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  • [Federal Register: December 30, 2009 (Volume 74, Number 249)]

    [Rules and Regulations]

    [Page 69004-69009]

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

    [DOCID:fr30de09-2]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 1

    RIN 3038-AB87

    Electronic Filing of Financial Reports and Notices

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Final rules.

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

    ``CFTC'') is amending certain of its regulations in connection with

    electronic filing of financial reports and related notices. The

    amendments broaden the language in the Commission's regulations

    applicable to electronic filings of financial reports to clarify that,

    to the extent a futures commission merchant (``FCM'') submits a Form 1-

    FR to the Commission electronically, it may do so using any user

    authentication procedures established or approved by the Commission.

    The amendments also permit registrants to electronically submit filings

    in addition to financial reports, including an election to use a non-

    calendar fiscal year, requests for extensions of time to file

    uncertified financial reports and ``early warning'' notices required

    under Commission regulations. In connection with the filing of

    financial reports, the amendments specify, consistent with other

    requirements and existing practice, that a statement of income and loss

    is included as a required part of the non-certified 1-FR filings for

    FCMs and introducing brokers (``IBs''). The amendments also require

    more immediate, but less prescriptive, documentation regarding a firm's

    capital condition when a firm falls below its required minimum adjusted

    net capital. Finally, the final regulations include several other minor

    amendments to correct certain outdated references and to make other

    clarifications to existing regulations.

    DATES: Effective Date: January 4, 2010.

    FOR FURTHER INFORMATION CONTACT: Thelma Diaz, Associate Director,

    Division of Clearing and Intermediary Oversight, 1155 21st Street, NW.,

    Washington, DC 20581. Telephone number: 202-418-5137; facsimile number:

    202-418-5547; and electronic mail: <A HREF="mailto:tdiaz@cftc.gov">tdiaz@cftc.gov</A>, or Lawrence T.

    Eckert, Special Counsel, Division of Clearing and Intermediary

    Oversight, 140 Broadway, New York, New York 10005. Telephone number

    (646) 746-9704; and electronic mail: <A HREF="mailto:leckert@cftc.gov">leckert@cftc.gov</A>.

    SUPPLEMENTARY INFORMATION:

    I. Background

    On October 13, 2009, the Commission published for comment in the

    Federal Register proposed amendments to Regulations 1.10 and 1.12 (the

    ``Proposals'').\1\ Commission Regulation 1.10 sets forth the financial

    reporting requirements for FCMs and IBs \2\ and Regulation 1.12

    requires FCMs, IBs and applicants for registration thereof to provide

    notice of a variety of predefined events as or before they occur.\3\

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    \1\ 74 FR 52434 (Oct 13, 2009). The Commission's regulations

    cited in this rulemaking may be found at 17 CFR Ch. 1 (2009).

    \2\ For simplicity, references in this Federal Register release

    to IBs in connection with financial reporting and notice

    requirements are intended to refer to IBs that are not operating

    pursuant to a guarantee agreement.

    \3\ For example, Regulation 1.12(a) requires immediate

    telephonic notice, to be confirmed in writing by facsimile, when a

    registrant's (or applicant's) adjusted net capital falls below that

    required by Regulation 1.17. Other provisions of Regulation 1.12

    require notification to the Commission for certain ``early warning''

    events. Regulation 1.12(b), for example, requires notification by a

    registrant or applicant if such entity's adjusted net capital drops

    below a specified threshold.

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    The Proposals consisted of several amendments regarding electronic

    filing of financial reports and notices by FCMs and IBs as well as

    amendments to certain other financial reporting requirements.

    Specifically, the Commission proposed amendments to: (1) Broaden

    language in the Commission's regulations concerning authentication

    procedures applicable to electronic filing of financial reports in

    order to enable internet-based filing of such reports in anticipation

    of expected changes to ``WinJammer<SUP>TM</SUP>,'' an application used

    by FCMs that file their non-certified financial reports electronically

    with the Commission; (2) expand the types of filings that FCMs and IBs

    may submit electronically to include required ``early warning'' notices

    and certain other notices and filings under Regulations 1.10 and 1.12;

    (3) provide for less prescriptive, but more immediate, documentation to

    be filed regarding a firm's undercapitalized condition; (4) expressly

    include an income statement in the required periodic unaudited

    financial reports of FCMs and IBs; and (5) make several other minor

    amendments to correct certain outdated references and to make other

    clarifications to existing regulations.

    The 30-day public comment period on the Proposals expired on

    November 12, 2009. The Commission received one written comment on the

    Proposals, submitted by the National Futures Association (``NFA''). NFA

    noted its agreement and support of the Commission's Proposals and

    commended the Commission for its review of its electronic filing

    requirements and proposal of changes to reflect technological advances

    and current practices. As discussed below, NFA also encouraged the

    Commission to consider certain additional amendments to further expand

    the use of electronic filing in certain circumstances. NFA did not

    suggest delaying the implementation of the Proposals while these

    additional suggestions made by NFA are under consideration by the

    Commission. The Commission further notes that certain provisions

    included in the additional amendments offered by NFA for consideration

    may require publication in the Federal Register for prior notice and

    comment before they may be adopted. For the reasons set forth below,

    the Commission has therefore determined to adopt the amendments as

    proposed.

    II. Rule Amendments

    A. Electronic Filing Issues

    1. Amendments to Regulation 1.10

    Commission Regulation 1.10(c) generally sets forth the provisions

    governing where and how financial reports required to be filed by FCMs

    and IBs under Regulation 1.10 must be filed. Regulation 1.10(c)(1)

    indicates with whom reports should be filed and Regulation 1.10(c)(2)

    addresses the method for submitting such reports. Electronic submission

    of certified financial reports currently is addressed separately in

    Regulation 1.10(b)(2)(iii).

    [[Page 69005]]

    This section provides that FCMs must file certified financial reports

    in paper form and IBs must file such reports electronically in

    accordance with electronic filing procedures established by NFA.

    For clarification and ease of reading, the Commission is moving

    Regulation 1.10(b)(2)(iii) into a new subparagraph of Regulation

    1.10(c)(2). Regulation 1.10(c)(2) is being amended as discussed below

    and divided into 2 new subparagraphs: New subparagraph (c)(2)(i)

    addresses electronic filing by FCMs with the Commission and new

    subparagraph (c)(2)(ii) addresses electronic filings with NFA by IBs

    and by applicants for registration as IBs and FCMs.

    Regulation 1.10(c)(2) currently provides that non-certified

    financial reports may be submitted to the Commission ``in electronic

    form using a Commission assigned Personal Identification Number, and

    otherwise in accordance with instructions issued by the Commission * *

    *.'' The adopted amendments to Regulation 1.10(c)(2) broaden the

    language in the regulation relating to user authentication by no longer

    limiting user authentication to the use of a personal identification

    number (``PIN''). As described in the proposing release, the use of

    such a PIN is no longer consistent with the internet-based enhancements

    under development for Winjammer. The revisions to Regulation 1.10(c)(2)

    also permit any filing or other notice submitted under the regulation

    to be transmitted electronically, rather than limiting such submission

    to financial reports as under the current regulation. Such other

    notices would include, for example, an election to use a fiscal year

    other than a calendar year under Regulation 1.10(e) and a request for

    an extension of time to file uncertified financial reports under

    Regulation 1.10(f). Regulation 1.10(d)(4)(iii), which deals with

    electronic filing of Form 1-FR, is being amended by deleting references

    to the use of a PIN.

    As amended, Regulation 1.10(c)(2)(i) provides that all filings or

    other notices or applications prepared by a futures commission merchant

    ``[except with respect to the filing of certified financial reports

    which must be filed in paper form], and pursuant to [Regulation 1.10]

    may be submitted to the Commission in electronic form using a form of

    user authentication assigned in accordance with procedures established

    by or approved by the Commission, and otherwise in accordance with

    instruction issued by or approved by the Commission, if the futures

    commission merchant or a designated self-regulatory organization has

    provided the Commission with the means necessary to read and to process

    the information contained in such report.''

    Amended Regulation 1.10(c)(2)(ii) provides that ``[except with

    respect to the filing of certified FOCUS reports by a registered broker

    or dealer with the SEC], all filings or other notices or applications

    prepared by an introducing broker or applicant for registration as an

    introducing broker or futures commission merchant * * * must be filed

    electronically in accordance with electronic filing procedures

    established by the National Futures Association * * *.''

    In its comment letter, NFA indicated that it would support the

    Commission further broadening the permitted use of electronic filing to

    include FCM certified financial statements. The current requirement in

    Regulation 1.10 for FCM certified financial statements to be filed in

    paper form is due in part to the fact that such statements are not

    prepared in a standard format that lends itself easily to electronic

    input. NFA suggested that notwithstanding this lack of standardization,

    the Commission could consider permitting the submission of such

    statements in portable document format (``pdf''). The Commission notes,

    however, that this suggestion requires further review because the pdf

    format is not conducive to the application of automated review of the

    data by the Commission. Further review would also be beneficial in

    light of continuing developments in technology that may at a later date

    result in increased benefits of electronic filing of certified

    financial statements for the filers, the Commission and the DSRO

    recipients. The adoption of the amendments as proposed will not impede

    such further review, and will make available to these same parties

    other recognized enhancements to the current requirements for

    electronic filing.

    2. Amendments to Regulation 1.12

    Commission Regulation 1.12 requires FCMs, IBs and applicants for

    registration thereof to provide notice of a variety of predefined

    events as or before they occur.\4\ The Commission proposed to amend

    Regulation 1.12(i), which sets forth the procedures for filing notices

    under Regulation 1.12, to allow FCMs and IBs to submit electronically

    filings otherwise required to be submitted in writing via facsimile.\5\

    In its comment letter, NFA supported this change, but suggested that

    the Commission consider requiring, rather than simply permitting,

    registrants to electronically file such notices. Although the

    Commission strongly encourages, and believes that most registrants will

    choose to utilize, electronic filing as a more efficient and

    expeditious means to file notices, the Commission nonetheless

    appreciates that there may be times when a registrant would prefer, or

    is otherwise unable, to file electronically. For example, a registrant

    may have a regulatory deadline under the Commission's regulations but

    be unable to satisfy such deadline through electronic means due to

    temporary technological issues with WinJammer\TM\, NFA's EasyFile

    system or the registrants' own systems. Moreover, moving from a

    permissive to mandatory filing requirement may require publication in

    the Federal Register in order to obtain public comment on such a

    proposal. In light of these concerns, the Commission has determined to

    adopt the amendment as proposed.

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    \4\ See footnote 3, above.

    \5\ IBs file notices under Regulation 1.12 with NFA pursuant to

    NFA rules. NFA has indicated that it intends to make changes to the

    EasyFile system and/or NFA rules, as may be necessary to facilitate

    the electronic filing by IBs of notices or other information

    permitted to be submitted electronically by the Proposal but

    currently filed with NFA in paper form.

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    The amendment adopted adds a new subparagraph 1.12(i)(3) to the

    Commission's regulations which provides that ``[e]very notice or report

    required to be provided in writing under [Regulation 1.12] may, in lieu

    of facsimile, be filed via electronic transmission using a form of user

    authentication assigned in accordance with procedures established by or

    approved by the Commission, and otherwise in accordance with

    instructions issued by or approved by the Commission.'' An electronic

    submission is required to clearly indicate the registrant or applicant

    on whose behalf such filing is made and the use of such user

    authentication in submitting such filing would constitute and become a

    substitute for the manual signature of the authorized signer.

    B. Income Statement Filing Requirement

    Commission Regulation 1.10(d) sets forth the content requirements

    for financial reports filed with the Commission: The Commission

    proposed to amend Regulation 1.10(d)(1) to require ``statements of

    income (loss)'' to be included as part of FCM and IB non-certified

    financial report filings. The Commission noted that this amendment is

    consistent with Regulation 1.10(d)(2)(ii), which requires FCMs and

    [[Page 69006]]

    IBs to include an income statement as part of their certified financial

    reports, and is a practice currently followed by most registrants. NFA

    voiced its support of this amendment in its comment letter noting its

    agreement that the income statement provides the Commission with

    important information for monitoring the financial condition of firms.

    The Commission is adopting the amendment as proposed.

    As noted in the Proposals, this amendment does not affect the

    ability of a broker-dealer to file with the Commission in accordance

    with Regulation 1.10(h) the FOCUS report under the Securities and

    Exchange Act of 1934, including the income statement currently provided

    in that report.\6\

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    \6\ Under SEC Regulation 17a-5 and rules of applicable self-

    regulatory organizations, certain securities brokers or dealers may

    include as part of their quarterly FOCUS report filings a

    consolidated Statement of Income (Loss) for the relevant quarter

    rather than a Statement of Income (Loss) for the month for which the

    report is being filed (i.e., March, June, September or December).

    Such broker-dealers that also are registered as FCMs would file

    these same reports with the Commission. The Commission wishes to

    make clear that an otherwise complete FOCUS report filing made with

    the Commission that includes such a consolidated Statement of Income

    (Loss) will be deemed an acceptable filing in accordance with

    Commission Regulation 1.10(h).

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    C. Net Capital Undercapitalization Documentation

    Regulation 1.12(a) requires a registrant or applicant for

    registration as an FCM or IB that knows or should have known that its

    adjusted net capital is less than the minimum required by the

    Commission or by its designated self-regulatory organization (``DSRO'')

    to provide notice of such event immediately by telephone and confirm

    such telephonic notice in writing by facsimile. Regulations 1.12(a)(2)

    (applicable to FCMs) and 1.12(a)(3) (applicable to IBs) further require

    that, within 24 hours thereafter, the registrant (or applicant) must

    file certain specific financial records with the Commission.\7\

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    \7\ Specifically, Regulation 1.12(a)(2) requires an FCM (or

    applicant) to file with the Commission: (1) A statement of financial

    condition; (2) a statement of the computation of its minimum capital

    requirements; (3) the statements of segregation requirements and

    funds in segregation for customers trading on U.S. commodity

    exchanges and for customers' dealer options accounts; and (4) the

    statement of secured amounts and funds held in separate accounts for

    foreign futures and foreign options customers. Regulation 1.12(a)(3)

    requires an IB (or applicant) to file a statement of financial

    condition and a statement of the computation of its minimum capital

    requirements.

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    The Commission also is amending Regulations 1.12(a)(2) and (a)(3)

    to require more immediate, but less prescriptive, reporting to the

    Commission when a registrant or applicant falls below its minimum net

    capital requirement. NFA supported this amendment, stating its

    agreement with the Commission that it is more beneficial for the

    Commission to receive prompt information concerning a firm's capital

    condition than to receive such information in a specific prescribed

    format. Under the amended regulation, a firm must continue to provide

    immediate telephonic notice, confirmed in writing, in the event that

    its adjusted net capital falls below its required minimum. Amended

    Regulation 1.12(a)(2) requires that together with such initial

    telephonic notice and written confirmation, a firm must provide

    ``documentation in such form as necessary to adequately reflect the

    firm's capital condition as of any date such person's adjusted net

    capital is less than the minimum required.'' \8\ The Commission

    envisions that such adequate documentation would at a minimum specify

    the firm's adjusted net capital requirement and actual adjusted net

    capital for any date during which the firm fell below its regulatory

    requirement. The amended regulation also requires a firm to provide

    similar documentation to that initially provided for any other days the

    Commission may request.\9\ By requiring documentation as of ``any''

    date that adjusted net capital is less than the required minimum, the

    amended regulation makes clear that where a firm is undercapitalized on

    more than one day, documentation related to all such time must be

    provided.

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    \8\ This amendment is consistent with SEC Regulation 17a-11

    which requires a broker or dealer whose net capital falls below its

    required minimum to give notice of the deficiency that same day,

    specifying the broker or dealer's net capital requirement and its

    current amount of net capital.

    \9\ Regulation 1.10(b)(4) already provides that representatives

    of the Commission may upon written notice require Form 1-FR or other

    financial information at such times as specified by the

    representative.

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    Regulation 1.12(a)(3), which provides documentation requirements

    for IBs that provide the Commission with notice of their

    undercapitalized condition, has been deleted because Regulation

    1.12(a)(2) as amended applies to IBs as well as to FCMs. Regulation

    1.12(i)(1) also is being amended by deleting certain language related

    to the method of filing documentation that is no longer required to be

    submitted to the Commission in light of the amendments to Regulation

    1.12(a)(2) discussed above.

    D. Miscellaneous Amendments to Regulations

    The Commission proposed a number of minor amendments to Regulations

    1.10 and 1.12 to correct certain outdated references and to otherwise

    clarify existing regulations. NFA noted their support of certain of

    these amendments that eliminated requirements that provided for

    duplicative filing with NFA and the Commission (enumerated as items (1)

    and (2), below). The Commission received no comments on the other

    amendments. The Commission is, therefore, adopting each of the

    amendments as proposed and, as outlined below:

    (1) Regulation 1.10(c)(1) is amended to clarify that FCM and IB

    applicants for registration need file financial reports required as

    part of the application process only with NFA and not also with a

    regional office of the Commission;

    (2) Regulation 1.12(i)(1) is amended to clarify that an applicant

    for registration as an FCM need file any notices required under

    Regulation 1.12 only with NFA and not also with the Commission. The

    amended regulation makes clear that any notice or report filed with NFA

    will be deemed to be filed with, and to be the official record of, the

    Commission;

    (3) The following minor wording amendments are being made to

    Regulation 1.10(c)(1) for the purposes of consistency with other

    provisions of the regulations and/or general clarification:

    (A) The reference to ``[a] report filed by an [IB] pursuant to

    paragraph (b)(2)(i) or (b)(2)(ii)'' is amended to clarify that ``a

    report'' in this context is meant to refer to Form 1-FR;

    (B) The reference to subparagraphs (b)(2)(i) and (b)(2)(ii) is

    being amended for simplicity to refer only to paragraph (b)(2) in

    general; and

    (C) The language of paragraph 1.10(c)(1) is being amended to

    clarify that it is intended to cover not only ``reports'' but all

    reports and other ``information;''

    (4) Regulations 1.10(b)(2)(i) and 1.10(b)(2)(ii) are being amended

    to delete language referring to an option to file financial statements

    on a calendar-year basis which is no longer contained in the

    Commission's regulations;

    (5) Regulation 1.10(b)(3), which permits an FCM or IB to satisfy

    the Commission's Form 1-FR filing requirements if it satisfies certain

    financial reporting standards and reporting requirements of its DSRO,

    is being amended to delete outdated language referring to DSRO

    regulations applicable ``after the effective date of these regulations

    by the Commission''; and

    (6) Language within regulation 1.10(h) that references ``NFA'' is

    amended for consistency purposes by spelling out ``National Futures

    Association.''

    [[Page 69007]]

    III. Related Matters

    A. Administrative Procedure Act

    The Administrative Procedure Act (``APA'') provides that the

    required publication of a substantive rule shall be made not less than

    30 days before its effective date, unless the agency is permitted to

    implement an earlier effective date under one of the exceptions

    recognized by the APA.\10\ The exceptions set forth in the APA are as

    follows: (1) A substantive rule which grants or recognizes an exemption

    or relieves a restriction; (2) interpretative rules and statements of

    policy; or (3) as otherwise provided by the agency for good cause found

    and published with the rule.\11\

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    \10\ 5 U.S.C. 553(b) and (d).

    \11\ 5 U.S.C. 553-(d).

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    The amendments being made to Rules 1.10 and 1.12 will ``grant or

    recognize an exemption or relieve a restriction'' in that they

    generally serve to permit and enable registrants to file notices and

    reports electronically that previously were required to be filed in

    paper form. In addition, the amendments include a number of non-

    substantive amendments to correct certain outdated references and to

    otherwise clarify existing regulations.

    With regard to the amendments relating to the timing of

    documentation required by firms that become undercapitalized, the

    Commission has a clear interest in receiving such information

    immediately and believes, therefore, that there is ``good cause'' to

    make such requirement effective in fewer than 30 days. With respect to

    the amendments requiring an income statement, the Commission believes

    that there is also ``good cause'' to make this provision effective on

    January 4, 2010, consistent with the other rule amendments. It would

    not be logical for the income statement requirement to be implemented

    at a time later than the effective date of the remaining rules, as the

    information in the income statement is an integral part of a

    registrant's financial statements. Further, as the SEC and several

    self-regulatory organizations already require dual registrants and

    other FCMs to include the income statement in their financial

    statements, the income statement is already formatted as part of the

    Form 1-FR reports that registrants currently file with the Commission,

    and the data required to complete it is generally already available

    from other parts of the form. In fact, substantially all FCMs and IBs

    already complete the income statement as part of their required

    periodic non-certified financial report filings.

    Accordingly, the Commission has determined to make these amendments

    effective on January 4, 2010, consistent with the anticipated

    availability of the updated WinJammer<SUP>TM</SUP> system.

    B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,

    requires that agencies, in rulemaking, consider the impact of those

    regulations on small businesses. This rulemaking would affect FCMs and

    IBs. The Commission has previously determined that, based upon the

    fiduciary nature of FCM/customer relationships, as well as the

    requirement that FCMs meet minimum financial requirements, FCMs should

    be excluded from the definition of small entity.

    With respect to IBs, the Commission stated that it is appropriate

    to evaluate within the context of a particular rule proposal whether

    some or all IBs should be considered to be small entities and, if so,

    to analyze the economic impact on such entities at that time.\12\ These

    amendments will not place any additional burdens on IBs that are small

    businesses because all such parties, if any, already are subject to the

    financial reporting and notice requirements under Regulations 1.10 and

    1.12 and already file financial reports through NFA's electronic filing

    system. Additionally, although the Commission is amending its

    regulations to add a requirement to include statements of income and

    loss as part of non-certified financial report filings, substantially

    all IBs already are filing this data in practice and, in any event,

    must compute the relevant income and loss data (although not currently

    required to be provided in a separate income statement) in order to

    complete Commission Form 1-FR or the SEC FOCUS report, as applicable,

    under the Commission's regulations.\13\ The Commission's Proposals

    solicited public comment on this analysis.\14\ No comments were

    received. Accordingly, pursuant to Section 3(a) of the RFA, 5 U.S.C.

    605(b), the Chairman, on behalf of the Commission, certifies that the

    action taken herein will not have a significant economic impact on a

    substantial number of small entities.

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    \12\ See 48 FR 35248, 35275-78 (Aug. 3, 1983).

    \13\ See Commission Regulations 1.10(b)(2) and 1.10(h)

    (requiring IBs to file with the Commission Form 1-FR-FCM or, as an

    alternative in the case of a registered broker or dealer with the

    SEC, the FOCUS report).

    \14\ 74 FR at 52438.

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    C. Paperwork Reduction Act

    This rulemaking provides an alternative method of collection for a

    required collection of information under Part 1 of the Commission's

    rules, but is not anticipated to change the burden under such

    collection as the actual financial reporting requirements have not

    changed significantly. As required by the Paperwork Reduction Act of

    1995 (44 U.S.C. 3507(d)), the Commission submitted a copy of this

    section to the Office of Management and Budget (``OMB'') for its

    review. No comments were received in response to the Commission's

    invitation in its notice of proposed rulemaking to comment on any

    change in the potential paperwork burden associated with these rule

    amendments.\15\

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    \15\ Id.

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    D. Cost-Benefit Analysis

    Section 15(a) of the Act, as amended by Section 119 of the

    Commodity Futures Modernization Act, 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) as amended 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.

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

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

    Protection of market participants and the public; efficiency,

    competitiveness, and financial integrity of futures markets; price

    discovery; sound risk management practices; and other public interest

    considerations. The Commission, in its discretion, can 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's proposal contained an analysis of its

    consideration of these costs and benefits and solicited public comment

    thereon.\16\ No comments were received with respect to this analysis.

    Therefore, pursuant to such consideration, the Commission has decided

    to adopt these amendments as discussed above.

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    \16\ 74 FR at 52439.

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    [[Page 69008]]

    List of Subjects in 17 CFR Part 1

    Brokers, Commodity futures, Reporting and recordkeeping

    requirements.

    0

    In consideration of the foregoing and pursuant to the authority

    contained in the Commodity Exchange Act and, in particular, Sections

    4f, 4g and 8a(5) thereof, 7 U.S.C. 6f, 6g and 12a(5), the Commission

    hereby amends 17 CFR part 1 as follows:

    PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

    0

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

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h,

    6i, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a, 12c, 13a,

    13a-1, 16, 16a, 19, 21, 23 and 24, as amended by the Commodity

    Futures Modernization Act of 2000, appendix E of Pub. L. 106-554,

    114 Stat. 2763 (2000).

    0

    2. Section 1.10 is amended by removing paragraph (b)(2)(iii) and

    revising paragraphs (b)(2)(i), (b)(2)(ii)(A), (b)(3), (c)(1) and

    (c)(2), (d)(1)(ii), (d)(4)(iii), and (h) as follows:

    Sec. 1.10 Minimum financial requirements for futures commission

    merchants and introducing brokers.

    * * * * *

    (b) * * *

    (2)(i) Except as provided in paragraphs (b)(3) and (h) of this

    section, and except for an introducing broker operating pursuant to a

    guarantee agreement which is not also a securities broker or dealer,

    each person registered as an introducing broker must file a Form 1-FR-

    IB semiannually as of the middle and the close of each fiscal year.

    Each Form 1-FR-IB must be filed no later than 17 business days after

    the date for which the report is made.

    (ii)(A) In addition to the financial reports required by paragraph

    (b)(2)(i) of this section, each person registered as an introducing

    broker must file a Form 1-FR-IB as of the close of its fiscal year

    which must be certified by an independent public accountant in

    accordance with Sec. 1.16 no later than 90 days after the close of

    each introducing broker's fiscal year: Provided, however, that a

    registrant which is registered with the Securities and Exchange

    Commission as a securities broker or dealer must file this report not

    later than the time permitted for filing an annual audit report under

    Sec. 240.17a-5(d)(5) of this title.

    * * * * *

    (3) The provisions of paragraphs (b)(1) and (b)(2) of this section

    may be met by any person registered as a futures commission merchant or

    as an introducing broker who is a member of a designated self-

    regulatory organization and conforms to minimum financial standards and

    related reporting requirements set by such designated self-regulatory

    organization in its bylaws, rules, regulations, or resolutions and

    approved by the Commission pursuant to Section 4f(b) of the Act and

    Sec. 1.52: Provided, however, That each such registrant shall promptly

    file with the Commission a true and exact copy of each financial report

    which it files with such designated self-regulatory organization.

    * * * * *

    (c) Where to file reports. (1) Form 1-FR filed by an introducing

    broker pursuant to paragraph (b)(2) of this section need be filed only

    with, and will be considered filed when received by, the National

    Futures Association. Other reports or information provided for in this

    section will be considered filed when received by the regional office

    of the Commission with jurisdiction over the state in which the

    registrant's principal place of business is located and by the

    designated self-regulatory organization, if any; and reports or other

    information required to be filed by this section by an applicant for

    registration will be considered filed when received by the National

    Futures Association. Any report or information filed with the National

    Futures Association pursuant to this paragraph shall be deemed for all

    purposes to be filed with, and to be the official record of, the

    Commission.

    (2)(i) Except as provided in the last sentence of this

    subparagraph, all filings or other notices prepared by a futures

    commission merchant pursuant to this section may be submitted to the

    Commission in electronic form using a form of user authentication

    assigned in accordance with procedures established by or approved by

    the Commission, and otherwise in accordance with instructions issued by

    or approved by the Commission, if the futures commission merchant or a

    designated self-regulatory organization has provided the Commission

    with the means necessary to read and to process the information

    contained in such report. A Form 1-FR required to be certified by an

    independent public accountant in accordance with Sec. 1.16 which is

    filed by a futures commission merchant must be filed in paper form and

    may not be filed electronically.

    (ii) Except as provided in paragraph (h) of this section, all

    filings or other notices or applications prepared by an introducing

    broker or applicant for registration as an introducing broker or

    futures commission merchant pursuant to this section must be filed

    electronically in accordance with electronic filing procedures

    established by the National Futures Association. In the case of a Form

    1-FR-IB that is required to be certified by an independent public

    accountant in accordance with Sec. 1.16, a paper copy of any such

    filing with the original manually signed certification must be

    maintained by the introducing broker or applicant for registration as

    an introducing broker in accordance with Sec. 1.31.

    * * * * *

    (d)(1) * * *

    (ii) Statements of income (loss) and a statement of changes in

    ownership equity for the period between the date of the most recent

    statement of financial condition filed with the Commission and the date

    for which the report is made;

    * * * * *

    (4) * * *

    (iii) In the case of a Form 1-FR filed via electronic transmission

    in accordance with procedures established by or approved by the

    Commission, such transmission must be accompanied by the user

    authentication assigned to the authorized signer under such procedures,

    and the use of such user authentication will constitute and become a

    substitute for the manual signature of the authorized signer for the

    purpose of making the oath or affirmation referred to in this

    paragraph.

    * * * * *

    (h) Filing option available to a futures commission merchant or an

    introducing broker that is also a securities broker or dealer. Any

    applicant or registrant which is registered with the Securities and

    Exchange Commission as a securities broker or dealer may comply with

    the requirements of this section by filing (in accordance with

    paragraphs (a), (b), (c), and (j) of this section) a copy of its

    Financial and Operational Combined Uniform Single Report under the

    Securities Exchange Act of 1934, Part II, Part IIA, or Part II CSE

    (FOCUS Report), in lieu of Form 1-FR; Provided, however, That all

    information which is required to be furnished on and submitted with

    Form 1-FR is provided with such FOCUS Report; and Provided, further,

    That a certified FOCUS Report filed by an introducing broker or

    applicant for registration as an introducing broker in lieu of a

    certified Form 1-FR-IB must be filed according to National Futures

    Association rules, either in paper form or electronically, in

    accordance with procedures established

    [[Page 69009]]

    by the National Futures Association, and if filed electronically, a

    paper copy of such filing with the original manually signed

    certification must be maintained by such introducing broker or

    applicant in accordance with Sec. 1.31.

    * * * * *

    0

    3. Section 1.12 is amended by:

    0

    a. Revising paragraphs (a)(2) and (i)(1);

    0

    b. Removing paragraph (a)(3); and

    0

    c. Adding paragraph (i)(3) as follows:

    Sec. 1.12 Maintenance of minimum financial requirements by futures

    commission merchants and introducing brokers.

    (a) * * *

    (2) Provide together with such notice documentation in such form as

    necessary to adequately reflect the applicant's or registrant's capital

    condition as of any date such person's adjusted net capital is less

    than the minimum required. The applicant or registrant must provide

    similar documentation for other days as the Commission may request.

    * * * * *

    (i)(1) Every notice and written report required to be given or

    filed by this section (except for notices required by paragraph (f) of

    this section) by a futures commission merchant or a self-regulatory

    organization must be filed with the regional office of the Commission

    with jurisdiction over the state in which the registrant's principal

    place of business is located, with the principal office of the

    Commission in Washington, DC, with the designated self-regulatory

    organization, if any; and with the Securities and Exchange Commission,

    if such registrant is a securities broker or dealer. Every notice and

    written report required to be given or filed by this section by an

    applicant for registration as a futures commission merchant must be

    filed with the National Futures Association (on behalf of the

    Commission), with the designated self-regulatory organization, if any,

    and with the Securities and Exchange Commission, if such applicant is a

    securities broker or dealer. Any notice or report filed with the

    National Futures Association pursuant to this paragraph shall be deemed

    for all purposes to be filed with, and to be the official record of,

    the Commission.

    * * * * *

    (3) Every notice or report required to be provided in writing to

    the Commission under this section may, in lieu of facsimile, be filed

    via electronic transmission using a form of user authentication

    assigned in accordance with procedures established by or approved by

    the Commission, and otherwise in accordance with instructions issued by

    or approved by the Commission. Any such electronic submission must

    clearly indicate the registrant or applicant on whose behalf such

    filing is made and the use of such user authentication in submitting

    such filing will constitute and become a substitute for the manual

    signature of the authorized signer.

    Issued in Washington, DC, on December 24, 2009, by the

    Commission.

    David A. Stawick,

    Secretary of the Commission.

    [FR Doc. E9-31032 Filed 12-29-09; 8:45 am]

    Last Updated: December 30, 2009



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