the designated (i) It knows or should have known self-regulatory organizations of the futhat its adjusted net capital is less tures commission merchant and the than the amount set forth in $ 1.12(b); introducing broker; or or

(iii) By either party giving written (ii) On or after the effective date of notice of its intention to terminate the this paragraph (j), there is filed agreement, signed by an appropriate

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person, at least 30 days prior to the proposed termination date, to the other party to the agreement, to the Commission, and to the designated self-regulatory organizations of the futures commission merchant and the introducing broker.

(6) The termination of a guarantee agreement by a futures commission merchant or an introducing broker, or the expiration of such an agreement, shall not relieve either party from any liability or obligation arising from acts or omissions which occurred during the term of the agreement.

(7) An introducing broker may not simultaneously be a party to more than one guarantee agreement: Provided, however, That the provisions of this paragraph (j)(7) shall not be deemed to preclude an introducing broker from entering into a guarantee agreement with another futures commission merchant if the introducing broker or the futures commission merchant which is a party to the existing agreement has provided notice of termination of the existing agreement in accordance with the provisions of paragraph (j)(5) of this section, and the new guarantee agreement does not become effective until the day following the date of termination of the existing agreement: And, provided further, That the provisions of this paragraph (j)(7) shall not be deemed to preclude an introducing broker from entering into a guarantee agreement with another futures commission merchant if the futures commission merchant which is a party to the existing agreement ceases to remain registered and the existing agreement would therefore expire in accordance with the provisions of paragraph (j)(4)(ii) of this section.

(8)(i) An introducing broker which is a party to a guarantee agreement which has been terminated in accordance with the provisions of paragraph (j)(5) of this section, or which is due to expire in accordance with the provisions of paragraph (j)(4)(ii) of this section, must cease doing business as an introducing broker on or before the effective date of such termination or expiration unless, on or before 10 days prior to the effective date of such termination or expiration or such other

period of time as the Commission and the designated self-regulatory organization may allow for good cause shown, the introducing broker files with its designated self-regulatory organization either new guarantee agreement effective as of the day fol. lowing the date of termination of the existing agreement, or, in the case of a guarantee agreement which is due to expire in accordance with the provisions of paragraph (j)(4)(ii) of this section, a new guarantee agreement effective on or before such expiration, or a Form 1-FR. If the introducing broker files such Form 1-FR, the introducing broker must also file a Form 1-FR, certified by an independent public accountant, as of the day following the date of termination or expiration of the guarantee agreement. The Form 1-FR certified by an independent public accountant must be filed with the designated self-regulatory organization not more than 45 days after the date for which the report is made.

(ii) Notwithstanding the provisions of paragraph (j)(8)(i) of this section or of $ 1.17(a), an introducing broker which is a party to a guarantee agreement which has been terminated in accordance with the provisions of paragraph (j)(5)(ii) of this section shall not be deemed to be in violation of the minimum adjusted net capital requirement of $ 1.17(a) (1)(ii) or (2) for 30 days following such termination. Such

introducing broker must cease doing business as

introducing broker on or after the effective date of such termination, and may not resume doing business

introducing broker unless and until it files a new guarantee agreement or a Form 1-FR. If the introducing broker files a Form 1-FR, the introducing broker must also file a second Form 1-FR, certified by an independent public accountant, as of the day on which the first Form 1-FR is filed. The Form 1-FR certified by an independent public accountant must be filed with the designated selfregulatory organization not more than 45 days after the date for which the report is made. (The information collection requirements contained in $ 1.10 were approved by the Office of Management and Budget under

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control number 3038-0024; in paragraphs (a) within 24 hours after giving such and (b) under control number 3038-0023;

notice file a statement of financial and in paragraph (f) under control number

condition, a statement of the computa3038-0003.)

tion of the minimum capital require(7 U.S.C. 60, 60, 61, 6g, 7a, 12a, 19 and 21; 5

ments pursuant to $ 1.17 (computed in U.S.C. 552, 5 U.S.C. 552b, and secs. 2(a)(11),

accordance with the applicable capital 4b, 41, 4g, 5a, 8a, and 17 of the Commodity Exchange Act, 7 U.S.C. 4a(j), 6b, 68, 6g, 7a,

rule), and a schedule of segregation re12a, and 21, as amended, 92 Stat. 865 et seq.;

quirements and funds on deposit in (7 U.S.C. 2, 4, 4a, 60, 6e, 68, 6k, 6m, 6n, 6p segregation, all as of the date such apand 12a); secs. 2(a)(1), 40, 4d, 4e, 48, 4k, 4m, plicant's or registrant's adjusted net 4n, 4p, 8, 8a and 19 of the Commodity Ex- capital is less than the minimum re. change Act (7 U.S.C. 2 and 4, 60, 60, 6e, 6f,

quired; or 6k, 6m, 6n, 6p, 12, 12a and 23 (1982)); 5

(3) If the person is an introducing U.S.C. 552 and 552b)

broker or applicant therefor, within 24 (43 FR 39967, Sept. 8, 1978, as amended at

hours after giving such notice file a 45 FR 2022, Jan. 10, 1980; 45 FR 80491, Dec. 5, 1980; 46 FR 63035, Dec. 30, 1981; 48 FR

statement of financial condition and a 35280, Aug. 3, 1983; 49 FR 39524, Oct. 9,

statement of the computation of the 1984)

minimum capital requirements pursu

ant to $ 1.17 (computed accordance $ 1.11 (Reserved)

with the applicable capital rule) all as

of the date such applicant's or regis$ 1.12 Maintenance of minimum financial

trant's adjusted net capital is less than requirements by futures commission

the minimum required. merchants and introducing brokers.

(b) Each person registered as a fu(a) Each person registered as a fu- tures commission merchant, or who tures commission merchant or who files an application for registration as files an application for registration as a futures commission merchant, who a futures commission merchant, and knows or should have known that its i each person registered as an introduc- adjusted net capital at any time is less ing broker or who files an application than the greatest of: for registration as an introducing (1) 150 percent of the appropriate broker (except for an introducing minimum dollar amount required by broker or applicant for registration as $ 1.17(a)(1)(i); an introducing broker operating pur- (2) 6 percent of the following suant to, or who has filed concurrently amount: The customer funds required with its application for registration, a to be segregated pursuant to section guarantee agreement and who is not 40(2) of the Act and these regulations also a securities broker or dealer), who less the market value of commodity knows or should have known that its options purchased by option customadjusted net capital at any time is less ers on or subject to the rules of a conthan the minimum required by $ 1.17 tract market, provided, however, the or by the capital rule of any self-regu- deduction for each option customer latory organization to which such shall be limited to the amount of cusperson is subject, if any, must:

tomer funds in such option customer's (1) Give telegraphic notice as set account; or, forth in paragraph (g) of this section (3) For securities brokers or dealers, that such applicant's or registrant's the amount of net capital specified in adjusted net capital is less than re- Rule 17a-11(b) of the Securities and quired by $ 1.17 or by such other cap- Exchange Commission (17 CFR ital rule, identifying the applicable 240.17a-11(b)) must file written notice capital rule. This notice must be given to that effect as set forth in parawithin 24 hours after such applicant graph (g) of this section within five (5) or registrant knows or should have business days of such event. Such apknown that its adjusted net capital is plicant or registrant, must also file a less than is required by any of the Form 1-FR (or, if such applicant or aforesaid rules to which such appli- registrant is registered with the Secucant or registrant is subject; and

rities and Exchange Commission as a (2) If the person is a futures commis- securities broker or dealer, it may file, sion merchant or applicant therefor, in accordance with $ 1.10(h), a copy of

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its Financial and Operational Combined Uniform Single Report under the Securities Exchange Act of 1934, Part II, in lieu of Form 1-FR) or such other financial statement designated by the National Futures Association, in the case of an applicant, or by the Commission or the designated self-regulatory organization, if any, in the case of a registrant, as of the close of business for the month during which such event takes place and as of the close of business for each month thereafter until three (3) successive months have elapsed during which the applicant's or registrant's adjusted net capital is at all times equal to or in excess of the minimums set forth in this paragraph (b) which are applicable to such applicant or registrant. Each financial statement required by this paragraph (b) must be filed within 30 calendar days after the end of the month for which such report is being made.

(c) If an applicant or registrant at any time fails to make or keep current the books and records required by these regulations, such applicant or registrant must, on the same day such event occurs, give telegraphic notice of such fact, specifying the books and records which have not been made or which are not current, and within 5 business days after giving such notice file a written report stating what steps have been and are being taken to correct the situation.

(d) Whenever any applicant or registrant discovers or is notified by an independent public accountant, pursuant to $ 1.16(e)(2) of these regulations, of the existence of any material inadequacy, as specified in $ 1.16(d)(2) of these regulations, such applicant or registrant must give telegraphic notice of such material inadequacy within 3 business days, and within 5 business days after giving such notice file a written report stating what steps have been and are being taken to correct the material inadequacy.

(e) Whenever any self-regulatory organization learns that a member registrant has failed to file a notice or written report as required by this section, such self-regulatory organization must immediately report such failure as

provided in paragraph (g) of this section.

(f)(1) Whenever a clearing organization determines that any position it carries for one of its clearing members which is registered as a futures commission merchant or as a leverage transaction merchant must be liquidated immediately, transferred immediately or that the trading of any account of such futures commission merchant or such leverage transaction merchant shall be only for the purposes of liquidation, because that clearing member has failed to meet a call for margin or to make other required deposits, the clearing organization must give telegraphic notice of such a determination to the principal office of the Commission at Washington, D.C. within 24 hours.

(2) Whenever a registered futures commission merchant determines that any position it carries for another registered futures commission merchant or for a registered leverage transaction merchant must be liquidated immediately, transferred immediately or that the trading of any account of such futures commission merchant or leverage transaction merchant shall be only for purposes of liquidation, because the other futures commission merchant or the leverage transaction merchant has failed to meet a call for margin or to make other required deposits, the carrying futures commission merchant must give telegraphic notice of such a determination to the principal office of the Commission at Washington, D.C., within 24 hours.

(g) Every notice and written report required to be given or filed by this section (except for notices required by paragraph (f) of this section) must be filed with the regional office of the Commission nearest the principal place of business of the applicant or registrant (except that an applicant or registrant under the jurisdiction of the Commission's Western Regional Office must file such notices and reports with the Southwestern Regional Office), with the designated self-regulatory organization, if any, with the Securities and Exchange Commission, if such applicant or registration is a securities broker or dealer, and with the National Futures Association, if the

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(2) An applicant may elect to file its Form 1-FR for each calendar quarter in lieu of each fiscal quarter by notifying the National Futures Association of its election, in writing, concurrently with the filing of the Form 1-FR pursuant to agraph (a)(2) of this section. A copy of such written notice must also be filed with the regional office of the Commission nearest the principal place of business of the applicant (except that applicant under the jurisdiction of the Commission's Western Regional Office must file such a notice with the Commission's Southwestern Regional Office). A registrant wishing to change such election or to make such election other than concurrently with the filing of the Form 1-FR pursuant to paragraph (a)(2) of this section may do so only if such change or election is approved by the Commission upon written application to the principal office of the Commission in Washington, D.C., and written notice of such change is given to the designated selfregulatory organization, if any.

(f) Extension of time for filing reports. (1) In the event a registrant finds that it cannot file its report for any period within the time specified in paragraphs (b)(1) or (b)(4) of this section or $ 1.12(b) without substantial undue hardship, it may file with the principal office of the Commission in Washington, D.C., an application for an extension of time to a specified date which may not be more than 90 days after the date as of which the financial statements were to have been filed. The application must state the reasons for the requested extension and must contain an agreement to file the report on or before the specified date. The application must be received by the Commission before the time specified in paragraphs (b)(1) or (b)(4) of this section or $ 1.12(b) for filing the report. Notice of such application must be given to the designated selfregulatory organization, if any, concurrently with the filing of such application with the Commission. Within ten calendar days after receipt of the application for an extension of time, the Commission shall: (i) Notify the registrant of the grant or denial of the requested extension; or (ii) indicate to

the registrant that additional time is required to analyze the request, in which case the amount of time needed will be specified. (See $ 1.16(f) for extension of the time for filing certified financial statements.)

(2) In the event an applicant finds that it cannot file its report for any period within the time specified in paragraph (b)(4) of this section or $ 1.12(b) without substantial undue hardship, it may file with the National Futures Association an application for an extension of time to a specified date which may not be more than 90 days after the date as of which the financial statements were to have been filed. The application must state the reasons for the requested extension and must contain an agreement to file the report on or before the specified date. The application must be received by the National Futures Association before the time specified in paragraph (b)(4) of this section or $ 1.12(b) for filing the report. Notice of such application must be filed with the regional office of the Commission nearest the principal place of business of the applicant (except that an applicant under the jurisdiction of the Commission's Western Regional Office must file such a notice with the Commission's Southwestern Regional Office) concurrently with the filing of such application with the National Futures Association. Within ten calendar days after receipt of the application for an extension of time, the National Futures Association shall: (i) Notify the applicant of the grant or denial of the requested extension; or (ii) indicate to the applicant that additional time is required to analyze the request, in which case the amount of time needed will be specified.

(g) Nonpublic treatment of reports. (1) All of the Forms 1-FR filed pursuant to this section will be public: Provided, however, That if the statement of financial condition, the computation of the minimum capital requirements pursuant to $ 1.17, and the schedule (to be filed by a futures commission merchant only) of segregation requirements and funds on deposit in segregation are bound separately from the other financial statements (including the statement of income (loss)),

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