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2013-07538

  • Federal Register, Volume 78 Issue 67 (Monday, April 8, 2013)[Federal Register Volume 78, Number 67 (Monday, April 8, 2013)]

    [Proposed Rules]

    [Pages 20848-20849]

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

    [FR Doc No: 2013-07538]

    [[Page 20848]]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 23

    RIN 3038-AE00

    Swap Dealers and Major Swap Participants; Clerical or Ministerial

    Employees

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Proposed rule.

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

    is proposing to amend its regulations (Proposal) to clarify certain

    responsibilities of a swap dealer (SD) or major swap participant (MSP)

    regarding its employees who solicit, accept or effect swaps in a

    clerical or ministerial capacity.

    DATES: Comments must be received on or before June 7, 2013.

    ADDRESSES: You may submit comments, identified by RIN number 3038-AE00,

    by any of the following methods:

    Agency Web site: http://www.cftc.gov.

    Mail: Secretary of the Commission, Commodity Futures

    Trading Commission, Three Lafayette Centre, 1155 21st Street NW.,

    Washington, DC 20581.

    Hand Delivery/Courier: Same as Mail, above.

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

    Follow 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

    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, a

    petition for confidential treatment of the exempt information may be

    submitted according to the procedure established in CFTC Regulation

    145.9.\1\

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    \1\ The Commission's regulations are found at 17 CFR Ch. I

    (2012) and can be accessed through the Commission's Web site,

    www.cftc.gov.

    _____________________________________-

    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 and other

    applicable laws, and may be accessible under the Freedom of Information

    Act.

    FOR FURTHER INFORMATION CONTACT: Christopher W. Cummings, Special

    Counsel, (202) 418-6700, ccummings@cftc.gov, or Barbara S. Gold,

    Associate Director, (202) 418-6700, bgold@cftc.gov, Division of Swap

    Dealer and Intermediary Oversight, Commodity Futures Trading

    Commission, 1155 21st Street NW., Washington, DC 20581.

    SUPPLEMENTARY INFORMATION:

    I. Background

    The Dodd-Frank Wall Street Reform and Consumer Protection Act

    (Dodd-Frank Act) \2\ was signed into law July 21, 2010. The Dodd-Frank

    Act amended the Commodity Exchange Act (CEA or Act) \3\ to require the

    registration of SDs and MSPs, and to establish a comprehensive new

    regulatory framework for swaps. One such amendment was new CEA Section

    4s(b)(6), which states: that except to the extent otherwise

    specifically provided by rule, regulation, or order, it shall be

    unlawful for a swap dealer or a major swap participant to permit any

    person associated with a swap dealer or a 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 disqualification

    [``Prohibition''].

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    \2\ 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 can also be accessed through the Commission's Web

    site.

    \3\ 7 U.S.C. 1 et seq. The CEA also can be accessed through the

    Commission's Web site.

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    A related amendment that the Dodd-Frank Act made was to add a

    definition of ``associated person of a swap dealer or major swap

    participant'' in new CEA Section 1a(4), which states that 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, or agent (or any person occupying a

    similar status or performing similar functions), in any capacity that

    involves the solicitation or acceptance of swaps; or the supervision of

    any person or persons so engaged. Other than for purposes of CEA

    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.

    Thus, except to the extent that the Commission specifically

    provided by rule, regulation, or order, an SD or MSP would be subject

    to the prohibition against permitting a person associated with the SD

    or MSP (including a person employed in a clerical or ministerial

    capacity) to effect or be involved in effecting swaps if the associated

    person were subject to a statutory disqualification.

    On January 19, 2012, the Commission published in the Federal

    Register regulations that provide for the registration of SDs and

    MSPs.\4\ Among these new regulations were Regulation 1.3(aa)(6), which

    amended the existing definition of ``associated person'' in the

    Commission's regulations to include associated persons of SDs and MSPs,

    and Regulation 23.22, which incorporated the prohibition set forth in

    CEA Section 4s(b)(6). Specifically, Regulation 1.3(aa)(6) (17 CFR

    1.3(aa)(6) provides that the term ``associated person'' means any

    natural person who is associated in any of the following capacities

    with a swap dealer or major swap participant as a partner, officer,

    employee, agent (or any natural person occupying a similar status or

    performing similar functions), in any capacity that involves the

    solicitation or acceptance of swaps (other than in a clerical or

    ministerial capacity); or the supervision of any person or persons so

    engaged.

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    \4\ See 77 FR 2613 (Jan. 19, 2012).

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    The exclusion in Regulation 1.3(aa)(6) from the definition of

    associated person of an SD or MSP for persons who act in a clerical or

    ministerial capacity is consistent with the definition (and exclusion

    for clerical or ministerial activity) in the other provisions in

    Regulation 1.3(aa) that define the term ``associated person'' in the

    context of other Commission registrants.\5\

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    \5\ See also CEA Section 4k(1), which excludes from associated

    person registration a person who, in a clerical or ministerial

    capacity, solicits or accept customer orders for a futures

    commission merchant or an introducing broker.

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    II. The Proposal

    Regulation 23.22, by its terms, applies to an associated person of

    an SD or MSP ``as defined in section 1a(4) of the Act and [Regulation]

    1.3(aa).'' Because Regulation 1.3(aa)(6) contains a general exclusion

    from the associated person definition for a person employed in a

    clerical or ministerial capacity, and the exclusion in CEA Section

    1a(4) must be read in conjunction with CEA Section 4s(b)(6), the

    National Futures

    [[Page 20849]]

    Association (NFA) \6\ has recommended that the Commission clarify that

    the prohibition in CEA Section 4s(b)(6) does not bar association with

    an SD or MSP by employees who are employed in a clerical or ministerial

    capacity.

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    \6\ Letter from Thomas W. Sexton, Senior Vice President and

    General Counsel, NFA, to Gary Barnett, Director of the Division of

    Swap Dealer and Intermediary Oversight, dated November 12, 2012. NFA

    is a registered futures association (and the sole association so

    registered) under CEA Section 17.

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    In light of NFA's recommendation, and in accordance with the

    language in CEA Section 4s(b)(6) that qualifies the Prohibition

    (``Except to the extent otherwise specifically provided by rule,

    regulation, or order''), the Commission is proposing to amend paragraph

    (a) of Regulation 23.22 to clarify that the Prohibition does not apply

    to an individual employed by an SD or MSP in a clerical or ministerial

    capacity.\7\

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    \7\ In this regard, the Commission notes that pursuant to this

    authority in CEA Section 4s(b)(6), it previously adopted an

    exception from the Prohibition for a person already listed as a

    principal of, or already registered as an associated person of,

    another Commission registrant, notwithstanding a statutory

    disqualification. See Regulation 23.22(b), proviso.

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    III. Related Matters

    A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \8\ requires that agencies, in

    proposing regulations, consider the impact of those regulations on

    small businesses.\9\ The Commission previously has determined that SDs

    and MSPs are not ``small entities'' for RFA purposes.\10\ Moreover, as

    is explained below, if adopted, the Proposal will not have a

    significant economic impact on any person who would be affected

    thereby, because it will not impose any additional operational

    requirements or otherwise direct or confine the activities of affected

    persons. Accordingly, the Chairman 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.

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    \8\ 5 U.S.C. 601 et seq. (2006).

    \9\ By its terms, the RFA does not apply to ``individuals.'' See

    48 FR 14933, n. 115 (Apr. 6, 1983).

    \10\ See 77 FR 2613, 2620 (Jan. 19, 2012).

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    B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) \11\ 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 Commission believes that the

    Proposal will not impose new recordkeeping or information collection

    requirements that require approval by the Office of Management and

    Budget under 44 U.S.C. 3501, et seq. Accordingly, the PRA does not

    apply to this rulemaking.

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    \11\ 44 U.S.C. 3501 et seq.

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    C. Cost-Benefit Considerations

    CEA Section 15(a) requires the Commission to consider the costs and

    benefits of its actions before issuing a rulemaking under the CEA. CEA

    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 considers the costs and

    benefits resulting from its discretionary determinations with respect

    to the Section 15(a) factors.

    Summary of the Proposal. As is explained above, the Proposal would

    make a clarifying change to the text of one of the Commission's

    regulations that were adopted to reflect changes made to the CEA by the

    Dodd-Frank Act, by specifying that the prohibition against an SD or MSP

    permitting a statutorily disqualified person to associate with it does

    not include a person employed in a clerical or ministerial capacity.

    Costs. With respect to costs, the Commission believes that the

    Proposal will not impose any costs. This is because the Proposal would

    clarify that an SD or MSP need not consider whether CEA section

    4s(b)(6) applies to employees performing clerical or ministerial

    duties. Thus the Commission proposes that there will be little (if any)

    costs to persons who will be affected by the Proposal.

    Benefits. With respect to benefits, the Commission proposes that

    the Proposal will benefit SDs and MSPs by reducing the search costs

    associated with determining whether a clerical or ministerial employee

    is statutorily disqualified. This, in turn, mitigates the cost of

    compliance with CEA Section 4s(b)(6).

    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 in 17 CFR Part 23

    Associated persons, Commodity futures, Major swap participants,

    Ministerial or clerical employees, Registration, Statutory

    disqualification, Swap dealers, Swaps.

    For the reasons presented above, the Commission hereby proposes to

    amend chapter I of title 17 of the Code of Federal Regulations as

    follows:

    PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS

    0

    1. The authority citation for part 23 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b-1, 6c, 6p, 6r, 6s, 6t,

    9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, and 21.

    0

    2. Section 23.22 is amended by revising the section heading and

    paragraph (a) to read as follows:

    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 and Sec.

    1.3(aa)(6) of this chapter, but does not include an individual employed

    in a clerical or ministerial capacity.

    * * * * *

    Issued in Washington, DC, on March 27, 2013, by the Commission.

    Christopher J. Kirkpatrick,

    Deputy Secretary of the Commission.

    [FR Doc. 2013-07538 Filed 4-5-13; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: April 8, 2013



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