[Federal Register: July 2, 2007 (Volume 72, Number 126)]

[Rules and Regulations]

[Page 35918-35920]

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





17 CFR Part 3

RIN 3038-AC37

Registration of Intermediaries

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.


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

``CFTC'') has amended Commission Regulation 3.10 to require certain

registered intermediaries, i.e., futures commission merchants

(``FCMs''), introducing brokers (``IBs''), commodity pool operators

(``CPOs''), commodity trading advisors (``CTAs'') and leverage

transaction merchants (``LTMs''), to complete an online annual review

of their registration information maintained with the National Futures

Association (``NFA''). This amendment is intended to ensure that NFA

will have accurate and current information about such registrants. The

Commission also has made a technical and conforming amendment to

Commission Regulation 3.33(f) in order to remove an unnecessary

reference to Regulation 3.10(d).

EFFECTIVE DATE: August 1, 2007.

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]


[[Page 35919]]

I. Background

Part 3 of the Commission's regulations sets forth the regulations

relating to the registration of intermediaries and other futures

industry professionals.\1\ The Commission adopted Part 3 pursuant to

the authority set forth in Sections 4c, 4d, 4f(a)(1), 4m, 4n(1) and 19

of the Commodity Exchange Act (``Act'').\2\ These statutory provisions

require the registration of firms seeking to act as intermediaries for

exchange-traded futures and commodity options. Section 4f(a)(1)

contains the framework for the registration of FCMs and IBs.\3\ Section

4n(1) governs the registration of CPOs and CTAs.\4\ Sections 4c \5\ and

19 of the Act,\6\ respectively, grant the Commission plenary authority,

including registration authority, over commodity options and leverage



\1\ 17 CFR Part 3. The Commission's regulations can be accessed

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

\2\ 7 U.S.C. 1 et seq. (2000). The Act can be accessed at http://www.access.gpo.gov/uscode/title7/chapter1_.html


\3\ 7 U.S.C. 6f(a)(1).

\4\ 7 U.S.C. 6n(1).

\5\ 7 U.S.C. 6c.

\6\ 7 U.S.C. 23. Commission Regulation 31.5, 17 CFR 31.5 (2007),

was promulgated under this provision and along with Regulation 3.10,

17 CFR 3.10, governs the registration of LTMs.


Commission Regulation 3.10(a) specifies that an application for

registration as an FCM, IB, CPO, CTA or LTM must be on a Form 7-R,

completed and filed with NFA in accordance with the instructions

thereto.\7\ Commission Regulation 3.31(a)(1) requires such

intermediaries to correct promptly deficiencies or inaccuracies

contained in the person's Form 7-R or any Form 8-R filed on behalf of a

principal or an associated person.\8\


\7\ 17 CFR 3.10(a).

\8\ 17 CFR 3.31(a)(1).


In 2002, NFA altered its registration procedures by shifting from

paper-based registration to an online or electronic registration

system. Pursuant to these new procedures, NFA requires, with limited

exceptions,\9\ that all registration (and membership) forms, including

the completed Form 7-R and 3-R, must be filed with NFA electronically

through NFA's Online Registration System (``ORS''). Shortly after the

new procedures were implemented, the Commission deleted Regulation

3.10(d), pursuant to which intermediary firms would conduct an annual

review of a pre-printed copy of the registrant's 7-R.\10\


\9\ For example, NFA requires that any securities broker or

dealer that is registered with the Securities and Exchange

Commission that becomes a notice-registered FCM or IB must submit a

hardcopy version of its Form 7-R.

\10\ See 67 FR 38869 (June 6, 2002).


II. Proposal

In order to ensure that the registration information it maintains

is accurate and up-to-date, NFA developed an online registration update

protocol for firms to review and update their registration records. In

addition to providing an updated list of persons authorized to enter

data in ORS, the protocol would require registrants to provide updated

disciplinary, branch office and firm contact information.\11\


\11\ Under the protocol, a firm could modify the title given for

a particular principal of a firm, but it could not identify a new

principal, as this would require separate application.


To facilitate NFA's efforts in implementing this new protocol, on

April 26, 2007, the Commission published in the Federal Register a

proposal to require firms to conduct an annual review of registration

information. (``Proposal'').\12\ The Proposal, which included a

proposed new paragraph (d) of Regulation 3.10 (``Proposed Amendment'')

was designed to ensure that NFA would be in possession of current and

accurate information regarding intermediaries.\13\ Specifically, the

Proposed Amendment would require that each FCM, IB, CPO, CTA and LTM,

in accordance with procedures established by NFA, complete an online

annual review of the registration information maintained by NFA.

Pursuant to procedures established by NFA, registrants would be

required to correct any deficiencies or inaccuracies contained therein.


\12\ 72 FR 20788.

\13\ Paragraph (d) of Regulation 3.10 had been reserved.


The Proposed Amendment also would provide that the failure to

complete the review and update within 30 days of the date established

by NFA for completion would be deemed to be a request for withdrawal

from registration. As further provided therein, NFA would be required

to process the request in accordance with the existing procedures for

withdrawal of registration set forth in Commission Regulation 3.33(f).

The Commission's Proposal also included a technical and conforming

amendment to Commission Regulation 3.33(f) in order to remove

unnecessary language that referenced Regulation 3.10(d).

III. Comments Regarding the Proposal

The Commission received only one comment letter on its Proposal,

and this comment, which was from NFA, expressed full support for the

amendment. In light of this fact, and the foregoing, the Commission has

determined to adopt the amendments to Regulations 3.10 and 3.33(f) as

set forth in the Proposal.

IV. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA'') \14\ requires that

agencies, in proposing regulations, consider the impact of those

regulations on small businesses. The amendment to Regulation 3.10 will

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.\15\ The Commission previously determined that registered FCMs,

CPOs and LTMs are not small entities for the purpose of the RFA.\16\


\14\ 5 U.S.C. 601 et seq.

\15\ 47 FR 18618 (Apr. 30, 1982).

\16\ 47 FR 18618, 18619.


With respect to the remaining persons, CTAs and IBs, the Commission

stated in the Proposal that it did not believe that the economic impact

of the Proposed Amendment would be significant. First, the information

that would be required under the Proposed Amendment already is required

to be collected under the existing registration framework, to wit,

Regulation 3.31(a)(1). Second, the Proposed Amendment and NFA's new

protocol would focus each registrant on the specific areas that must be

reviewed and, if needed, updated. Third, the Proposed Amendment would

permit review and updating via electronic means in keeping with the

current registration procedures. Accordingly, in accordance with

Section 3(a) of the RFA,\17\ the Chairman, on behalf of the Commission,

certified that the Proposed Amendment would not have a significant

economic impact on a substantial number of small entities.


\17\ 5 U.S.C. 605(b).


The Commission invited the public to comment regarding its analysis

of the application of the RFA to the Proposal. The Commission did not

receive any such comments.

B. Cost-Benefit Analysis

Section 15(a) of the Act \18\ 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

[[Page 35920]]

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.


\18\ 7 U.S.C. 19(a).


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 Commission has evaluated the costs and benefits of its

Proposal, in particular, new Regulation 3.10(d) in light of the

specific considerations identified in Section 15(a) of the Act.

Regulation 3.10(d) concerns the registration of intermediaries, in

particular, FCMs, IBs, CPOs, CTAs and LTMs. Specifically, it will

require these intermediaries to complete an online annual review of

their registration information, including disciplinary information,

firm contacts and lists of authorized users. By ensuring that NFA, the

self-regulatory organization that oversees the activities of these

registrants, will have accurate and current information regarding

registrants, Regulation 3.10(d) will maximize the protection of market

participants and the public.

Such intermediaries already are under an ongoing obligation to

provide updated information to NFA pursuant to Commission Regulation

3.31(a)(1). Regulation 3.10(d) will require these registrants to comply

with an online review protocol established by NFA. This protocol will

provide a straightforward process for registrants to electronically

update their registration information. It will focus and guide

registrants on the particular areas that need updating. By facilitating

NFA's efforts to adopt this protocol, Regulation 3.10(d) will result in

efficiency enhancements for registrants and NFA.

Regulation 3.10(d) also will have no effect on the following three

enumerated areas: (1) Efficiency, 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

adopt the amendment to Regulation 3.10 set forth below.

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.\19\ In its Proposal, the Commission

noted that the Proposed Amendment would require intermediaries to

conduct an annual review of their registration information maintained

with NFA and that this information is part of an approved collection of

information. The Commission further noted that the Proposed Amendment

would not result in any material modifications to this approved

collection. Accordingly, for purposes of the PRA, the Commission

certified that the Proposed Amendment did not impose any new reporting

or recordkeeping requirements.


\19\ 44 U.S.C. 3501 et seq.


The Commission did not receive any comments regarding its analysis

relative to the PRA.

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 amends 17 CFR

part 3 as follows:



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 3.10 is amended by adding paragraph (d) to read as follows:

Sec. 3.10 Registration of futures commission merchants, introducing

brokers, commodity trading advisors, commodity pool operators and

leverage transaction merchants.

* * * * *

(d) On a date to be established by the National Futures

Association, and in accordance with procedures established by the

National Futures Association, each registrant as a futures commission

merchant, introducing broker, commodity trading advisor, commodity pool

operator or leverage transaction merchant shall, on an annual basis,

review and update registration information maintained with the National

Futures Association. The failure to complete the review and update

within thirty days following the date established by the National

Futures Association shall be deemed to be a request for withdrawal from

registration, which shall be processed in accordance with the

provisions of Sec. 3.33(f).


3. Section 3.33 is amended by revising paragraph (f) introductory text

to read as follows:

Sec. 3.33 Withdrawal from registration.

* * * * *

(f) A request for withdrawal from registration will become

effective on the thirtieth day after receipt of such request by the

National Futures Association, or earlier upon written notice from the

National Futures Association (with the written concurrence of the

Commission) of the granting of such request, unless prior to the

effective date:

* * * * *

Issued in Washington, DC, on June 26, 2007, by the Commission.

Eileen Donovan,

Acting Secretary of the Commission.

[FR Doc. E7-12767 Filed 6-29-07; 8:45 am]


Last Updated: July 2, 2007