UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


FIRST AMER DISCOUNT

v.

CFTR


99-1098a

D.C. Cir. 2000


*	*	*


Garland, Circuit Judge: First American Discount Corpo- ration seeks
review of an order of the Commodity Futures  Trading Commission (CFTC)
holding the company jointly and  severally liable for the acts of a
commodities broker whose  liabilities First American had agreed to
guarantee. First  American contends that the CFTC regulation pursuant
to  which it entered into the guarantee agreement is substantive- ly
and procedurally invalid, and further argues that the  broker's
customer waived the benefits of the guarantee. The  CFTC rejected
these claims, as do we.


I First American is regulated under the Commodity Ex- change Act (CEA)
as a "futures commission merchant"  (FCM). See 7 U.S.C. s 1a(12).1 An
FCM is the commodity  market's equivalent of a securities brokerage
house, soliciting  and accepting orders for futures contracts and
accepting  funds or extending credit in connection therewith. See
Timo- thy J. Snider, Regulation of the Commodities Futures and 
Options Markets s 6.04 (2d. ed. 1997). Prior to 1982, FCMs  did
business with the public both through their own employ- ees, known as
"associated persons," and through loosely  


__________

n 1 The CEA defines an FCM as: an individual, association, partnership,
corporation, or trust  that--(A) is engaged in soliciting or in
accepting orders for the  purchase or sale of any commodity for future
delivery on or  subject to the rules of any contract market; and (B)
in or in  connection with such solicitation or acceptance of orders,
ac- cepts any money, securities, or property (or extends credit in 
lieu thereof) to margin, guarantee, or secure any trades or  contracts
that result or may result therefrom.


7 U.S.C. s 1a(12).


affiliated "agents." S. Rep. No. 97-384, at 40 (1982). The  main
function of many such agents was to procure business  for FCMs. See
id. at 111. These agents were largely  unregistered and unregulated.
See id. at 40.


In 1982, the CFTC advised Congress that the number of  agents was
growing significantly, and that FCMs who used  them "have often
disavowed any responsibility for violations  of the Act by these
'agents.' " Id. The Commission proposed  that "each 'agent' of a
futures commission merchant be  required to register as an associated
person of that futures  commission merchant." Id. Congress, however,
did not  adopt the CFTC's recommendation. As the Senate Commit- tee on
Agriculture, Nutrition, and Forestry explained:


[T]he Committee felt it would be inappropriate to (1)  require these
independent business entities to become  branch offices of the futures
commission merchants  through which their trades are cleared or (2) to
impose  vicarious liability on a futures commission merchant for  the
actions of an independent entity.


Id. at 41. At the same time, Congress acknowledged the  need "to
guarantee accountability and responsible conduct of  such persons,"
id., who "deal with commodity customers and,  thus, have the
opportunity to engage in abusive sales prac- tices," id. at 111.


To resolve this dilemma, Congress drafted legislation re- quiring all
persons who solicit or accept customer orders for  FCMs to register
with the CFTC, but permitting them to  register either as "associated
persons" of the FCMs, or as  part of a new class of registrants called
"introducing bro- kers." Id. at 112. The latter were conceived of as
indepen- dent entities that solicited and accepted customer orders but
 used the services of FCMs for clearing, record keeping and  retaining
customer funds. See id. at 41. To guarantee the  accountability of
introducing brokers, the Commission was  authorized to require them to
meet "minimum financial re- quirements." See id.


The new provisions were enacted as part of the Futures  Trading Act of
1982, Pub. L. No. 97-444, 96 Stat. 2294, which  amended the CEA. Most
significant for our purposes are  amended CEA section 1a, 7 U.S.C. s
1a, which creates the  category of "introducing brokers,"2 and amended
section  4f(b), 7 U.S.C. s 6f(b), which directs the CFTC to ensure
that  every introducing broker "meets such minimum financial 
requirements as the Commission may by regulation prescribe  as
necessary to insure his meeting his obligations as a regis- trant."3
In adopting the latter, the House Conference Report  stated:


[T]he conferees contemplate that the Commission will  establish
financial requirements which will enable [intro- ducing brokers] to
remain economically viable, although  it is intended that fitness
tests comparable to those  required of associated persons will also be
employed.  The intent of the conferees is to require Commission 
registration of all persons dealing with the public, but to  provide
registrants with substantial flexibility as to the  manner and
classification of registration.


H.R. Conf. Rep. No. 97-964, at 41 (1982).


In April 1983, the CFTC responded to Congress' mandate  by publishing a
notice of proposed rulemaking setting forth a  


__________

n 2 The statute defines an introducing broker as:


any person (except an individual who elects to be and is  registered as
an associated person of a futures commission  merchant) engaged in
soliciting or in accepting orders for the  purchase or sale of any
commodity for future delivery on or  subject to the rules of any
contract market who does not accept  any money, securities, or
property (or extend credit in lieu  thereof) to margin, guarantee, or
secure any trades or con- tracts that result or may result


7 U.S.C. s 1a(14).


3 The amended statute bars registration of an introducing  broker
unless the broker meets the CFTC's minimum financial  requirements,
see 7 U.S.C. s 6f(b), and makes it unlawful to engage  in business as
an introducing broker unless registered as such, see 7  U.S.C. s 6d.


$25,000 "minimum adjusted net capital requirement" for in- troducing
brokers. 48 Fed. Reg. 14,933, 14,942 (1983) (pro- posed rule). In
addition, those brokers whose capital reserve  decreased to less than
an "early warning level" of 150% of  that amount would, under the
proposed rule, be required to  notify the CFTC and file monthly
financial statements. Id. at  14,951. The capital requirement,
therefore, would effectively  have been $37,500. See 48 Fed. Reg.
35,248, 35,262 (1983)  (final rule). The CFTC stated that requiring
introducing  brokers to have such a permanent capital base "not only 
would establish a benchmark of economic viability, but would  also be
an important element of customer protection." 48  Fed. Reg. at 14,942.
The proposed minimum would "pro- vid[e] coverage for potential
liabilities arising from business  operations, customer relations and
the handling of proprie- tary accounts." Id.


After publication of the notice, the CFTC received numer- ous comments,
including many from the industry contending  that the proposed capital
requirements were excessive. The  CFTC issued its final rule on August
3, 1983. The final rule  took the industry's comments into account by
reducing the  minimum net capital requirement to $20,000 and entirely 
eliminating the proposed early warning requirement for intro- ducing
brokers. See 48 Fed. Reg. at 35,249. In addition,  adopting the
suggestion of several FCMs, the Commission  announced an alternative
method for complying with the  financial requirement. Under this
alternative, an introducing  broker may satisfy the requirement
without maintaining any  net capital of its own, if it enters into a
guarantee agreement  with an FCM under which the FCM agrees to:


guarantee[ ] performance by the introducing broker of,  and ... be
jointly and severally liable for, all obligations  of the introducing
broker under the Commodity Ex- change Act ... with respect to the
solicitation of and  transactions involving all commodity customer ...
ac- counts of the introducing broker entered into on or after  the
effective date of [the] agreement.


CFTC Form 1-FR-IB (Part B); see 17 C.F.R. s 1.3(nn); 48  Fed. Reg. at
35,249.4 The rule became effective on August 3,  1983.5


Taking advantage of the alternative compliance mechanism  contained in
the final rule, First American entered into a  guarantee agreement
with Wolf Futures Group, Inc., an  introducing broker. Pursuant to the
new regulations, the  agreement stated that First American would be
jointly and  severally liable for all of Wolf's obligations as an
introducing  broker under the CEA. See Violette v. First Am. Discount 
Corp., CFTC Doc. No. 97-R020, 1999 WL 92428, at *3 n.1  (Feb. 24,
1999). Wolf Futures subsequently introduced Greg- ory Violette to
First American to open a commodity futures  trading account in


On December 11, 1996, Violette filed a complaint with the  CFTC against
Wolf Futures and its principal, Scott Allen  Wolf [hereinafter
referred to collectively as "Wolf"]. On Au- gust 31, 1998, a CFTC
Judgment Officer found that Wolf had  traded Violette's account
without written authorization in  violation of CFTC Regulation 166.2,
17 C.F.R. s 166.2. See  Violette v. First Am. Discount Corp., CFTC
Doc. No.  97-R020, 1998 WL 552810 (Aug. 31, 1998). The Officer 
assessed damages of $13,438.50, plus prejudgment interest  and costs.
Most significant for our purposes, the Officer held  First American
jointly and severally "liable for the acts of  Wolf by virtue of its
status as guarantor." Id. at *23.


First American appealed to the Commission, raising three  arguments:
(1) that the CFTC regulation providing for guar- antor status was
contrary to congressional intent and thus  invalid; (2) that the
regulation was void for lack of proper  notice under the
Administrative Procedure Act (APA); and  (3) that an exculpatory
clause in a contract Violette signed 




__________

n 4 Introducing Brokers who register under this option are  known as
"Guaranteed Introducing Brokers." See 48 Fed. Reg. at  35,260.


5 In 1996, citing inflation, the CFTC raised the floor from  $20,000 to
$30,000. See 61 Fed. Reg. 19,177, 19,183 n.31 (1996).


with First American overrode the guarantee agreement. The  Commission
ruled against First American on all three claims  and affirmed the
decision of the Judgment Officer. See  Violette, 1999 WL 92428, at *1.
Pursuant to 7 U.S.C. s 18(e),  First American petitions this court for
review of the Commis- sion's order.


II


First American's initial claim is that the CFTC's final rule,  which
sets forth minimum capital requirements and permits  the alternative
of a guarantee agreement, contravenes the  1982 Act. Our analysis of
an agency's interpretation of a  statute is guided by the two-step
framework of Chevron  U.S.A. Inc. v. NRDC, 467 U.S. 837, 842-43
(1984). We first  ask "whether Congress has directly spoken to the
precise  question at issue," in which case we "must give effect to the
 unambiguously expressed intent of Congress." Id. If the  "statute is
silent or ambiguous with respect to the specific  issue," however, we
move to the second step and must defer  to the agency's interpretation
as long as it is "based on a  permissible construction of the


First American raises only a Chevron step one argument,  contending
that the guarantee provision is "contrary to the  express intent of
Congress." First American Br. at 7. We  can perceive no such express
intent. The 1982 Act authorizes  the CFTC to issue regulations
prescribing "minimum finan- cial requirements" to ensure that an
introducing broker  meets "his obligations as a registrant." 7 U.S.C.
s 6f(b).  The statute is silent as to what such a financial
requirement  might be, and certainly does not say that the CFTC may
not  use an FCM's guarantee in satisfaction of that requirement. 
Instead, "Congress has explicitly left a gap for the agency to  fill"
and has made "an express delegation of authority to the  agency to
elucidate [the] specific provision of the statute by  regulation."
Chevron, 467 U.S. at 843-44. We therefore  proceed to Chevron's step


Although First American does not address the second step  of Chevron,
the CFTC does and we find its analysis compel-


ling. The question is whether the combination of a net  capital
requirement, supplemented with the alternative of a  guarantee,
reasonably falls within the undefined term, "mini- mum financial
requirements." The CFTC responds that the  statute authorizes it to
impose such requirements to insure  that an introducing broker can
meet "his obligations as a  registrant," and the Commission reasonably
explains that the  guarantee alternative is, like the capital
requirement, a way  of: "(1) Insuring that introducing brokers are not
judgment  proof; and (2) providing coverage for potential liabilities
of  introducing brokers arising from business operations and  customer
relations." 48 Fed. Reg. at 35,264.


Recognizing the absence of support for its position in the  statutory
language, First American asks us to retrace our  Chevron steps and
reconsider step one by looking at the  legislative history of the 1982
Act. That history, appellant  contends, expressly bars the guarantee
provision at issue  here. In support, First American cites the passage
in the  Senate Report stating that the Committee felt it would be 
inappropriate "to require" introducing brokers to become  branch
offices of FCMs, or "to impose" vicarious liability on  FCMs for acts
of introducing brokers. S. Rep. No. 97-384, at  41. First American
contends that the guarantee provision is  inconsistent with this
congressional concern, arguing that it  effectively requires an
introducing broker to become a branch  office of its affiliated FCM,
and effectively imposes vicarious  liability on an FCM for the conduct
of its affiliated introduc- ing broker.


The flaw in this argument is that the guarantee provision  does not
"require" or "impose" anything: it is merely an  option that either
the introducing broker or the FCM is free  to reject. Rather than seek
out an FCM for a guarantee, an  introducing broker may instead choose
to satisfy the capital  requirement itself. And an FCM asked by an
introducing  broker for a guarantee may simply decline, electing
instead to  use its own employees or to work with introducing brokers 
that can independently satisfy the capital requirement. Ac- cordingly,
under the CFTC's regulation, the FCM's accep- tance of liability
through the guarantee is a voluntary choice, 


which nothing in the legislative history precludes the CFTC  from
making available.


But, First American protests, the guarantee provision is  not truly an
option. In petitioner's view, the CFTC's $20,000  minimum capital
requirement is so high that introducing  brokers are effectively
"forced" to sign guarantee agree- ments. It is this reality that
assertedly contravenes both the  Senate Committee's distaste for
imposing obligations upon  FCMs, and the Conference Report's
contemplation "that the  Commission will establish financial
requirements which will  enable [introducing brokers] to remain
economically viable."  H.R. Conf. Rep. No. 97-964, at 41.


We see nothing in the statute or legislative history, howev- er, that
would foreclose a $20,000 minimum capital require- ment as "too high."
Both are silent on the question of what  the "minimum" in "minimum
financial requirements" means.  Moving again to Chevron's step two, we
also see no ground  upon which the CFTC's standard could be viewed as
an  impermissible interpretation of that term, or even of the 
conferees' phrase, "economically viable." The CFTC original- ly
proposed an effective requirement of $37,500, cutting it  almost in
half to $20,000 after considering industry comments.  First American
has offered no evidence whatsoever to sub- stantiate its claim that a
$20,000 requirement is still too high  to allow introducing brokers to
remain economically viable, or  that it is so high as to force them to
opt for an FCM  guarantee.6




__________

n 6 The CFTC acknowledged that the SEC had established a  lower minimum
net capital requirement ($5,000) for securities intro- ducing brokers.
It explained, however, that a securities introducing  broker is
required to maintain the higher of $5,000 or 62/3% of  aggregate
indebtedness, "which could require such a firm to main- tain more than
$25,000 of net capital." 48 Fed. Reg. at 14,934 n.13.  The CFTC also
noted that its higher base amount was necessary  "because introducing
brokers in commodities will have fewer re- strictions on their
activities than is the case for securities introduc- ing brokers." Id.


Moreover, although it is true that the legislative history  reflects
congressional concern that the economic viability of  introducing
brokers be maintained, it also reflects Congress'  intent--as the
statute itself says--that the financial require- ments be set at a
level that will ensure that an introducing  broker meets "his
obligations as a registrant." 7 U.S.C.  s 6f(b). The Commission was
instructed to impose standards  sufficient "to guarantee
accountability and responsible con- duct," S. Rep. No. 97-384, at 41,
and to ensure "that persons  handling orders for commodity trades
cannot escape responsi- bility for their actions for lack of adequate
capital," id. at 112.  Implementing this congressional intent was
precisely the  rationale the CFTC offered for finally settling upon a
mini- mum requirement of $20,000. See 48 Fed. Reg. at 35,261,  35,264.
And First American offers no basis for concluding  that such a
requirement is too high to be reasonably related  to the goal of
ensuring that customers' claims are not ren- dered moot because
introducing brokers are judgment proof.  If anything, the more than
$13,000 in damages awarded in the  relatively small case now before us


In sum, we conclude that the $20,000 minimum capital  requirement for
introductory brokers is a permissible exer- cise of the CFTC's
regulatory authority, and that it is equally  permissible for the
Commission to provide the alternative of  entering into a guarantee
agreement with an FCM. Indeed,  providing such an option is faithful
to Congress' direction that  the CFTC "provide the registrants with
substantial flexibility  as to the manner and classification of
registration." H.R.  Conf. Rep. No. 97-964, at 41.


III


First American's second challenge to the CFTC's rule is  procedural.
Petitioner contends that the guarantee option  should be invalidated
because it was not subject to notice and  comment prior to final
issuance. As we have discussed, the  notice of proposed rulemaking
issued by the CFTC on April  6, 1983, stated that the Commission was
contemplating a 


$25,000 capital requirement, which, when combined with the  proposed
"early warning" requirement, would effectively re- quire a minimum
capital level of $37,500. The possibility of a  guarantee option,
later offered in the final rule, was not  mentioned. Petitioner
contends that this failure to publish  notice of the guarantee option
violated the APA, which gener- ally requires an agency to give at
least thirty days notice of  and an opportunity to comment on "either
the terms or  substance of the proposed rule or a description of the
subjects  and issues involved." 5 U.S.C. s 553(b); see id. s 553(c),


The law does not require that every alteration in a pro- posed rule be
reissued for notice and comment. If that were  the case, an agency
could "learn from the comments on its  proposals only at the peril of"
subjecting itself to rulemaking  without end. International Harvester
Co. v. Ruckelshaus,  478 F.2d 615, 632 & n.51 (D.C. Cir. 1973); see
Fertilizer Inst.  v. EPA, 935 F.2d 1303, 1311 (D.C. Cir. 1991);
American  Medical Ass'n v. United States, 887 F.2d 760, 768 & n.7 (7th
 Cir. 1989). Instead, renewed notice is required only if the  final
rule cannot fairly be viewed as a "logical outgrowth" of  the initial
proposal. Small Refiner Lead Phase-Down Task  Force v. EPA, 705 F.2d
506, 547 (D.C. Cir. 1983). The test  for a "logical outgrowth,"
variously phrased, is whether a  reasonable commenter "should have
anticipated that such a  requirement" would be promulgated, id. at
549, or whether  the notice was "sufficient to advise interested
parties that  comments directed to the" controverted aspect of the
final  rule should have been made, Fertilizer Inst., 935 F.2d at 


In this case, the outcome of that test is a relatively close  question.
As we have said above, the guarantee agreement is  reasonably regarded
as a form of minimum financial require- ment, and was promulgated in
response to suggestions that it  be offered as an alternative to the
$25,000 capital requirement  originally proposed. The fact that others
in First American's  shoes--that is, other FCM's--did comment on and
indeed  propose the guarantee option suggests that they, at least, 
regarded it as a logical outgrowth. See Comments of Abram- son & Fox
at 6 (proposal by law firm "retained by several 


major futures commission merchants" that "the carrying  FCM be
permitted to assume full regulatory and financial  responsibility for
the activities of the introducing broker");  Comments of Heinold
Commodities, Inc. at 2 (proposal by  registered FCM that, as an
alternative to a capital require- ment, the carrying FCM should be
permitted to "stand as a  guarantor for the introducing broker's
potential liabilities");  Comments of Cargill Investor Services, Inc.
at 1 (suggesting  that as long as "the FCM remains fully responsible
to the  customer, there is no reason for [introducing brokers] to 
fulfill a capital requirement" ). On the other hand, it could  well be
argued that a reasonable commenter would not have  thought to comment
on a guarantee option since it is different  not only in degree but in
kind from a financial requirement  denominated in dollars. Under that
view, the connection  between the original notice and the guarantee
option would  be "simply too tenuous" for the latter to be regarded as
a  "logical outgrowth" of the former. Small Refiner, 705 F.2d  at


We need not resolve this question, however, because  CFTC's failure to
re-notice the guarantee option was at best  harmless. The APA directs
reviewing courts to take "due  account" of "the rule of prejudicial
error." 5 U.S.C. s 706.  "As incorporated into the APA, the harmless
error rule  requires the party asserting error to demonstrate
prejudice  from the error." Air Canada v. DOT, 148 F.3d 1142, 1156 
(D.C. Cir. 1998) (citing 5 U.S.C. s 706); see Steel Mfrs. Ass'n  v.
EPA, 27 F.3d 642, 649 (D.C. Cir. 1994) (acknowledging  agency's
failure to provide opportunity for comment on one  portion of a rule,
but upholding the rule under APA's "harm- less error" provision);
Cabais v. Egger, 690 F.2d 234, 237 n.4  (D.C. Cir. 1982) ("Even where
notice and comment were  erroneously omitted, a regulation or rule
need not be invali- dated if it has no substantial impact."). Assuming
that the  notice provided by the CFTC was insufficient, we conclude 
that First American suffered no prejudice as a result.


As we have discussed above, the portion of the rule to  which First
American objects is merely an alternative to the  primary compliance
requirement of maintaining $20,000 in net 


capital. That primary requirement is perfectly lawful, and  one upon
which First American did have an opportunity to  comment. First
American was not required to accept the  guarantee alternative; it was
free to turn Wolf away and  instead to use its own employees or to
deal only with intro- ducing brokers who could meet the capital
requirement.  That First American did not do so evidences its view
either  that the guarantee was not harmful, or that it was less 
harmful than the primary requirement by which it would  otherwise have
had to abide. The lack of opportunity to  comment on the guarantee
option therefore cannot be cause  for overturning the CFTC's


We also note that the concept of a guarantee option came  from FCMs
looking for a way to give both their introducing  brokers and
themselves an alternative to the minimum capital  requirement. This
indicates that FCMs regarded the guar- antee as an alternative that
was beneficial rather than harm- ful to their interests. Although
First American is not bound  by the views of its fellow FCMs, its own
voluntary decision to  adopt the guarantee option makes clear that it
regarded it the  same way. This reinforces the conclusion that the
CFTC's  failure to extend the rulemaking to provide an opportunity for
 notice and comment on the guarantee option was at best  harmless


Finally, the fact that First American not only was not  harmed by, but
rather affirmatively benefitted from, the  availability of the
guarantee option suggests a second reason  for not countenancing its
claim of procedural error. Under  the doctrine of equitable estoppel,
"a party with full knowl- edge of the facts, which accepts the
benefits of a transaction,  contract, statute, regulation, or order
may not subsequently  take an inconsistent position to avoid the
corresponding obli- gations or effects." Kaneb Servs., Inc. v. FSLIC,
650 F.2d  78, 81 (5th Cir. 1981). Here, the CFTC gave First American 
the option of guaranteeing the liabilities of Wolf, an introduc- ing
broker who could not otherwise have operated for lack of  sufficient
capital. First American had no obligation to make  the guarantee, but
did so in exchange for the financial bene- fits both entities expected
to reap from their joint arrange-


ment. Having received those benefits, First American will  not now be
heard to attack the regulation that was their  source. See Federal
Power Comm'n v. Colorado Interstate  Gas Co., 348 U.S. 492, 502 (1955)
("[Respondent] cannot now  be allowed to attack an officially approved
condition of the  merger while retaining at the same time all of its
benefits.").


IV


First American's final challenge to the order holding it  liable for
the conduct of its introducing broker is based on an  exculpatory
clause included in an agreement that Violette  signed with First
American after Wolf introduced the two.  Paragraph 23 of the two-page,
standard-form "Customer  Agreement" reads as follows: "Customer hereby
waives any  claim based upon First American's guarantee, if any, of 
Introducing Broker's obligations under the Commodity Ex- change Act or
CFTC regulations." J.A. at 27. First Ameri- can argues that this
provision immunizes it from liability that  would otherwise attach
under the guarantee agreement it  signed with its introducing


The CFTC disagrees. It states that its Regulation 1.10(j),  17 C.F.R. s
1.10(j), which permits an introducing broker to  satisfy its capital
requirements through an FCM guarantee,  cannot be waived in this
manner. Whether or not an agen- cy's regulation is waivable is a
question of the agency's intent,  and just as we must defer to the
agency's reasonable inter- pretation of the statutory scheme it was
entrusted to adminis- ter, so too must we give its interpretation of
its own regula- tion "controlling weight unless it is plainly
erroneous or  inconsistent with the regulation." Bowles v. Seminole
Rock  & Sand Co., 325 U.S. 410, 414 (1945); see Christensen v.  Harris
County, 120 S. Ct. 1655, 1663 (2000); Auer v. Robbins,  519 U.S. 452,


The CFTC's interpretation of its regulation as non-waivable  is neither
plainly erroneous nor inconsistent with the regula- tion. Nothing in
the text of the rule suggests that the  guarantee is waivable. To the
contrary, the mandatory form  agreement required by the rule states:
"This guarantee 


agreement is binding and is and shall remain in full force and  effect
unless terminated in accordance with the rules, regula- tions or
orders promulgated by the Commission with respect  to such
terminations." CFTC Form 1-FR-IB (Part B); see  17 C.F.R. s 1.3(nn)
(requiring guarantee to conform to Form  1-FR).7 Under the
regulations, termination is permitted  (with prospective effect only)
by mutual written consent of  the parties with prompt notice to the
Commission, or by  either party with written notice to the other and
to the  Commission. See 17 C.F.R. s 1.10(j)(5)(iii). The rules do not 
permit termination by waiver of a customer, and First Ameri- can does
not argue that the events which do permit termi- nation occurred in


Moreover, the CFTC contends that permitting customer  waiver would
"undermine[ ] the protections provided by the  guarantee agreement."
Violette, 1999 WL 92428, at *2. The  purpose of the Commission's rule
is to provide coverage for  the liabilities of introducing brokers and
to ensure that they  are not "judgment proof." 48 Fed. Reg. at 35,264.
The  CFTC reasonably argues that if the guarantee were waiva-
ble--particularly through the kind of boilerplate contract at  issue
here--that purpose would be wholly defeated. See  Gray v. American
Express Co., 743 F.2d 10, 16 (D.C. Cir.  1984) (declining to give
effect to provision in cardmember  contract that would have
effectively waived coverage of Fair  Credit Billing Act); id. at 16
("The rationale of consumer  protection legislation is to even out the
inequalities that  consumers normally bring to the bargain. To allow
such  protection to be waived by boiler plate language of the 
contract puts the legislative process to a foolish and unpro- ductive




__________

n 7 See also 48 Fed. Reg. at 35,265 ("If the guarantee agreement  does
not expire or is not terminated in accordance with the provi- sions of
s 1.10(j)(4) or (5), it shall remain in effect indefinitely."). 
Guarantee agreements can expire (with prospective effect only) if  the
FCM or introducing broker fails to renew its registration of if  such
registration is suspended, revoked, or withdrawn. See 17  C.F.R. s
1.10(j)(4)(i)-(ii).


Finally, and perhaps most telling, even if we were to hold a  guarantee
agreement waivable by a customer, not even First  American contends
that the CFTC's minimum capital require- ment would itself be waivable
in that manner. See 7 U.S.C.  s 6f(b) (providing that each registered
introducing broker  "shall at all times continue to meet" the minimum
financial  requirements prescribed by the Commission). Yet, to hold 
the one is to hold the other. As the rules make clear, a  guarantee
agreement is entered into "in satisfaction of the  adjusted net
capital requirements with which the introducing  broker otherwise
would have to comply," and thus permits  the introducing broker to
operate below the minimum level of  required net capital. CFTC Form
1-FR-IB (Part B); see 17  C.F.R. s 1.3(nn). Although First American
argues that the  guarantee may be waived, it does not suggest that the
CFTC  may thereafter deregister the introducing broker if it cannot 
muster $20,000 in capital. But if the Commission cannot  deregister
such a broker, permitting waiver would effectively  permit the broker
to slip the bonds of the capital requirement  altogether. The CFTC
reasonably interprets its regulations  as not countenancing such
blatant circumvention of their  purpose.


First American complains that even if the CFTC's no- waiver
interpretation is correct, allowing the Commission to  apply it for
the first time in this adjudication would be unfair.8  We do not
agree. There is nothing in the language of the  regulation to suggest
to a reasonable FCM that guarantees  are waivable, and the termination
provision suggests quite the  opposite. Court decisions dating back to
at least 1991, five  years before Violette signed the waiver at issue
here, hold  that waiver agreements purporting to invalidate identical 
guarantee agreements are unenforceable as contrary to the  purpose of
the statutory and regulatory framework. See, e.g.,  Skipper v. Index
Futures Group Inc., No. 91C1624, 1995 




__________

n 8 This is actually the second case in which the CFTC has so  ruled.
The CFTC issued its first opinion on the subject a month  earlier. See
Clemons v. McCabe, CFTC Doc. No. 97-R053, 1999  WL 46833, at *2 (Jan.
29, 1999).


WL 493435 (N.D. Ill. 1995); Resolution Trust Corp. v.  Krantz, No.
89C166, 1991 WL 148291 (N.D. Ill. 1991).9  Moreover, even if it were
unfair for the CFTC only now to  make clear that the regulatory
requirement cannot be waived,  it would be at least as unfair to
Violette to announce the  opposite rule. Indeed, we cannot help but
note the irony in  petitioner's claim that Violette--a retired postal
worker-- "voluntarily" entered into the boilerplate waiver agreement 
with First American, while First American itself--a large  brokerage
firm--was simultaneously "compelled" to enter  into the guarantee


V


We uphold the validity of the regulation permitting guaran- tee
agreements as alternatives to minimum capital require- ments, and
further uphold the CFTC's interpretation of that  regulation as not
permitting customer waivers. Accordingly,  we have no ground for
reversing the Commission's order  holding First American jointly and
severally liable for the 




__________

n 9 First American cites two cases in which it contends courts  upheld
exculpatory waiver provisions in contracts between FCMs  and
customers. See Rothwell Cotton Co. v. Rosenthal & Co., 827  F.2d 246,
250-51 (7th Cir. 1987); Cange v. Stotler and Co., 826 F.2d  581 (7th
Cir. 1987); id. at 596 (Easterbrook, J., concurring). In  neither
case, however, was there a guarantee agreement between  an FCM and an
introducing broker, and hence in neither was the  waivability of the
CFTC's regulation at issue. See Cange, 826 F.2d  at 596 (Easterbrook,
J., concurring) (arguing that waivers should  generally be upheld
"[u]nless ... the CFTC forbids them by  regulation"). Moreover, in
Cange the majority opinion suggested  that an exculpatory waiver
provision signed prior to the initiation of  trading would not be
enforceable. See 826 F.2d at 594-95.


10 We also note that First American has an indemnification  agreement
with Wolf that will permit it to recover from the  introducing broker
in the event it is held liable for the latter's  wrongdoing. See
Letter from Counsel for First American (Jan. 20,  2000). CFTC
regulations authorize such indemnification agree- ments. See 48 Fed.
Reg. at 35,264.


regulatory violations committed by its introducing broker.  The
petition for review is denied.


Randolph, Circuit Judge, concurring: I concur in the  judgment and in
all of the court's opinion except the portion  of Part III holding
that the Commission's failure to give  notice amounted to harmless