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2013-25279

  • Federal Register, Volume 78 Issue 208 (Monday, October 28, 2013)[Federal Register Volume 78, Number 208 (Monday, October 28, 2013)]

    [Rules and Regulations]

    [Pages 64173-64175]

    From the Federal Register Online via the Government Printing Office [www.gpo.gov]

    [FR Doc No: 2013-25279]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 23

    RIN 3038-AE00

    Swap Dealers and Major Swap Participants; Clerical or Ministerial

    Employees

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Final rule.

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    SUMMARY: The Commodity Futures Trading Commission is adopting an

    amendment to its regulations to clarify certain responsibilities of a

    swap dealer or major swap participant regarding its employees who

    solicit, accept or effect swaps in a clerical or ministerial capacity.

    DATES: Effective November 27, 2013.

    FOR FURTHER INFORMATION CONTACT: Christopher W. Cummings, Special

    Counsel, or Barbara S. Gold, Associate Director, Division of Swap

    Dealer and Intermediary Oversight, Commodity Futures Trading

    Commission, 1155 21st Street NW., Washington, DC 20581. Telephone

    number: (202) 418-6700 and electronic mail: ccummings@cftc.gov or

    bgold@cftc.gov.

    SUPPLEMENTARY INFORMATION:

    I. Introduction

    A. Background

    The Dodd-Frank Wall Street Reform and Consumer Protection Act

    (Dodd-Frank Act) \1\ was signed into law July 21, 2010. The Dodd-Frank

    Act amended the Commodity Exchange Act (CEA or Act) \2\ to require the

    registration of swap dealers (SDs) and major swap participants (MSPs),

    and to establish a comprehensive new regulatory framework for swaps.

    One such amendment was new CEA section 4s(b)(6), which states that

    except to the extent otherwise specifically provided by rule,

    regulation, or order, it shall be unlawful for a swap dealer or a major

    swap participant to permit any person associated with a swap dealer or

    a major swap participant who is subject to a statutory disqualification

    to effect or be involved in effecting swaps on behalf of the swap

    dealer or major swap participant, if the swap dealer or major swap

    participant knew, or in the exercise of reasonable care should have

    known, of the statutory disqualification (``Prohibition'').

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    \1\ See Dodd-Frank Wall Street Reform and Consumer Protection

    Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the

    Dodd-Frank Act can be accessed through the Commission's Web site,

    http://www.cftc.gov.

    \2\ 7 U.S.C. 1 et seq. The CEA also can be accessed through the

    Commission's Web site.

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    A related amendment that the Dodd-Frank Act made was to add a

    definition of ``associated person of a swap dealer or major swap

    participant'' in new CEA section 1a(4), which provides that the term

    ``associated person of a swap dealer or major swap participant'' means

    a person who is associated with a swap dealer or major swap participant

    as a partner, officer, employee, or agent

    [[Page 64174]]

    (or any person occupying a similar status or performing similar

    functions), in any capacity that involves: (i) The solicitation or

    acceptance of swaps; or (ii) the supervision of any person or persons

    so engaged. The definition contains an exclusion, however, stating that

    other than for purposes of CEA section 4s(b)(6), the term ``associated

    person of a swap dealer or major swap participant'' does not include

    any person associated with a swap dealer or major swap participant the

    functions of which are solely clerical or ministerial.

    Thus, except to the extent that the Commodity Futures Trading

    Commission (Commission or CFTC) specifically provided by rule,

    regulation, or order, an SD or MSP would be subject to the prohibition

    against permitting a person associated with the SD or MSP (including a

    person employed in a clerical or ministerial capacity) to effect or be

    involved in effecting swaps if the associated person were subject to a

    statutory disqualification.

    On January 19, 2012, the Commission published in the Federal

    Register regulations that provide for the registration of SDs and

    MSPs.\3\ Among these new regulations were Regulation 1.3(aa)(6),\4\

    which amended the existing definition of ``associated person'' in the

    Commission's regulations to include associated persons of SDs and MSPs,

    and Regulation 23.22, which incorporated the prohibition set forth in

    CEA section 4s(b)(6). With respect to SDs or MSPs, Regulation

    1.3(aa)(6) provides that the term ``associated person'' means any

    natural person who is associated with an SD or MSP as a partner,

    officer, employee, agent (or any natural person occupying a similar

    status or performing similar functions), in any capacity that involves

    the solicitation or acceptance of swaps (other than in a clerical or

    ministerial capacity); or the supervision of any person or persons so

    engaged. The exclusion in Regulation 1.3(aa)(6) from the definition of

    associated person of an SD or MSP for persons who act in a clerical or

    ministerial capacity is consistent with the definition (and exclusion

    for clerical or ministerial activity) in the other provisions in

    Regulation 1.3(aa) that define the term ``associated person'' in the

    context of other Commission registrants.\5\

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    \3\ See 77 FR 2613 (Jan. 19, 2012).

    \4\ 17 CFR 1.3(aa)(6). The Commission's regulations also can be

    accessed through the Commission's Web site.

    \5\ See also CEA Section 4k(1), which excludes from associated

    person registration a person who, in a clerical or ministerial

    capacity, solicits or accept customer orders for a futures

    commission merchant or an introducing broker.

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    B. The Proposal

    Regulation 23.22, by its terms, applies to an associated person of

    an SD or MSP as defined in section 1a(4) of the Act and Regulation

    1.3(aa). Because Regulation 1.3(aa)(6) contains a general exclusion

    from the associated person definition for a person employed in a

    clerical or ministerial capacity, and the exclusion in CEA section

    1a(4) must be read in conjunction with CEA section 4s(b)(6), in

    November 2012 the National Futures Association (NFA) \6\ recommended

    that the Commission clarify that the prohibition in CEA section

    4s(b)(6) does not bar association with an SD or MSP by employees who

    are employed in a clerical or ministerial capacity.

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    \6\ Letter from Thomas W. Sexton, Senior Vice President and

    General Counsel, NFA, to Gary Barnett, Director of the Division of

    Swap Dealer and Intermediary Oversight, dated November 12, 2012. NFA

    is a registered futures association (and the sole association so

    registered) under CEA Section 17.

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    In light of NFA's recommendation, and in accordance with the

    language in CEA section 4s(b)(6) that qualifies the Prohibition

    (``Except to the extent otherwise specifically provided by rule,

    regulation, or order''), the Commission proposed to amend paragraph (a)

    of Regulation 23.22 (``Proposal'') \7\ to clarify that the Prohibition

    does not apply to an individual employed by an SD or MSP in a clerical

    or ministerial capacity.\8\

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    \7\ 78 FR 20848 (Apr. 8, 2013).

    \8\ In this regard, the Commission noted in the Proposal that

    pursuant to the authority granted it in CEA section 4s(b)(6), it had

    previously adopted an exception from the Prohibition for a person

    already listed as a principal of, or already registered as an

    associated person of, another Commission registrant, notwithstanding

    a statutory disqualification. See Regulation 23.22(b), proviso.

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    II. Comments on the Proposal

    The Commission received one comment letter on the Proposal. It

    stated that adoption of the Proposal would ``reduce regulatory burden

    and reduce the costs of determining whether a clerical or ministerial

    employee is statutorily disqualified'' and, further, that ``[t]he

    Proposed rule is reasonable and will improve regulatory efficiency.''

    \9\

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    \9\ Comment letter from Chris Barnard at page 1 (June 3, 2013).

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    III. The Final Regulation

    In light of the foregoing, the Commission is adopting as proposed

    an amendment to paragraph (a) of Regulation 23.22 to clarify that the

    Prohibition does not apply to an individual employed by an SD or MSP in

    a clerical or ministerial capacity.

    IV. Related Matters

    A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \10\ requires federal

    agencies, in promulgating regulations, to consider whether those

    regulations will have a significant economic impact on small entities

    and, if so, to provide a regulatory flexibility analysis respecting the

    impact.\11\ The Commission previously has determined that SDs and MSPs

    are not ``small entities'' for RFA purposes.\12\ Moreover, adoption of

    the amendment to Regulation 23.22(a) as proposed will not have a

    significant economic impact on any person who will be affected thereby,

    because it will not impose any additional operational requirements or

    otherwise direct or confine the activities of affected persons.

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    \10\ 5 U.S.C. 601 et seq. (2006).

    \11\ By its terms, the RFA does not apply to ``individuals.''

    See 48 FR 14933, 14954 n. 115 (Apr. 6, 1983).

    \12\ See 77 FR 2613, 2620 (Jan. 19, 2012).

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    The Commission did not receive any comments regarding its RFA

    analysis in the Proposal. Accordingly, pursuant to 5 U.S.C. 605(b), the

    Chairman, on behalf of the Commission, hereby certifies that the

    regulation being published in this Federal Register release will not

    have a significant economic impact on a substantial number of small

    entities.

    B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) \13\ imposes certain

    requirements on Federal agencies (including the Commission) in

    connection with their conducting or sponsoring any collection of

    information as defined by the PRA. The regulation being published in

    this Federal Register release clarifies that the Prohibition does not

    apply where the person in question is employed in a clerical or

    ministerial capacity. As discussed in the Proposal, the amendment will

    not impose a ``burden'' or ``collection of information'' as those terms

    are defined in the PRA.\14\

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    \13\ 44 U.S.C. 3501 et seq.

    \14\ 78 FR 20848, 20849 (Apr. 8, 2013).

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    The Commission did not receive any comments regarding its PRA

    analysis in the Proposal. Accordingly, for purposes of the PRA, the

    Chairman, on behalf of the Commission, certifies that the regulation

    being published in this Federal Register release will not impose any

    new reporting or recordkeeping requirements.

    C. Cost-Benefit Considerations

    CEA section 15(a) requires the Commission to consider the costs and

    benefits of its actions before issuing a

    [[Page 64175]]

    rulemaking under the CEA. CEA section 15(a) further specifies that the

    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

    considers the costs and benefits resulting from its discretionary

    determinations with respect to the section 15(a) factors.

    As is explained above, the amendment to Regulation 23.22(a) makes a

    clarifying change to the text of one of the Commission's regulations

    adopted to reflect changes made to the CEA by the Dodd-Frank Act, by

    specifying that the prohibition against an SD or MSP permitting a

    statutorily disqualified person to associate with it does not include a

    person employed in a clerical or ministerial capacity.

    Costs. With respect to costs, the Commission believes that adoption

    of the amendment to Regulation 23.22(a) will not impose any costs. This

    is because the amendment clarifies that an SD or MSP need not consider

    whether CEA section 4s(b)(6) applies to employees performing clerical

    or ministerial duties. Thus the Commission does not believe that any

    new costs will be imposed.

    Benefits. With respect to benefits, as discussed in the Proposal,

    the Commission believes that the amendment to Regulation 23.22(a) will

    benefit SDs and MSPs by reducing the search costs associated with

    determining whether a clerical or ministerial employee is statutorily

    disqualified. This, in turn, mitigates the existing cost of compliance

    with CEA section 4s(b)(6). As such, it is an ``other public interest

    consideration'' under CEA section 15(a), referred to above.

    Public Comment. The Commission invited public comment on its cost-

    benefit considerations, but no such comments were received.

    List of Subjects in 17 CFR Part 23

    Associated persons, Commodity futures, Major swap participants,

    Ministerial or clerical employees, Registration, Statutory

    disqualification, Swap dealers, Swaps.

    For the reasons presented above, the Commodity Futures Trading

    Commission hereby amends 17 CFR part 23 as follows:

    PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS

    0

    1. The authority citation for part 23 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b-1, 6c, 6p, 6r, 6s, 6t,

    9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, and 21.

    0

    2. Amend Sec. 23.22 by revising the section heading and paragraph (a)

    to read as follows:

    Sec. 23.22 Prohibition against statutory disqualification in the case

    of an associated person of a swap dealer or major swap participant.

    (a) Definition. For purposes of this section, the term ``person''

    means an ``associated person of a swap dealer or major swap

    participant'' as defined in section 1a(4) of the Act and Sec.

    1.3(aa)(6) of this chapter, but does not include an individual employed

    in a clerical or ministerial capacity.

    * * * * *

    Issued in Washington, DC, on October 22, 2013, by the

    Commission.

    Christopher J. Kirkpatrick,

    Deputy Secretary of the Commission.

    Appendix to Swap Dealers and Major Swap Participants; Clerical or

    Ministerial Employees--Commission Voting Summary

    Note: The following appendix will not appear in the Code of

    Federal Regulations.

    Commission Voting Summary

    On this matter, Chairman Gensler and Commissioners Chilton,

    O'Malia, and Wetjen voted in the affirmative; no Commissioner voted

    in the negative.

    [FR Doc. 2013-25279 Filed 10-25-13; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: October 28, 2013



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