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  • [Federal Register: July 2, 2007 (Volume 72, Number 126)]

    [Rules and Regulations]

    [Page 35918-35920]

    From the Federal Register Online via GPO Access []





    17 CFR Part 3

    RIN 3038-AC37

    Registration of Intermediaries

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Final rule.


    SUMMARY: The Commodity Futures Trading Commission (``Commission'' or

    ``CFTC'') has amended Commission Regulation 3.10 to require certain

    registered intermediaries, i.e., futures commission merchants

    (``FCMs''), introducing brokers (``IBs''), commodity pool operators

    (``CPOs''), commodity trading advisors (``CTAs'') and leverage

    transaction merchants (``LTMs''), to complete an online annual review

    of their registration information maintained with the National Futures

    Association (``NFA''). This amendment is intended to ensure that NFA

    will have accurate and current information about such registrants. The

    Commission also has made a technical and conforming amendment to

    Commission Regulation 3.33(f) in order to remove an unnecessary

    reference to Regulation 3.10(d).

    EFFECTIVE DATE: August 1, 2007.

    FOR FURTHER INFORMATION CONTACT: Helene D. Schroeder, Special Counsel,

    Compliance and Registration Section, Division of Clearing and

    Intermediary Oversight, Commodity Futures Trading Commission, Three

    Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581,

    telephone number: (202) 418-5450; facsimile number: (202) 418-5528; and

    electronic mail:


    [[Page 35919]]

    I. Background

    Part 3 of the Commission's regulations sets forth the regulations

    relating to the registration of intermediaries and other futures

    industry professionals.\1\ The Commission adopted Part 3 pursuant to

    the authority set forth in Sections 4c, 4d, 4f(a)(1), 4m, 4n(1) and 19

    of the Commodity Exchange Act (``Act'').\2\ These statutory provisions

    require the registration of firms seeking to act as intermediaries for

    exchange-traded futures and commodity options. Section 4f(a)(1)

    contains the framework for the registration of FCMs and IBs.\3\ Section

    4n(1) governs the registration of CPOs and CTAs.\4\ Sections 4c \5\ and

    19 of the Act,\6\ respectively, grant the Commission plenary authority,

    including registration authority, over commodity options and leverage



    \1\ 17 CFR Part 3. The Commission's regulations can be accessed


    \2\ 7 U.S.C. 1 et seq. (2000). The Act can be accessed at


    \3\ 7 U.S.C. 6f(a)(1).

    \4\ 7 U.S.C. 6n(1).

    \5\ 7 U.S.C. 6c.

    \6\ 7 U.S.C. 23. Commission Regulation 31.5, 17 CFR 31.5 (2007),

    was promulgated under this provision and along with Regulation 3.10,

    17 CFR 3.10, governs the registration of LTMs.


    Commission Regulation 3.10(a) specifies that an application for

    registration as an FCM, IB, CPO, CTA or LTM must be on a Form 7-R,

    completed and filed with NFA in accordance with the instructions

    thereto.\7\ Commission Regulation 3.31(a)(1) requires such

    intermediaries to correct promptly deficiencies or inaccuracies

    contained in the person's Form 7-R or any Form 8-R filed on behalf of a

    principal or an associated person.\8\


    \7\ 17 CFR 3.10(a).

    \8\ 17 CFR 3.31(a)(1).


    In 2002, NFA altered its registration procedures by shifting from

    paper-based registration to an online or electronic registration

    system. Pursuant to these new procedures, NFA requires, with limited

    exceptions,\9\ that all registration (and membership) forms, including

    the completed Form 7-R and 3-R, must be filed with NFA electronically

    through NFA's Online Registration System (``ORS''). Shortly after the

    new procedures were implemented, the Commission deleted Regulation

    3.10(d), pursuant to which intermediary firms would conduct an annual

    review of a pre-printed copy of the registrant's 7-R.\10\


    \9\ For example, NFA requires that any securities broker or

    dealer that is registered with the Securities and Exchange

    Commission that becomes a notice-registered FCM or IB must submit a

    hardcopy version of its Form 7-R.

    \10\ See 67 FR 38869 (June 6, 2002).


    II. Proposal

    In order to ensure that the registration information it maintains

    is accurate and up-to-date, NFA developed an online registration update

    protocol for firms to review and update their registration records. In

    addition to providing an updated list of persons authorized to enter

    data in ORS, the protocol would require registrants to provide updated

    disciplinary, branch office and firm contact information.\11\


    \11\ Under the protocol, a firm could modify the title given for

    a particular principal of a firm, but it could not identify a new

    principal, as this would require separate application.


    To facilitate NFA's efforts in implementing this new protocol, on

    April 26, 2007, the Commission published in the Federal Register a

    proposal to require firms to conduct an annual review of registration

    information. (``Proposal'').\12\ The Proposal, which included a

    proposed new paragraph (d) of Regulation 3.10 (``Proposed Amendment'')

    was designed to ensure that NFA would be in possession of current and

    accurate information regarding intermediaries.\13\ Specifically, the

    Proposed Amendment would require that each FCM, IB, CPO, CTA and LTM,

    in accordance with procedures established by NFA, complete an online

    annual review of the registration information maintained by NFA.

    Pursuant to procedures established by NFA, registrants would be

    required to correct any deficiencies or inaccuracies contained therein.


    \12\ 72 FR 20788.

    \13\ Paragraph (d) of Regulation 3.10 had been reserved.


    The Proposed Amendment also would provide that the failure to

    complete the review and update within 30 days of the date established

    by NFA for completion would be deemed to be a request for withdrawal

    from registration. As further provided therein, NFA would be required

    to process the request in accordance with the existing procedures for

    withdrawal of registration set forth in Commission Regulation 3.33(f).

    The Commission's Proposal also included a technical and conforming

    amendment to Commission Regulation 3.33(f) in order to remove

    unnecessary language that referenced Regulation 3.10(d).

    III. Comments Regarding the Proposal

    The Commission received only one comment letter on its Proposal,

    and this comment, which was from NFA, expressed full support for the

    amendment. In light of this fact, and the foregoing, the Commission has

    determined to adopt the amendments to Regulations 3.10 and 3.33(f) as

    set forth in the Proposal.

    IV. Related Matters

    A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \14\ requires that

    agencies, in proposing regulations, consider the impact of those

    regulations on small businesses. The amendment to Regulation 3.10 will

    affect persons that are registered as FCMs, IBs, CPOs, CTAs and LTMs.

    The Commission has previously established certain definitions of

    ``small entities'' to be used by the Commission in evaluating the

    impact of its regulations on such entities in accordance with the

    RFA.\15\ The Commission previously determined that registered FCMs,

    CPOs and LTMs are not small entities for the purpose of the RFA.\16\


    \14\ 5 U.S.C. 601 et seq.

    \15\ 47 FR 18618 (Apr. 30, 1982).

    \16\ 47 FR 18618, 18619.


    With respect to the remaining persons, CTAs and IBs, the Commission

    stated in the Proposal that it did not believe that the economic impact

    of the Proposed Amendment would be significant. First, the information

    that would be required under the Proposed Amendment already is required

    to be collected under the existing registration framework, to wit,

    Regulation 3.31(a)(1). Second, the Proposed Amendment and NFA's new

    protocol would focus each registrant on the specific areas that must be

    reviewed and, if needed, updated. Third, the Proposed Amendment would

    permit review and updating via electronic means in keeping with the

    current registration procedures. Accordingly, in accordance with

    Section 3(a) of the RFA,\17\ the Chairman, on behalf of the Commission,

    certified that the Proposed Amendment would not have a significant

    economic impact on a substantial number of small entities.


    \17\ 5 U.S.C. 605(b).


    The Commission invited the public to comment regarding its analysis

    of the application of the RFA to the Proposal. The Commission did not

    receive any such comments.

    B. Cost-Benefit Analysis

    Section 15(a) of the Act \18\ requires the Commission to consider

    the costs and benefits of its action before issuing a new regulation

    under the Act. By its terms, Section 15(a) does not require the

    Commission to quantify the costs and

    [[Page 35920]]

    benefits of a new regulation or to determine whether the benefits of

    the proposed regulation outweigh its costs. Rather, Section 15(a)

    simply requires the Commission to ``consider the costs and benefits''

    of its action.


    \18\ 7 U.S.C. 19(a).


    Section 15(a) further specifies that costs and benefits shall be

    evaluated in light of five broad areas of market and public concern:

    (1) Protection of market participants and the public; (2) efficiency,

    competitiveness, and financial integrity of futures markets; (3) price

    discovery; (4) sound risk management practices; and (5) other public

    interest considerations. The Commission, in its discretion, may choose

    to give greater weight to any one of the five enumerated areas and

    determine that, notwithstanding its costs, a particular regulation is

    necessary or appropriate to protect the public interest or to

    effectuate any of the provisions or to accomplish any of the purposes

    of the Act. The Commission has evaluated the costs and benefits of its

    Proposal, in particular, new Regulation 3.10(d) in light of the

    specific considerations identified in Section 15(a) of the Act.

    Regulation 3.10(d) concerns the registration of intermediaries, in

    particular, FCMs, IBs, CPOs, CTAs and LTMs. Specifically, it will

    require these intermediaries to complete an online annual review of

    their registration information, including disciplinary information,

    firm contacts and lists of authorized users. By ensuring that NFA, the

    self-regulatory organization that oversees the activities of these

    registrants, will have accurate and current information regarding

    registrants, Regulation 3.10(d) will maximize the protection of market

    participants and the public.

    Such intermediaries already are under an ongoing obligation to

    provide updated information to NFA pursuant to Commission Regulation

    3.31(a)(1). Regulation 3.10(d) will require these registrants to comply

    with an online review protocol established by NFA. This protocol will

    provide a straightforward process for registrants to electronically

    update their registration information. It will focus and guide

    registrants on the particular areas that need updating. By facilitating

    NFA's efforts to adopt this protocol, Regulation 3.10(d) will result in

    efficiency enhancements for registrants and NFA.

    Regulation 3.10(d) also will have no effect on the following three

    enumerated areas: (1) Efficiency, competitiveness or the financial

    integrity of futures markets; (2) price discovery; and (3) sound risk

    management practices.

    After considering these factors, the Commission has determined to

    adopt the amendment to Regulation 3.10 set forth below.

    C. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (``PRA'') imposes certain

    obligations on federal agencies, including the Commission, in

    connection with their conducting or sponsoring any collection of

    information as defined by the PRA.\19\ In its Proposal, the Commission

    noted that the Proposed Amendment would require intermediaries to

    conduct an annual review of their registration information maintained

    with NFA and that this information is part of an approved collection of

    information. The Commission further noted that the Proposed Amendment

    would not result in any material modifications to this approved

    collection. Accordingly, for purposes of the PRA, the Commission

    certified that the Proposed Amendment did not impose any new reporting

    or recordkeeping requirements.


    \19\ 44 U.S.C. 3501 et seq.


    The Commission did not receive any comments regarding its analysis

    relative to the PRA.

    List of Subjects in 17 CFR Part 3

    Administrative practice and procedure, Brokers, Commodity futures,

    Reporting and recordkeeping requirements.


    For the reasons discussed in the preamble, the Commission amends 17 CFR

    part 3 as follows:



    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 3.10 is amended by adding paragraph (d) to read as follows:

    Sec. 3.10 Registration of futures commission merchants, introducing

    brokers, commodity trading advisors, commodity pool operators and

    leverage transaction merchants.

    * * * * *

    (d) On a date to be established by the National Futures

    Association, and in accordance with procedures established by the

    National Futures Association, each registrant as a futures commission

    merchant, introducing broker, commodity trading advisor, commodity pool

    operator or leverage transaction merchant shall, on an annual basis,

    review and update registration information maintained with the National

    Futures Association. The failure to complete the review and update

    within thirty days following the date established by the National

    Futures Association shall be deemed to be a request for withdrawal from

    registration, which shall be processed in accordance with the

    provisions of Sec. 3.33(f).


    3. Section 3.33 is amended by revising paragraph (f) introductory text

    to read as follows:

    Sec. 3.33 Withdrawal from registration.

    * * * * *

    (f) A request for withdrawal from registration will become

    effective on the thirtieth day after receipt of such request by the

    National Futures Association, or earlier upon written notice from the

    National Futures Association (with the written concurrence of the

    Commission) of the granting of such request, unless prior to the

    effective date:

    * * * * *

    Issued in Washington, DC, on June 26, 2007, by the Commission.

    Eileen Donovan,

    Acting Secretary of the Commission.

    [FR Doc. E7-12767 Filed 6-29-07; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: July 2, 2007