[Federal Register Volume 72, Number 216 (Thursday, November 8, 2007)]
[Rules and Regulations]
[Pages 63102-63104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-21953]
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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: Final rule.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') has amended Commission Regulations 3.12 and 3.31 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. The
amendments modify existing requirements and specify that such
intermediaries must file termination notices within 30 days, rather
than 20 days, after the termination of the association with any AP or
principal.
DATES: Effective Date: January 1, 2008.
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:
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 as an AP
thereof under the Act.\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'') \6\
specifies that members must file termination notices with respect to
registered persons, including varied securities representatives and
principals thereof, within 30, rather than 20, days.\7\
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\6\ In July, 2007, NASD was succeeded by the Financial Industry
Regulatory Authority Inc.
\7\ The termination notice filed for securities industry
registration is the Form U-5.
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Following a review of its rules and a survey of its members, NFA
filed a petition (``Petition'') with the Commission seeking 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. The Petition was
based upon concerns raised by NFA members that were dually registered
as FCMs or IBs and securities broker-dealers (``BDs''). 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, securities industry requirements permit them to file within
30 days. They further asserted 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, by the legal and/or
registration departments of a firm, and possibly by an attorney
representing the terminated AP.
II. The Proposal
In light of the Petition, the disparate regulatory requirements
applicable to firms that are dual registrants, the burden that
complying with the 20-day period presented, and in an effort to
streamline regulatory requirements and harmonize them with the filing
deadlines applicable to BDs, the Commission published in the Federal
Register a proposal (``Proposal'') to extend the period of time in
which a registered FCM, IB, CPO, CTA or LTM must file a termination
notice in line with NFA's proposal. The Proposal included proposed
amendments to Regulations 3.12(b) and 3.31(c)(1) and (2) that would
allow termination notices to be filed within 30, rather than 20, days
after the association with the AP or principal is terminated.
III. Comments Regarding the Proposal
The Commission received three comments addressing its Proposal. The
first comment was from a committee (``Committee'') of a Bar
Association, the second comment was from an association of broker/
dealer and investor advisor firms and the third comment was from an
industry trade association. All three commenters expressed support for
the Proposal and, in particular, applauded the Commission's efforts to
harmonize, align and ease requirements applicable to firms that are
subject to conflicting
[[Page 63103]]
securities and futures regulatory requirements. The Committee
additionally noted that the Proposal would provide additional time for
the review of the content of termination notices by multiple parties,
and it encouraged the Commission to promptly adopt the Proposal.
In light of the comments received, the Commission has decided to
adopt the amendments to Regulations 3.12(b) and 3.31(a)(1) and (2) as
set forth in the Proposal.
IV. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') \8\ requires that
agencies, in proposing regulations, consider the impact of those
regulations on small businesses. The amendments 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.\9\ The Commission
previously determined that registered FCMs, CPOs and LTMs are not small
entities for the purpose of the RFA.\10\ With respect to the remaining
persons, CTAs and IBs, the Commission stated in its Proposal that it
did not believe that the proposed amendments to its regulations would
place any additional burdens upon such persons inasmuch as these
registrants already are subject to the requirement to file termination
notices. The Commission also stated its belief that the proposed
amendments actually would lessen the relevant regulatory burdens on
CTAs and IBs inasmuch as they would provide these intermediaries with
additional time in which to file termination notices. Accordingly, and
based on Section 3(a) of the RFA,\11\ the Acting Chairman, on behalf of
the Commission, certified that the proposed amendments would not have a
significant economic impact on a substantial number of small entities.
The Commission invited the public to comment regarding its analysis,
and no commenter specifically addressed the small business issue.
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\8\ 5 U.S.C. 601 et seq.
\9\ 47 FR 18618 (Apr. 30, 1982).
\10\ 47 FR 18618, 18619.
\11\ 5 U.S.C. 605(b).
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B. Cost-Benefit Analysis
Section 15(a) of the Act \12\ 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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\12\ 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 amendments concern the filing of termination notices by
registered intermediaries, in particular, FCMs, IBs, CPOs, CTAs and
LTMs. Specifically, the amendments will 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 amendments will have no effect on the protection of market
participants and the public because they will not alter or modify the
type or nature of information that must be filed with the Commission.
Rather, they will provide registrants with additional time in which to
file information that is already required to be filed and will conform
the futures industry requirements to the securities industry's time
allowance for filing termination notices. The amendments will enhance
the efficiencies experienced by intermediaries because they will lessen
burdens that make it difficult for intermediaries to comply with the
time allowance provided for futures firms filing termination notices.
Further, the amendments will 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. The Commission invited public comment on its cost-benefit
analysis, but did not receive any comments addressing the issue.
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.\13\ In its Proposal, the Commission
noted that the proposed amendments to the regulations would not require
a new collection of information on the part of any entities subject to
them. Specifically, the Commission stated that the proposed amendments
would 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 and that, therefore, the estimated burden
associated with the collection is not expected to increase or decrease
as a result. Accordingly, for purposes of the PRA, the Commission
certified that the proposed amendments would not impact the total
annual reporting or recordkeeping burden associated with the above-
referenced collection of information, which was previously approved by
OMB. The Commission did not receive any comments regarding its analysis
relative to the PRA.
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\13\ 44 U.S.C. 3501 et seq.
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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 3.12 is 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 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.
[[Page 63104]]
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), 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.
* * * * *
0
3. Section 3.31 is 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 November 1, 2007, by the
Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E7-21953 Filed 11-7-07; 8:45 am]
BILLING CODE 6351-01-P