2011-4799
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Federal Register, Volume 76 Issue 46 (Wednesday, March 9, 2011)[Federal Register Volume 76, Number 46 (Wednesday, March 9, 2011)]
[Proposed Rules]
[Pages 12888-12896]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-4799]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 3
RIN 3038-AD50
Registration of Intermediaries
AGENCY: Commodity Futures Trading Commission.
ACTION: Proposed rules.
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SUMMARY: The Commodity Futures Trading Commission (Commission) hereby
proposes regulations to further implement new statutory provisions
enacted by Title VII of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) regarding registration of
intermediaries. Specifically, the Commission proposes certain
conforming amendments to the Commission's regulations regarding the
registration of intermediaries, consistent with other Commission
rulemakings issued pursuant to the Dodd-Frank Act; and other
modernizing and technical amendments to the regulations.
DATES: Comments must be received on or before May 9, 2011.
ADDRESSES: You may submit comments, identified by RIN 3038-AD50 and
Part 3, by any of the following methods:
Agency Web site, http://www.cftc.gov, via its Comments
Online process at http://comments.cftc.gov. Follow the instructions for
submitting comments through the Web site.
Mail: David A. Stawick, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581.
Hand Delivery/Courier: same as mail above.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Please submit your comments using only one method.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
http://www.cftc.gov. You should submit only information that you wish
to make available publicly. If you wish the Commission to consider
information that you believe is exempt from disclosure under the
Freedom of Information Act, a petition for confidential treatment of
the exempt information may be submitted according to the procedures
established in Sec. 145.9.\1\
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\1\ Commission regulations referred to herein are found at 17
CFR Ch. 1 (2010), as amended by 75 FR 55409, Sep. 23, 2010, and may
be accessed on the Commission's Web site.
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The Commission reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse or remove any or all of your
submission from http://www.cftc.gov that it may deem to be
inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of the rulemaking will be retained in the public comment
file and will be considered as required under the Administrative
Procedure Act and other applicable laws, and may be accessible under
the Freedom of Information Act.
FOR FURTHER INFORMATION CONTACT: Andrew Chapin, Associate Director,
Division of Clearing and Intermediary Oversight, (202) 418-5465,
achapin@cftc.gov; or Claire Noakes, Attorney Advisor, Division of
Clearing and Intermediary Oversight, (202) 418-5444, cnoakes@cftc.gov;
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Introduction
On July 21, 2010, President Obama signed the Dodd-Frank Act.\2\
Title VII of the Dodd-Frank Act amended the Commodity Exchange Act
(CEA) \3\ to establish a comprehensive new regulatory framework to
reduce risk, increase transparency, and promote market integrity within
the financial system by, among other things: (1) Providing for the
registration and comprehensive regulation of swap dealers (SDs) and
major swap participants (MSPs); (2) imposing clearing and trade
execution requirements on standardized derivative products; (3)
creating rigorous recordkeeping and real-time reporting regimes; and
(4) enhancing the Commission's rulemaking and enforcement authorities
with respect to all registered entities and intermediaries subject to
the Commission's oversight. The regulations in this proposal concern
conforming, modernizing and technical
[[Page 12889]]
amendments to part 3 governing the registration of intermediaries.
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\2\ See Dodd-Frank Act, Public Law 111-203, 124 Stat. 1376
(2010). The text of the Dodd-Frank Act may be accessed at: http://www.cftc.gov/ucm/groups/public/swaps/documents/file/hr4173_enrolledbill.pdf.
\3\ 7 U.S.C. 1 et seq.
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II. Proposed Regulations
The Commission's existing registration process for futures,
commodity options and retail foreign exchange intermediaries, their
associated persons (APs), and floor traders and floor brokers is set
forth in part 3. Currently, part 3 does not address SDs and MSPs, nor
does it reference a swap execution facility (SEF).\4\ The Commission
recently published two other notices of proposed rulemaking that would
apply certain provisions of part 3 to SDs and MSPs.\5\ This proposal
would amend further part 3 to conform the regulations regarding
registration by incorporating references to SDs, MSPs and SEFs where
appropriate. The Commission expects to harmonize any distinctions
between this proposal and the other rulemakings in the order that they
become final. Therefore, this proposal does not contain the changes to
part 3 proposed elsewhere; it is intended to work in conjunction with
these other proposed rulemakings.
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\4\ Section 1(a)(50) of the CEA generally provides that a SEF is
a trading system or platform in which multiple participants have the
ability to execute or trade swaps by accepting bids and offers made
by multiple participants in the facility or system.
\5\ 75 FR 70881, Nov. 19, 2010; 75 FR 71379, Nov. 23, 2010.
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A. Conforming Amendments
Some of the proposed amendments involve substantive changes to
existing regulations because of the particular attributes or
characteristics of SDs, MSPs and SEFs. Other proposed amendments to
part 3 consist entirely of adding references, where appropriate, to
SDs, MSPs and SEFs in existing regulations, based on the fact that the
Commission has not decided to issue regulations that impose a
registration requirement on floor brokers and floor traders that solely
engage in swaps activity. As a result, SEFs were not added alongside
the term designated contract market if the provision was only
addressing registration activities of floor brokers and floor traders.
SDs and MSPs were not added if the provision was only addressing
registration activities of APs, because at this time the Commission has
not decided to issue regulations requiring registration of APs of SDs
and MSPs.\6\
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\6\ See 75 FR at 71380, Nov. 23, 2010.
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Specific section-by-section proposed revisions follow.
1. Section 3.1--Definitions
Current Sec. 3.1(a) sets forth the definition of a principal, and
Sec. 3.1(a)(3) carves out from the definition of principal certain
persons that have made capital contributions in the form of
subordinated debt to a registrant, including unaffiliated banks
operating in the U.S. and U.S. branches of foreign banks. The
Commission is proposing to clarify the carve-out by referencing terms
defined elsewhere in federal regulations. More specifically, the
proposal would tie the carve-out to the definitions of ``foreign bank''
and ``office of a foreign bank'' currently used by the Board of
Governors of the Federal Reserve System under regulation K\7\ for
foreign banking organizations.
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\7\ See generally 12 CFR 211.
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Currently, any foreign bank that had made capital contributions in
the form of subordinated debt would be included within the definition
of principal.\8\ In response to the likelihood that foreign-domiciled
persons with capital contributions from foreign banks might register as
SDs, the Commission is proposing to expand the carve-out. The proposed
expansion would cover any foreign bank itself that currently operates
an office licensed in the U.S. In so doing, the Commission would be
relying on the approval process of the office by the Board of Governors
of the Federal Reserve System as a proxy for discerning whether the
foreign bank itself is otherwise regulated. The Commission specifically
seeks comments on whether this provision is warranted to ensure uniform
listing of principals by domestic and foreign-domiciled registrants,
and whether the expansion would ensure that the list of principals
remains a meaningful reflection of the persons who actually exercise
control over the registrant's regulated activities.
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\8\ In the Commission's initial proposal of this exemption, the
Commission was concerned with whether the bank was ``otherwise
regulated,'' but did not attempt to determine whether any foreign
bank qualified as such. See 56 FR 37026, 37031, Aug. 2, 1991.
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2. Section 3.10--Registration of Futures Commission Merchants, Retail
Foreign Exchange Dealers, Introducing Brokers, Commodity Trading
Advisors, Commodity Pool Operators and Leverage Transaction Merchants.
Section 3.12--Registration of Associated Persons of Futures Commission
Merchants, Retail Foreign Exchange Dealers, Introducing Brokers,
Commodity Trading Advisors, Commodity Pool Operators and Leverage
Transaction Merchants
Current Sec. 3.10(c) generally sets forth exemptions from
registration for certain persons. The Commission is proposing to add an
exemption from registration in new paragraph (c)(5) to clarify that an
individual employed by either an SD or a MSP and acting as its AP is
not required separately to register as an SD or MSP, respectively,
solely arising out of their activities as an AP. The Commission
specifically seeks comment as to whether this exemption is necessary to
clarify the registration responsibilities of employees, in light of the
current absence of a registration requirement as an AP of an SD or a
MSP, and in light of the proposed definition requiring persons who
engage in certain activities to register as an SD or MSP.\9\
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\9\ See 75 FR 80173, Dec. 21, 2010.
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The Commission also is proposing to amend Sec. 3.12(h)(1)(i) to
provide that a person is not required to register as an AP in any
capacity if he or she is registered in one of the other enumerated
categories, including an SD or MSP. The Commission specifically seeks
comment as to whether this exemption is necessary, in light of the
improbability that an individual, rather than an entity, would register
as an SD or MSP.
Section 3.10(c)(2) and (3) also currently provide exemptions from
registration as a futures commission merchant for foreign brokers and
other foreign intermediaries conducting activities in commodity
interest transactions on designated contract markets solely on behalf
of customers located outside the U.S. The Commission is proposing to
expand the exemption to commodity interest transactions made on or
subject to the rules of an SEF. The Commission is proposing this
expansion to create uniformity in treatment of commodity interest
transactions that do not involve a U.S. customer, regardless of whether
the transaction is made on a designated contract market or an SEF.
Additionally, the Commission seeks comment as to whether it should
expand the existing
[[Page 12890]]
exemption from registration to foreign brokers and other foreign
intermediaries that execute a bilateral swap transaction and
voluntarily clear it on a derivatives clearing organization on an
omnibus basis. Further, the Commission seeks comment as to whether such
an exemption should distinguish between bilateral swap transactions
that occur within the U.S., or those that occur abroad.
3. Derivatives Transaction Execution Facilities
The Dodd-Frank Act abolished derivatives transaction execution
facilities as a market category. Additionally, no derivatives
transaction execution facility has ever registered with the Commission.
Therefore, that term is proposed to be deleted from Sec. Sec. 3.2(c),
3.2(c)(2), 3.10(a)(3)(i)(A), 3.10(c)(2)(i), 3.10(c)(3)(i),
3.10(c)(4)(ii) and (iv), 3.11(a)(2) and (3), 3.11(b), 3.31(d),
3.40(a)(2)(iv), 3.42(a)(6), and 3.46(a)(8).
B. Modernization and Technical Amendments
The Commission proposes to make certain modernization and technical
amendments to part 3. These are discussed below.
1. Section 3.1--Definitions
Section 3.1(a)(2) defines a principal to include persons who exceed
a threshold for equity ownership. As a technical matter, the Commission
is proposing to harmonize the references to outstanding classes of
securities in Sec. 3.1(a)(2)(i) and (ii) to refer to ``outstanding
shares of any class of equity securities, other than non-voting
securities'' throughout. This term should address any existing
ambiguity related to calculations involving authorized but unissued
securities, or debt securities. Also, the Commission is proposing to
move the concept of indirect owners found in the definition of
beneficial ownership in Sec. 3.1(d) to Sec. 3.1(a)(4) to serve as a
backstop to the requirement to list indirect owners in Sec. 3.1(a)(2).
2. Section 3.31--Deficiencies, Inaccuracies, and Changes To Be
Reported. Section 3.33--Withdrawal from Registration
Current Sec. 3.31 sets forth procedural requirements for a
registrant to update and/or correct information previously provided to
the Commission and the National Futures Association (NFA). Among other
goals, the purpose of the registration process is to ensure that
principals are subject to proper fitness checks prior to the registrant
engaging in regulated activities. Historically, the Commission required
re-registration upon a change in a registrant's name, a change in its
form of organization,\10\ or a change in its control, with limited
exemptions.\11\ In practice, however, re-registering creates a new NFA
identification number, which disassociates past disciplinary
information connected to the previous NFA identification number with
the re-registered entity's new NFA identification number. A member of
the public would need to take additional steps to uncover the
disciplinary information associated with the previous entity's NFA
identification number by researching whether any principals of the new
entity were also principals of the old entity. Also, re-registration
could disrupt the continuity of business of a registrant if a
background check is not completed before a principal is added.
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\10\ In 1979, Sec. 1.15 stated, ``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 * *
*.''
\11\ See, e.g., 57 FR 23136, 23142, Jun. 2, 1992, requiring
written certifications that control remains the same after a
reorganization in order to avoid re-registration, or requiring a
corporate resolution prohibiting a new director from exercising
control until NFA could complete its background check in order to
avoid re-registration.
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The Commission recognizes that the rules no longer explicitly
require re-registration in response to changes in a registrant's name,
its form of organization, or its control. Instead, NFA determines
whether a firm must re-register, subject to certain safe-harbors from
re-registration in Sec. 3.31(a)(2) and (3). For example, current Sec.
3.31(a)(2) permits firms to avoid re-registration after a change to the
form of the organization if the successor organization consents to be
liable for all obligations of the predecessor organization, and (a)(3)
permits firms to avoid re-registration, despite the addition of a new
principal. Otherwise, these exemptions do not address what happens when
a firm changes both its form of organization and some of its
principals, such as during a merger.
The Commission seeks to improve the transparency and predictability
of the re-registration requirements in expectation of an influx of new
registrants. Therefore, the Commission is proposing to amend Sec.
3.31(a) to explicitly address additional scenarios. Proposed Sec.
3.31(a)(2) restates an existing requirement to re-register if a sole
proprietorship is involved, in recognition of the unique attributes of
the sole proprietor name type under NFA's online registration system.
Proposed Sec. 3.31(a)(3) requires re-registration in the event of a
change in name or form of organization, but preserves the existing safe
harbor if there is no change in principal and the registrant wishes to
consent to liability for its predecessor organization. Proposed Sec.
3.31(a)(4) preserves the existing safe harbor from re-registration for
additions of a new principal. Proposed Sec. 3.31(a)(5), however,
requires re-registration if a registrant changes its legal name or its
form of the organization and adds a principal.
Currently, a registration is tied to an entity's legal name that is
registered with a state, and that denotes information about its form of
organization. The Commission believes it is appropriate to connect the
NFA identification number to that name and form of organization. It is
unavoidable that members of the public will need to take an additional
step to acquire information about a previous registrant by researching
shared principals, because an entity that is a bad actor could still
voluntarily withdraw its registration to obtain a new NFA
identification number and disassociate itself from past disciplinary
actions. The Commission specifically requests comment on whether the
additional transparency under the new provisions of Sec. 3.31 is
beneficial and necessary to fulfill the Commission's mandate to protect
customers, and whether the existing safe harbors from re-registration
should be maintained.
Also, the Commission is proposing to amend Sec. 3.33(a) to compel
a registrant to request a withdrawal of its registration at the same
time it files articles of dissolution or a certificate of cancellation.
For example, if a partnership decides to wind-up its affairs and cancel
its partnership statement with the state, it must request withdrawal
from registration at least contemporaneously with, or on a voluntary
basis prior to, it canceling its partnership statement.
3. Consolidation of Existing Regulations
The Commission is also proposing that several provisions of part 3
should be consolidated to streamline the regulations. None of these
proposals create new regulatory requirements. First, the Commission
proposes to move the delegation provision found in Sec. 3.12(g) into
Sec. 3.75, ``Delegation and reservation of authority.'' Second, the
Commission is proposing to amend Sec. 3.11 to add a new paragraph (c)
to replace the existing exemption from registration as a floor trader
for registered floor brokers that was previously found in Sec. 3.4(a).
Similarly, proposed Sec. 3.21, ``Exemption from fingerprinting
requirement in certain
[[Page 12891]]
cases,'' contains an exemption from submitting fingerprint cards for
persons who have a current form 8-R on file, which would replace the
same exemption found in Sec. Sec. 3.31(a)(3) and 3.44(a)(5). In both
cases, the regulations permitted a principal that was moving between
registrants to dispense with the fingerprint card filing requirement.
The proposed rules consolidate this exemption with the other exemptions
in Sec. 3.21.
4. Registration Forms
The Commission also is proposing to amend certain provisions to
update several references to the forms used during the registration
process. For example, certain provisions in part 3 refer to a
registrant's use of the form 3-R. However, under NFA's online
registration system, a registrant cannot presently fill out a form 3-R,
either electronically or on paper. Instead, a registrant can update its
existing form 7-R or form 8-R, and a record of those changes will be
automatically created by NFA and designated as the registrant's
completed form 3-R. For clarity, the Commission is proposing to
reference the distinction between actually filing out a form and
creating a record of changes to another form in proposed Sec. Sec.
3.11(b), 3.31(a)(1), 3.31(b), and 3.31(c)(1). Elsewhere, Sec. Sec.
3.42(a)(8) and 3.46(a)(10) refer to a numerical list of items on forms
7-R and 8-R, but these forms no longer contain numbers associated with
the particular questions. The Commission therefore is proposing to
amend these regulations to instead reference the failure to disclose
relevant disciplinary history information, or the failure to disclose
an event leading to a required disclosure. These proposals do not
create any new regulatory requirement, but merely clarify existing
obligations.
C. Corrections
As published, the regulations contain vestigial definitions,
outdated cross-references to other regulations, and typographical
errors that are in need of clarification or updating. The Commission is
proposing to amend the following: Sec. Sec. 3.1(e), 3.11(b),
3.10(c)(4)(iii), 3.12(b), 3.12(c), 3.12(h)(1)(ii), 3.13(d)(2),
3.21(a)(1-2), 3.21(b)(1)-(2), 3.21(c)(4)(iii), 3.22(b), 3.30(b),
3.42(a), 3.44(a)(5), 3.46(a), and 3.46(a)(6) to address such errors.
III. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') was adopted to address the
concerns that government regulations may have a significant and/or
disproportionate effect on small businesses. To mitigate this risk, the
RFA requires agencies to conduct an initial and final regulatory
flexibility analysis for each rule of general applicability for which
the agency issues a general notice of proposed rulemaking.\12\ These
analyses must describe the impact of the proposed rule on small
entities, including a statement of the objectives and the legal bases
for the rulemaking; an estimate of the number of small entities to be
affected; identification of Federal rules that may duplicate, overlap,
or conflict with the proposed rules; and a description of any
significant alternatives to the proposed rule that would minimize any
significant impacts on small entities.\13\
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\12\ 5 U.S.C. 601 et seq.
\13\ 5 U.S.C. 603, 604.
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The proposed rules will amend existing rules in part 3 regarding
the registration of intermediaries consistent with other Commission
rulemakings issued pursuant to the Dodd-Frank Act. The proposed rules
also will make other technical and modernizing amendments to part 3.
The rules proposed by the Commission shall affect only FCMs,
introducing brokers, commodity trading advisors, commodity pool
operators, SDs and MSPs, and the rules will impose no new significant
obligations on any of these entities. Therefore, the Commission has
determined that the proposed rules will not create a significant
economic impact on a substantial number of small entities. Accordingly,
the Chairman, on behalf of the Commission, hereby certifies pursuant to
5 U.S.C. 605(b) that the proposed rules will not have a significant
impact on a substantial number of small entities.
B. Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995 (PRA), an agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a currently valid control
number.\14\ The proposed rules will not impose any new recordkeeping or
information collection requirements, or other collections of
information that require approval of the Office of Management and
Budget under the PRA. The Commission invites public comment on the
accuracy of its estimate that no additional information collection
requirements or changes to existing collection requirements would
result from the rules proposed herein.
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\14\ 44 U.S.C. 3501 et seq.
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C. Cost-Benefit Analysis
Section 15(a) of the CEA \15\ requires the Commission to consider
the costs and benefits of its actions before issuing new rules under
the Act. By its terms, it does not require the Commission to quantify
the costs and benefits of new rules or to determine whether the
benefits of the proposed rules outweigh their costs; it requires the
Commission to ``consider'' the cost and benefits of its actions.
Section 15(a) of the CEA further specifies that the costs and benefits
of the proposed rules shall be evaluated in light of five broad areas
of market and public concern: (1) Protection of market participants and
the public; (2) efficiency, competitiveness, and financial integrity of
the futures markets; (3) price discovery; (4) sound risk management
practices; and (5) other public interest considerations. The Commission
may, in its discretion, give greater weight to any one of the five
enumerated areas of concern and may, in its discretion, determine that,
notwithstanding its costs, a particular rule is necessary or
appropriate to protect the public interest or to effectuate any of the
provisions or to accomplish any of the purposes of the CEA.
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\15\ 7 U.S.C. 19(a).
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The proposed rules would amend existing rules in part 3 regarding
the registration of intermediaries to ensure that the Commission's
current rules are consistent with other Commission rulemakings issued
pursuant to the Dodd-Frank Act. The proposed rules also would make
other technical and modernizing amendments to part 3. As these rules
impose no new significant obligations, the Commission does not
anticipate that they will result in either costs or benefits in light
of the five areas of concern enumerated in Sec. 15(a) of the CEA. The
substantive proposed rulemakings with which this rulemaking is
associated have addressed the costs and benefits of the proposals, as
required by Sec. 15(a) of the CEA.
The Commission invites public comment on its cost-benefit
considerations. Commenters also are invited to submit any data or other
information that they may have quantifying or qualifying the costs.
List of Subjects in 17 CFR Part 3
Administrative practice and procedure, Brokers, Commodity futures,
Major swap participants, Reporting and recordkeeping requirements, Swap
dealers.
[[Page 12892]]
For the reasons stated in the preamble, the Commission proposes to
amend 17 CFR part 3 as follows:
PART 3--REGISTRATION
Authority and Issuance
1. The authority citation for part 3 is revised to read as follows:
Authority: 5 U.S.C. 552, 552b; 7 U.S.C. 1a, 2, 6a, 6b, 6b-1,
6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 6s, 8, 9, 9a, 12,
12a, 13b, 13c, 16a, 18, 19, 21, 23.
2. Amend Sec. 3.1 by revising paragraph (a) introductory text,
(a)(2), and (a)(3), adding paragraph (a)(4), and removing and reserving
paragraphs (d) and (e) to read as follows:
Sec. 3.1 Definitions.
(a) Principal. Principal means, with respect to an entity that is
an applicant for registration, a registrant or a person required to be
registered under the Act or these regulations:
* * * * *
(2)(i) Any individual who directly or indirectly, through
agreement, holding company, nominee, trust or otherwise, is the owner
of ten percent or more of the outstanding shares of any class of equity
securities, other than non-voting securities, is entitled to vote or
has the power to sell or direct the sale of ten percent or more of the
outstanding shares of any class of equity securities, other than non-
voting securities, or is entitled to receive ten percent or more of the
profits of the entity; or
(ii) Any person other than an individual that is the direct owner
of ten percent or more of the outstanding shares of any class of equity
securities, other than non-voting securities; or
(3) Any person that has contributed ten percent or more of the
capital of the entity, provided, however, that if such capital
contribution consists of subordinated debt contributed by either
(i) An unaffiliated bank insured by the Federal Deposit Insurance
Corporation,
(ii) An unaffiliated ``foreign bank,'' as defined in 12 CFR
211.21(n) that currently operates an ``office of a foreign bank,'' as
defined in 12 CFR 211.21(t), which is licensed under 12 CFR 211.24(a),
(iii) Such unaffiliated office of a foreign bank that is licensed,
or
(iv) An insurance company subject to regulation by any State, such
bank, foreign bank, office of a foreign bank, or insurance company will
not be deemed to be a principal for purposes of this section, provided
such debt is not guaranteed by another party not listed as a principal.
(4) Any individual who, directly or indirectly, creates or uses a
trust, proxy, power of attorney, pooling arrangement or any other
contract, arrangement, or device with the purpose or effect of
divesting such person of direct or indirect ownership of an equity
security of the entity, other than a non-voting security, or preventing
the vesting of such ownership, or of avoiding making a contribution of
ten percent or more of the capital of the entity, as part of a plan or
scheme to evade being deemed a principal of the entity, shall be deemed
to be a principal of the entity.
* * * * *
(d) [Reserved.]
(e) [Reserved.]
* * * * *
3. Amend Sec. 3.2 by revising paragraphs (c) introductory text and
(c)(2) to read as follows:
Sec. 3.2 Registration processing by the National Futures Association;
notification and duration of registration.
* * * * *
(c) The National Futures Association shall notify the registrant,
or the sponsor in the case of an applicant for registration as an
associated person, and each designated contract market that has granted
the applicant trading privileges in the case of an applicant for
registration as a floor broker or floor trader, if registration has
been granted under the Act.
* * * * *
(2) If an applicant for registration as a floor broker or floor
trader receives a temporary license in accordance with Sec. 3.40, the
National Futures Association shall notify the designated contract
market that has granted the applicant trading privileges that only a
temporary license has been granted.
* * * * *
4. Amend Sec. 3.10 by revising paragraphs (a)(3)(i)(A), (c)(2)(i),
(c)(3)(i), (c)(4)(ii), (c)(4)(iii), and (c)(3)(iv) and add paragraph
(c)(5) to read as follows:
Sec. 3.10 Registration of futures commission merchants, introducing
brokers, commodity trading advisors, commodity pool operators and
leverage transaction merchants.
(a) * * *
(3) * * *
(i) * * *
(A) The broker or dealer limits its solicitation of orders,
acceptance of orders, or execution of orders, or placing of orders on
behalf of others involving any contracts of sale of any commodity for
future delivery, on or subject to the rules of any contract market, to
security futures products as defined in section 1a(44) of the Act;
* * * * *
(c) * * *
(2)(i) A foreign broker, as defined in Sec. 1.3(xx) of this
chapter, is not required to register as a futures commission merchant
if it submits any commodity interest transactions executed on or
subject to the rules of designated contract market or swap execution
facility for clearing on an omnibus basis through a futures commission
merchant registered in accordance with section 4d of the Act.
* * * * *
(3)(i) A person located outside the United States, its territories
or possessions engaged in the activity of: An introducing broker, as
defined in Sec. 1.3(mm) of this chapter; a commodity trading advisor,
as defined in Sec. 1.3(bb) of this chapter; or a commodity pool
operator, as defined in Sec. 1.3(cc) of this chapter, in connection
with any commodity interest transaction made on or subject to the rules
of any designated contract market or swap execution facility only on
behalf of persons located outside the United States, its territories or
possessions, is not required to register in such capacity provided that
any such commodity interest transaction executed on or subject to the
rules of designated contract market or swap execution facility is
submitted for clearing through a futures commission merchant registered
in accordance with section 4d of the Act.
* * * * *
(4) * * *
(ii) Such a person introduces, on a fully-disclosed basis in
accordance with Sec. 1.57 of this chapter, any institutional customer,
as defined in Sec. 1.3(g) of this chapter, to a registered futures
commission merchant for the purpose of trading on a designated contract
market;
(iii) Such person's affiliated futures commission merchant has
filed with the National Futures Association (Attn: Vice President,
Compliance) an acknowledgement that the affiliated futures commission
merchant will be jointly and severally liable for any violations of the
Act or the Commission's regulations committed by such person in
connection with those introducing activities, whether or not the
affiliated futures commission merchant submits for clearing any trades
resulting from those introducing activities; and
(iv) Such person does not solicit any person located in the United
States, its territories or possessions for trading on a designated
contract market, nor does such person handle the customer funds of any
person located in the United States, its territories or possessions for
[[Page 12893]]
the purpose of trading on any designated contract market.
* * * * *
(5) An associated person of a swap dealer or an associated person
of a major swap participant, as defined in 1a(4) of the Act, is not
required to register as a swap dealer or major swap participant,
respectively, solely as a consequence of being an associated person of
a swap dealer, or an associated person of a major swap participant.
* * * * *
5. Amend Sec. 3.11 by revising paragraphs (a)(2), (a)(3) and (b)
and adding paragraph (c) to read as follows:
Sec. 3.11 Registration of floor brokers and floor traders.
(a) * * *
(2) An applicant for registration as a floor broker or floor trader
will not be registered or issued a temporary license as a floor broker
or floor trader unless the applicant has been granted trading
privileges by a board of trade designated as a contract market by the
Commission.
(3) When the Commission or the National Futures Association
determines that an applicant for registration as a floor broker or
floor trader is not disqualified from such registration or temporary
license, the National Futures Association will notify the applicant and
any contract market that has granted the applicant trading privileges
that the applicant's registration or temporary license as a floor
broker or floor trader is granted.
(b) Duration of registration. A person registered as a floor broker
or floor trader in accordance with paragraph (a) of this section, and
whose registration has neither been revoked nor withdrawn, will
continue to be so registered unless such person's trading privileges on
all contract markets have ceased: Provided, that if a floor broker or
floor trader whose trading privileges on all contract markets have
ceased for reasons unrelated to any Commission action or any contract
market disciplinary proceeding and whose registration is not revoked,
suspended or withdrawn is granted trading privileges as a floor broker
or floor trader, respectively, by any contract market where he held
such privileges within the preceding sixty days, such registration as a
floor broker or floor trader, respectively, shall be deemed to continue
and no new Form 8-R or Form 3-R record of a change to Form 8-R need be
filed solely on the basis of the resumption of trading privileges. A
floor broker or floor trader is prohibited from engaging in activities
requiring registration under the Act or from representing himself to be
a registrant under the Act or the representative or agent of any
registrant during the pendency of any suspension of such registration
or of all such trading privileges. Each contract market that has
granted trading privileges to a person who is registered, or has
applied for registration, as a floor broker or floor trader, must
provide notice in accordance with Sec. 3.31(d) after such person's
trading privileges on such contract market have ceased.
(c) Exceptions. (1) A registered floor broker need not also
register as a floor trader in order to engage in activity as a floor
trader.
(2) [Reserved]
6. Amend Sec. 3.12 by revising paragraphs (b), (c), (g) and (h) to
read as follows:
Sec. 3.12 Registration of associated persons of futures commission
merchants, retail foreign exchange dealers, introducing brokers,
commodity trading advisors, commodity pool operators and leverage
transaction merchants.
* * * * *
(b) Duration of registration. A person registered in accordance
with paragraphs (c), (d), (f), or (i) of this section and whose
registration has not been revoked will continue to be so registered
until the revocation or withdrawal of the registration of each of the
registrant's sponsors, or until the cessation of the association of the
registrant with each of his sponsors. Such person will be prohibited
from engaging in activities requiring registration under the Act or
from representing himself to be a registrant under the Act or the
representative or agent of any registrant during the pendency of any
suspension of his or his sponsor's registration. Each of the
registrant's sponsors must file a notice in accordance with Sec.
3.31(c) reporting the termination of the association of the associated
person.
(c) Application for registration. Except as otherwise provided in
paragraphs (d), (f), and (i) of this section, application for
registration as an associated person in any capacity must be on Form 8-
R, completed and filed in accordance with the instructions thereto.
* * * * *
(g) Petitions for exemption. Any person adversely affected by the
operation of this section may file a petition with the Secretary of the
Commission, which petition must set forth with particularity, the
reasons why that person believes that an applicant should be exempted
from the requirements of this section and why such an exemption would
not be contrary to the public interest and the purposes of the
provision from which exemption is sought. The petition will be granted
or denied by the Commission on the basis of the papers filed. The
Commission may grant such a petition if it finds that the exemption is
not contrary to the public interest and the purposes of the provision
from which exemption is sought. The petition may be granted subject to
such terms and conditions as the Commission may find appropriate.
(h) Exemption from registration. (1) A person is not required to
register as an associated person in any capacity if that person is:
(i) Registered under the Act as a futures commission merchant,
retail foreign exchange dealer, swap dealer, major swap participant,
floor broker, or as an introducing broker;
(ii) Engaged in the solicitation of funds, securities, or property
for a participation in a commodity pool, or the supervision of any
person or persons so engaged, pursuant to registration with the
Financial Industry Regulatory Authority as a registered representative,
registered principal, limited representative or limited principal, and
that person does not engage in any other activity subject to regulation
by the Commission;
* * * * *
7. Amend Sec. 3.13 by revising paragraph (d)(2) to read as
follows:
Sec. 3.13 Registration of agricultural trade option merchants and
their associated persons.
* * * * *
(d) * * *
(2) Applicants for registration as an associated person of an
agricultural trade option merchant must meet the following conditions.
Such persons must:
* * * * *
8. Amend Sec. 3.21 by revising paragraphs (a)(1), (a)(2), (b)(1),
(b)(2), (b)(3), and (c)(4)(iii), and add paragraph (a)(3) to read as
follows:
Sec. 3.21 Exemption from fingerprinting requirement in certain cases.
(a) * * *
(1) A legible, accurate and complete photocopy of a fingerprint
card that has been submitted to the Federal Bureau of Investigation for
identification and appropriate processing and of each report, record,
and notation made available by the Federal Bureau of Investigation with
respect to that fingerprint card if such identification and processing
has been completed satisfactorily by the Federal Bureau of
Investigation not more than ninety days
[[Page 12894]]
prior to the filing with the National Futures Association of the
photocopy;
(2) A statement that such person's application for initial
registration in any capacity was granted within the preceding ninety
days, provided that the provisions of paragraph (a)(2) of this section
shall not be applicable to any person who, by Commission rule,
regulation, or order, was not required to file a fingerprint card in
connection with such application for initial registration; or
(3) A statement that such person has a current Form 8-R on file
with the Commission or the National Futures Association.
(b) * * *
(1) With respect to the fingerprints of an associated person: An
officer, if the sponsor is a corporation; a general partner, if a
partnership; or the sole proprietor, if a sole proprietorship;
(2) With respect to fingerprints of a floor broker or floor trader:
The applicant for registration; or
(3) With respect to the fingerprints of a principal: An officer, if
the futures commission merchant, retail foreign exchange dealer, swap
dealer, major swap participant, commodity trading advisor, commodity
pool operator, introducing broker, or leverage transaction merchant
with which the principal will be affiliated is a corporation; a general
partner, if a partnership; or the sole proprietor, if a sole
proprietorship.
(c) * * *
(4) * * *
(iii) The internal controls used to ensure that the outside
director for whom exemption under paragraph (c) of this section is
sought does not have access to the keeping, handling or processing of
the items described in paragraphs (c)(2)(i) and (c)(2)(ii) of this
section; and
* * * * *
9. Amend Sec. 3.22 by revising paragraph (b) to read as follows:
Sec. 3.22 Supplemental filings.
* * * * *
(b) That the person, or any individual who, based upon his or her
relationship with that person is required to file a Form 8-R in
accordance with the requirements of this part, as applicable, must,
within such period of time as the Commission or the National Futures
Association may specify, complete and file with the Commission or the
National Futures Association a current Form 7-R, or if appropriate, a
Form 8-R, in accordance with the instructions thereto.
* * * * *
10. Amend Sec. 3.30 by revising paragraph (b) to read as follows:
Sec. 3.30 Current address for purpose of delivery of communications
from the Commission or the National Futures Association.
* * * * *
(b) Each registrant, while registered and for two years after
termination of registration, and each principal, while affiliated and
for two years after termination of affiliation, must notify in writing
the National Futures Association of any change of the address on the
application for registration, biographical supplement, or other address
filed with the National Futures Association for the purpose of
receiving communications from the Commission or the National Futures
Association. Failure to file a required response to any communication
sent to the latest such address filed with the National Futures
Association that is caused by a failure to notify in writing the
National Futures Association of an address change may result in an
order of default and award of claimed monetary damages or other
appropriate order in any National Futures Association or Commission
proceeding, including a reparation proceeding brought under part 12 of
this chapter.
11. Amend Sec. 3.31 by revising paragraphs (a), (b), (c)(1)
introductory text and (d) to read as follows:
Sec. 3.31 Deficiencies, inaccuracies, and changes to be reported.
(a)(1) Each applicant or registrant as a futures commission
merchant, retail foreign exchange dealer, commodity trading advisor,
commodity pool operator, introducing broker, or leverage transaction
merchant shall, in accordance with the instructions thereto, promptly
correct any deficiency or inaccuracy in Form 7-R or Form 8-R that no
longer renders accurate and current the information contained therein,
with the exception of any change that requires withdrawal from
registration under Sec. 3.33. Each such correction shall be prepared
and filed in accordance with the instructions thereto to create a Form
3-R record of such change.
(2) Where the deficiency or inaccuracy is created by a change in
the ``form of organization'' field on Form 7-R from or to a sole
proprietorship, the registrant must request withdrawal from
registration in accordance with Sec. 3.33.
(3) Where the deficiency or inaccuracy is created by a change in
the ``firm name'' field, if a non-natural person, or the ``form of
organization'' field on Form 7-R, the registrant must request
withdrawal from registration in accordance with Sec. 3.33; provided,
however, that if there is no addition of a new principal, the
registrant may instead update its Form 7-R to create a Form 3-R record
of change, which is deemed in such circumstance to include a consent
that the new legal entity shall be liable for all obligations of the
pre-existing organization under the Act, and the rules, regulations, or
orders that have been promulgated thereunder.
(4) Where the deficiency or inaccuracy is created by the addition
of a new principal not listed on the registrant's application for
registration (or amendment of such application prior to the granting of
registration), and there is no change in firm name or form of
organization:
(i) If the new principal is not a natural person, the registrant
shall update such Form 7-R to create a Form 3-R record of change.
(ii) If the new principal is a natural person, the registrant shall
file a Form 8-R, completed in accordance with the instructions thereto
and executed by such person who is a principal of the registrant and
who was not listed on the registrant's initial application for
registration or any amendment thereto.
(5) Where the deficiency or inaccuracy is created by the addition
of a new principal not listed on the registrant's application for
registration (or amendment of such application prior to the granting of
registration), and there is a change in the ``firm name'' field, if a
non-natural person, or the ``form of organization'' field on the
registrant's Form 7-R, the registrant must request withdrawal from
registration in accordance with Sec. 3.33.
(b) Each applicant or registrant as a floor broker, floor trader or
associated person, and each principal of a futures commission merchant,
retail foreign exchange dealer, commodity trading advisor, commodity
pool operator, introducing broker, or leverage transaction merchant
must, in accordance with the instructions thereto, promptly correct any
deficiency or inaccuracy in the Form 8-R or supplemental statement
thereto to create a Form 3-R record of change.
(c)(1) After the filing of a Form 8-R or updating a Form 8-R to
create a Form 3-R record of change by or on behalf of any person for
the purpose of permitting that person to be an associated person of a
futures commission merchant, retail foreign exchange dealer, commodity
trading advisor, commodity pool operator, introducing broker, or a
leverage transaction merchant, that futures commission merchant, retail
foreign exchange dealer, commodity
[[Page 12895]]
trading advisor, commodity pool operator, introducing broker or
leverage transaction merchant must, within thirty days after the
occurrence of either of the following, file a notice thereof with the
National Futures Association indicating:
* * * * *
(d) Each contract market that has granted trading privileges to a
person who is registered, has received a temporary license, or has
applied for registration as a floor broker or floor trader, must notify
the National Futures Association within sixty days after such person
has ceased having trading privileges on such contract market.
* * * * *
12. Amend Sec. 3.33 by revising paragraph (a) introductory text to
read as follows:
Sec. 3.33 Withdrawal from registration.
(a) A futures commission merchant, retail foreign exchange dealer,
introducing broker, commodity trading advisor, commodity pool operator,
or leverage transaction merchant must request that its registration be
withdrawn upon filing articles (or a certificate) of dissolution (or
cancellation), and upon notice of any involuntary dissolution initiated
by a third-party. A futures commission merchant, retail foreign
exchange dealer, introducing broker, commodity trading advisor,
commodity pool operator, leverage transaction merchant, floor broker or
floor trader may request that its registration be withdrawn in
accordance with the requirements of this section if:
* * * * *
13. Amend Sec. 3.40 by revising paragraph (a)(2)(iv) to read as
follows:
Sec. 3.40 Temporary licensing of applicants for associated person,
floor broker or floor trader registration.
(a) * * *
(2) * * *
(iv) Evidence that the applicant has been granted trading
privileges by a contract market that has filed with the National
Futures Association a certification signed by its chief operating
officer with respect to the review of an applicant's employment, credit
and other history in connection with the granting of trading
privileges.
* * * * *
14. Amend Sec. 3.42 by revising paragraphs (a) introductory text,
(a)(6), and (a)(8) to read as follows:
Sec. 3.42 Termination.
(a) A temporary license issued pursuant to Sec. 3.40 shall
terminate:
* * * * *
(6) Immediately upon failure to comply with an award in an
arbitration proceeding conducted pursuant to the rules of a designated
contract market or registered futures association within the time
specified in section 10(g) of the National Futures Association's Code
of Arbitration or the comparable time period specified in the rules of
a contract market or other appropriate arbitration forum.
* * * * *
(8) Immediately upon notice to the applicant and the applicant's
sponsor or the contract market that has granted the applicant trading
privileges that:
(i) The applicant failed to disclose relevant disciplinary history
information on the applicant's Form 8-R; or
(ii) An event has occurred leading to a required disclosure on the
applicant's Form 8-R.
* * * * *
15. Amend Sec. 3.44 by revising paragraph (a)(5) to read as
follows:
Sec. 3.44 Temporary licensing of applicants for guaranteed
introducing broker registration.
(a) * * *
(5) The fingerprints of the applicant, if a sole proprietor, and of
each principal (including each branch office manager) thereof on
fingerprint cards provided by the National Futures Association for that
purpose.
* * * * *
16. Amend Sec. 3.46 by revising paragraph (a) introductory text,
(a)(6), (a)(8), and (a)(10) to read as follows:
Sec. 3.46 Termination.
(a) A temporary license issued pursuant to Sec. 3.44 shall
terminate:
* * * * *
(6) Immediately upon failure to comply with an order to pay a civil
monetary penalty, restitution, or disgorgement within the time
permitted under section 6(e), 6b, or 6c(d) of the Act;
* * * * *
(8) Immediately upon failure to comply with an award in an
arbitration proceeding conducted pursuant to the rules of a designated
contract market, swap execution facility, or registered futures
association within the time specified in section 10(g) of the National
Futures Association's Code of Arbitration or the comparable time period
specified in the rules of a designated contract market, swap execution
facility, or other appropriate arbitration forum.
* * * * *
(10) Immediately upon notice to the applicant and the guarantor
futures commission merchant that:
(i) The applicant or any principal (including any branch officer
manager) failed to disclose relevant disciplinary history information
on the applicant's Form 7-R or on a principal's Form 8-R; or
(ii) An event has occurred leading to a required disclosure on the
applicant's Form 7-R or on a principal's Form 8-R.
* * * * *
17. Amend Sec. 3.75 by revising paragraph (a) to read as follows:
Sec. 3.75 Delegation and reservation of authority.
(a) The Commission hereby delegates, until such time as it orders
otherwise, to the Director of the Division of Clearing and Intermediary
Oversight or his designee the authority to grant or deny requests filed
pursuant to Sec. 3.12(g). The Director of the Division of Clearing and
Intermediary Oversight may submit to the Commission for its
consideration any matter which has been delegated to him pursuant to
Sec. 3.12(g). The Commission hereby delegates, until such time as it
orders otherwise, the authority to perform all functions specified in
subparts B through D to the persons authorized to perform them
thereunder.
* * * * *
Issued in Washington, DC, on February 24, 2011, by the
Commission.
David A. Stawick,
Secretary of the Commission.
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendices to Registration of Intermediaries--Commission Voting Summary
and Statements of Commissioners
Appendix 1--Commission Voting Summary
On this matter, Chairman Gensler and Commissioners Dunn,
Sommers, Chilton and O'Malia voted in the affirmative; no
Commissioner voted in the negative.
Appendix 2--Statement of Chairman Gary Gensler
I support the proposed rulemaking that will amend certain
provisions of Part 3 of the Commission's regulations regarding the
registration of intermediaries. The proposed amendments are
necessary to conform existing regulations to the new requirements in
the Dodd-Frank Act. The proposed rulemaking would amend Part 3 to
ensure that the registration process applies to new categories of
registrants, such as swap dealers and major swap participants. The
proposed
[[Page 12896]]
amendments also will modernize existing provisions that will apply
to all Commission registrants.
[FR Doc. 2011-4799 Filed 3-8-11; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: March 9, 2011
See Also:
