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e7-15869

  • [Federal Register: August 14, 2007 (Volume 72, Number 156)]

    [Proposed Rules]

    [Page 45392-45394]

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

    [DOCID:fr14au07-24]

    [[Page 45392]]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 3

    RIN 3038-AC45

    Termination of Associated Persons and Principals of Futures

    Commission Merchants, Introducing Brokers, Commodity Trading Advisors,

    Commodity Pool Operators and Leverage Transaction Merchants

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Proposed rules.

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

    ``CFTC'') is proposing to amend Commission Regulations 3.12 and 3.31

    (``Proposed Amendments'') to extend the period during which a

    registered futures commission merchant (``FCM''), introducing broker

    (``IB), commodity trading advisor (``CTA''), commodity pool operator

    (``CPO'') or leverage transaction merchant (``LTM'') must file a notice

    with the National Futures Association (``NFA'') to report the

    termination of any associated person (``AP'') or principal of the

    registered intermediary. Under existing regulations, such

    intermediaries must file notices within 20 days after the termination

    of the AP or principal. The Commission's proposal (``Proposal'') would

    provide 30, rather than 20, days for the filing of a termination

    notice.

    DATES: Comments must be received on or before September 13, 2007.

    ADDRESSES: Comments on the Proposal should be sent to David A. Stawick,

    Secretary, Commodity Futures Trading Commission, Three Lafayette

    Centre, 1155 21st Street, NW., Washington, DC 20581. Comments may be

    sent by facsimile transmission to (202) 418-5521, or by e-mail to

    secretary@cftc.gov. Reference should be made to ``Proposal Regarding

    the Termination of Associated Persons and Principals of Futures

    Commission Merchants, Introducing Brokers, Commodity Trading Advisors,

    Commodity Pool Operators and Leverage Transaction Merchants.'' Comments

    also may be submitted by connecting to the Federal eRulemaking Portal

    at http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.regulations.gov and following the comment submission

    instructions.

    FOR FURTHER INFORMATION CONTACT: Helene D. Schroeder, Special Counsel,

    Compliance and Registration Section, Division of Clearing and

    Intermediary Oversight, Commodity Futures Trading Commission, Three

    Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581,

    telephone number: (202) 418-5450; facsimile number: (202) 418-5528; and

    electronic mail: hschroeder@cftc.gov.

    SUPPLEMENTARY INFORMATION:

    I. Background

    Section 4k of the Commodity Exchange Act (``Act'') \1\ makes it

    unlawful for persons to be associated in certain specified capacities

    with an FCM, IB, CPO or CTA unless the person is registered with the

    entity or intermediary as an AP thereof.\2\ Section 19 of the Act

    grants the Commission plenary authority over leverage transactions, and

    this authority includes the registration of APs of an LTM.\3\

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    \1\ 7 U.S.C. 1 et seq. (2000). The Act can be accessed at http://www.access.gpo.gov/uscode/title7/chapter1_.html

    .

    \2\ 7 U.S.C. 6k(1)-(3).

    \3\ 7 U.S.C. 23.

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    Commission Regulation 3.12(a) makes it unlawful for any person to

    be associated with an FCM, IB, CTA, CPO or LTM in the capacity of an AP

    unless the person has registered under the Act as an AP of that

    sponsoring intermediary.\4\ Pursuant to Commission Regulation 3.12(c),

    application for registration as an AP must be on a Form 8-R and

    accompanied by the applicant's fingerprints as well as a sponsor

    certification that meets the requirements set forth in that Regulation.

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    \4\ 17 CFR 3.12(a). The Commission's regulations can be accessed

    at http://www.access.gpo.gov/nara/cfr/waisidx_06/17cfrv1_06.html.

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    Commission Regulations 3.12(b) and 3.31(c)(1) provide for the

    termination of an AP's registration. Specifically, Section 3.31(c)(1)

    requires the sponsoring FCM, IB, CPO, CTA or LTM to file a Form 8-T

    notice \5\ with NFA within 20 days of either of the following events:

    (1) The person fails to become associated with the sponsoring FCM, IB,

    CTA, CPO or LTM; or (2) the association with the sponsoring firm is

    otherwise terminated. Commission Regulation 3.31(c)(2) provides for the

    termination of any principal of an FCM, IB, CPO, CTA or LTM, and it

    also requires the filing of a Form 8-T within 20 days after the

    termination of the principal's affiliation.

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    \5\ Commission Regulation 3.31(c)(3) permits the filing of a

    Uniform Termination Notice for Securities Industry Registration

    (Form U-5) in lieu of a Form 8-T to report the termination of any AP

    or principal of the sponsoring intermediary.

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    NFA Registration Rule 214(a) likewise specifies that such

    termination notices must be filed within 20 days after the termination

    of the affiliation of the AP or principal, and it imposes a $100 fee

    upon sponsoring firms that fail to file termination notices on a timely

    basis. By contrast, Article V, Section 3(a) of the Bylaws of the

    National Association of Securities Dealers, Inc. (``NASD'') specifies

    that NASD members must file termination notices with respect to

    registered persons, including varied securities representatives and

    principals thereof, within 30, rather than 20, days.\6\

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    \6\ The termination notice filed by NASD members is the Form U-

    5.

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    II. NFA's Petition

    NFA recently sought input from its members regarding possible

    enhancements to its online registration process. Several large NFA

    members that are dually registered as FCMs or IBs and securities

    broker-dealers (``BDs'') identified as a particular problem the

    aforementioned disparate regulatory timelines for filing termination

    notices. The dual registrants asserted that it is an undue regulatory

    burden for them to file within the 20-day period for some APs, while

    for the majority of their APs the NASD allows a 30-day period. The dual

    registrants also maintained that the 20-day period is difficult to

    comply with when a termination notice contains disclosure information

    that must be reviewed at the branch office level and then by the legal

    and/or registration departments of a firm. They also stated that, on

    occasion, an attorney representing an AP will review the notice prior

    to filing.

    In light of the difficulties identified by dual registrants, NFA

    petitioned the Commission to amend Regulation 3.31(c)(1) to increase

    the number of days in which a firm must file a termination notice from

    20 to 30 days. NFA claims that such an extension will provide

    sponsoring firms the time needed to properly review the termination

    notices and will conform the futures industry requirements to the

    securities industry's time allowance. Given the disparate regulatory

    requirements applicable to firms that are dual registrants and the

    burden that complying with the 20-day period presents, the Commission

    believes it is appropriate to propose amendments to the relevant

    regulatory requirements.

    III. Proposal

    In accordance with the foregoing, the Proposed Amendments would

    extend the period of time in which a registered FCM, IB, CPO, CTA or

    LTM must file a notice with NFA to report the termination of any AP or

    principal of the registered intermediary. Under existing regulations,

    such intermediaries must file notices within 20 days after the

    termination of the AP or principal. The Proposed Amendments would

    [[Page 45393]]

    allow termination notices to be filed within 30 days after the AP or

    principal is terminated. These Proposed Amendments are intended to

    conform the futures industry requirements to the securities industry's

    time allowance.

    IV. Related Matters

    A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \7\ requires that

    agencies, in proposing regulations, consider the impact of those

    regulations on small businesses. The Proposed Amendments would affect

    persons that are registered as FCMs, IBs, CPOs, CTAs and LTMs. The

    Commission has previously established certain definitions of ``small

    entities'' to be used by the Commission in evaluating the impact of its

    regulations on such entities in accordance with the RFA.\8\ The

    Commission previously determined that registered FCMs, CPOs and LTMs

    are not small entities for the purpose of the RFA.\9\ With respect to

    the remaining persons, CTAs and IBs, the Commission does not believe

    that the Proposed Amendments would place any additional burdens upon

    such persons inasmuch as these registrants already are subject to the

    requirement to file termination notices. Moreover, because the Proposed

    Amendments would provide these intermediaries with additional time in

    which to file termination notices, the Amendments actually would lessen

    the relevant regulatory burden. Accordingly, and based on Section 3(a)

    of the RFA,\10\ the Acting Chairman, on behalf of the Commission,

    certifies that the Proposed Amendments would not have a significant

    economic impact on a substantial number of small entities. However, the

    Commission invites the public to comment on this certification.

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    \7\ 5 U.S.C. 601 et seq.

    \8\ 47 FR 18618 (Apr. 30, 1982).

    \9\ 47 FR 18618, 18619.

    \10\ 5 U.S.C. 605(b).

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    B. Cost-Benefit Analysis

    Section 15(a) of the Act \11\ requires the Commission to consider

    the costs and benefits of its action before issuing a new regulation

    under the Act. By its terms, Section 15(a) does not require the

    Commission to quantify the costs and benefits of a new regulation or to

    determine whether the benefits of the proposed regulation outweigh its

    costs. Rather, Section 15(a) simply requires the Commission to

    ``consider the costs and benefits'' of its action.

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    \11\ 7 U.S.C. 19(a).

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

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

    (1) Protection of market participants and the public; (2) efficiency,

    competitiveness, and financial integrity of futures markets; (3) price

    discovery; (4) sound risk management practices; and (5) other public

    interest considerations. The Commission, in its discretion, may choose

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

    determine that, notwithstanding its costs, a particular regulation is

    necessary or appropriate to protect the public interest or to

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

    of the Act.

    The Proposed Amendments concern the filing of termination notices

    by registered intermediaries, in particular, FCMs, IBs, CPOs, CTAs and

    LTMs. Specifically, the Proposed Amendments would extend the period

    during which these registered intermediaries must file a notice with

    NFA to report the termination of any AP or principal of the sponsoring

    intermediary.

    The Proposed Amendments should have no effect on the protection of

    market participants and the public because they would not alter or

    modify the type or nature of information that must be filed with the

    Commission. Rather, they would provide registrants with additional time

    in which to file information that is already required to be filed and

    would conform the futures industry requirements to the securities

    industry's time allowance for filing termination notices.

    The Proposed Amendments should enhance the efficiencies experienced

    by intermediaries because they would lessen burdens that make it

    difficult for intermediaries to comply with the time allowance provided

    for futures firms filing termination notices.

    The Proposed Amendments should have no effect on the following

    three enumerated areas: (1) Competitiveness or the financial integrity

    of futures markets; (2) price discovery; and (3) sound risk management

    practices.

    After considering these factors, the Commission has determined to

    publish the Proposed Amendments discussed above. The Commission invites

    public comment on its application of the cost-benefit provision.

    Commenters also are invited to submit any data that they may have

    quantifying the costs and benefits of the Proposed Amendments with

    their comment letters.

    C. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (``PRA'') imposes certain

    obligations on federal agencies, including the Commission, in

    connection with their conducting or sponsoring any collection of

    information as defined by the PRA.\12\ The Proposed Amendments will not

    require a new collection of information on the part of any entities

    subject to the Proposed Amendments. Specifically, the Proposed

    Amendments will modify existing regulatory requirements by extending

    the period during which registered intermediaries are required to file

    notices with NFA to report the termination of APs and principals of the

    registered intermediary. Although the Proposed Amendments would alter

    the timeframe during which information is required to be collected, the

    estimated burden associated with the collection is not expected to

    increase or decrease as a result. All affected entities already must

    comply with a requirement to file termination notices. Accordingly, for

    purposes of the PRA, the Commission certifies that the Proposed

    Amendments will not impact the total annual reporting or recordkeeping

    burden associated with the above-referenced collection of information,

    which has been approved previously by OMB.

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    \12\ 44 U.S.C. 3501 et seq.

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    Pursuant to the PRA, the Commission has submitted a copy of this

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

    review. Copies of the information collection submission to OMB are

    available from the CFTC Clearance Officer, 1155 21st Street, NW.,

    Washington, DC 20581 (202) 418-5160.

    List of Subjects in 17 CFR Part 3

    Administrative practice and procedure, Brokers, Commodity futures,

    Reporting and recordkeeping requirements.

    For the reasons discussed in the preamble, the Commission proposes

    to amend 17 CFR part 3 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, 8, 9, 9a, 12, 12a, 13b,

    13c, 16a, 18, 19, 21, 23.

    2. Section 3.12 is proposed to be amended by revising paragraph (b)

    to read as follows:

    Sec. 3.12 Registration of associated persons of futures commission

    merchants, introducing brokers, commodity trading advisors, commodity

    pool operators and leverage transaction merchants.

    * * * * *

    (b) Duration of registration. A person registered in accordance

    with

    [[Page 45394]]

    paragraphs (c), (d), (f), (i), or (j) of this section and whose

    registration has not been revoked will continue to be so registered

    until the revocation or withdrawal of the registration of each of the

    registrant's sponsors, or until the cessation of the association of the

    registrant with each of his sponsors. Such person will be prohibited

    from engaging in activities requiring registration under the Act or

    from representing himself to be a registrant under the Act or the

    representative or agent of any registrant during the pendency of any

    suspension of his or his sponsor's registration. In accordance with

    Sec. 3.31(c) of this part, each of the registrant's sponsors must file

    a notice with the National Futures Association on Form 8-T or on a

    Uniform Termination Notice for Securities Industry Registration

    reporting the termination of the association of the associated person

    within thirty days thereafter.

    * * * * *

    3. Section 3.31 is proposed to be amended by revising paragraphs

    (c)(1) introductory text and (c)(2) to read as follows:

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

    * * * * *

    (c)(1) After the filing of a Form 8-R or a Form 3-R by or on behalf

    of any person for the purpose of permitting that person to be an

    associated person of a futures commission merchant, commodity trading

    advisor, commodity pool operator, introducing broker, or a leverage

    transaction merchant, that futures commission merchant, commodity

    trading advisor, commodity pool operator, introducing broker or

    leverage transaction merchant must, within thirty days after the

    occurrence of either of the following, file a notice thereof with the

    National Futures Association indicating:

    * * * * *

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

    futures commission merchant, commodity trading advisor, commodity pool

    operator, introducing broker or leverage transaction merchant must,

    within thirty days after the termination of the affiliation of a

    principal with the registrant or applicant, file a notice thereof with

    the National Futures Association.

    * * * * *

    Issued in Washington, DC, on August 8, 2007, by the Commission.

    David A. Stawick,

    Secretary of the Commission.

    [FR Doc. E7-15869 Filed 8-13-07; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: August 14, 2007



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