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

[email protected] 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: [email protected]

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