Gerald Fish Man

January 18, 2011
Via courier, email and online

Mr. David A. Stawick
Secretary
Commodity Futures Trading Commission
1155 21st Street NW
Washington DC 20581
Re: Proposed Chief Compliance Officer Requirements

RIN 3038-AC96
Dear Mr. Stawick:
Rosenthal Collins Group, LLC (“Company”), respectfully submits this letter in response
to the request of the Commission for comments on its proposed rules for the “Designation of a
Chief Compliance Officer ….” Federal Register, Vol. 75, No.223, 70881. While the Company
lauds the Commission for proposing “…rules to implement new statutory provisions enacted by
Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”)
(the Commission’s proposed rules are herein referred to as the “Proposal”), we believe that some
aspects of the Proposal are not in the public interest and will have unintended negative
consequences upon the public and the FCM industry.
The Commenter
RCG has been a registered futures commission merchant (“FCM”) and clearing member
of all major futures exchanges for many decades, has 25,000+ active customers and currently
holds customer funds in excess of 1.4 billion dollars. One of its Managing Members, Leslie
Rosenthal, has served on the Board of Directors of the Chicago Board of Trade, the Chicago
Mercantile Exchange, the MidAmerica Commodity Exchange and the Board of Trade Clearing
Corporation. In addition, his service has included the Chairmanship of the Chicago Board of
Trade, the Chairmanship of the Board of Trade Clearing Corporation and the Chairmanship of the
CME Clearing House Committee. Its other Managing Member, J. Robert Collins, has served as
President of the MidAmerica Commodity Exchange, a Director of the Chicago Board of Trade
and a Governor of the Board of Trade Clearing Corporation.
Designation of an FCM Chief Compliance Officer (“CCO”)
While we are unaware of any FCM that does not have a designated CCO (or someone
performing compliance functions), the Dodd-Frank and Commission proposed, requirement to
designate one is appropriate and necessary public step needed to enhance the “culture of
compliance” in today’s global economy. We believe, however, to say that a CCO of an FCM
must also be a “principal” of the FCM does not add any layer of added protection for the public
and, indeed, may induce fully qualified persons to not seek such positions, to the public’s
detriment. Spelling out that a CCO must have “the appropriate background and skills to perform
the compliance duties of the Position” and who is not otherwise disqualified from registration
under the Commodity Exchange Act (“Act”), is a valid pronouncement. To require the CCO of
an FCM to also be a principal—and possibly liable outside his/her area(s) of competence or
control—adds no incentive for qualified individuals to become or stay as CCOs of FCMs. The
{Firm Documents\2773\11001\00008753.DOC;}1
fact that Dodd-Frank does not “lump” CCOs of FCMs with those of swap dealers and major swap
participants (the latter having specific Dodd-Frank statutory requirements), indicates to the
Company that Congress recognizes that FCMs, at least those that are neither also swap dealers or
major swap participants, do not need the “overkill” of being included together with them. FCMs
are intermediaries and must be viewed as such. An FCM that is also a swap dealer or a major
swap participant should be required to comply with the more stringent statutory requirements for
its CCO; a “pure” FCM should not.
The CCO of an FCM Should Report to the Board of Directors or the Senior Officer
We concur that, among other things, to avoid conflicts of interest or allegiance, and to
insulate her/him, the CCO of an FCM must be fairly senior and report directly to the Board or, if
the FCM is not a corporation, to the senior officer of the firm. We also believe that the CCO
should be prohibited from receiving any transaction- or customer-based compensation (e.g., no
compensation based on introducing customer relationships to the FCM). This will further insulate
the CCO from potential conflicts.
Only the Broad Duties of the CCO of an FCM should be in the Commission Rules; the
Specifics should be left to the National Futures Association (“NFA”)
The Commission rule on CCOs of FCMs, in our view, should be in the nature of a “broad
brush” and not get involved in detail. The Proposal, in our view, would place an unduly heavy
burden on the CCO of an FCM. Words like “full responsibility” to “develop and enforce” rules
and procedures at an FCM could have a chilling effect on anyone qualified from taking on the
CCO role. To “consult with” senior officers concerning compliance policies is a far cry from
having ultimate responsibility for compliance violations. That should be left to the Chief
Executive Officer, clearly a principal of the FCM, not the CCO.
In our view, as is the case of FINRA in the securities industry, the details should be left
to NFA, the Commission sanctioned self regulatory organization dealing with conduct and
compliance. Indeed, we respectfully point to FINRA Rule 3130 (“Supervisory Responsibilities-
Annual Certification of Compliance and Supervisory Procedures”) as a guideline for the
Commission to provide to NFA in this area. The substantial experience of FINRA—and NFA-- in
this area should be utilized by the Commission, in the public interest and to best advantage.
The Historic Role of the CCO of an FCM as Advisory should Remain So
Clearly, the evolving emphasis on compliance (witness, Dodd-Frank) is increasing.

Nevertheless, it is the firm’s responsibility to comply with applicable rules, regulations, policies
and procedures. Historically, it has been the CCO’s role to advise on how to comply, to monitor
the firm and its employees on such matters, including advising as to potential violations, and to
play an integral support role for FCM compliance programs. The ultimate responsibility,
however, for ensuring firm compliance has been, and should be, the firm’s senior management
and significant supervisors. The role of the CCO varies from FCM to FCM, depending on the
particular business model. The CCO position is not a “one size fits all.” The Commission’s rules
should keep it so for the most efficient, appropriate implementation and compliance.
Annual Certification should not be “Self-Incriminating;” Responsibility for the
Certification should be Shared
We believe that by making the CCO of an FCM “liable” for infractions by the firm and,
by the proposed CCO’s annual detailed certification, giving potential “disgruntled” customers a
“roadmap” for frivolous lawsuits, the Proposal does a disservice not only to FCMS, but also to
the public interest. Thus, we strongly recommend that the Commission adopt the SEC/FINRA
model in this area and enlist the NFA to tailor an approach in this area similar to that model and
submit it to the Commission for review and comment, etc.
In this vein, we believe that the annual certification requirement in the Proposal will be
overly burdensome on the CCO. If, in fact, the goal is to ensure compliance of the firm, then
responsibility for compliance belongs on the shoulders of those of the firm’s senior executive
personnel who are in a position to enforce compliance. For example, the FINRA approach is to
have the CEO certify annually that the firm has in place processes to establish, maintain, review,
test and modify written supervisory procedures and policies reasonably designed to maintain
compliance with applicable requirements, and, that the CEO has met at least once during the year
with the CCO on these matters. Here, the CEO’s certification is principally based on the report of
the CCO to the CEO, without which the CEO would not be in a position to reach the conclusions
set forth in the certification. In fact, the FINRA rule requires the CEO to consult not only the
CCO but also “such other employees” the CEO believes appropriate.
We believe that compliance responsibility should devolve on the firm’s leaders as a

group and not be “dumped” upon the CCO. To be sure, the CCO should be responsible for
reviewing the firm’s compliance policies and recommending appropriate adjustments, for
conducting inquiries into potential or actual conflicts and recommending resolutions for assisting
in establishing procedures for remedial actions when noncompliance is found, and for being
substantially involved in the preparation of the annual certification the contents of which should
be more in the nature of the FINRA required certification, to be signed by the CEO—not the
CCO—after the CEO consults with others the CEO deems appropriate to enable her/him to sign
the report. To require otherwise, in our view, is inapposite to the public interest when weighed
against the burden it would place on the FCM and its CCO. Indeed, the Proposal in this regard, in
our view, is taking a ten year step backward in FCM governance, from the current climate, having
senior management create a “culture of compliance,” where everyone at the firm knows what will
not be tolerated, to returning to placing the CCO in the position of being an “enforcer” that people
try to maneuver around. Sharing the responsibility will be, in our estimation, more efficacious in
implementing and achieving the goals set by Dodd-Frank and just makes good business sense.
Finally, we do not believe that attorneys should be precluded from being CCOs--indeed,
persons with legal training (and with a license as an “officer of the court”) may well be eminently
so suited—and we certainly can understand the need for a person to have the appropriate tools to
act in a CCO capacity and to demonstrate compliance proficiency. But to require a CCO to be a
“principal” and to file “as if” he/she were applying for registration is adding a wholly
unnecessary step to the process. If compliance is to be achieved by a firm, it must be a joint effort
of the firm’s executive officers and senior supervisors and not devolved upon an individual to
shoulder the entire burden of compliance. If it is to be one person, it should be the CEO, not the
CCO.
We expect that the Commission will receive, or has received, similar and other comments
on the Proposal from others in the broader FCM community. Thus, in the interest of the
Commission’s time and effort, we have limited our comments to the foregoing. We thank you for
the opportunity to submit these comments. Should the Commission or Staff desire to discuss this
matter, please do not hesitate to contact me (312.795.7636 or gfishman@rcgdirect.com).
Respectfully Submitted,
Gerald L. Fishman
Executive Vice President and
General Counsel
cc: Hon. Gary Gensler, Chairman

Hon. Michael Dunn, Commissioner
Hon. Jill E. Sommers, Commissioner
Hon. Bart Chilton, Commissioner
Hon. Scott D. O’Malia, Commissioner
Division of Clearing and Intermediary Oversight

Ananda Radhakrishnan, Director
Sarah E. Josephson, Associate Director
Leslie Rosenthal, Managing Member. RCG

J. Robert Collins, Managing Member, RCG
Scott Gordon, Chairman and CEO, RCG
Maureen C. Downs, President, RCG
Michael J. Conti, Associate General Counsel, RCG
Patricia C. Donahue, Chief Compliance Officer and Associate General Counsel, RCG

Gerald Fish Man

Uploaded by

Copyright:

Available Formats

Gerald Fish Man

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Gerald Fish Man

Uploaded by

Copyright:

Available Formats

January 18, 2011

Via courier, email and online

Re: Proposed Chief Compliance Officer Requirements

Dear Mr. Stawick:

Designation of an FCM Chief Compliance Officer (“CCO”)

The Historic Role of the CCO of an FCM as Advisory should Remain So

Clearly, the evolving emphasis on compliance (witness, Dodd-Frank) is increasing.

We believe that compliance responsibility should devolve on the firm’s leaders as a

cc: Hon. Gary Gensler, Chairman

Division of Clearing and Intermediary Oversight

Leslie Rosenthal, Managing Member. RCG

You might also like