Font Size: AAA // Print // Bookmark

2012-14654

  • Federal Register, Volume 77 Issue 116 (Friday, June 15, 2012)[Federal Register Volume 77, Number 116 (Friday, June 15, 2012)]

    [Proposed Rules]

    [Pages 35892-35897]

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

    [FR Doc No: 2012-14654]

    =======================================================================

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

    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Parts 3 and 23

    RIN 3038-AD66

    Dual and Multiple Associations of Persons Associated With Swap

    Dealers, Major Swap Participants and Other Commission Registrants

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Proposed rules.

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

    SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)

    is proposing regulations that would make clear that each swap dealer

    (SD), major swap participant (MSP), and other Commission registrant

    with whom an associated person (AP) is associated is required to

    supervise the AP and is jointly and severally responsible for the

    activities of the AP with respect to customers common to it and any

    other SD, MSP or other Commission registrant (Proposal).

    DATES: Comments must be received on or before August 14, 2012.

    ADDRESSES: You may submit comments, identified by RIN 3038-AD66 and

    ``Dual and Multiple Associations of Persons Associated with Swap

    Dealers, Major Swap Participants and other Commission Registrants,'' 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.

    Please submit your comments using only one method. All comments

    must be submitted in English, or if not, accompanied by an English

    translation. Comments will be posted as received to www.cftc.gov and

    the information you submit will be publicly available. If, however, you

    submit information that ordinarily is exempt from disclosure under the

    Freedom of Information Act, you may submit a petition for confidential

    treatment of the exempt information according to the procedures set

    forth in Commission Regulation 145.9.\1\ 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

    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 \2\ and other applicable laws, and may be

    accessible under the Freedom of Information Act.

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

    \1\ Commission regulations referred to herein are found at 17

    CFR Ch. 1 (2011). They are accessible on the Commission's Web site,

    http://www.cftc.gov.

    \2\ 5 U.S.C. 500 et seq.

    FOR FURTHER INFORMATION CONTACT: Israel J. Goodman, Attorney-Advisor,

    or Barbara S. Gold, Associate Director, Division of Swap Dealer and

    Intermediary Oversight, 1155 21st Street NW., Washington, DC 20581.

    Telephone number: 202-418-6700 and electronic mail: igoodman@cftc.gov

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

    or bgold@cftc.gov.

    SUPPLEMENTARY INFORMATION:

    [[Page 35893]]

    I. Introduction

    A. Background

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

    Section 731 of the Dodd-Frank Act amended the Commodity Exchange Act

    (CEA) \4\ by adding Section 4s, which, among other things, prohibits

    any person from acting as a ``swap dealer'' or ``major swap

    participant'' unless the person is registered with the Commission.\5\

    To effectuate the Congressional directive that an SD or MSP apply for

    registration in such form and manner as prescribed by the

    Commission,\6\ on November 23, 2010, the Commission proposed

    regulations to establish a registration process for SDs and MSPs

    (Proposed Registration Regulations),\7\ and on January 19, 2012, the

    Commission adopted regulations that establish a registration process

    for SDs and MSPs (Final Registration Regulations).\8\

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

    \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 also may be accessed on the Commission's Web site,

    http://www.cftc.gov.

    \4\ 7 U.S.C. 1 et seq.

    \5\ CEA Sections 4s(a).

    \6\ CEA Section 4s(b).

    \7\ 75 FR 71379.

    \8\ 77 FR 2613. Additionally, through a separate Notice and

    Order, the Commission delegated to the National Futures Association

    (NFA) the authority to perform the full range of registration

    functions with respect to SDs and MSPs. 77 FR 2708 (Jan. 19, 2012).

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

    However, Section 731 did not direct the Commission to adopt

    regulations that provide for the registration of APs of SDs and

    MSPs.\9\ Thus, unlike APs of other Commission registrants, who are

    generally required to register with the Commission,\10\ APs of SDs and

    MSPs are not required to register as such.\11\ Although APs of SDs and

    MSPs are not subject to registration with the Commission, an SD or MSP

    is prohibited from permitting any person associated with it to effect

    or be involved in effecting swaps on its behalf if such person is

    subject to a statutory disqualification.\12\

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

    \9\ See 77 FR at 2613 (noting that CEA Section 4s does not

    direct the Commission to adopt regulations that provide for the

    registration of APs of SDs or MSPs).

    \10\ See, e.g., CEA Section 4k and Commission Regulation

    3.12(a).

    \11\ As is the case for other categories of Commission

    registrants, the term ``associated person,'' when used with respect

    to an SD or MSP, means a natural person (as opposed to an entity,

    such as a partnership or corporation). See 77 FR 2614-15, whereby

    the Commission adopted in new Regulation 1.3(aa)(6) a definition of

    the term ``associated person'' of an SD or MSP to mean a natural

    person who is associated with an SD or MSP as:

    [A] partner, officer, employee, agent (or any natural person

    occupying a similar status or performing similar functions), in any

    capacity that involves:

    (i) The solicitation or acceptance of swaps (other than in a

    clerical or ministerial capacity); or

    (ii) The supervision of any person or persons so engaged.

    \12\ See CEA Section 4s(b)(6) and Regulation 23.22(b).

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

    The Commission adopted the Final Registration Regulations after

    considering the comments it received from the public on the Proposed

    Registration Regulations. One commenter recommended that the Commission

    expand the scope of the provisions on dual and multiple associations

    currently found in Regulation 3.12(f), or adopt a new regulation, ``to

    address the situations in which an individual conducts swaps-related

    activity on behalf of more than one Swap Entity [SD and/or MSP] or

    conducts swaps activity on behalf of a Swap Entity and is also

    registered as an AP of a different firm.'' \13\ When adopting the Final

    Registration Regulations, the Commission stated that ``[w]hile the

    Commission agrees with the commenter's recommendation, it anticipates

    promptly addressing this issue in a future rulemaking.'' \14\ The

    Proposal addresses this issue.

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

    \13\ Comment letter from the National Futures Association at

    page 10 (Jan. 24, 2011).

    \14\ 77 FR at 2616.

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

    B. Regulation 3.12(f)

    Regulation 3.12 concerns the registration of those persons who must

    register as an AP of a Commission registrant. Regulation 3.12(c)

    provides that application is made through the filing of a Form 8-R,

    accompanied by a specified certification from the registrant who will

    be employing the AP--i.e., the AP's ``sponsor.'' The term ``sponsor''

    is defined in Regulation 3.1(c) to mean ``the futures commission

    merchant, retail foreign exchange dealer, introducing broker, commodity

    trading advisor, commodity pool operator or leverage transaction

    merchant which makes the certification required by Sec. 3.12 of [Part

    3] for the registration of an associated person of such sponsor.''

    Regulation 3.12(f)(1)(i) permits dual and multiple associations of

    a person registered as an AP.\15\ Regulation 3.12(f)(1)(iii) provides

    that each sponsor of the AP is required to supervise the AP, and that

    each sponsor is jointly and severally responsible for the AP's

    activities with respect to any customers common to it and any other

    sponsor with which the AP is associated. The Commission adopted this

    joint and several responsibility provision in 1992 in connection with

    amendments to Regulation 3.12(f) that eliminated then-existing

    restrictions on dual and multiple associations in many

    circumstances.\16\ The provision was intended to address concerns that

    permitting dual and multiple associations would lead to situations

    where each sponsor might disclaim responsibility for the AP's

    activities--that is, that each sponsor would claim that the dually

    associated AP was not acting on its behalf but, rather, for the other

    sponsor, and therefore the other sponsor should be held responsible for

    the conduct in question.\17\

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

    \15\ Section 3.12(f)(1)(i) provides that a person who is already

    registered as an AP in any capacity may become associated with

    another sponsor if the new sponsor files with the NFA a Form 8-R, as

    discussed below.

    \16\ 57 FR 23136 (June 2, 1992) (the 1992 Amendments). The

    Commission first adopted a prohibition on dual and multiple

    associations in 1980, with respect to APs of futures commission

    merchants (FCMs), explaining that it was necessary ``[i]n view of

    the obvious difficulties of supervision in such a situation and in

    view of the inherent possibilities for conflicts of interest that

    might arise if an AP were to have more than one sponsor.'' 45 FR

    80485, 80489 (Dec. 5, 1980) (footnote omitted).

    The Commission subsequently amended and broadened the scope of

    Regulation 3.12(f) such that, prior to the 1992 Amendments,

    Regulation 3.12(f) prohibited a person from associating as an AP

    with: (1) More than one FCM or more than one introducing broker

    (IB); (2) an FCM and an IB or a leverage transaction merchant (LTM);

    and (3) an IB and an LTM. Subject to certain exceptions, the

    regulations also prohibited a person from associating as an AP with:

    (1) An FCM and a commodity trading advisor (CTA); (2) an FCM and a

    commodity pool operator (CPO); (3) an IB and a CTA; and (4) an IB

    and a CPO. See 56 FR 37026, 37033 (Aug. 2, 1991). In proposing to

    eliminate most of these restrictions, the Commission explained that,

    in its experience, these regulations had been ``difficult to

    understand and follow, even for experienced practitioners'' and

    that, in certain cases, they could have perverse effects, such as

    limiting the choice of which FCM a customer could use to carry his

    managed account. Id. Moreover, the Commission explained, the

    concerns raised by dual and multiple associations could be better

    addressed through an alternative approach, as further discussed

    below. Id.

    \17\ See 56 FR at 37033; see, e.g., In Re Global Telecom, et

    al., [2005-2007 Transfer Binder] Comm. Fut. L. Rep. (CCH) ] 30,143

    (CFTC Oct. 4, 2005) (holding an FCM liable for the activities of its

    APs who were also APs of a CTA, and noting that holding otherwise

    would ``bring about the very situation the rule is aimed at

    preventing--one in which a futures customer who contracts with two

    entities to receive two products or services is left with nobody

    minding the store'').

    In connection with the 1992 Amendments, the Commission also

    amended Regulation 3.12(f) to require that the new sponsor file with

    the NFA a Form 3-R signed by the AP's existing sponsor and that

    included, among other things, an acknowledgement by each sponsor

    that, in addition to each sponsor's responsibility to supervise the

    AP, each sponsor was jointly and severally responsible for the

    conduct of the AP with respect to customers common to it and any

    other sponsor. 57 FR at 23146. By signing the Form 3-R, each sponsor

    would make clear that it was aware of the new association and that

    it was jointly and severally responsible for the AP's conduct. Id.

    at 23141. As further discussed in Part II.B of this Federal Register

    release, the Commission subsequently amended Regulation 3.12(f) to

    eliminate the requirement for each sponsor to sign a Form 3-R and to

    specifically acknowledge joint and several responsibility therein.

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

    [[Page 35894]]

    However, and, as explained above, the Dodd-Frank Act does not

    direct the Commission to provide for--and, thus, the Commission has not

    adopted regulations requiring--the registration of APs of SDs and MSPs.

    As a result, the provisions of current Regulation 3.12(f)(1), which

    apply to a sponsoring registrant with respect to its APs who are

    required to register as such, do not apply to SDs and MSPs and their

    APs.

    II. The Proposed Regulations

    A. Proposed Regulations 3.12(f)(5) and 23.22(c)

    The Proposal would provide for dual and multiple associations of

    persons associated with SDs, MSPs and other Commission registrants

    (i.e., FCMs, retail foreign exchange dealers (RFEDs), IBs, CTAs, CPOs,

    and LTMs). Specifically, proposed Regulation 3.12(f)(5)(i)(A) would

    apply where a person associated as a registered AP of one or more

    (other) Commission registrants seeks to become associated as an AP of

    one or more SDs or MSPs; proposed Regulation 3.12(f)(5)(i)(B) would

    apply where a person associated as an AP of one or more SDs or MSPs

    seeks to become associated as a registered AP of one or more other

    Commission registrants; and proposed Regulation 23.22(c) would apply

    where a person associated as an AP of an SD or MSP seeks to become

    associated as an AP of one or more other SDs or MSPs.\18\ The Proposal

    would make clear that each SD, MSP and other Commission registrant with

    whom the AP is associated is required to supervise the AP and is

    jointly and severally responsible for the activities of the AP with

    respect to customers common to it and any other SD, MSP or other

    Commission registrant. These proposed regulations are based on the form

    and text of current Regulation 3.12(f)(1).\19\

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

    \18\ Two separate regulations addressing dual and multiple

    associations of APs of SDs and MSPs are necessary because, as noted

    above, the term ``sponsor'' and the provisions of current Regulation

    3.12(f) do not, by their terms, apply to SDs and MSPs with respect

    to their APs (who are not subject to a registration requirement).

    \19\ Thus, for example, proposed Regulation 3.12(f)(5)(i)(B)

    provides that where an AP of an SD or MSP seeks to register an as AP

    of another Commission registrant, the new sponsor must meet the

    requirements of Regulation 3.60(b)(2)(i)(A) and (B), as is required

    of a new sponsor under current Regulation 3.12(f)(1). However,

    proposed Regulation 3.12(f)(5)(i)(A) provides that an SD or MSP

    seeking to associate with an already registered AP must meet the

    requirements of Regulation 3.60(b)(2)(i)(A), but not also the

    requirements of Regulation 3.60(b)(2)(i)(B). This is because the

    requirements of the former regulation concern specified adjudicatory

    proceedings which would be applicable to SDs and MSPs while the

    requirements of the latter regulation concern financial requirements

    which are not applicable to SDs and MSPs.

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

    B. Request for Comments

    The Commission requests comments on all aspects of the Proposal. In

    particular, the Commission is requesting comment on whether it should

    adopt a provision (in both Regulation 3.12(f)(5) and Regulation

    23.22(c)) that would provide a mechanism to notify SDs, MSPs and

    existing sponsors of registered APs when one of their APs seeks to

    become associated with another SD or MSP (or, in the case of an AP of

    an SD or MSP, seeks to register as an AP of another Commission

    registrant). These provisions would serve the purpose of putting any

    other SD, MSP or other registrant associated with the AP on notice that

    it is (or will become) subject to the supervisory and joint and several

    responsibility requirements of Regulation 3.12(f) that would be

    applicable to it as a result of the regulations proposed herein. Under

    current Regulation 3.12(f)(1), which does not address dual and multiple

    associations with SDs and MSPs, a person registered as an AP may become

    an AP of another sponsor if the new sponsor files a Form 8-R with NFA,

    and NFA, in turn, is required to notify any existing sponsor of the AP

    that the person has applied to become associated with another sponsor.

    Thus, the current regulations provide a mechanism through which

    sponsors are put on notice that their registered APs will subject them

    to additional supervisory and joint and several responsibility

    requirements under Regulation 3.12(f).\20\ Employment as an AP of an SD

    or MSP, however, does not require registration with the Commission and,

    thus, the filing of a Form 8-R with NFA. Therefore, NFA would not

    otherwise be aware of a particular person's current or planned

    association with an SD or MSP and would not be in a position to notify

    other SDs, MSPs or existing sponsors. To the extent commenters believe

    it is necessary to adopt regulations aimed at providing such notice,

    the Commission also is seeking comment specifically on how to do so.

    One potential mechanism would be to require any SD, MSP or other

    Commission registrant seeking to associate with an AP who is also

    associated with another SD or MSP to notify the other SD or MSP that

    the AP is or intends to become associated with the SD, MSP or other

    Commission registrant.

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

    \20\ See 67 FR 38869 (June 6, 2002). The Commission adopted

    Regulation 3.12(f)(1)(ii) in 2002, in connection with other

    amendments to Regulation 3.12 to accommodate NFA's implementation of

    an online registration system. Prior to that time, a potential

    sponsor of an already registered AP was required to file a Form 3-R

    that included a certification signed by it and any existing sponsor

    acknowledging their supervisory obligations and their joint and

    several responsibility with respect to the AP's activities. In

    eliminating these requirements, the Commission explained that

    continuing to require a signature from each sponsor would result in

    unnecessary costs and delays under the new electronic filing system,

    and that the acknowledgment was not needed because Commission

    regulations make clear that each sponsor is required to supervise

    the AP and is jointly and severally responsible for his or her

    conduct. Instead, as adopted, Regulation 3.12(f)(1)(ii) requires NFA

    to notify existing sponsors of the AP of the application. Id. at

    38870-71.

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

    III. Related Matters

    A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \21\ requires Federal

    agencies, in promulgating regulations, to consider the impact of those

    regulations on small entities. The Commission has previously

    established certain definitions of ``small entities'' to be used by the

    Commission in evaluating the impact of its rules on small entities in

    accordance with the RFA.\22\ The Commission previously has determined

    that FCMs, registered CPOs,\23\ LTMs and RFEDs are not small entities

    for purposes of the RFA, and, thus, the requirements of the RFA do not

    apply to those entities.\24\ In addition, in connection with its

    adoption of the Final Registration Regulations, the Commission

    determined that SDs and MSPs are not small entities for purposes of the

    RFA.\25\ Therefore, the requirements of the RFA do not apply to SDs and

    MSPs. With respect to CTAs and IBs, the Commission previously has

    stated that it would evaluate within the context of a particular rule

    proposal whether all or some of the affected CTAs and IBs would be

    considered to be small entities and, if so, the economic impact on them

    of the particular regulation.\26\ The Commission notes that the

    Proposal would only impact,

    [[Page 35895]]

    potentially, registered CTAs and registered IBs,\27\ and the number of

    such impacted entities, if any, should likely be very small.\28\

    Accordingly, the Chairman, on behalf of the Commission, hereby

    certifies pursuant to 5 U.S.C. 605(b) that the Proposal will not have a

    significant economic impact on a substantial number of small entities.

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

    \21\ 5 U.S.C. 601 et seq.

    \22\ 47 FR 18618 (Apr. 30, 1982).

    \23\ To the extent the Proposal (specifically, proposed

    Regulation 3.12(f)(5)) would have an impact on CPOs, it would only

    impact registered CPOs, since Regulation 3.12(f), by its terms,

    would not apply where an AP's new or existing association is with a

    person who is not registered with the Commission.

    \24\ See 47 FR at 18619-20 (discussing FCMs and CPOs); 54 FR

    19556, 19557 (May 8, 1989) (discussing LTMs); 75 FR 55410, 55416

    (Sept. 19, 2010) (discussing RFEDs).

    \25\ See 77 FR at 2620 (adopting the Final Registration

    Regulations).

    \26\ See 47 FR at 18619 (discussing CTAs); 48 FR 35248, 35276-77

    (Aug. 3, 1983) (discussing IBs).

    \27\ This is because, as noted above, Regulation 3.12(f) would

    not apply where an AP's new or existing association is with a person

    (e.g., a CTA or an IB) who is not registered with the Commission.

    \28\ See Amendments to Commodity Pool Operator and Commodity

    Trading Advisor Regulations Resulting from the Dodd-Frank Act, 76 FR

    11701, 11703 (Mar. 3, 2011) (noting with regard to RFA

    considerations that the regulations proposed therein would only

    impact registered CTAs). As of February 7, 2011, less than three

    percent of all registered APs (or less than 1500 APs) were

    associated on a dual or multiple basis with Commission registrants.

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

    B. Paperwork Reduction Act

    The Paperwork Reduction Act (PRA) \29\ imposes certain requirements

    on federal agencies (including the Commission) in connection with their

    conducting or sponsoring any collection of information as defined by

    the PRA. The Proposal would expressly obligate each SD, MSP and other

    Commission registrant to supervise their APs who have dual and multiple

    associations and make each SD, MSP and other Commission registrant

    jointly and severally responsible for the activities of such APs with

    respect to customers common to it and any other SD, MSP or other

    Commission registrant. The Proposal contains no provision that would

    impose a ``burden'' or ``collection of information'' as those terms are

    defined in the PRA.\30\

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

    \29\ 44 U.S.C. 3501 et seq.

    \30\ See 44 U.S.C. 3502(2) and (3).

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

    C. Cost-Benefit Considerations

    In response to the Proposed Registration Regulations, a commenter

    requested that the Commission address ``situations in which an

    individual conducts swaps-related activity on behalf of more than one

    Swap Entity [SD and/or MSP] or conducts swaps activity on behalf of a

    Swap Entity and is also registered as an AP of a different firm.'' The

    Proposal addresses that issue, and in the following paragraphs, the

    Commission is considering the costs and benefits of the proposal in

    accordance with CEA section 15(a).\31\

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

    \31\ 7 U.S.C. 19(a).

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

    As described in the text above, the Commission is proposing to

    specify the responsibilities applicable with respect to dual and

    multiple associations of APs of SDs and MSPs, and particularly, that

    such associations are permitted, but that they implicate the joint and

    several supervisory and responsibility provisions applicable with

    respect to such associations under existing Regulation 3.12(f).

    As noted above, existing regulations addressing dual and multiple

    associations of APs do not address APs of SDs and MSPs and the

    obligations of those persons with whom they are associated concerning

    common customers. Thus, the primary benefits of the Proposal include

    the same benefits noted by the Commission when it adopted the

    supervisory and joint and several responsibility provisions under

    current Regulation 3.12(f), namely, the prevention of circumstances

    where an SD, MSP or other Commission registrant seeks to avoid

    responsibility for the activities of an AP who has dual or multiple

    associations by asserting the conduct in question was not within the

    purview of its supervisory responsibilities with respect to the AP.

    Therefore, the Commission believes the Proposal will provide protection

    to market participants and the public by ensuring that such APs will be

    adequately supervised, and those charged with supervising them will be

    held responsible for failing to do so. The Commission does not believe

    that compliance with the Proposal will impose any significant, new cost

    on SDs or MSPs but, as discussed below, the Commission seeks comment on

    the same, including the potential insurance and litigation costs

    associated with joint and several responsibility for APs of SDs and

    MSPs with dual and multiple associations.

    Consideration of Costs and Benefits Relative to the Alternative of Not

    Taking Any Action

    Under current Commission regulations, SDs and MSPs are not subject

    to the joint supervisory and responsibility requirements applicable to

    other Commission registrants with respect to the activities of their

    APs who have dual or multiple associations.\32\ This current situation

    provides a reference point from which to compare the costs and benefits

    of the proposed regulations to the alternative of not taking any

    action--that is, where SDs and MSPs, though required to register, would

    not be subject to the supervisory or joint and several responsibility

    provisions under (proposed) Regulation 3.12(f) or Regulation 23.22(c),

    as applicable, for the activities of their APs that are also APs of

    other SDs, MSPs, or other Commission registrants.\33\ Under such a

    scenario, the costs to the public of inaction would, in qualitative

    terms, be that: (1) APs of SDs and MSPs that have dual or multiple

    associations would not be subject to the same regulatory regime as APs

    of other Commission registrants that have dual or multiple

    associations; and (2) SDs and MSPs (or other Commission registrants)

    employing an AP with dual or multiple associations would not be

    prevented from attempting to disclaim responsibility for the activities

    of the AP by asserting that the AP was not acting on its behalf, but

    rather on behalf of another SD or MSP with whom the AP was associated

    (with respect to their common customers). In contrast, the amendment to

    Regulation 3.12(f) and the adoption of Regulation 23.22(c) would yield

    a substantial if unquantifiable benefit to the public relative to

    inaction by preventing SDs, MSPs and other Commission registrants from

    seeking to avoid supervision of and responsibility for the activities

    of their APs who have dual or multiple associations with respect to the

    common customers of the SDs, MSPs and other Commission registrants.

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

    \32\ As noted above, these requirements, which are set forth in

    existing Regulation 3.12(f)(1)(iii), apply to the activities of such

    APs with respect to the common customers of the APs' employing

    registrants.

    \33\ Similarly, and as noted above, these proposed requirements

    would apply to the activities of such APs with respect to the common

    customers of the APs' employing SDs, MSPs and/or other Commission

    registrants.

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

    Section 15(a) Factors

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

    evaluated in light of the following five broad areas of market and

    public concern: (1) Protection of market participants and the public;

    (2) efficiency, competitiveness, and financial integrity of the futures

    markets; (3) price discovery; (4) sound risk management practices; and

    (5) other public interest considerations.

    (1) The protection of market participants and the public.

    As discussed above, the Commission believes the Proposal will

    provide protection to market participants and the public by expressly

    obligating each SD, MSP or other Commission registrant to supervise its

    APs who have dual or multiple associations and by subjecting each SD,

    MSP and other Commission registrant to joint and several responsibility

    for the activities of such APs with respect to customers common to it

    and any other SD, MSP or other Commission registrants. More

    specifically, the Proposal will prevent SDs, MSPs and other Commission

    registrants from disclaiming responsibility for the activities of their

    [[Page 35896]]

    APs who have dual and multiple associations.

    (2) The efficiency, competitiveness, and financial integrity of the

    futures markets.

    The Commission does not expect the Proposal to have an impact on

    the efficiency, competitiveness and financial integrity of the futures

    market.

    (3) The market's price discovery functions.

    The Commission does not expect the Proposal to have an impact on

    the market's price discovery functions.

    (4) Sound risk management practices.

    The Commission does not expect the Proposal to have an impact on

    risk management practices by SDs, MSPs and other Commission

    registrants.

    (5) Other public interest considerations.

    The Commission has not identified any other public interest

    considerations in light of which it should consider the costs and

    benefits of the Proposal. The Commission specifically requests comment

    on its cost and benefit considerations of the Proposal, as discussed

    above.

    The Commission requests comment on all aspects of its proposed

    consideration of costs and benefits, including identification and

    assessment of any costs and benefits not discussed above, such as costs

    associated with determining if a potential AP is already associated

    with another SD, MSP or other Commission registrant. In addition, the

    Commission requests that commenters provide data and any other

    information or statistics that the commenters relied on to reach any

    conclusions on the Commission's proposed considerations of costs and

    benefits.

    List of Subjects

    17 CFR Part 3

    Associated persons, Brokers, Commodity futures, Customer

    protection, Major swap participants, Registration, Swap dealers.

    17 CFR Part 23

    Associated persons, Commodity futures, Customer protection, Major

    swap participants, Registration, Reporting and recordkeeping

    requirements, Swap dealers.

    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 continues to read as follows:

    Authority: 5 U.S.C. 522, 522b; 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c,

    6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 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.

    111-203, 124 Stat. 1376 (July 21, 2010).

    2. Section 3.12 is amended by adding new paragraph (f)(5) to read

    as follows:

    Sec. 3.12 Registration of associated persons of futures commission

    merchants, retail foreign exchange dealers, introducing brokers,

    commodity trading advisors, commodity pool operators and leverage

    transaction merchants.

    * * * * *

    (f) * * *

    (5)(i)(A) A person who is already registered as an associated

    person in any capacity whose registration is not subject to conditions

    or restrictions may become associated as an associated person of a swap

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

    participant meets the requirements set forth in Sec. 3.60(b)(2)(i)(A)

    of this part.

    (B) A person who is already associated as an associated person of a

    swap dealer or major swap participant may become registered as an

    associated person of a futures commission merchant, retail foreign

    exchange dealer, introducing broker, commodity trading advisor,

    commodity pool operator, or leverage transaction merchant if the

    futures commission merchant, retail foreign exchange dealer,

    introducing broker, commodity trading advisor, commodity pool operator,

    or leverage transaction merchant with which the person intends to

    associate meets the requirements set forth in Sec. 3.60(b)(2)(i)(A)

    and (B) of this part.

    (ii) Each sponsor and each swap dealer and/or major swap

    participant with whom the person is associated shall supervise that

    associated person, and each sponsor and each swap dealer and/or major

    swap participant is jointly and severally responsible for the conduct

    of the associated person with respect to the:

    (A) Solicitation or acceptance of customer orders,

    (B) Solicitation of funds, securities or property for a

    participation in a commodity pool,

    (C) Solicitation of a client's or prospective client's

    discretionary account,

    (D) Solicitation or acceptance of leverage customers' orders for

    leverage transactions,

    (E) Solicitation or acceptance of swaps, and

    (F) Associated person's supervision of any person or persons

    engaged in any of the foregoing solicitations or acceptances, with

    respect to any customers common to it and any futures commission

    merchant, retail foreign exchange dealer, introducing broker, commodity

    trading advisor, commodity pool operator, leverage transaction

    merchant, swap dealer, or major swap participant with which the

    associated person is associated.

    * * * * *

    PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS

    3. The authority citation for Part 23 continues to read as follows:

    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. 111-203, 124

    Stat. 1376 (July 21, 2010).

    4. Section 23.22 is amended by adding paragraph (c) to read as

    follows:

    Sec. 23.22 Associated persons of swap dealers and major swap

    participants.

    * * * * *

    (c) Dual and multiple associations. (1) A person who is already

    associated as an associated person of a swap dealer or major swap

    participant may become associated as an associated person of another

    swap dealer or major swap participant if the other swap dealer or major

    swap participant meets the requirements set forth in Sec.

    3.60(b)(2)(i)(A) of this chapter.

    (2) Each swap dealer and major swap participant associated with

    such associated person shall supervise that associated person, and each

    swap dealer and major swap participant is jointly and severally

    responsible for the conduct of the associated person with respect to

    the:

    (i) Solicitation or acceptance of customer orders,

    (ii) Solicitation of funds, securities or property for a

    participation in a commodity pool,

    (iii) Solicitation of a client's or prospective client's

    discretionary account,

    (iv) Solicitation or acceptance of leverage customers' orders for

    leverage transactions,

    (v) Solicitation or acceptance of swaps, and

    (vi) Associated person's supervision of any person or persons

    engaged in any of the foregoing solicitations or acceptances, with

    respect to any customers common to it and any other swap dealer or

    major swap participant.

    [[Page 35897]]

    Issued in Washington, DC, on June 11, 2012, by the Commission.

    David A. Stawick,

    Secretary of the Commission.

    [FR Doc. 2012-14654 Filed 6-14-12; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: June 15, 2012