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e7-21953

  • [Federal Register: November 8, 2007 (Volume 72, Number 216)]

    [Rules and Regulations]

    [Page 63102-63104]

    From the Federal Register Online via GPO Access [wais.access.gpo.gov]

    [DOCID:fr08no07-6]

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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: 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 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

    Last Updated: November 8, 2007



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