2013-25279

Federal Register, Volume 78 Issue 208 (Monday, October 28, 2013)[Federal Register Volume 78, Number 208 (Monday, October 28, 2013)]

[Rules and Regulations]

[Pages 64173-64175]

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

[FR Doc No: 2013-25279]

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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: Final rule.

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SUMMARY: The Commodity Futures Trading Commission is adopting an

amendment to its regulations to clarify certain responsibilities of a

swap dealer or major swap participant regarding its employees who

solicit, accept or effect swaps in a clerical or ministerial capacity.

DATES: Effective November 27, 2013.

FOR FURTHER INFORMATION CONTACT: Christopher W. Cummings, Special

Counsel, or Barbara S. Gold, Associate Director, Division of Swap

Dealer and Intermediary Oversight, Commodity Futures Trading

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

number: (202) 418-6700 and electronic mail: [email protected] or

[email protected]

SUPPLEMENTARY INFORMATION:

I. Introduction

A. Background

The Dodd-Frank Wall Street Reform and Consumer Protection Act

(Dodd-Frank Act) \1\ was signed into law July 21, 2010. The Dodd-Frank

Act amended the Commodity Exchange Act (CEA or Act) \2\ to require the

registration of swap dealers (SDs) and major swap participants (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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\1\ 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 be accessed through the Commission's Web site,

http://www.cftc.gov.

\2\ 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 provides 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

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(or any person occupying a similar status or performing similar

functions), in any capacity that involves: (i) The solicitation or

acceptance of swaps; or (ii) the supervision of any person or persons

so engaged. The definition contains an exclusion, however, stating that

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 Commodity Futures Trading

Commission (Commission or CFTC) 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.\3\ Among these new regulations were Regulation 1.3(aa)(6),\4\

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). With respect to SDs or MSPs, Regulation

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

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

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

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

engaged. 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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\3\ See 77 FR 2613 (Jan. 19, 2012).

\4\ 17 CFR 1.3(aa)(6). The Commission's regulations also can be

accessed through the Commission's Web site.

\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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B. 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), in

November 2012 the National Futures Association (NFA) \6\ 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 proposed to amend paragraph (a)

of Regulation 23.22 (``Proposal'') \7\ to clarify that the Prohibition

does not apply to an individual employed by an SD or MSP in a clerical

or ministerial capacity.\8\

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\7\ 78 FR 20848 (Apr. 8, 2013).

\8\ In this regard, the Commission noted in the Proposal that

pursuant to the authority granted it in CEA section 4s(b)(6), it had

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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II. Comments on the Proposal

The Commission received one comment letter on the Proposal. It

stated that adoption of the Proposal would ``reduce regulatory burden

and reduce the costs of determining whether a clerical or ministerial

employee is statutorily disqualified'' and, further, that ``[t]he

Proposed rule is reasonable and will improve regulatory efficiency.''

\9\

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\9\ Comment letter from Chris Barnard at page 1 (June 3, 2013).

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III. The Final Regulation

In light of the foregoing, the Commission is adopting as proposed

an amendment to 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.

IV. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) \10\ requires federal

agencies, in promulgating regulations, to consider whether those

regulations will have a significant economic impact on small entities

and, if so, to provide a regulatory flexibility analysis respecting the

impact.\11\ The Commission previously has determined that SDs and MSPs

are not ``small entities'' for RFA purposes.\12\ Moreover, adoption of

the amendment to Regulation 23.22(a) as proposed will not have a

significant economic impact on any person who will be affected thereby,

because it will not impose any additional operational requirements or

otherwise direct or confine the activities of affected persons.

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\10\ 5 U.S.C. 601 et seq. (2006).

\11\ By its terms, the RFA does not apply to ``individuals.''

See 48 FR 14933, 14954 n. 115 (Apr. 6, 1983).

\12\ See 77 FR 2613, 2620 (Jan. 19, 2012).

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The Commission did not receive any comments regarding its RFA

analysis in the Proposal. Accordingly, pursuant to 5 U.S.C. 605(b), the

Chairman, on behalf of the Commission, hereby certifies that the

regulation being published in this Federal Register release will not

have a significant economic impact on a substantial number of small

entities.

B. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (PRA) \13\ 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 regulation being published in

this Federal Register release clarifies that the Prohibition does not

apply where the person in question is employed in a clerical or

ministerial capacity. As discussed in the Proposal, the amendment will

not impose a ``burden'' or ``collection of information'' as those terms

are defined in the PRA.\14\

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\13\ 44 U.S.C. 3501 et seq.

\14\ 78 FR 20848, 20849 (Apr. 8, 2013).

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The Commission did not receive any comments regarding its PRA

analysis in the Proposal. Accordingly, for purposes of the PRA, the

Chairman, on behalf of the Commission, certifies that the regulation

being published in this Federal Register release will not impose any

new reporting or recordkeeping requirements.

C. Cost-Benefit Considerations

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

benefits of its actions before issuing a

[[Page 64175]]

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.

As is explained above, the amendment to Regulation 23.22(a) makes a

clarifying change to the text of one of the Commission's regulations

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 adoption

of the amendment to Regulation 23.22(a) will not impose any costs. This

is because the amendment clarifies 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 does not believe that any

new costs will be imposed.

Benefits. With respect to benefits, as discussed in the Proposal,

the Commission believes that the amendment to Regulation 23.22(a) 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 existing cost of compliance

with CEA section 4s(b)(6). As such, it is an ``other public interest

consideration'' under CEA section 15(a), referred to above.

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

benefit considerations, but no such comments were received.

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 Commodity Futures Trading

Commission hereby amends 17 CFR part 23 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. Amend Sec. 23.22 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 October 22, 2013, by the

Commission.

Christopher J. Kirkpatrick,

Deputy Secretary of the Commission.

Appendix to Swap Dealers and Major Swap Participants; Clerical or

Ministerial Employees--Commission Voting Summary

Note: The following appendix will not appear in the Code of

Federal Regulations.

Commission Voting Summary

On this matter, Chairman Gensler and Commissioners Chilton,

O'Malia, and Wetjen voted in the affirmative; no Commissioner voted

in the negative.

[FR Doc. 2013-25279 Filed 10-25-13; 8:45 am]

BILLING CODE 6351-01-P

Last Updated: October 28, 2013