2011-4799

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,

[email protected]; or Claire Noakes, Attorney Advisor, Division of

Clearing and Intermediary Oversight, (202) 418-5444, [email protected];

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/idc/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