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2010-29024

  • FR Doc 2010-29024[Federal Register: November 23, 2010 (Volume 75, Number 225)]

    [Proposed Rules]

    [Page 71379-71390]

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

    [DOCID:fr23no10-17]

    [[Page 71379]]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Parts 3, 23 and 170

    RIN 3038--AC95

    Registration of Swap Dealers and Major Swap Participants

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Proposed rules.

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

    ``CFTC'') is proposing to adopt regulations that would establish the

    process for registering swap dealers (``SDs'') and major swap

    participants (``MSPs,'' and collectively with SDs, ``swaps entities'').

    The proposed regulations also would require swaps entities to become

    members of the National Futures Association (``NFA'') and to confirm

    that persons associated with them are not subject to a statutory

    disqualification under the Commodity Exchange Act (``CEA'')

    (``Proposal''). The Commission is making the Proposal in accordance

    with Section 4s of the CEA, which was recently added to the CEA by the

    Dodd-Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank

    Act'').

    DATES: Comments must be received on or before January 24, 2011.

    ADDRESSES: You may submit comments, identified by RIN 3038-AC95, by any

    of the following methods:

    Agency Web Site, via its Comments Online process: http://

    comments.cftc.gov. Follow the instructions on the Web site for

    submitting comments.

    Mail: Send to David A. Stawick, Secretary, Commodity

    Futures Trading Commission, 1155 21st Street, NW., Washington, DC

    20581.

    Hand delivery/Courier: Same as Mail above.

    Federal eRulemaking Portal: http://www.regulations.gov/

    search/index.jsp. Follow the instructions for submitting comments.

    All comments must be submitted in English, or if not, accompanied

    by an English translation. Comments will be posted as received to

    http://www.cftc.gov. You should submit only information that you wish

    to make available publicly. If you wish the Commission to consider

    information that is exempt from disclosure under the Freedom of

    Information Act,\1\ a petition for confidential treatment of the exempt

    information may be submitted according to the procedures set forth in

    Commission Regulation 145.9.\2\ The Commission reserves the right, but

    shall have no obligation, to review, pre-screen, filter, redact, refuse

    or remove any or all of your submission from http://www.cftc.gov that

    it may deem to be inappropriate for publication, such as obscene

    language. All submissions that have been redacted or removed that

    contain comments on the merits of the rulemaking will be retained in

    the public comment file and will be considered as required under the

    Administrative Procedure Act and other applicable laws, and may be

    accessible under the Freedom of Information Act.

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    \1\ 5 U.S.C. 552.

    \2\ Commission regulations referred to herein are found at 17

    CFR Ch. 1 (2010), as amended by 75 FR 55409 (Sep. 10, 2010). They

    are accessible on the Commission's Web site.

    FOR FURTHER INFORMATION CONTACT: Barbara S. Gold, Associate Director,

    Christopher W. Cummings, Special Counsel, or Elizabeth Miller,

    Attorney-Advisor, Division of Clearing and Intermediary Oversight, 1155

    21st Street, NW., Washington, DC 20581. Telephone number: 202-418-5450

    and electronic mail: bgold@cftc.gov, ccummings@cftc.gov or

    _____________________________________-

    emiller@cftc.gov.

    SUPPLEMENTARY INFORMATION:

    I. Background

    On July 21, 2010, President Obama signed the Dodd-Frank Act.\3\

    Title VII of the Dodd-Frank Act \4\ amended the CEA\5\ to establish a

    comprehensive new regulatory framework for swaps and security-based

    swaps. The goal of this legislation was to reduce risk, increase

    transparency, and promote market integrity within the financial system

    by, among other things: (1) Providing for the registration and

    comprehensive regulation of SDs and MSPs; (2) imposing clearing and

    trade execution requirements on standardized derivative products; (3)

    creating robust recordkeeping and real-time reporting regimes; and (4)

    enhancing the Commission's rulemaking and enforcement authorities with

    respect to, among others, all registered entities and intermediaries

    subject to the Commission's oversight. The regulations in the Proposal

    concern the process for registering SDs and MSPs.

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    \3\ 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 may be accessed at http://www.cftc.gov./

    LawRegulation/OTCDERIVATIVES/index.htm.

    \4\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may

    be cited as the ``Wall Street Transparency and Accountability Act of

    2010.''

    \5\ 7 U.S.C. 1 et seq. (2006).

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    A. Relevant Definitions

    In furtherance of the foregoing legislative goals, Section 721(a)

    of the Dodd-Frank Act amended the definitions of various existing terms

    in the CEA and added definitions of numerous new terms to the CEA.

    Relevant to the Proposal are the definitions of the new terms ``swap

    dealer,'' ``major swap participant,'' and ``associated person of a swap

    dealer or major swap participant.'' The Commission currently is

    developing regulations to implement the new ``swap dealer'' and ``major

    swap participant'' definitions (``Definitional Rulemakings'').\6\ In

    light of the statutory mandate in new Section 4s(b)(5) of the CEA that

    ``Rules under this section shall provide for the registration of swap

    dealers and major swap participants not later than 1 year after the

    date of enactment of the [Dodd-Frank] Act,'' the Commission is

    proposing rules that will establish a process for the registration of

    swaps entities by this one-year deadline--i.e., by July 21, 2011.\7\

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    \6\ See Sections 721(b) and (c) of the Dodd-Frank Act, which

    provide the Commission with authority to define these new terms.

    \7\ See also Paragraph C of this Section I, below.

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    1. Swap Dealer

    New Section 1a(49) of the CEA defines the term ``swap dealer'' as

    follows:

    (A) IN GENERAL.--The term `swap dealer' means any person who--

    (i) holds itself out as a dealer in swaps;

    (ii) makes a market in swaps;

    (iii) regularly enters into swaps with counterparties as an

    ordinary course of business for its own account; or

    (iv) engages in any activity causing the person to be commonly

    known in the trade as a dealer or market maker in swaps,

    provided however, in no event shall an insured depository institution

    be considered to be a swap dealer to the extent it offers to enter into

    a swap with a customer in connection with originating a loan with that

    customer.\8\

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    \8\ New Section 1a(49) further provides:

    (B) INCLUSION.--A person may be designated as a swap dealer for

    a single type or single class or category of swap or activities and

    considered not to be a swap dealer for other types, classes, or

    categories of swaps or activities.

    (C) EXCEPTION.--The term `swap dealer' does not include a person

    that enters into swaps for such person's own account, either

    individually or in a fiduciary capacity, but not as a part of a

    regular business.

    (D) DE MINIMIS EXCEPTION.--The Commission shall exempt from

    designation as a swap dealer an entity that engages in a de minimis

    quantity of swap dealing in connection with transactions with or on

    behalf of its customers. The Commission shall promulgate regulations

    to establish factors with respect to the making of this

    determination to exempt.

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    [[Page 71380]]

    2. Major Swap Participant

    New Section 1a(33) of the CEA defines the term ``major swap

    participant'' as follows:

    (A) IN GENERAL.--The term `major swap participant' means any person

    who is not a swap dealer, and--

    (i) maintains a substantial position in swaps for any of the major

    swap categories as determined by the Commission, excluding--

    (I) positions held for hedging or mitigating commercial risk; and

    (II) positions maintained by any employee benefit plan (or any

    contract held by such a plan) as defined in paragraphs (3) and (32) of

    section 3 of the Employee Retirement Income Security Act of 1974 (29

    U.S.C. 1002) for the primary purpose of hedging or mitigating any risk

    directly associated with the operation of the plan;

    (ii) whose outstanding swaps create substantial counterparty

    exposure that could have serious adverse effects on the financial

    stability of the United States banking system or financial markets; or

    (iii)(I) is a financial entity that is highly leveraged relative to

    the amount of capital it holds and that is not subject to capital

    requirements established by an appropriate Federal banking agency; and

    (II) maintains a substantial position in outstanding swaps in any

    major swap category as determined by the Commission.\9\

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    \9\ This section further provides:

    (B) DEFINITION OF SUBSTANTIAL POSITION.--For purposes of

    subparagraph (A), the Commission shall define by rule or regulation

    the term `substantial position' at the threshold that the Commission

    determines to be prudent for the effective monitoring, management,

    and oversight of entities that are systemically important or can

    significantly impact the financial system of the United States. In

    setting the definition under this subparagraph, the Commission shall

    consider the person's relative position in uncleared as opposed to

    cleared swaps and may take into consideration the value and quality

    of collateral held against counterparty exposures.

    (C) SCOPE OF DESIGNATION.--For purposes of subparagraph (A), a

    person may be designated as a major swap participant for 1 or more

    categories of swaps without being classified as a major swap

    participant for all classes of swaps.

    (D) EXCLUSIONS.--The definition under this paragraph shall not

    include an entity whose primary business is providing financing, and

    uses derivatives for the purpose of hedging underlying commercial

    risks related to interest rate and foreign currency exposures, 90

    percent or more of which arise from financing that facilitates the

    purchase or lease of products, 90 percent or more of which are

    manufactured by the parent company or another subsidiary of the

    parent company.

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    3. Associated Person of a Swap Dealer or Major Swap Participant

    New Section 1a(4) of the CEA defines the term ``associated person

    of a swap dealer or major swap participant'' as follows:

    (A) IN GENERAL.-- 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, agent

    (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.\10\

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    \10\ New section 1a(4) further provides:

    (B) EXCLUSION.-- Other than for purposes of 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.

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    B. Registration Requirements for SDs and MSPs

    New Section 4s(a) of the CEA \11\ sets forth the registration

    requirements for SDs and MSPs as follows:

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    \11\ Section 4s(a) was added to the CEA by Section 731 of the

    Dodd-Frank Act.

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    (a) REGISTRATION.--

    (1) SWAP DEALERS.-- It shall be unlawful for any person to act as a

    swap dealer unless the person is registered as a swap dealer with the

    Commission.

    (2) MAJOR SWAP PARTICIPANTS.-- It shall be unlawful for any person

    to act as a major swap participant unless the person is registered as a

    major swap participant with the Commission.

    New Section 4s(b) \12\ directs the Commission to adopt rules that

    provide for the registration of SDs and MSPs. New Section 4s does not

    direct the Commission to adopt rules that provide for the registration

    of associated persons of SDs or MSPs. However, new Section 4s(b)(6)

    makes it unlawful for a swaps entity to permit a person to associate

    with it if the person is subject to a statutory disqualification as

    follows:

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    \12\ Section 4s(b) similarly was added to the CEA by Section 731

    of the Dodd-Frank Act.

    Except to the extent otherwise specifically provided by rule,

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

    major swap participant to permit any person associated with a swap

    dealer or 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

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    disqualification.

    For the purpose of the Proposal, the Commission intends that a

    statutory disqualification is a disqualification under Section 8a(2) or

    8a(3) of the CEA.\13\

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    \13\ 7 U.S.C. 12a(2) and 12a(3). These sections of the CEA

    contain an extensive list of matters that constitute grounds to

    refuse to register a person, including, without limitation, felony

    convictions, commodities or securities law violations, and bars or

    other adverse actions taken by financial regulators.

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    Section 4s further directs the Commission to adopt rules that

    provide for the regulation of SDs and MSPs with respect to, among

    others, the following areas: Capital and margin, reporting and

    recordkeeping, daily trading records, business conduct standards,

    documentation standards, trading duties, chief compliance officer,\14\

    and, with respect to uncleared swaps, segregation \15\ (collectively,

    ``Section 4s Requirements''). The Section 4s Requirements are being

    addressed by other rulemakings. Their impact on the registration

    process is discussed below at Paragraph C of this Section I.

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    \14\ New Sections 4s(e) through (k), respectively, added to the

    CEA by Dodd-Frank Section 731.

    \15\ New Section 4s(l), added to the CEA by Dodd-Frank Section

    724(c).

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    Additionally, Section 716 of the Dodd-Frank Act prohibits an

    insured depository institution (``IDI'') from receiving Federal

    assistance if it is also an SD that engages in swaps activities that

    are not covered by the exclusion in Section 716(d).\16\ Under Section

    716(c), an IDI can retain its access to Federal assistance if it

    transfers covered activities to a non-IDI affiliate (a ``Push-Out

    Affiliate'') that is an SD or MSP, if the affiliate complies with the

    requirements of Section 716(c), including such requirements as the

    Commission may establish.\17\ The Push-

    [[Page 71381]]

    Out Affiliate, however, would not have access to Federal assistance.

    The Commission is not proposing any specific requirements at this time

    for any Push-Out Affiliate. The Commission does intend, however, that

    any Push-Out Affiliate that comes within the statutory definition of an

    SD or an MSP be subject to registration and regulation as an SD or as

    an MSP, as the case may be.

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    \16\ Specifically, the prohibition against Federal assistance to

    swaps entities is set forth in paragraph (a) of Section 716 as

    follows:

    (a) PROHIBITION ON FEDERAL ASSISTANCE.-- Notwithstanding any

    other provision of law (including regulations), no Federal

    assistance may be provided to any swaps entity with respect to any

    swap, security-based swap, or other activity of the swaps entity.

    Dodd-Frank Section 716(d) carves out certain swap activities of

    an IDI that is an SD, and therefore a ``swaps entity,'' from the

    prohibition against ``Federal assistance.'' In particular, the

    prohibition against Federal assistance does not apply to the extent

    the IDI SD engages in: (1) Hedging and other risk-mitigating

    activities of the IDI; or (2) acting as an SD for swaps and

    security-based swaps involving rates (e.g., interest rate swaps) or

    reference assets that are permissible investments. Engaging in non-

    cleared credit default swaps, however, would subject an IDI SD to

    the prohibition against Federal assistance.

    \17\ Section 716(c) provides for the Push-Out Affiliate

    exception as follows:

    (c) AFFILIATES OF INSURED DEPOSITORY INSTITUTIONS.--The

    prohibition on Federal assistance contained in subsection (a) does

    not apply to and shall not prevent an insured depository institution

    from having or establishing an affiliate which is a swaps entity, as

    long as such insured depository institution is part of a bank

    holding company, or savings and loan holding company, that is

    supervised by the Federal Reserve and such swaps entity affiliate

    complies with sections 23A and 23B of the Federal Reserve Act and

    such other requirements as the Commodity Futures Trading Commission

    * * * may determine to be necessary and appropriate.

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    Part 3 of the Commission's regulations governs registration under

    the CEA. Currently, Part 3 is not applicable to swaps entities. To

    fulfill the statutory mandates of the Dodd-Frank Act, and as is

    discussed more fully below, the Commission is proposing amendments to

    Regulations 3.2, 3.4, 3.10, 3.21, 3.30, 3.31 and 3.33, and adoption of

    new Regulation 23.21. To further accomplish these aims, the Commission

    also is proposing adoption of new Regulations 23.22 and 170.16.\18\

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    \18\ New Regulation 23.22 would pertain to requirements

    applicable to SDs and MSPs with regard to associated persons and new

    Regulation 170.16 would require SDs and MSPs to become members of

    NFA. As is discussed in Item II.C.2.b. below, the Commission

    specifically is requesting comment on certain matters related to

    these proposed requirements.

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    C. Phased Implementation

    As is noted above, the Dodd-Frank Act requires the Commission to

    promulgate rules providing for the registration of SDs and MSPs not

    later than July 21, 2011.\19\ Section 754 of the Dodd-Frank Act,

    however, permits the other separate rulemakings establishing specific

    criteria in the SD and MSP definitions that determine who must

    register, as well as the Section 4s Requirements, to become effective

    after July 21, 2011.\20\ In order to meet the prescribed deadline to

    adopt rules providing for registration of swaps entities, even though

    the Definitional Rulemakings will not be effective until a later date

    and the criteria of many of the Section 4s Requirements will not be

    known with certainty until a later date, the Commission is proposing a

    provisional registration procedure for the transitional period between

    the July 21, 2011 date by which regulations establishing a process for

    swaps entities' registration must be in place and the effective dates

    of the Definitional Rulemakings and the rulemakings implementing the

    Section 4s Requirements. This approach is intended to ensure continuity

    of the business operations of existing swaps entities, and to avoid

    undue market disruption.

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    \19\ New Section 4s(b)(5) of the CEA.

    \20\ Section 754 provides that:

    Unless otherwise provided in this title, the provisions of this

    subtitle [Subtitle A--Regulation of Over-the-Counter Swaps Markets]

    shall take effect on the later of 360 days after the date of

    enactment of this subtitle [i.e., July 15, 2011], or, to the extent

    a provision of this subtitle requires a rulemaking, not less than 60

    days after publication of the final rule or regulation implementing

    such provision of this subtitle.

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    Moreover, to provide sufficient processing time for the initial set

    of applicants so that persons may be registered at the earliest

    possible date, persons would be able to begin applying for registration

    ahead of the July 21 date, beginning on April 15, 2011.\21\ This

    process, which would be entirely voluntary, would permit a person that

    anticipates that it may be considered to be a ``swap dealer'' or

    ``major swap participant'' to apply for and obtain registration--albeit

    on a provisional basis--as soon as possible. SDs and MSPs who had not

    applied for registration by July 21 would be required to apply for

    registration not later than the effective date of the applicable

    Definitional Rulemaking.\22\ In light of the possibility that the

    rulemakings regarding the operations and activities of swaps entities

    will have later compliance deadlines than the effective date of the

    Definitional Rulemakings, provisionally registered swaps entities would

    be permitted to come into compliance with the Section 4s Requirements

    within the compliance deadlines set forth in the respective final

    implementing rulemakings.\23\ The Commission intends that upon the

    filing of an application these swaps entities would be provisionally

    registered, and would remain registered so long as they timely

    established compliance with the various Section 4s Requirements and met

    the standard fitness requirements. Swaps entities applying for

    registration after July 21, 2011 would be subject to the same

    provisional registration process but would have to demonstrate

    compliance with any applicable regulation for which a compliance

    deadline had passed by the time of the initial filing.

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    \21\ This advance application procedure is authorized by Section

    712(f) of the Dodd-Frank Act, which states in relevant part:

    [N]otwithstanding the effective date of any provision of this

    Act, the Commodity Futures Trading Commission * * * may, in order to

    prepare for the effective dates of the provisions of this Act * * *

    register persons under the provision of this Act * * * provided,

    however, that no [such] action * * * shall become effective prior to

    the effective date applicable to such action under the provisions of

    this Act.

    \22\ See Dodd-Frank Act Sections 721(b) and (c).

    \23\ For the purpose of this Federal Register release, the term

    ``compliance'' includes ``ability to comply,'' to the extent that a

    regulation subsequently adopted requires demonstration of the

    ability to comply. See proposed Regulation 3.10(a)(1)(v)(A).

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    Once all of the Section 4s Requirements are adopted and effective,

    provisional registrants would become fully registered SDs and MSPs,

    provided that they demonstrate compliance with all applicable

    regulations. SDs and MSPs who failed to demonstrate compliance would

    cease to be registered, would be required to withdraw their

    registration application and would be prohibited from engaging in any

    subsequent new activity within the SD or MSP definition, as the case

    may be.\24\ After all of the rulemakings implementing the Section 4s

    Requirements became effective, no provisional registrations would be

    granted.

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    \24\ See Section II.B.2., Regulation 3.10, for a fuller

    discussion of this matter.

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    By proposing a system of phased implementation, the Commission has

    endeavored to accomplish the registration of SDs and MSPs in a manner

    that is both efficient and minimally disruptive to on-going business.

    The Commission seeks comment on this or alternative approaches to

    registration, including extension of the effective date of the

    registration rules until such time as rules further defining the terms

    ``swap dealer'' and ``major swap participant,'' and rulemakings

    implementing the Section 4s Requirements, become effective.

    D. Request for Comment on Allocation of Responsibilities

    Currently, when a person registers with the Commission, they apply

    electronically via NFA's online registration system.\25\ NFA conducts a

    fitness review of the applicant, including background checks of

    principals and associated persons, and proficiency testing of

    associated persons. Presently, all registered futures commission

    merchants (``FCMs''), introducing brokers (``IBs''), retail foreign

    exchange dealers (``RFEDs''), commodity pool operators (``CPOs'') and

    those registered commodity trading advisors (``CTAs'') who manage or

    exercise discretion over client accounts must be members of NFA in

    order to conduct futures business with the

    [[Page 71382]]

    public.\26\ Associated persons of NFA Members must become NFA

    Associates.\27\ On an ongoing basis, NFA audits registrants for

    compliance with regulatory requirements applicable to the particular

    registration category.

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    \25\ NFA is registered as a futures association in accordance

    with Section 17 of the CEA, 7 U.S.C. 21.

    \26\ See NFA Bylaw 1101.

    \27\ See NFA Bylaw 301(b).

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    In the case of SDs and MSPs, the Commission proposes that an

    application for registration would commence with the filing of Form 7-R

    by means of NFA's online registration system.\28\ SDs and MSPs would

    also file accompanying Forms 8-R for the entity's principals by means

    of NFA's online registration system to verify that the principal is not

    subject to a statutory disqualification.\29\ NFA would conduct a

    background check, and would provide to the SD or MSP and to the

    Commission any information that would indicate the principal is unfit

    or subject to a statutory disqualification. Currently, the structure

    for oversight of existing registrants' activities is that the

    Commission has delegated to NFA responsibility for conducting all

    aspects of the registration process and for monitoring for compliance

    with all subsequent requirements.\30\ Along these lines, then, the

    Commission is proposing to adopt Regulation 170.16 to include SDs and

    MSPs among the registrants that are required to become and remain

    members of at least one registered futures association.\31\

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    \28\ Form 7-R is the form filed with NFA by entities--e.g.,

    FCMs, IBs, RFEDs, CPOs and CTAs. The information called for includes

    the firm's full legal name and form of organization, business

    address, business records location, branch office location,

    principals, contact information and any disciplinary history. Form

    7-R is filed electronically and not as a paper form.

    \29\ Form 8-R is the form that is filed with NFA by the entity

    applicant on behalf of certain natural persons. It calls for the

    person's name, address and other identifying information, any

    criminal history, any regulatory disciplinary history, employment,

    and educational history. The entity submits the Form 8-R and the

    person confirms the accuracy of the information. Form 8-R also is

    filed electronically and not as a paper form.

    \30\ See, e.g., 75 FR 55310 (Sep. 10, 2010), delegating

    registration functions for RFEDs, which includes the determination

    of compliance with net capital requirements, to NFA.

    \31\ Although Section 17 of the CEA provides that ``[a]ny

    association of persons may be registered with the Commission as a

    registered futures association,'' to date, NFA is the sole

    association that has applied for and has been issued registration as

    a futures association with the Commission.

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    The Commission believes that there are three options with respect

    to who should be responsible for determining initial and ongoing

    compliance by swaps entities with respect to the Section 4s

    Requirements and all other applicable requirements. Option number one

    would involve the Commission being directly responsible for ensuring

    compliance by swaps entities with all requirements applicable to them

    under the CEA and Commission regulations. Option number two would

    involve NFA (or any other association that may subsequently be

    registered as a futures association) being responsible for ensuring

    compliance, subject to Commission oversight. Option number three would

    involve certain compliance oversight activities being performed by the

    Commission and others being delegated to NFA (or a subsequently

    registered futures association). The Commission requests comment on

    these options. In the case of option number three, commenters should

    specify which oversight activities should be performed by the

    Commission and which should be delegated to, or performed by NFA (or

    another registered futures association).

    E. Extraterritorial Application of Swap Dealer and Major Swap

    Participant Registration Requirements

    New Section 2(i) of the CEA, which was added by Section 722(d) of

    the Dodd-Frank Act, states that provisions of the CEA that were enacted

    by Title VII of the Dodd-Frank Act (which includes the definition of

    swap dealer, and the registration requirement) shall not apply to

    activities outside the United States unless those activities ``have a

    direct and significant connection with activities in, or effect on,

    commerce of the United States,'' or contravene rules or regulations the

    Commission may promulgate to prevent evasion.

    In view of Sections 2(i) and 4s(a)(1), the Commission must

    determine under which circumstances a person who engages in the

    activities set forth in new Section 1a(49) of the CEA (``swap dealing

    activities'') outside the U.S. shall be required to register as an SD.

    By its terms, Section 2(i) sets a floor that must be met for the swap

    provisions of the CEA to apply abroad. Thus, a person whose swap

    dealing activity has no connection or effect of any kind, direct or

    indirect, whether through affiliates or otherwise, to U.S. commerce

    would not be required to register as a swap dealer. The Commission also

    recognizes the role that considerations of international comity play in

    determining the proper scope of extraterritorial application of federal

    statutes.\32\

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    \32\ See generally, Hartford Fire Insurance Co. v. California,

    509 U.S. 764, 113 S.Ct. 2891, 125 L.Ed.2d 612 (1993); 1 Restatement

    (Third) of Foreign Relations Law of the United States Sec. Sec.

    402-403 (1987).

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    The Commission generally would not require a person to register as

    a swap dealer if their only connection to the U.S. was that the person

    uses a U.S.-registered swap execution facility, designated clearing

    organization or designated contract market in connection with their

    swap dealing activities,\33\ or reports swaps to a U.S.-registered swap

    data repository.\34\ On the other hand, a person outside the U.S. who

    engages in swap dealing activities and regularly enters into swaps with

    U.S. persons would likely be required to register as a swap dealer.

    ---------------------------------------------------------------------------

    \33\ Cf. 17 CFR 3.10 (foreign broker not required to register as

    FCM if it: (1) Limits its customers to customers located outside the

    U.S.; (2) confines its commodity interest activities to areas

    outside the U.S.; and (3) submits its trades for clearing on an

    omnibus basis through a registered FCM; also, registration exemption

    for any foreign person acting in the capacity of an IB, CTA or CPO

    solely with respect to customers located outside the U.S., provided

    that all commodity interest transactions are submitted for clearing

    to a registered FCM).

    \34\ Such persons, however, may be subject to other requirements

    imposed on swap dealers, such as reporting obligations. Further, the

    provisions of the CEA and the Commission's regulations applicable to

    ``any person'' will apply as well, such as those prohibiting fraud

    and manipulation.

    ---------------------------------------------------------------------------

    The Commission requests comment as to what level of swap dealing

    activity outside the U.S. would qualify as having a direct and

    significant connection with activities in or effect on commerce of the

    U.S., thereby requiring a person outside the U.S. to register as an SD.

    In particular, in view of the global nature of the swap markets and the

    ability to transfer swap-related risks within affiliated groups, the

    Commission requests comment on when swap dealing activity with or by

    non-U.S. affiliates of U.S. persons has a ``direct and significant

    connection with activities in, or effect on'' U.S. commerce for

    purposes of Section 2(i) of the CEA. For example, to what extent do

    persons outside the U.S. who engage in swap dealing activity with non-

    U.S. affiliates of U.S. persons (such as the non-U.S. subsidiary of a

    corporate parent headquartered in the U.S.) engage in swap dealing

    activity that has a direct and significant connection with activities

    in, or effect on, U.S. commerce?

    Registration of MSPs raises different jurisdictional issues,

    because the definition of MSP specifically focuses on the degree of

    risk that an entity's swaps pose to U.S. counterparties and the U.S.

    market. Thus, the analysis of whether a non-U.S. entity should register

    as an MSP would turn upon, among other things, swap positions with U.S.

    counterparties (including the use of a U.S. clearing agency or swap

    execution facility) or that involve U.S. mails or any means or

    instrumentality of interstate commerce. The Commission

    [[Page 71383]]

    requests comment on these interpretive issues.

    II. Section-by-Section Analysis

    A. Structure and Approach

    As noted above, the Dodd-Frank Act requires SDs and MSPs to be

    registered as such with the Commission, and it requires the Commission

    to adopt rules providing for registration of SDs and MSPs, as well as

    rules regulating their activities. To the extent practicable, the

    Commission intends to place requirements that are unique to SDs and

    MSPs in a new Part 23 of its regulations. However, as is noted above,

    the Commission's existing registration process for futures, commodity

    options and retail forex intermediaries, as well as for floor traders

    and floor brokers, is extensively set forth in Part 3 of the

    regulations. Replication in new Part 23 of all of the registration

    process requirements appropriate for SDs and MSPs would be unwieldy and

    potentially confusing. Accordingly, while two proposed new regulations

    would be in new Part 23, and one proposed new regulation would be in

    Part 170, most of the proposed changes in this rulemaking concern

    amendments to existing provisions of Part 3.\35\

    ---------------------------------------------------------------------------

    \35\ In this regard, however, it has not been necessary for the

    Commission to propose any amendments to the following Part 3

    regulations in order to subject SDs and MSPs to registration with

    the CFTC: 3.1, 3.11, 3.12, 3.13, 3.22, 3.40-3.47, 3.50-3.64, 3.70,

    and 3.75. This is because these regulations either apply to

    ``applicants'' or ``registrants'' generally, such that they would

    also apply to swaps entities, or they apply to other specific

    registration categories (such as floor broker or floor trader), such

    that they would not pertain to swaps entities.

    ---------------------------------------------------------------------------

    B. Proposed Amendments to Existing Regulations

    Some of the proposed amendments to Part 3 consist entirely of

    adding appropriate references to SDs and MSPs in existing

    regulations.\36\ These proposed amendments will not be separately

    discussed. Other proposed amendments, however, involve substantive

    changes to existing regulations because of the particular attributes or

    characteristics of SDs, MSPs and swaps. They are separately discussed

    below.

    ---------------------------------------------------------------------------

    \36\ See the proposed amendments to Regulations: 3.4(a); 3.10

    title and paragraphs (a)(1)(i), (b)(1) and (d); 3.21(c); 3.30(a);

    3.31(a)(1) and (c); and 3.33(a), (b) introductory text and (e).

    ---------------------------------------------------------------------------

    1. Regulation 3.2--Registration Processing by the National Futures

    Association; Notification and Duration of Registration

    Regulation 3.2 generally provides for performance by NFA of

    registration, temporary licensing and denial, revocation or suspension

    of registration. Paragraph (c) of this regulation currently requires

    NFA to notify various registration applicants when a temporary license

    has been granted under provisions of Regulation 3.40. The Commission

    proposes to amend Regulation 3.2(c) to add paragraph (c)(3), which

    would provide that NFA will notify an applicant for registration as an

    SD or MSP (pursuant to the provisional application procedure described

    below, in the discussion of proposed amendments to Regulation 3.10)

    that the applicant has been granted provisional registration.

    2. Regulation 3.10--Registration of Futures Commission Merchants,

    Retail Foreign Exchange Dealers, Introducing Brokers, Commodity Trading

    Advisors, Commodity Pool Operators and Leverage Transaction Merchants

    Regulation 3.10 sets forth the basic registration scheme for

    various firms. The Proposal would amend the regulation to accommodate

    SD and MSP registration. It would require an applicant for registration

    as an SD or MSP to commence the registration process by filing Form 7-R

    with NFA.\37\ This is the same form currently used by an entity

    applying for registration as an FCM, IB, RFED, CPO, or CTA. Like those

    other registrants, an SD's or MSP's Form 7-R would be accompanied by a

    Form 8-R and a fingerprint card for each principal.\38\ NFA would then

    conduct the same background check it performs with respect to other

    applicants for registration.\39\

    ---------------------------------------------------------------------------

    \37\ See the proposed amendment to Regulation 3.10(a)(1)(i). SDs

    and MSPs would thus be subject to the requirement in Regulation

    3.10(a)(2) to file a Form 8-R for each natural person who is a

    principal of the firm, along with a fingerprint card for that

    person.

    \38\ See Section 8a(1) of the CEA. The term ``principal'' is

    defined in Regulation 3.1(a) to include generally: An officer,

    director, partner or similar person exercising control over an

    entity's activities; a person who owns or has power to vote ten

    percent or more of the entity's securities; or a person who has

    contributed ten percent or more of the entity's capital.

    \39\ In the event that final registration rules are adopted and

    published pursuant to the Proposal, the Commission would issue an

    order officially delegating these application and background check

    functions to NFA. The delegation order would require NFA to notify

    the Commission if it found information regarding an applicant

    indicating that the applicant was unfit or that it was subject to a

    statutory disqualification.

    ---------------------------------------------------------------------------

    Concurrently with or subsequent to the filing of the Form 7-R, the

    applicant for SD or MSP registration would be required to demonstrate

    their compliance with such regulations as the Commission adopts

    implementing the Section 4s Requirements.\40\ Moreover, filing of Form

    7-R by an SD or MSP would authorize the Commission to conduct on-site

    inspection to ascertain compliance with those obligations.\41\ However,

    this filing would not require the Commission to conduct such

    inspection. As is stated above, the Commission specifically is

    requesting comment on whether it or NFA (by delegation and subject to

    Commission oversight) should be directly responsible for ensuring

    compliance with the Section 4s Requirements.

    ---------------------------------------------------------------------------

    \40\ See proposed Regulation 3.10(a)(1)(v)(A).

    \41\ See proposed Regulation 3.10(a)(1)(v)(B).

    ---------------------------------------------------------------------------

    As is noted above, the Commission is proposing a provisional

    registration process for the transitional period between adoption of

    regulations providing for registration of swaps entities, and the

    latest date by which applicants must comply with the final rulemakings

    for the Section 4s Requirements. This provisional registration process

    and the transition to full compliance would be incorporated into

    Regulation 3.10(a)(1)(v)(C). As proposed, a swaps entity would be able

    to file a Form 7-R at any time beginning April 15, 2011, which filing

    would cause the person to be provisionally registered. From and after

    the effective date(s) of the Definitional Rulemakings, a person within

    the SD or MSP definition must file a Form 7-R, and until such time as

    the last of the rulemakings implementing the Section 4s Requirements

    becomes effective, such person will also be provisionally registered.

    As each of the Section 4s Requirements rulemakings becomes effective, a

    provisionally registered SD or MSP would be required to demonstrate

    compliance within the timeframe required by such rulemaking. Once all

    of the Section 4s Requirement rulemakings are effective and an

    applicant has timely demonstrated compliance, the applicant would be

    notified that its provisional registration has become a full

    registration. If the applicant failed to demonstrate compliance within

    the prescribed period of time, it would be so notified and required to

    withdraw its registration application and its provisional registration

    would cease. In the event the applicant failed to withdraw its

    registration application within 30 days following receipt of notice

    that its application was deficient, the application would be deemed

    withdrawn and its provisional registration would cease. The regulation

    would provide that the Commission could extend the time to cure the

    deficiency upon written request from

    [[Page 71384]]

    the applicant. Upon withdrawal--whether on the part of the applicant or

    upon receipt of notice of deficiency--the applicant would be prohibited

    from subsequently engaging in any new activity described in Section

    1a(33) or 1a(49) of the CEA. Finally, the regulation would make clear

    that it would not affect the terms of any swap transaction to which the

    applicant is a party entered into prior to the notice of

    deficiency.\42\

    ---------------------------------------------------------------------------

    \42\ See Proposed Regulation 3.10(a)(1)(v)(D)(3). Section 739 of

    the Dodd-Frank Act, in language to be codified as new Section

    22(a)(5)(A) of the CEA, states:

    EFFECT ON SWAPS--Unless specifically reserved in the applicable

    swap, neither the enactment of the Wall Street Transparency and

    Accountability Act of 2010, nor any requirement under that Act or an

    amendment made by that Act, shall constitute a termination event,

    force majeure, illegality, increased costs, regulatory change, or

    similar event under a swap (including any related credit support

    arrangement) that would permit a party to terminate, renegotiate,

    modify, amend, or supplement 1 or more transactions under the swap.

    ---------------------------------------------------------------------------

    The same process would apply for persons applying for registration

    as an SD or MSP on or after July 21, 2011. Filing of Form 7-R would

    commence provisional registration, and would subject the applicant to

    immediate compliance with any rulemaking affecting it as an SD or MSP,

    insofar as the rulemaking was effective and compliance required at the

    time the applicant filed its Form 7-R. As additional rulemakings phase

    in, the provisionally registered SD or MSP would be required to meet

    the applicable compliance deadlines. Failure to do so would result in

    cessation of registration under the terms and conditions discussed in

    the preceding paragraph of this Federal Register release.

    Swaps entities, like other registrants, would be required to review

    and update at least annually the information they had provided to NFA

    in their application. Additionally, swaps entities would be required to

    review and update at least annually the information they had provided

    to the Commission.\43\

    ---------------------------------------------------------------------------

    \43\ See the proposed amendment to Regulation 3.10(d).

    ---------------------------------------------------------------------------

    3. Regulation 3.21--Exemption From Fingerprinting Requirement in

    Certain Cases

    Regulation 3.21 generally provides for submission of a copy of a

    fingerprint card previously submitted to the Federal Bureau of

    Investigation (``FBI''), instead of a new fingerprint card, and it

    provides for exemption from the fingerprint requirement for outside

    directors of a firm who are not directly involved in the firm's

    activities subject to Commission regulation. As is currently true with

    other firms registering with the Commission, in lieu of submitting a

    fingerprint card in connection with the firm's registration, under the

    Proposal an outside director of an SD or MSP would be able to submit a

    notice stating that the outside director is not engaged in soliciting

    business for the firm, handling its transactions, keeping its records

    or supervising those who are so engaged.\44\

    ---------------------------------------------------------------------------

    \44\ See the proposed amendment to Regulation 3.21(c).

    ---------------------------------------------------------------------------

    4. Regulation 3.31--Deficiencies, Inaccuracies and Changes To Be

    Reported

    Regulation 3.31 generally sets forth the requirements and

    responsibility for correcting and updating the information submitted by

    applicants for registration on Form 7-R and Form 8-R. Each applicant

    for registration or registrant as a swaps entity would be required to

    promptly correct any inaccuracy or deficiency of the information in a

    Form 7-R or Form 8-R it has filed. Each principal of a swaps entity

    would likewise be responsible for correcting anything that renders the

    information in a Form 8-R filed on behalf of such person inaccurate or

    incomplete.

    5. Regulation 3.33--Withdrawal From Registration

    Regulation 3.33 generally sets forth the forms, procedures and

    requirements for withdrawal from registration, and when such withdrawal

    becomes effective. In order to withdraw from registration, under the

    Proposal the Form 7-W that a swaps entity would file would specify the

    nature and extent of any swap counterparty actual, anticipated or

    threatened claims against the registrant.\45\ Additionally, an SD's

    Form 7-W would specify that the person will not engage in any new

    activity described in the definition of the term ``swap dealer'' \46\

    and an MSP's Form 7-W would specify that the person will not engage in

    any new activity described in the definition of the term ``major swap

    participant.'' \47\

    ---------------------------------------------------------------------------

    \45\ See the proposed amendment to Regulation 3.33(b)(6)(vi).

    \46\ See proposed Regulation 3.33(b)(6)(viii).

    \47\ See proposed Regulation 3.33(b)(6)(ix).

    ---------------------------------------------------------------------------

    As the Commission noted in adopting Regulation 3.33 (then

    designated as Regulation 1.10f):

    Rule 1.10f provides that a request for withdrawal must contain

    information which is intended to inform the Commission of the status

    of the registrant making the withdrawal request, to substantiate the

    registrant's eligibility to withdraw from registration, and to

    enumerate any outstanding claims of its customers.\48\

    ---------------------------------------------------------------------------

    \48\ [Footnote in original] As used in Sec. 1.10f, the term

    ``customer'' includes the customers of FCMs and the clients of CTAs,

    as well as the customers of any category of registrant that may be

    established in the future. Section 1.10f also refers to ``commodity

    pool participants''--i.e., those persons who have a direct financial

    interest in a commodity pool. See Sec. 4.10(c), 46 FR 26004, 26014

    (May 8, 1981).

    ---------------------------------------------------------------------------

    Withdrawal of a registration under Sec. 1.10f will become

    effective 30 days after receipt by the Registration Unit of the

    Commission's Division of Trading and Markets of a properly completed

    request.\49\ The purpose of the 30 day period is to give the

    Commission time to review the information provided by the registrant

    to determine if there is any reason why withdrawal should not be

    allowed. \50\

    ---------------------------------------------------------------------------

    \49\ [Footnote in original] A request will be considered to be

    ``received'' when it is delivered to the address specified in the

    rule.

    \50\ 46 FR 48915 (Oct. 5, 1981).

    ---------------------------------------------------------------------------

    C. New Part 23

    As is stated above, the Commission expects that, to the extent

    practicable, various Section 4s Requirements will be included in new

    Part 23. At this juncture, by this Federal Register release, the

    Commission is proposing that Subpart B of Part 23 include the general

    requirements for the registration of SDs and MSPs and their obligations

    with respect to persons associated with them.\51\

    ---------------------------------------------------------------------------

    \51\ The Commission intends that regulations applicable to the

    SD and MSP definitions will be placed in Subpart A of Part 23, and

    accordingly is proposing to reserve Regulations 23.1 through 23.20

    for that purpose.

    ---------------------------------------------------------------------------

    1. Proposed Regulation 23.21--Registration of Swap Dealers and Major

    Swap Participants

    Proposed Regulation 23.21 has three paragraphs. Paragraph (a)

    states that anyone coming within the statutory definition of the term

    ``swap dealer'' in Section 1a(49) of the CEA and the Commission's

    regulations issued thereunder is subject to the registration provisions

    under the CEA, and to Part 3 of the Commission's regulations, and

    paragraph (b) states that anyone coming within the statutory definition

    of the term ``major swap participant'' in Section 1a(33) of the CEA and

    the Commission's regulations issued thereunder is subject to the

    registration provisions under the CEA, and to Part 3 of the

    Commission's regulations. Paragraph (c) deals with Push-Out Affiliates,

    and requires that any Push-Out Affiliate that comes within the

    statutory definition of an SD or an MSP be registered as an SD or as an

    MSP, as the case may be. As is stated above, this requirement would

    apply to Push-Out Affiliates in existence on July 21, 2011,

    [[Page 71385]]

    as well as to those that are organized and are active subsequent

    thereto.

    2. Proposed Regulation 23.22--Requirements Applicable in the Case of an

    Associated Person of a Swap Dealer or Major Swap Participant

    a. The Proposed Regulation

    Proposed Regulation 23.22 incorporates the statutory prohibition in

    new Section 4s(b)(6) against swaps entities permitting persons subject

    to a statutory disqualification to be associated with them. For the

    purposes of this regulation, paragraph (a) defines the term ``person''

    as a shorthand substitute for the statutory term ``associated person of

    a swap dealer or major swap participant.'' Paragraph (b) restates the

    statutory prohibition.

    b. Request for Comment

    Associated persons of existing Commission registrants (e.g., FCMs,

    IBs, RFEDs, CPOs or CTAs) are required to be registered. The term

    ``associated person'' in the context of existing Commission registrants

    is not defined in the CEA. That term is defined in the Commission's

    regulations. Specifically, Regulation 1.3(aa) provides that ``[T]his

    term [i.e., associated person] means any natural person who is

    associated with'', e.g., an FCM, IB, CPO or CTA in any capacity that

    involves solicitation or the supervision of any person or persons so

    engaged (emphasis added). ``Associated person'' has typically referred

    to a salesperson of a registrant. Thus, a corporation, partnership or

    other legal entity has never been considered an associated person. The

    use of the term ``natural person'' in the current associated person

    definition is intended to distinguish between the rights and

    responsibilities of persons acting as associated persons of a

    registrant and persons acting as IBs.\52\ However, in the absence of

    any language in the Dodd-Frank Act restricting associated persons of

    swaps entities to natural persons, the Commission is not proposing such

    a definition. The Commission nonetheless requests comment on whether it

    should by regulation in fact restrict associated persons of swaps

    entities to natural persons.

    ---------------------------------------------------------------------------

    \52\ See Regulation 166.4, which provides in pertinent part that

    ``[e]ach branch office of each Commission registrant must use the

    name of the firm of which it is a branch for all purposes, and must

    hold itself out to the public under such name.'' and 48 FR 35248,

    35252 (Aug. 3, 1983), in which the Commission explained the history

    of the regulation. See also CFTC Staff Letters 84-10, Comm. Fut. L.

    Rep. (CCH) ]22,252 (May 29, 1984) and 84-26, Comm. Fut. L. Rep.

    (CCH) ]22,472 (Dec. 6, 1984), in which Commission staff further

    explained and interpreted this requirement. An entity that solicits

    for a registrant, but that is not a branch office of the registrant,

    must register as an IB.

    ---------------------------------------------------------------------------

    The Commission also requests comment on implementing the statutory

    prohibition against SDs and MSPs permitting persons subject to a

    statutory disqualification to be associated with them. Currently, in

    connection with registration applications for associated persons of

    existing registrants, NFA conducts a thorough background check in order

    to determine whether an individual is subject to statutory

    disqualification. This process includes submission of fingerprint

    cards, which are sent to the FBI to determine if the applicant has a

    criminal record. As for associated persons of swaps entities, the

    Commission is proposing that the responsibility of ensuring that such

    persons are not subject to statutory disqualification would fall upon

    the SD or MSP employing them. The Commission seeks comment on how SDs

    and MSPs could conduct background checks or otherwise fulfill this

    requirement. Possible alternatives include voluntary or required

    submission of identification information and fingerprint cards to NFA

    for the type of fitness review NFA conducts for existing registrants.

    D. New Regulation 170.16

    Part 170 of the Commission's regulations pertains to registered

    futures associations.\53\ It concerns standards governing Commission

    review of applications for registration as a futures association, the

    registration statement that a futures association must submit to the

    Commission, and membership in a registered futures association.\54\

    With respect to the last subject area, Regulation 170.15 requires that,

    with the exception of certain ``notice-registered'' FCMs,\55\ each

    person registered as an FCM ``must become and remain a member of'' at

    least one registered futures association that provides for FCM

    membership (unless no such registered futures association exists). The

    Commission is proposing that, like FCMs, SDs and MSPs be required to

    become and remain members of a registered futures association. Proposed

    Regulation 170.16 would thus closely follow the existing requirement

    for FCMs in Regulation 170.15.

    ---------------------------------------------------------------------------

    \53\ As is noted above, NFA is the sole association that has

    applied for and has been issued registration as a futures

    association with the Commission.

    \54\ Application forms for NFA membership are incorporated in

    Form 7-R.

    \55\ Regulation 3.10(a)(3) provides for notice registration of

    an FCM (or IB) in the case of certain persons registered as

    securities brokers or dealers in connection with trading security

    futures products.

    ---------------------------------------------------------------------------

    III. Related Matters

    A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \56\ requires that

    agencies consider whether the rules they propose will have a

    significant economic impact on a substantial number of small entities

    and if so, provide a regulatory flexibility analysis respecting the

    impact. The Commission has already established certain definitions of

    ``small entities'' to be used in evaluating the impact of its rules on

    such small entities in accordance with the RFA.\57\ SDs and MSPs are

    new categories of registrant. Accordingly, the Commission has not

    previously addressed the question of whether such persons are, in fact,

    small entities for purposes of the RFA.

    ---------------------------------------------------------------------------

    \56\ 5 U.S.C. 601 et seq.

    \57\ 47 FR 18618 (Apr. 30, 1982).

    ---------------------------------------------------------------------------

    The Commission previously has determined that FCMs should not be

    considered to be small entities for purposes of the RFA. The

    Commission's determination was based in part upon their obligation to

    meet the minimum financial requirements established by the Commission

    to enhance the protection of customers' segregated funds and protect

    the financial condition of FCMs generally.\58\ Like FCMs, SDs will be

    subject to minimum capital and margin requirements, and are expected to

    comprise the largest global financial firms. The Commission is required

    to exempt from designation entities that engage in a de minimis level

    of swaps dealing in connection with transactions with or on behalf of

    customers. Accordingly, for purposes of the RFA for this and future

    rulemakings, the Commission is hereby proposing that SDs not be

    considered ``small entities'' for essentially the same reasons that

    FCMs have previously been determined not to be small entities.

    ---------------------------------------------------------------------------

    \58\ Id. at 18619.

    ---------------------------------------------------------------------------

    The Commission has also previously determined that large traders

    are not ``small entities'' for RFA purposes.\59\ The Commission

    considered the size of a trader's position to be the only appropriate

    test for purposes of large trader reporting.\60\ MSPs maintain

    substantial positions in swaps, creating substantial counterparty

    exposure that could have serious adverse effects on the financial

    stability of the United States banking system or financial markets.

    Accordingly, for purposes of the RFA for this and future rulemakings,

    the Commission is hereby proposing

    [[Page 71386]]

    that MSPs not be considered ``small entities'' for essentially the same

    reasons that large traders have previously been determined not to be

    small entities.

    ---------------------------------------------------------------------------

    \59\ 47 FR at 18620.

    \60\ Id.

    ---------------------------------------------------------------------------

    The Commission is carrying out Congressional mandates by proposing

    these rules. The Commission is incorporating registration of SDs and

    MSPs into the existing registration structure applicable to other

    registrants. In so doing, the Commission has attempted to accomplish

    registration of SDs and MSPs in the manner that is least disruptive to

    ongoing business and most efficient and expeditious, consistent with

    the public interest, and accordingly believes that these registration

    rules will not present a significant economic burden on any entity

    subject thereto. Accordingly, the Chairman, on behalf of the

    Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the

    proposed rules 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) \61\ 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. This proposed rulemaking would

    result in new collection of information requirements within the meaning

    of the PRA. The Commission therefore is submitting this proposal to the

    Office of Management and Budget (OMB) for review. If adopted, responses

    to this collection of information would be mandatory. The Commission

    will protect proprietary information according to the Freedom of

    Information Act and 17 CFR Part 145, ``Commission Records and

    Information.'' In addition, Section 8(a)(1) of the CEA strictly

    prohibits the Commission, unless specifically authorized by the CEA,

    from making public ``data and information that would separately

    disclose the business transactions or market positions of any person

    and trade secrets or names of customers.'' The Commission is also

    required to protect certain information contained in a government

    system of records according to the Privacy Act of 1974.\62\

    ---------------------------------------------------------------------------

    \61\ 44 U.S.C. 3501 et seq.

    \62\ 5 U.S.C. 552a.

    ---------------------------------------------------------------------------

    An agency may not conduct or sponsor, and a person is not required

    to respond to, a collection of information unless it displays a

    currently valid control number. OMB has not yet assigned a control

    number to the new collection.

    1. Information Provided/by Reporting Entities/Persons

    The burden associated with the proposed new rules implementing

    registration of SDs and MSPs is estimated to be 752 hours, which will

    result from (1) application for registration by SDs and MSPs and

    submission of required information on behalf of their respective

    principals; (2) initially, no withdrawals from registration by SDs or

    MSPs and a relatively small decrease in the number of their respective

    principals; and (3) initially, no reported corrections. Burden means

    the total time, effort, or financial resources expended by persons to

    generate, maintain, retain, disclose or provide information to or for a

    federal agency.

    The respondent burden for this collection is estimated to average

    0.5 hours per response for the Form 7-R; 0.4 hours per response for the

    Form 8-R; 3 minutes per response for the Form 7-W; 6 minutes per

    response for the Form 8-T; and 3 minutes per response for the Form 3-R.

    These estimates include the time needed to review instructions;

    develop, acquire, install, and utilize technology and systems for the

    purposes of collecting, validating, and verifying information,

    processing and maintaining information and disclosing and providing

    information; adjust the existing ways to comply with any previously

    applicable instructions and requirements; train personnel to be able to

    respond to a collection of information; and transmit or otherwise

    disclose the information. While staff believes that there may likely be

    approximately 200 swap dealers, we have taken a conservative approach

    in estimating that there will be 250 SDs for PRA purposes. The

    estimated burden was thus calculated as follows:

    Form 7-R

    Respondents/Affected Entities: 300.

    Estimated number of responses: 300.

    Estimated total annual burden on respondents: 0.5 hours.

    Frequency of collection: On occasion and annually.

    Burden statement: 300 respondents x 0.5 hours = 150 Burden Hours.

    Form 8-R

    Respondents/Affected Entities: 5 principals per each of 300 SDs and

    MSPs.

    Estimated number of responses: 1,500.

    Estimated total annual burden on respondents: 0.4 hours.

    Frequency of collection: On occasion.

    Burden statement: 1,500 respondents x 0.4 hours = 600 Burden Hours.

    Form 8-T

    Respondents/Affected Entities: 1 principal per each of 20 SDs and

    MSPs.

    Estimated number of responses: 20.

    Estimated total annual burden on respondents: 6 minutes.

    Frequency of collection: On occasion.

    Burden statement: 20 respondents x 0.1 hours = 2 Burden Hours.

    2. Information Collection Comments

    The Commission invites the public and other Federal agencies to

    comment on any aspect of the reporting and recordkeeping burdens

    discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission

    solicits comments in order to: (1) Evaluate whether the proposed

    collection of information is necessary for the proper performance of

    the functions of the Commission, including whether the information will

    have practical utility; (2) evaluate the accuracy of the Commission's

    estimate of the burden of the proposed collection of information; (3)

    determine whether there are ways to enhance the quality, utility, and

    clarity of the information to be collected; and (4) minimize the burden

    of the collection of information on those who are to respond, including

    through the use of automated collection techniques or other forms of

    information technology.

    Comments may be submitted directly to the Office of Information and

    Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at

    OIRAsubmissions@omb.eop.gov. Please provide the Commission with a copy

    of submitted comments so that all comments can be summarized and

    addressed in the final rule preamble. Refer to the Addresses section of

    this notice of proposed rulemaking for comment submission instructions

    to the Commission. A copy of the supporting statements for the

    collections of information discussed above may be obtained by visiting

    RegInfo.gov. OMB is required to make a decision concerning the

    collection of information between 30 and 60 days after publication of

    this document in the Federal Register. Therefore, a comment is best

    assured of having its full effect if OMB receives it within 30 days of

    publication.

    C. Cost-Benefit Analysis

    Section 15(a) of the CEA \63\ requires the Commission to consider

    the costs and benefits of its action before issuing a rulemaking under

    the CEA. By its terms, Section 15(a) does not require the Commission to

    quantify the costs and benefits of a rule or to determine

    [[Page 71387]]

    whether the benefits of the rulemaking outweigh its costs; rather, it

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

    of its actions. 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 may in its

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

    and could in its discretion determine that, notwithstanding its costs,

    a particular rule is necessary or appropriate to protect the public

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

    the purposes of the CEA.

    ---------------------------------------------------------------------------

    \63\ 7 U.S.C. 19(a).

    ---------------------------------------------------------------------------

    Summary of Proposed Requirements. The proposed rules would create a

    process to implement the registration requirements for swaps entities

    under the CEA pursuant to the Dodd-Frank Act generally through

    amendments to the existing regulatory framework.

    Costs. With respect to costs, the Commission has determined that

    the costs of the new registration requirements imposed on SDs and MSPs

    will consist primarily of the fees that NFA will charge: (1) For

    application for registration of SDs and MSPs, which are expected to be

    $500 per application; (2) to process fingerprints and background

    information for principals, which are expected to be $85 per person;

    and (3) for NFA membership, which are expected to be $7,500 for an SD

    and $5,600 for an MSP annually. Time and expense to registrants

    relating to the registration process alone are expected to be

    relatively minimal as the forms are not complicated. Time and expense

    relating to the new registration requirements are therefore not

    expected to be a barrier to entry of registrants or to adversely affect

    the liquidity of any markets.

    For purposes of this rulemaking, the costs of the new registration

    requirements do not include costs to registrants resulting from any

    need to create or augment an internal compliance and reporting

    infrastructure as a result of the Section 4s Requirements that are

    being addressed by other Commission rulemakings. The Commission

    therefore views the costs of the new registration requirements to be

    insubstantial when viewed in the context of the broader purpose of

    Congress to promote systemic safety for the financial markets as

    embodied in the Dodd-Frank Act.

    Benefits. With respect to benefits, the Commission has determined

    that the benefits of registering swaps entities are significant.

    Registration will enable the Commission to identify the universe of SDs

    and MSPs, which will enable these entities to be monitored for

    compliance with the Dodd-Frank Act and the rules being implemented by

    the Commission thereunder. This will enable the protection of market

    participants and the public, promote efficiency and transparency of

    markets, promote sound risk management practices and promote the public

    interest, as described in the rules being proposed by the Commission

    implementing the substantive provisions of the Dodd-Frank Act.

    Similarly, the Commission has determined that the benefits of requiring

    swaps entities to become and remain members of a registered futures

    association are significant. Membership will provide the Commission

    with flexibility with regard to its oversight of compliance with the

    Dodd-Frank Act and Commission regulations.

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

    benefit considerations. Commenters are also invited to submit any data

    or other information that they may have quantifying or qualifying the

    costs and benefits of the Proposal with their comment letters.

    List of Subjects

    17 CFR Part 3

    Definitions, Customer protection, Licensing, Registration, Swaps.

    17 CFR Part 23

    Swaps, Swap dealers, Major swap participants, Registration.

    17 CFR Part 170

    Authority delegations (Government agencies), Commodity futures,

    Swaps, Reporting and recordkeeping requirements.

    For the reasons presented above, the Commission proposes to amend

    Chapter I of Title 17 of the Code of Federal Regulations as follows:

    PART 3--REGISTRATION

    1. The authority citation for part 3 is amended to read as follows:

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

    6i, 6k, 6m, 6n, 6o, 6p, 6s, 8, 9, 9a, 12, 12a, 13b, 13c, 16a, 18,

    19, 21, and 23, as amended by Title VII of the Dodd-Frank Wall

    Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124

    Stat. 1376 (Jul. 21, 2010).

    2. Section 3.2 is amended by adding paragraph (c)(3) to read as

    follows:

    Sec. 3.2 Registration processing by the National Futures Association;

    notification and duration of registration.

    * * * * *

    (c) * * *

    (3) Upon filing of an application for registration pursuant to

    Sec. 3.10(a)(1)(v) of this part by a swap dealer or major swap

    participant the National Futures Association shall notify the swap

    dealer or major swap participant that it is provisionally registered

    pending completion of a fitness review by the National Futures

    Association.

    * * * * *

    3. Section 3.4 is amended by revising paragraph (a) to read as

    follows:

    Sec. 3.4 Registration in one capacity not included in registration in

    any other capacity.

    (a) Except as may be otherwise provided in the Act or in any rule,

    regulation, or order of the Commission, each futures commission

    merchant, retail foreign exchange dealer, swap dealer, major swap

    participant, floor broker, floor trader, associated person (other than

    an associated person of a swap dealer or major swap participant),

    commodity trading advisor, commodity pool operator, introducing broker,

    and leverage transaction merchant must register as such under the Act.

    Registration in one capacity under the Act shall not include

    registration in any other capacity; Provided, however, That a

    registered floor broker need not also register as a floor trader in

    order to engage in activity as a floor trader.

    * * * * *

    4. Section 3.10 is amended by:

    a. Revising the heading;

    b. Revising paragraph (a)(1);

    c. Adding paragraph (a)(1)(v); and

    d. Revising paragraphs (b) and (d) to read as follows:

    Sec. 3.10 Registration of futures commission merchants, retail

    foreign exchange dealers, introducing brokers, commodity trading

    advisors, commodity pool operators, swap dealers, major swap

    participants and leverage transaction merchants.

    (a) * * *

    (1)(i) Except as provided in paragraph (a)(3) of this section,

    application for registration as a futures commission merchant, retail

    foreign exchange dealers, introducing broker, commodity trading

    advisor, commodity pool operator, swap dealer, major swap participant

    or leverage transaction merchant must be on Form 7-R, completed and

    filed with the National Futures Association in accordance with the

    instructions thereto.

    (ii) Applicants for registration as a futures commission merchant

    or

    [[Page 71388]]

    introducing broker must accompany their Form 7-R with a Form 1-FR-FCM

    or Form 1-FR-IB, respectively, in accordance with the provisions of

    Sec. 1.10 of this chapter: Provided, however, That an applicant for

    registration as a futures commission merchant or introducing broker

    which is registered with the Securities and Exchange Commission as a

    securities broker or dealer may accompany its Form 7-R with a copy of

    its Financial and Operational Combined Uniform Single Report under the

    Securities Exchange Act of 1934, Part II or Part II A, in accordance

    with the provisions of Sec. 1.10(h) of this chapter.

    (iii) Applicants for registration as a commodity pool operator must

    accompany their Form 7-R with the financial statements described in

    Sec. 4.13(c) of this chapter.

    (iv) Applicants for registration as a leverage transaction merchant

    must accompany their Form 7-R with a Form 2-FR in accordance with the

    provisions of Sec. 2-FR of this chapter.

    (v)(A) Applicants for registration as a swap dealer or major swap

    participant must demonstrate, concurrently with or subsequent to the

    filing of their Form 7-R with the National Futures Association,

    compliance with regulations adopted by the Commission pursuant to

    sections 4s(e), 4s(f), 4s(g), 4s(h), 4s(i), 4s(j) and 4s(k) of the Act,

    and, as applicable, section 4s(l) of the Act; Provided, however, that

    for the purposes of this paragraph (a)(1)(v) the term ``compliance''

    includes the term ``the ability to comply,'' to the extent that a

    particular regulation may require demonstration of the ability to

    comply with a requirement.

    (B) The filing of the Form 7-R by the applicant swap dealer or

    major swap participant authorizes the Commission to conduct on-site

    inspection of the applicant to determine compliance with the

    regulations referred to in paragraph (a)(1)(v)(A) of this section.

    (C)(1) Any person may apply to be registered as a swap dealer or

    major swap participant by filing a form 7-R at any time from April 15,

    2011 until such time as regulations adopted by the Commission further

    defining the terms ``swap dealer'' and ``major swap participant''

    become effective.

    (2) From and after such time as regulations adopted by the

    Commission further defining the terms ``swap dealer'' and ``major swap

    participant'' become effective, each swap dealer or major swap

    participant must apply to be registered as a swap dealer or major swap

    participant by filing a form 7-R.

    (3) Any person who applies to be registered as a swap dealer or

    major swap participant before such time as all of the regulations

    specified in paragraph (a)(1)(v)(A) of this section have become

    effective will be granted provisional registration as a swap dealer or

    major swap participant, as the case may be, upon filing a Form 7-R and

    such documentation as may be required to demonstrate compliance with

    such of the regulations specified in paragraph (a)(1)(v)(A) of this

    section as are effective as of the date of such filing; Provided,

    however, that: Where the applicant has been granted provisional

    registration as a swap dealer or major swap participant, it must

    provide such documentation as may be required to demonstrate compliance

    with the remaining regulations specified in paragraph (a)(1)(v)(A) of

    this section by no later than the respective effective date of each

    such regulation.

    (D)(1) Where an applicant for registration as a swap dealer or

    major swap participant that has been granted provisional registration

    has timely demonstrated compliance with the regulations specified in

    paragraph (a)(1)(v)(A) of this section in accordance with paragraph

    (a)(1)(v)(C) of this section, the applicant will be notified that its

    provisional registration has ceased to be provisional and it has become

    fully registered as a swap dealer or major swap participant.

    (2) Where an applicant for registration as a swap dealer or major

    swap participant that has been granted provisional registration has

    failed to timely demonstrate compliance with any of the regulations

    specified in paragraph (a)(1)(v)(A) of this section in accordance with

    paragraph (a)(1)(v)(C) of this section the applicant will be notified

    that its application is deficient, whereupon it must withdraw its

    registration application, it must not engage in any new activity

    described in the definition of ``swap dealer'' in section 1a(49) of the

    Act or the definition of ``major swap participant'' in section 1a(33)

    of the Act as such terms may be further defined by Commission

    regulations, and its provisional registration shall cease; Provided,

    however, that in the event the applicant fails to withdraw its

    registration application or cure the deficiency within 30 days

    following receipt of notice that its application is deficient, its

    application will be deemed withdrawn and thereupon its registration

    shall cease; Provided further, however, that upon written request by

    the applicant submitted to the Director of the Division of Clearing and

    Intermediary Oversight, the Commission may in its discretion extend the

    time within which the deficiency may be cured.

    (3) Unless specifically reserved in the applicable swap, no

    withdrawal, deemed withdrawal, cessation or revocation of registration

    as a swap dealer or major swap participant pursuant to paragraph

    (a)(1)(v)(D)(2) of this section or paragraph (b) of this section shall

    constitute a termination event, force majeure, an illegality, increased

    costs, a regulatory change, or a similar event under a swap (including

    any related credit support arrangement) that would permit a party to

    terminate, renegotiate, modify, amend or supplement one or more

    transactions under the swap.

    * * * * *

    (b) Duration of registration. (1) A person registered as a futures

    commission merchant, retail foreign exchange dealer, introducing

    broker, commodity trading advisor, commodity pool operator, swap

    dealer, major swap participant or leverage transaction merchant in

    accordance with paragraph (a) of this section will continue to be so

    registered until the effective date of any revocation or withdrawal of

    such registration. Such person will immediately be prohibited from

    engaging in new 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 such registration.

    * * * * *

    (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, retail foreign exchange dealer, introducing broker, commodity

    trading advisor, commodity pool operator, swap dealer, major swap

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

    review and update registration information maintained with the National

    Futures Association and additionally, in the case of a swap dealer or

    major swap participant, with the Commission. 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).

    5. Section 3.21 is amended by:

    a. Revising paragraph (c) introductory text; and paragraph

    (c)(1)(iv);

    b. Adding paragraph (c)(1)(v);

    c. Revising paragraph (c)(2)(i); and

    [[Page 71389]]

    d. Revising paragraph (c)(4)(i) to read as follows:

    Sec. 3.21 Exemption from fingerprinting requirement in certain cases.

    * * * * *

    (c) Outside directors. Any futures commission merchant, retail

    foreign exchange dealer, introducing broker, commodity trading advisor,

    commodity pool operator, swap dealer, major swap participant or

    leverage transaction merchant that has a principal who is a director

    but is not also an officer or employee of the firm may, in lieu of

    submitting a fingerprint card in accordance with the provisions of

    Sec. Sec. 3.10(a)(2) and 3.31(a)(2), file a ``Notice Pursuant to Sec.

    3.12(c) of the Commission's Regulations'' with the National Futures

    Association. Such notice shall state, if true, that such outside

    director:

    (1) * * *

    (iv) The solicitation of leverage customers' orders for leverage

    transactions,

    (v) The solicitation of a swap agreement;

    (2) * * *

    (i) Commodity interest or swap transactions;

    * * * * *

    (4) * * *

    (i) The name of the futures commission merchant, retail foreign

    exchange dealer, swap dealer, major swap participant, introducing

    broker, commodity trading advisor, commodity pool operator, leverage

    transaction merchant, or applicant for registration in any of these

    capacities of which the person is an outside director;

    * * * * *

    6. Section 3.30 is amended by revising paragraph (a) to read as

    follows:

    Sec. 3.30 Current address for purpose of delivery of communications

    from the Commission or the National Futures Association.

    (a) The address of each registrant, applicant for registration, and

    principal, as submitted on the application for registration (Form 7-R

    or Form 8-R) or as submitted on the biographical supplement (Form 8-R)

    shall be deemed to be the address for delivery to the registrant,

    applicant or principal for any communications from the Commission or

    the National Futures Association, including any summons, complaint,

    reparation claim, order, subpoena, special call, request for

    information, notice, and other written documents or correspondence,

    unless the registrant, applicant or principal specifies another address

    for this purpose: Provided, that the Commission or the National Futures

    Association may address any correspondence relating to a biographical

    supplement submitted for or on behalf of a principal to the futures

    commission merchant, retail foreign exchange dealer, commodity trading

    advisor, commodity pool operator, swap dealer, major swap participant,

    introducing broker, or leverage transaction merchant with which the

    principal is affiliated and may address any correspondence relating to

    an associated person to the futures commission merchant, retail foreign

    exchange dealer, commodity trading advisor, commodity pool operator,

    swap dealer, major swap participant, introducing broker, or leverage

    transaction merchant with which the associated person or the applicant

    for registration is or will be associated as an associated person.

    * * * * *

    7. Section 3.31 is amended by revising paragraphs (a)(1), (b) and

    (c)(2) to read as follows:

    Sec. 3.31 Deficiencies, inaccuracies, and changes, to be reported.

    (a)(1) Each applicant or registrant as a futures commission

    merchant, retail foreign exchange dealer, swap dealer, major swap

    participant, commodity trading advisor, commodity pool operator,

    introducing broker, or leverage transaction merchant shall, in

    accordance with the instructions thereto, promptly correct any

    deficiency or inaccuracy in Form 7-R or Form 8-R which no longer

    renders accurate and current the information contained therein. Each

    such correction shall be made on Form 3-R and shall be prepared and

    filed in accordance with the instructions thereto. Provided, however,

    that where a registrant is reporting a change in the form of

    organization from or to a sole proprietorship, the registrant must file

    a Form 7-W regarding the pre-existing organization and a Form 7-R

    regarding the newly formed organization.

    * * * * *

    (b)(1) Each applicant for registration or registrant as a floor

    broker, floor trader or associated person, and each principal of a

    futures commission merchant, retail foreign exchange dealer, commodity

    trading advisor, commodity pool operator, introducing broker, or

    leverage transaction merchant must, in accordance with the instructions

    thereto, promptly correct any deficiency or inaccuracy in the Form 8-R

    or supplemental statement thereto which renders no longer accurate and

    current the information contained in the Form 8-R or supplemental

    statement. Each such correction must be made on Form 3-R and must be

    prepared and filed in accordance with the instructions thereto.

    (2) Each applicant for registration or registrant as a swap dealer

    or major swap participant and each principal of a swap dealer or major

    swap participant, must, in accordance with the instructions thereto,

    promptly correct any deficiency or inaccuracy in the Form 8-R or

    supplemental statement thereto which renders no longer accurate and

    current the information contained in the Form 8-R or supplemental

    statement. Each such correction must be made on Form 3-R and must be

    prepared and filed in accordance with the instructions thereto.

    (c) * * *

    (2) Each person registered as, or applying for registration as, a

    futures commission merchant, retail foreign exchange dealer, commodity

    trading advisor, commodity pool operator, swap dealer, major swap

    participant, 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.

    * * * * *

    8. Section 3.33 is amended by:

    a. Revising paragraph (a) introductory text;

    b. Revising paragraph (b) introductory text and paragraphs

    (b)(6)(vi) through (b)(6)(vii);

    c. Adding paragraphs (b)(6)(viii) and (b)(6)(ix); and

    d. Revising paragraph (e) to read as follows:

    Sec. 3.33 Withdrawal from registration.

    (a) A futures commission merchant, retail foreign exchange dealer,

    introducing broker, commodity trading advisor, commodity pool operator,

    swap dealer, major swap participant, leverage transaction merchant,

    floor broker or floor trader may request that its registration be

    withdrawn in accordance with the requirements of this section if:

    * * * * *

    (b) A request for withdrawal from registration as a futures

    commission merchant, retail foreign exchange dealer, introducing

    broker, commodity trading advisor, commodity pool operator, swap

    dealer, major swap participant, or leverage transaction merchant must

    be made on Form 7-W, and a request for withdrawal from registration as

    a floor broker or floor trader must be made on Form 8-W,

    [[Page 71390]]

    completed and filed with National Futures Association in accordance

    with the instructions thereto. The request for withdrawal must be made

    by a person duly authorized by the registrant and must specify:

    (6) * * *

    (vi) The nature and extent of any pending customer, retail forex

    customer, option customer, leverage customer, swap counterparty or

    commodity pool participant claims against the registrant, and, to the

    best of the registrant's knowledge and belief, the nature and extent of

    any anticipated or threatened customer, option customer, leverage

    customer, swap counterparty or commodity pool participant claims

    against the registrant;

    (vii) In the case of a futures commission merchant or a retail

    foreign exchange dealer which is a party to a guarantee agreement, that

    all such agreements have been or will be terminated in accordance with

    the provisions of Sec. 1.10(j) of this chapter not more than thirty

    days after the filing of the request for withdrawal from registration;

    (viii) In the case of a swap dealer, that the person will not

    engage in any new activity described in the definition of the term

    ``swap dealer'' in section 1a(49) of the Act, as such term may be

    further defined by Commission regulations; and

    (ix) In the case of a major swap participant, that the person will

    not engage in any new activity described in the definition of the term

    ``major swap participant'' in section 1a(33) of the Act, as such term

    may be further defined by Commission regulations.

    * * * * *

    (e) A request for withdrawal from registration as a futures

    commission merchant, retail foreign exchange dealer, introducing

    broker, commodity trading advisor, commodity pool operator, swap

    dealer, major swap participant or leverage transaction merchant on Form

    7-W, and a request for withdrawal from registration as a floor broker

    or floor trader on Form 8-W, must be filed with the National Futures

    Association and a copy of such request must be sent by the National

    Futures Association within three business days of the receipt of such

    withdrawal request to the Commodity Futures Trading Commission,

    Division of Clearing and Intermediary Oversight, Three Lafayette

    Centre, 1155 21st Street, NW., Washington, DC 20581. In addition, any

    floor broker or floor trader requesting withdrawal from registration

    must file a copy of his Form 8-W with each contract market that has

    granted him trading privileges. Within three business days of any

    determination by the National Futures Association under Sec. 3.10(d)

    to treat the failure by a registrant to file an annual Form 7-R as a

    request for withdrawal, the National Futures Association shall send the

    Commission notice of that determination.

    * * * * *

    9. Part 23 is added to read as follows:

    PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS

    Subpart A--[Reserved]

    Sec.

    23.1-23.20 [Reserved]

    Subpart B--Registration

    23.21 Registration of swap dealers and major swap participants.

    23.22 Prohibition against statutory disqualification in the case of

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

    23.23-23.40 [Reserved]

    Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c, 6p, 6s, 9, 9a, 13b,

    13c, 16a, 18, 19, 21 as amended by Title VII of the Dodd-Frank Wall

    Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124

    Stat. 1376 (Jul. 21, 2010).

    Subpart A--[Reserved]

    Sec. Sec. 23.1-23.20 [Reserved]

    Subpart B--Registration

    Sec. 23.21 Registration of swap dealers and major swap participants.

    (a) Each person who comes within the definition of the term ``swap

    dealer'' in section 1a(49) of the Act, as such term may be further

    defined by Commission regulations, is subject to the registration

    provisions under the Act and to part 3 of this chapter.

    (b) Each person who comes within the definition of the term ``major

    swap participant'' in section 1a(33) of the Act, as such term may be

    further defined by Commission regulations, is subject to the

    registration provisions under the Act and to part 3 of this chapter.

    (c) Each affiliate of an insured depository institution described

    in section 716(c) of the Dodd-Frank Wall Street Reform and Consumer

    Protection Act (Pub. L. 111-203 Sec. 716(c), 124 Stat. 1376 (2010)) is

    required to be registered as a swap dealer if the affiliate is a swap

    dealer, or as a major swap participant if the affiliate is a major swap

    participant.

    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.

    (b) Fitness. No swap dealer or major swap participant may permit a

    person who is subject to a statutory disqualification under section

    8a(2) or 8a(3) of the Act 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 knows, or in the exercise of

    reasonable care should know, of the statutory disqualification.

    Sec. Sec. 23.23-23.40 [Reserved]

    PART 170--REGISTERED FUTURES ASSOCIATIONS

    1. The authority citation for part 170 is revised to read as

    follows:

    Authority: 7 U.S.C. 6p, 12a and 21.

    2. Section 170.16 is added to read as follows:

    Sec. 170.16 Swap dealers and major swap participants.

    Each person registered as a swap dealer or a major swap participant

    must become and remain a member of at least one futures association

    that is registered under section 17 of the Act and that provides for

    the membership therein of such swap dealer or major swap participant,

    as the case may be, unless no such futures association is so

    registered.

    Issued in Washington, DC, on November 10, 2010, by the

    Commission.

    David A. Stawick,

    Secretary of the Commission.

    Statement of Chairman Gary Gensler

    Registration of Swap Dealers and Major Swap Participants

    I support the proposed rulemaking to establish a process for the

    registration of swap dealers and major swap participants. This

    proposal would implement Congress's mandate that these entities be

    subject to registration and regulation for their swaps business.

    Registration will enable the Commission to monitor swap dealers and

    major swap participants for compliance with the Dodd-Frank Act and

    Commission rulemakings. Through regulation of the dealers, the

    Commission will be able to protect market participants and the

    public and promote sound risk management practices. The proposal

    includes a requirement that swaps dealers and major swap

    participants register with a registered futures association, such as

    the National Futures Association. This would provide the Commission

    with flexibility with regard to its oversight of swap dealers and

    major swap participants for compliance with the Dodd-Frank Act.

    [FR Doc. 2010-29024 Filed 11-22-10; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: November 23, 2010