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jurisdiction, if such information concerns a futures commission merchant registered with the Securities and Exchange Commission as a broker-dealer. This delegation shall not affect any other delegation which the Commission has made or may make, which authorizes any other officer or employee of the Commission to furnish information on the Commission's behalf. Notwithstanding this paragraph, in any case in which it is deemed appropriate, the Director, a Deputy Director or the Chief Accountant of the Division of Trading and Markets may submit the matter to the Commission for its consideration. In addition, the Commission reserves to itself the authority to determine whether to communicate such information or to grant a request for such information in any particular

case.

(7 U.S.C. 6c, 6d, 6f, 6g, 7a, 12a, 19 and 21; 5 U.S.C. 552, 5 U.S.C. 552b, and secs. 2(a)(11), 4b, 4f, 4g, 5a, 8a, 15, and 17 of the Commodity Exchange Act, 7 U.S.C. 4a(j), 6b, 6f, 6g, 7a, 12a, 19, and 21, as amended, 92 Stat. 865 et seq.)

[43 FR 39969, Sept. 8, 1978, as amended at 45 FR 2022, Jan. 10, 1980; 45 FR 6539, Jan. 29, 1980]

§ 1.13 Notification of registration.

Upon receipt of an application for registration (or renewal thereof) the Commission will, if registration is granted, notify the registrant that he has been registered under the Act.

(Sec. 2a(11), Pub. L. 93-463, 88 Stat. 1391 (7 U.S.C. 4a(j)); sec. 8a(4), Pub. L. 74-675, 49 Stat. 1500 (7 U.S.C. 12a(4)), as amended, Pub. L. 84--248, 69 Stat. 535, Pub. L. 90-258, 82 Stat. 33, Pub. L. 93-463, 88 Stat. 1392; sec. 8a(5), Pub. L. 74-675, 49 Stat. 1501 (7 U.S.C. 12a(5)), as amended, Pub. L. 90-258, 82 Stat. 33, Pub. L. 93-463, 88 Stat. 1392)

[44 FR 37202, June 26, 1979]

§ 1.14 Deficiencies, inaccuracies, and changes to be reported.

(a) Each applicant or registrant as a futures commission merchant, commodity trading advisor or commodity pool operator shall file promptly with the Commission a statement on Form 3-R to correct any deficiency or inaccuracy in its application for registration, or any schedule or supplemental statement thereto, and to report any

change which no longer renders accurate and current in the information contained in any of the items on Form 7-R of such application or supplemental statement; or contained in any of the following items on Schedules A, В or C of Form 7-R:

(1) With respect to a futures commission merchant. The following items on Schedule A, "Application for Registration as Futures Commission Mer

chant:"

Item 3-Correspondents and agents (excluding employees and associated persons) operating within the United States, authorized to solicit or accept orders in the name of the registrant.

Item 4-Commodity exchanges in the United States in which the registrant has membership privileges; and

Item 5-Participation in commodity option transactions by the registrant.

New domestic branch offices and new correspondents and agents who are operating within the United States and are authorized to solicit or accept orders on behalf of the futures commission merchant shall be reported promptly and fees shall be remitted as provided in § 1.11.

(2) With respect to a commodity trading advisor. The following items on Schedule B, "Application for Registration as Commodity Trading Advisor:"

Item 4 (a)--Manner of furnishing advisory services; and

Item 6-Ownership in, control or management authority over, or reciprocal business arrangements with futures commission merchants, agents of futures commission merchants, commodity pools, commodity pool operators, floor brokers, associated persons or other commodity trading advisors by the registrant or any persons named in Item 5 Form 7-R.

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§ 1.15

Title 17-Commodity and Securities Exchanges

trant or any persons named in Item 5 of Form 7-R.

(b) Each applicant or registrant as a floor broker or associated person and all individuals who have filed Form 8R pursuant to § 1.10a, § 1.10c or $ 1.10d shall file promptly with the Commission a statement on Form 3-R to correct any deficiency or inaccuracy in the Form 8-R, or Schedule A thereof, or any supplemental statement thereto, and to report any change which no longer renders accurate and current the information contained in any of the following items on Form 8-R, or Schedule A thereof, or any supplemental statement thereto:

§1.15 Changes requiring new registration. A new registration shall be required in the event of a change:

(a) In the name of the registrant; (b) In the form of organization of the registrant;

(c) In the ownership of the business of the registrant in the case of a sole proprietorship; and

(d) In the personnel of a partnership resulting from the death, withdrawal, or addition of a partner: Provided, That if such change does not, as a matter of law, create a new partnership, it may be reported by the registrant the Commission on Form 3-R within 10 days of the date of such

Item 1-Name of floor broker, associ- change, and if so reported a new regisated person or other individual;

Item 2-Any other names by which individual has been known;

Item 4-Home address and telephone number (applicable only to associated persons);

Item 5-Business address (applicable only to floor brokers);

Items 11 and 12-Adverse actions as specified in the form;

Schedule A, Item 3-Name of each clearing member through whom the registrant clears commodity futures transactions for his own account and for accounts which he controls or in which he has a financial interest; and

Schedule A, Item 4-Name of each clearing member for whom the registrant is currently engaged as floor broker.

(c) All statements on Form 3-R shall be prepared and filed in accordance with the instructions contained therein.

(d) Each futures commission merchant shall promptly file with the Commission a report stating the name of each associated person newly employed in such capacity by it or its agents, and shall promptly file with the Commission a report of the termination of employment, and the reasons therefor, of any person who acted as an associated person for the futures commission merchant or its agents.

(7 U.S.C. 6f, 6k, 6n, and 12a (Supp. V. 1975)) [42 FR 23994, May 11, 1977]

NOTE: Form 3-R revised at 43 FR 1325, Jan. 9, 1978.

tration shall not be required.

§1.16 Qualifications and reports of ac

countants.

(a) Definitions-(1) Accountant's report. The term "accountant's report," when used in regard to financial statements and schedules, means a document in which an independent licensed or certified public accountant indicates the scope of the audit (or examination) which he has made and sets forth his opinion regarding the financial statements and schedules taken as a whole or an assertion to the fact that an overall opinion cannot be expressed. When an overall opinion cannot be expressed, the reasons therefore must be stated.

(2) Audit or examination. The terms "audit" and "examination," when used in regard to financial statements and schedules, mean an examination of the statements and schedules by an accountant in accordance with generally accepted auditing standards for the purposes of expressing an opinion thereon.

(3) Certified. The term "certified," when used in regard to financial statements and schedules, means audited and reported upon with an opinion expressed by an independent certified public accountant or independent licensed public accountant.

(b) Qualifications of accountants. (1) The Commission will recognize any person as a certified public accountant who is duly registered and in good standing as such under the laws of the place of his residence or principal

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office. The Commission will recognize any person as a licensed public accountant who was duly licensed on or before December 31, 1970, and is in good standing as such under the laws of the place of his residence or principal office.

(2) The Commission will not recognize any certified public accountant or licensed public accountant as independent who is not in fact independent. For example, an accountant will not be considered independent with respect to any applicant or registrant or any parent, subsidiary, or other affiliate of such applicant or registrant (i) in which, during the period of his professional engagement to examine the financial statements and schedules being reported on or at the date of his report, he or his firm or a member thereof had, or was committed to acquire, any direct financial interest or any material indirect financial interest, or (ii) with which, during the period of his professional engagement to examine the financial statements and schedules being reported on, at the date of his report or during the period covered by the financial statements, he or his firm or a member thereof was connected as a promoter, underwriter, voting trustee, director, officer, or employee, except that a firm will be deemed independent with respect to an applicant or registrant and its affiliates if a former employee or officer of such applicant or registrant or any such affiliate is employed by the firm and such individual has completely disassociated himself from the applicant or registrant and its affiliates and does not participate in auditing financial statements and schedules of the applicant or registrant or its affiliates covering any period of his employment by the applicant or registrant or its affiliates. An accountant will not be considered independent if he or his firm or a member thereof performs manual or automated bookkeeping services or assumes responsibility for maintenance of the accounting records, including accounting classification decisions, of such applicant or registrant or any of its affiliates. For the purposes of this § 1.16(b), the term "member" means all partners in the firm and all professional employ

23

ees participating in the audit or located in the office of the firm participating in a significant portion of the audit.

(3) In determining whether an accountant may in fact not be independent with respect to a particular applicant or registrant, the Commission will give appropriate consideration to all relevant circumstances, including evidence bearing on all relationships between the accountant and that applicant or registrant or any affiliate thereof, and will not confine itself to the relationship existing in connection with the filing of reports with the Commission.

(c) Accountant's reports (1) Technical requirements. The accountant's report (i) must be dated, (ii) must be signed manually, (iii) must indicate the city and State where issued and (iv) must identify without detailed enumeration the financial statements covered by the report.

(2) Representations as to the audit. The accountant's report (i) must state whether the audit was made in accordance with generally accepted auditing standards, and (ii) must designate any auditing procedures deemed necessary by the accountant under the circumstances of the particular case which have been omitted and the reasons for their omission. However, nothing in this paragraph (c)(2) shall be construed to imply authority for the omission of any procedure which independent accountants would ordinarily employ in the course of an audit made for the purposes of expressing the opinion required by paragraph (c)(3) of this section.

(3) Opinion to be expressed. The accountant's report must state clearly: (i) The opinion of the accountant with respect to the financial statements and schedules covered by the report and the accounting principles and practices reflected therein and (ii) the opinion of the accountant as to the consistency of the application of the accounting principles, or as to any changes in such principles which have material effect on the financial statements and schedules.

(4) Exceptions. Any matters to which the accountant takes exception must be clearly identified, such eхсерtions specifically and clearly stated, and to the extent practicable, the effect of each exception on related financial statements and schedules given.

(5) Accountant's report on material inadequacies. A registrant must file concurrently with the annual audit report a supplemental report by the accountant describing any material inadequacies found to exist or found to have existed since the date of the previous audit. An applicant must file concurrently with the audit report a supplemental report by the accountant describing any material inadequacies found to exist as of the date of the form 1-FR being filed; Provided, however, That if such applicant is registered with the Securities and Exchange Commission as a securities broker or dealer, and it files (in accordance with § 1.10(h)) a copy of its Financial and Operational Combined Uniform Single Report under the Securities Exchange Act of 1934, Part II, in lieu of Form 1-FR, the accountant's supplemental report must be made as of the date of such report. The supplemental report must indicate any corrective action taken or proposed by the applicant or registrant in regard thereto. If the audit did not disclose any material inadequacies, the supplemental report must so state.

(d) Audit objectives. (1) The audit must be made in accordance with generally accepted auditing standards and must include a review and appropriate tests of the accounting system, the internal accounting control, and the procedures for safeguarding customer and firm assets in accordance with the provisions of the Act and the regulations thereunder, since the prior examination date. The audit must include all procedures necessary under the circumstances to enable the independent licensed or certified public accountant to express an opinion on the financial statements and schedules. The scope of the audit and review of the accounting system, the internal controls, and procedures for safeguarding customer and firm assets must be sufficient to provide reasonable assurance that any material inadequacies existing at the date of the examination in (i) the accounting system, (ii) the internal ac

counting controls, and (iii) the procedures for safeguarding customer and firm assets (including the segregation requirements of section 4d(2) of the Act and these regulations) will be discovered. Additionally, as specified objectives the audit must include reviews of the practices and procedures followed by the registrant in making (a) periodic computations of the minimum financial requirements pursuant to § 1.17 and (b) daily computations of the segregation requirements of section 4d(2) of the Act and these regulations.

(2) A material inadequacy in the accounting system, the internal accounting controls, the procedures for safeguarding customer and firm assets, and the practices and procedures referred to in paragraph (d)(1) of this section which is to be reported in accordance with paragraph (e)(2) of this section includes any conditions which contributed substantially to or, if appropriate corrective action is not taken, could reasonably be expected to:

(i) Inhibit an applicant or registrant from promptly completing transactions or promptly discharging his responsibilities to customers or other creditors;

(ii) Result in material financial loss; (iii) Result in material misstatement of the applicant's or registrant's financial statements and schedules; or

(iv) Result in violations of the Commission's segregation, recordkeeping or financial reporting requirements to the extent that could reasonably be expected to result in the conditions described in paragraphs (d)(2)(i), (ii), or (iii) of this section.

(e) Extent and timing of audit procedures. (1) The extent and timing of audit procedures are matters for the independent public accountant to determine on the basis of his review and evaluation of existing internal controls and other audit procedures performed in accordance with generally accepted auditing standards and the audit objectives set forth in paragraph (d) of this section. In determining the extent of testing, consideration must be given to the materiality of an area and to the possible effect on the financial

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statements and schedules of a material misstatement in a related account.

(2) If during the course of an audit or interim work, the independent public accountant determines that any material inadequacies exist in the accounting system, in the internal accounting control, in the procedures for safeguarding customer or firm assets, or as otherwise defined in paragraph (d) of this section, he must call such inadequacies to the attention of the applicant or registrant, who has the responsibility to inform the Commission and the designated self-regulatory organization, if any, in accordance with paragraph (d) of § 1.12. The applicant or registrant must also furnish the accountant with a copy of said notice to the Commission within 3 business days. If the accountant fails to receive such notice from the applicant or registrant within 3 business days, or if he disagrees with the stateinents contained in the notice of the applicant or registrant, the accountant must inform the Commissior and the designated self-regulatory organization, if any, by reporting the material inadequacy within 3 business days thereafter. Such report from the accountant must, if the applicant or registrant failed to file a notice, describe the material inadequacies found to exist. If the applicant or registrant filed a notice, the accountant must file a report detailing the aspects, if any, of the applicant's or registrant's notice with which the accountant does not agree.

(f) Extension of time for filing audited reports. (1) In the event any applicant or registrant finds that it cannot file its certified financial statements and schedules for any year within the time specified in § 1.10 without substantial undue hardship, it may file with the principal office of the Commission in Washington, D.C., an application for extension of time to a specified date not more than 90 days after the date as of which the certified financial statements and schedules were to have been filed. Notice of such application must be sent to the designated self-regulatory organization, if any. The application must be made by the applicant or registrant and must: (i) State the reasons for the requested ex

tension; (ii) indicate that the inability to make a timely filing is due to circumstances beyond the control of the applicant or registrant, if such is the case, and describe briefly the nature of such circumstances; (iii) be accompanied by the latest available formal computation of his adjusted net capital and minimum financial requirements computed in accordance with § 1.17; (iv) be accompanied by the latest available computation of required segregation and by a computation of the amount of money, securities, and property segregated behalf of customers as of the date of the latest available computation; (v) contain an agreement to file the report on or before the date specified by the applicant or registrant in the application; (vi) be received by the principal office of the Commission in Washington, D.C., and by the designated self-regulatory organization, if any, prior to the date on which the report is due; and (vii) be accompanied by a letter from the independent public accountant answering the following questions:

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A. What specifically are the reasons for the extension request?

B. On the basis of that part of your audit to date, do you have any indication that may cause you to consider commenting on any material inadequacies in the accounting system, internal accounting controls or procedures for safeguarding customer or firm assets?

C. Do you have any indication from the part of your audit completed to date that would lead you to believe that the firm was or is not meeting the minimum capital requirements specified in § 1.17 or the segregation requirements of section 4d(2) of the Act and these regulations, or has any significant financial or recordkeeping problems?

(2) Within 10 calendar days after receipt of an application for extension of time, the Commission shall: (i) Notify the applicant or registrant of the grant or denial of the requested extension; or (ii) Indicate to the applicant or registrant that additional time is required to analyze the request, in which case the amount of time needed will be specified.

(3) On the written request of any designated self-regulatory organization, or an applicant or registrant, or on its own motion, the Commission

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