[Federal Register: August 14, 2007 (Volume 72, Number 156)]
[Proposed Rules]
[Page 45392-45394]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14au07-24]
[[Page 45392]]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 3
RIN 3038-AC45
Termination of Associated Persons and Principals of Futures
Commission Merchants, Introducing Brokers, Commodity Trading Advisors,
Commodity Pool Operators and Leverage Transaction Merchants
AGENCY: Commodity Futures Trading Commission.
ACTION: Proposed rules.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is proposing to amend Commission Regulations 3.12 and 3.31
(``Proposed Amendments'') to extend the period during which a
registered futures commission merchant (``FCM''), introducing broker
(``IB), commodity trading advisor (``CTA''), commodity pool operator
(``CPO'') or leverage transaction merchant (``LTM'') must file a notice
with the National Futures Association (``NFA'') to report the
termination of any associated person (``AP'') or principal of the
registered intermediary. Under existing regulations, such
intermediaries must file notices within 20 days after the termination
of the AP or principal. The Commission's proposal (``Proposal'') would
provide 30, rather than 20, days for the filing of a termination
notice.
DATES: Comments must be received on or before September 13, 2007.
ADDRESSES: Comments on the Proposal should be sent to David A. Stawick,
Secretary, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street, NW., Washington, DC 20581. Comments may be
sent by facsimile transmission to (202) 418-5521, or by e-mail to
secretary@cftc.gov. Reference should be made to ``Proposal Regarding
the Termination of Associated Persons and Principals of Futures
Commission Merchants, Introducing Brokers, Commodity Trading Advisors,
Commodity Pool Operators and Leverage Transaction Merchants.'' Comments
also may be submitted by connecting to the Federal eRulemaking Portal
at http://www.regulations.gov and following the comment submission
instructions.
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: hschroeder@cftc.gov.
SUPPLEMENTARY INFORMATION:
I. Background
Section 4k of the Commodity Exchange Act (``Act'') \1\ makes it
unlawful for persons to be associated in certain specified capacities
with an FCM, IB, CPO or CTA unless the person is registered with the
entity or intermediary as an AP thereof.\2\ Section 19 of the Act
grants the Commission plenary authority over leverage transactions, and
this authority includes the registration of APs of an LTM.\3\
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\1\ 7 U.S.C. 1 et seq. (2000). The Act can be accessed at http://www.access.gpo.gov/uscode/title7/chapter1_.html
.
\2\ 7 U.S.C. 6k(1)-(3).
\3\ 7 U.S.C. 23.
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Commission Regulation 3.12(a) makes it unlawful for any person to
be associated with an FCM, IB, CTA, CPO or LTM in the capacity of an AP
unless the person has registered under the Act as an AP of that
sponsoring intermediary.\4\ Pursuant to Commission Regulation 3.12(c),
application for registration as an AP must be on a Form 8-R and
accompanied by the applicant's fingerprints as well as a sponsor
certification that meets the requirements set forth in that Regulation.
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\4\ 17 CFR 3.12(a). The Commission's regulations can be accessed
at http://www.access.gpo.gov/nara/cfr/waisidx_06/17cfrv1_06.html.
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Commission Regulations 3.12(b) and 3.31(c)(1) provide for the
termination of an AP's registration. Specifically, Section 3.31(c)(1)
requires the sponsoring FCM, IB, CPO, CTA or LTM to file a Form 8-T
notice \5\ with NFA within 20 days of either of the following events:
(1) The person fails to become associated with the sponsoring FCM, IB,
CTA, CPO or LTM; or (2) the association with the sponsoring firm is
otherwise terminated. Commission Regulation 3.31(c)(2) provides for the
termination of any principal of an FCM, IB, CPO, CTA or LTM, and it
also requires the filing of a Form 8-T within 20 days after the
termination of the principal's affiliation.
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\5\ Commission Regulation 3.31(c)(3) permits the filing of a
Uniform Termination Notice for Securities Industry Registration
(Form U-5) in lieu of a Form 8-T to report the termination of any AP
or principal of the sponsoring intermediary.
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NFA Registration Rule 214(a) likewise specifies that such
termination notices must be filed within 20 days after the termination
of the affiliation of the AP or principal, and it imposes a $100 fee
upon sponsoring firms that fail to file termination notices on a timely
basis. By contrast, Article V, Section 3(a) of the Bylaws of the
National Association of Securities Dealers, Inc. (``NASD'') specifies
that NASD members must file termination notices with respect to
registered persons, including varied securities representatives and
principals thereof, within 30, rather than 20, days.\6\
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\6\ The termination notice filed by NASD members is the Form U-
5.
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II. NFA's Petition
NFA recently sought input from its members regarding possible
enhancements to its online registration process. Several large NFA
members that are dually registered as FCMs or IBs and securities
broker-dealers (``BDs'') identified as a particular problem the
aforementioned disparate regulatory timelines for filing termination
notices. The dual registrants asserted that it is an undue regulatory
burden for them to file within the 20-day period for some APs, while
for the majority of their APs the NASD allows a 30-day period. The dual
registrants also maintained that the 20-day period is difficult to
comply with when a termination notice contains disclosure information
that must be reviewed at the branch office level and then by the legal
and/or registration departments of a firm. They also stated that, on
occasion, an attorney representing an AP will review the notice prior
to filing.
In light of the difficulties identified by dual registrants, NFA
petitioned the Commission to amend Regulation 3.31(c)(1) to increase
the number of days in which a firm must file a termination notice from
20 to 30 days. NFA claims that such an extension will provide
sponsoring firms the time needed to properly review the termination
notices and will conform the futures industry requirements to the
securities industry's time allowance. Given the disparate regulatory
requirements applicable to firms that are dual registrants and the
burden that complying with the 20-day period presents, the Commission
believes it is appropriate to propose amendments to the relevant
regulatory requirements.
III. Proposal
In accordance with the foregoing, the Proposed Amendments would
extend the period of time in which a registered FCM, IB, CPO, CTA or
LTM must file a notice with NFA to report the termination of any AP or
principal of the registered intermediary. Under existing regulations,
such intermediaries must file notices within 20 days after the
termination of the AP or principal. The Proposed Amendments would
[[Page 45393]]
allow termination notices to be filed within 30 days after the AP or
principal is terminated. These Proposed Amendments are intended to
conform the futures industry requirements to the securities industry's
time allowance.
IV. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') \7\ requires that
agencies, in proposing regulations, consider the impact of those
regulations on small businesses. The Proposed Amendments would 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.\8\ The
Commission previously determined that registered FCMs, CPOs and LTMs
are not small entities for the purpose of the RFA.\9\ With respect to
the remaining persons, CTAs and IBs, the Commission does not believe
that the Proposed Amendments would place any additional burdens upon
such persons inasmuch as these registrants already are subject to the
requirement to file termination notices. Moreover, because the Proposed
Amendments would provide these intermediaries with additional time in
which to file termination notices, the Amendments actually would lessen
the relevant regulatory burden. Accordingly, and based on Section 3(a)
of the RFA,\10\ the Acting Chairman, on behalf of the Commission,
certifies that the Proposed Amendments would not have a significant
economic impact on a substantial number of small entities. However, the
Commission invites the public to comment on this certification.
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\7\ 5 U.S.C. 601 et seq.
\8\ 47 FR 18618 (Apr. 30, 1982).
\9\ 47 FR 18618, 18619.
\10\ 5 U.S.C. 605(b).
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B. Cost-Benefit Analysis
Section 15(a) of the Act \11\ 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 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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\11\ 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 Proposed Amendments concern the filing of termination notices
by registered intermediaries, in particular, FCMs, IBs, CPOs, CTAs and
LTMs. Specifically, the Proposed Amendments would extend the period
during which these registered intermediaries must file a notice with
NFA to report the termination of any AP or principal of the sponsoring
intermediary.
The Proposed Amendments should have no effect on the protection of
market participants and the public because they would not alter or
modify the type or nature of information that must be filed with the
Commission. Rather, they would provide registrants with additional time
in which to file information that is already required to be filed and
would conform the futures industry requirements to the securities
industry's time allowance for filing termination notices.
The Proposed Amendments should enhance the efficiencies experienced
by intermediaries because they would lessen burdens that make it
difficult for intermediaries to comply with the time allowance provided
for futures firms filing termination notices.
The Proposed Amendments should have no effect on the following
three enumerated areas: (1) 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
publish the Proposed Amendments discussed above. The Commission invites
public comment on its application of the cost-benefit provision.
Commenters also are invited to submit any data that they may have
quantifying the costs and benefits of the Proposed Amendments with
their comment letters.
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.\12\ The Proposed Amendments will not
require a new collection of information on the part of any entities
subject to the Proposed Amendments. Specifically, the Proposed
Amendments will modify existing regulatory requirements by extending
the period during which registered intermediaries are required to file
notices with NFA to report the termination of APs and principals of the
registered intermediary. Although the Proposed Amendments would alter
the timeframe during which information is required to be collected, the
estimated burden associated with the collection is not expected to
increase or decrease as a result. All affected entities already must
comply with a requirement to file termination notices. Accordingly, for
purposes of the PRA, the Commission certifies that the Proposed
Amendments will not impact the total annual reporting or recordkeeping
burden associated with the above-referenced collection of information,
which has been approved previously by OMB.
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\12\ 44 U.S.C. 3501 et seq.
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Pursuant to the PRA, the Commission has submitted a copy of this
certification to the Office of Management and Budget (``OMB'') for its
review. Copies of the information collection submission to OMB are
available from the CFTC Clearance Officer, 1155 21st Street, NW.,
Washington, DC 20581 (202) 418-5160.
List of Subjects in 17 CFR Part 3
Administrative practice and procedure, Brokers, Commodity futures,
Reporting and recordkeeping requirements.
For the reasons discussed in the preamble, the Commission proposes
to amend 17 CFR part 3 as follows:
PART 3--REGISTRATION
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.
2. Section 3.12 is proposed to be amended by revising paragraph (b)
to read as follows:
Sec. 3.12 Registration of associated persons of futures commission
merchants, introducing brokers, commodity trading advisors, commodity
pool operators and leverage transaction merchants.
* * * * *
(b) Duration of registration. A person registered in accordance
with
[[Page 45394]]
paragraphs (c), (d), (f), (i), or (j) 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. In accordance with
Sec. 3.31(c) of this part, each of the registrant's sponsors must file
a notice with the National Futures Association on Form 8-T or on a
Uniform Termination Notice for Securities Industry Registration
reporting the termination of the association of the associated person
within thirty days thereafter.
* * * * *
3. Section 3.31 is proposed to be amended by revising paragraphs
(c)(1) introductory text and (c)(2) to read as follows:
Sec. 3.31 Deficiencies, inaccuracies, and changes, to be reported.
* * * * *
(c)(1) After the filing of a Form 8-R or a Form 3-R by or on behalf
of any person for the purpose of permitting that person to be an
associated person of a futures commission merchant, commodity trading
advisor, commodity pool operator, introducing broker, or a leverage
transaction merchant, that futures commission merchant, commodity
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:
* * * * *
(2) Each person registered as, or applying for registration as, a
futures commission merchant, commodity trading advisor, commodity pool
operator, introducing broker or leverage transaction merchant must,
within thirty days after the termination of the affiliation of a
principal with the registrant or applicant, file a notice thereof with
the National Futures Association.
* * * * *
Issued in Washington, DC, on August 8, 2007, by the Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E7-15869 Filed 8-13-07; 8:45 am]
BILLING CODE 6351-01-P