[Federal Register: July 2, 2007 (Volume 72, Number 126)]
[Rules and Regulations]
[Page 35918-35920]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02jy07-5]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 3
RIN 3038-AC37
Registration of Intermediaries
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rule.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') has amended Commission Regulation 3.10 to require certain
registered intermediaries, i.e., futures commission merchants
(``FCMs''), introducing brokers (``IBs''), commodity pool operators
(``CPOs''), commodity trading advisors (``CTAs'') and leverage
transaction merchants (``LTMs''), to complete an online annual review
of their registration information maintained with the National Futures
Association (``NFA''). This amendment is intended to ensure that NFA
will have accurate and current information about such registrants. The
Commission also has made a technical and conforming amendment to
Commission Regulation 3.33(f) in order to remove an unnecessary
reference to Regulation 3.10(d).
EFFECTIVE DATE: August 1, 2007.
FOR FURTHER INFORMATION CONTACT: Helene D. Schroeder, Special Counsel,
Compliance and Registration Section, Division of Clearing and
Intermediary Oversight, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581,
telephone number: (202) 418-5450; facsimile number: (202) 418-5528; and
electronic mail: [email protected].
SUPPLEMENTARY INFORMATION:
[[Page 35919]]
I. Background
Part 3 of the Commission's regulations sets forth the regulations
relating to the registration of intermediaries and other futures
industry professionals.\1\ The Commission adopted Part 3 pursuant to
the authority set forth in Sections 4c, 4d, 4f(a)(1), 4m, 4n(1) and 19
of the Commodity Exchange Act (``Act'').\2\ These statutory provisions
require the registration of firms seeking to act as intermediaries for
exchange-traded futures and commodity options. Section 4f(a)(1)
contains the framework for the registration of FCMs and IBs.\3\ Section
4n(1) governs the registration of CPOs and CTAs.\4\ Sections 4c \5\ and
19 of the Act,\6\ respectively, grant the Commission plenary authority,
including registration authority, over commodity options and leverage
transactions.
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\1\ 17 CFR Part 3. The Commission's regulations can be accessed
at http://www.access.gpo.gov/nara/cfr/waisidx_06/17cfrv1_06.html.
\2\ 7 U.S.C. 1 et seq. (2000). The Act can be accessed at http://www.access.gpo.gov/uscode/title7/chapter1_.html
.
\3\ 7 U.S.C. 6f(a)(1).
\4\ 7 U.S.C. 6n(1).
\5\ 7 U.S.C. 6c.
\6\ 7 U.S.C. 23. Commission Regulation 31.5, 17 CFR 31.5 (2007),
was promulgated under this provision and along with Regulation 3.10,
17 CFR 3.10, governs the registration of LTMs.
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Commission Regulation 3.10(a) specifies that an application for
registration as an FCM, IB, CPO, CTA or LTM must be on a Form 7-R,
completed and filed with NFA in accordance with the instructions
thereto.\7\ Commission Regulation 3.31(a)(1) requires such
intermediaries to correct promptly deficiencies or inaccuracies
contained in the person's Form 7-R or any Form 8-R filed on behalf of a
principal or an associated person.\8\
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\7\ 17 CFR 3.10(a).
\8\ 17 CFR 3.31(a)(1).
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In 2002, NFA altered its registration procedures by shifting from
paper-based registration to an online or electronic registration
system. Pursuant to these new procedures, NFA requires, with limited
exceptions,\9\ that all registration (and membership) forms, including
the completed Form 7-R and 3-R, must be filed with NFA electronically
through NFA's Online Registration System (``ORS''). Shortly after the
new procedures were implemented, the Commission deleted Regulation
3.10(d), pursuant to which intermediary firms would conduct an annual
review of a pre-printed copy of the registrant's 7-R.\10\
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\9\ For example, NFA requires that any securities broker or
dealer that is registered with the Securities and Exchange
Commission that becomes a notice-registered FCM or IB must submit a
hardcopy version of its Form 7-R.
\10\ See 67 FR 38869 (June 6, 2002).
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II. Proposal
In order to ensure that the registration information it maintains
is accurate and up-to-date, NFA developed an online registration update
protocol for firms to review and update their registration records. In
addition to providing an updated list of persons authorized to enter
data in ORS, the protocol would require registrants to provide updated
disciplinary, branch office and firm contact information.\11\
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\11\ Under the protocol, a firm could modify the title given for
a particular principal of a firm, but it could not identify a new
principal, as this would require separate application.
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To facilitate NFA's efforts in implementing this new protocol, on
April 26, 2007, the Commission published in the Federal Register a
proposal to require firms to conduct an annual review of registration
information. (``Proposal'').\12\ The Proposal, which included a
proposed new paragraph (d) of Regulation 3.10 (``Proposed Amendment'')
was designed to ensure that NFA would be in possession of current and
accurate information regarding intermediaries.\13\ Specifically, the
Proposed Amendment would require that each FCM, IB, CPO, CTA and LTM,
in accordance with procedures established by NFA, complete an online
annual review of the registration information maintained by NFA.
Pursuant to procedures established by NFA, registrants would be
required to correct any deficiencies or inaccuracies contained therein.
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\12\ 72 FR 20788.
\13\ Paragraph (d) of Regulation 3.10 had been reserved.
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The Proposed Amendment also would provide that the failure to
complete the review and update within 30 days of the date established
by NFA for completion would be deemed to be a request for withdrawal
from registration. As further provided therein, NFA would be required
to process the request in accordance with the existing procedures for
withdrawal of registration set forth in Commission Regulation 3.33(f).
The Commission's Proposal also included a technical and conforming
amendment to Commission Regulation 3.33(f) in order to remove
unnecessary language that referenced Regulation 3.10(d).
III. Comments Regarding the Proposal
The Commission received only one comment letter on its Proposal,
and this comment, which was from NFA, expressed full support for the
amendment. In light of this fact, and the foregoing, the Commission has
determined to adopt the amendments to Regulations 3.10 and 3.33(f) as
set forth in the Proposal.
IV. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') \14\ requires that
agencies, in proposing regulations, consider the impact of those
regulations on small businesses. The amendment to Regulation 3.10 will
affect persons that are registered as FCMs, IBs, CPOs, CTAs and LTMs.
The Commission has previously established certain definitions of
``small entities'' to be used by the Commission in evaluating the
impact of its regulations on such entities in accordance with the
RFA.\15\ The Commission previously determined that registered FCMs,
CPOs and LTMs are not small entities for the purpose of the RFA.\16\
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\14\ 5 U.S.C. 601 et seq.
\15\ 47 FR 18618 (Apr. 30, 1982).
\16\ 47 FR 18618, 18619.
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With respect to the remaining persons, CTAs and IBs, the Commission
stated in the Proposal that it did not believe that the economic impact
of the Proposed Amendment would be significant. First, the information
that would be required under the Proposed Amendment already is required
to be collected under the existing registration framework, to wit,
Regulation 3.31(a)(1). Second, the Proposed Amendment and NFA's new
protocol would focus each registrant on the specific areas that must be
reviewed and, if needed, updated. Third, the Proposed Amendment would
permit review and updating via electronic means in keeping with the
current registration procedures. Accordingly, in accordance with
Section 3(a) of the RFA,\17\ the Chairman, on behalf of the Commission,
certified that the Proposed Amendment would not have a significant
economic impact on a substantial number of small entities.
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\17\ 5 U.S.C. 605(b).
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The Commission invited the public to comment regarding its analysis
of the application of the RFA to the Proposal. The Commission did not
receive any such comments.
B. Cost-Benefit Analysis
Section 15(a) of the Act \18\ requires the Commission to consider
the costs and benefits of its action before issuing a new regulation
under the Act. By its terms, Section 15(a) does not require the
Commission to quantify the costs and
[[Page 35920]]
benefits of a new regulation or to determine whether the benefits of
the proposed regulation outweigh its costs. Rather, Section 15(a)
simply requires the Commission to ``consider the costs and benefits''
of its action.
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\18\ 7 U.S.C. 19(a).
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Section 15(a) further specifies that costs and benefits 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 futures markets; (3) price
discovery; (4) sound risk management practices; and (5) other public
interest considerations. The Commission, in its discretion, may choose
to give greater weight to any one of the five enumerated areas and
determine that, notwithstanding its costs, a particular regulation 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 Act. The Commission has evaluated the costs and benefits of its
Proposal, in particular, new Regulation 3.10(d) in light of the
specific considerations identified in Section 15(a) of the Act.
Regulation 3.10(d) concerns the registration of intermediaries, in
particular, FCMs, IBs, CPOs, CTAs and LTMs. Specifically, it will
require these intermediaries to complete an online annual review of
their registration information, including disciplinary information,
firm contacts and lists of authorized users. By ensuring that NFA, the
self-regulatory organization that oversees the activities of these
registrants, will have accurate and current information regarding
registrants, Regulation 3.10(d) will maximize the protection of market
participants and the public.
Such intermediaries already are under an ongoing obligation to
provide updated information to NFA pursuant to Commission Regulation
3.31(a)(1). Regulation 3.10(d) will require these registrants to comply
with an online review protocol established by NFA. This protocol will
provide a straightforward process for registrants to electronically
update their registration information. It will focus and guide
registrants on the particular areas that need updating. By facilitating
NFA's efforts to adopt this protocol, Regulation 3.10(d) will result in
efficiency enhancements for registrants and NFA.
Regulation 3.10(d) also will have no effect on the following three
enumerated areas: (1) Efficiency, competitiveness or the financial
integrity of futures markets; (2) price discovery; and (3) sound risk
management practices.
After considering these factors, the Commission has determined to
adopt the amendment to Regulation 3.10 set forth below.
C. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (``PRA'') imposes certain
obligations on federal agencies, including the Commission, in
connection with their conducting or sponsoring any collection of
information as defined by the PRA.\19\ In its Proposal, the Commission
noted that the Proposed Amendment would require intermediaries to
conduct an annual review of their registration information maintained
with NFA and that this information is part of an approved collection of
information. The Commission further noted that the Proposed Amendment
would not result in any material modifications to this approved
collection. Accordingly, for purposes of the PRA, the Commission
certified that the Proposed Amendment did not impose any new reporting
or recordkeeping requirements.
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\19\ 44 U.S.C. 3501 et seq.
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The Commission did not receive any comments regarding its analysis
relative to the PRA.
List of Subjects in 17 CFR Part 3
Administrative practice and procedure, Brokers, Commodity futures,
Reporting and recordkeeping requirements.
0
For the reasons discussed in the preamble, the Commission amends 17 CFR
part 3 as follows:
PART 3--REGISTRATION
0
1. The authority citation for part 3 continues to read as follows:
Authority: 5 U.S.C. 522, 522b; 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c,
6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 8, 9, 9a, 12, 12a, 13b,
13c, 16a, 18, 19, 21, 23.
0
2. Section 3.10 is amended by adding paragraph (d) to read as follows:
Sec. 3.10 Registration of futures commission merchants, introducing
brokers, commodity trading advisors, commodity pool operators and
leverage transaction merchants.
* * * * *
(d) On a date to be established by the National Futures
Association, and in accordance with procedures established by the
National Futures Association, each registrant as a futures commission
merchant, introducing broker, commodity trading advisor, commodity pool
operator or leverage transaction merchant shall, on an annual basis,
review and update registration information maintained with the National
Futures Association. The failure to complete the review and update
within thirty days following the date established by the National
Futures Association shall be deemed to be a request for withdrawal from
registration, which shall be processed in accordance with the
provisions of Sec. 3.33(f).
0
3. Section 3.33 is amended by revising paragraph (f) introductory text
to read as follows:
Sec. 3.33 Withdrawal from registration.
* * * * *
(f) A request for withdrawal from registration will become
effective on the thirtieth day after receipt of such request by the
National Futures Association, or earlier upon written notice from the
National Futures Association (with the written concurrence of the
Commission) of the granting of such request, unless prior to the
effective date:
* * * * *
Issued in Washington, DC, on June 26, 2007, by the Commission.
Eileen Donovan,
Acting Secretary of the Commission.
[FR Doc. E7-12767 Filed 6-29-07; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: July 2, 2007