[Federal Register: January 22, 2007 (Volume 72, Number 13)]
[Rules and Regulations]
[Page 2614-2615]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22ja07-8]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 170
RIN 3038-AC29
Membership in a Registered Futures Association
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rule.
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SUMMARY: The Commodity Futures Trading Commission (“Commission” or “CFTC”) has amended its regulations to require that all persons registered with the Commission as futures commission merchants (“FCMs”), subject to an exception for certain notice-registered securities brokers or dealers (“BDs”), must become and remain members of at least one registered futures association (“RFA”). This action is consistent with the regulatory philosophy underlying the Commodity Futures Modernization Act of 2000 (“CFMA”).
DATES: Effective Date: February 21, 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].
SUPPLEMENTARY INFORMATION:
I. Background
A. Commission Regulation 170.15
Commission Regulation 170.15 \1\ (“Regulation”) concerns
membership by FCMs in an RFA. Section 17(p) of the Commodity Exchange
Act (“Act” or “CEA”) requires each RFA to have a comprehensive
program to audit the financial and sales practices of its members and
their associated persons.\2\ Section 17(q) of the Act requires each RFA
to establish such programs “as soon as practicable but not later than
September 30, 1985.” Currently, the National Futures Association
(“NFA”) is the sole RFA under Section 17(a) of the Act, and it is
also a self-regulatory organization (“SRO”).
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\1\ 17 CFR 170.15. The Commission's regulations can be accessed
at http://www.access.gpo.gov/[fxsp0]nara/cfr/[fxsp0]waisidx--06/
17cfrvl--06.[fxsp0]html.
\2\ 7 U.S.C. 21(p). The Act can be accessed at http://www.access.gpo.gov/
[fxsp0]uscode/[fxsp0]title7/
[fxsp0]chapter1--.html.
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In adopting the Regulation, the Commission found that comprehensive
and effective self-regulation and the avoidance of duplicative
regulation would be enhanced by adoption of a regulation mandating
membership in an RFA by each person required to be registered as an
FCM. The Commission also found that the need to maintain these
extensive programs for the comparatively small number of persons likely
to remain subject solely to the Commission's direct regulation would be
inefficient and duplicative of the self-regulatory functions for which
NFA would be responsible.
B. The Commodity Futures Modernization Act of 2000
In December 2000, the CFMA was enacted into law. Among other
things, it revised the supervisory functions of the Commission.
Specifically, the CFMA transformed the role of the CFTC from a front-
line regulator, with responsibility for direct supervision of the
commodity futures markets and their participants and professionals, to
an oversight agency.\3\
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\3\ See 7 U.S.C. 5(b).
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C. The Proposal
In light of the Commission's new oversight role and the policies
and purposes of the Act, including the goals of effective self-
regulation and the avoidance of duplicative regulation, on November 1,
2006, the Commission published in the Federal Register a proposed
revision to the Regulation (“Proposal”).\4\ The Proposal would
require that all persons that are registered with the Commission as an
FCM, subject to an exception for persons that are notice-registered as
BDs,\5\ and regardless of whether any such person is required to be
registered as an FCM, must become and remain a member of at least one
RFA. As the Commission explained in the Federal Register release
announcing the Proposal (“Proposing Release”), the purpose of the
Proposal was “to ensure that all FCMs would come under direct
[[Page 2615]]
supervision of at least one SRO.” \6\ The Commission invites
interested persons to read the Proposing Release for a fuller
discussion of the purpose of the amendment contained in the Proposal.
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\4\ 71 FR 64171.
\5\ Paragraph (b) of the Regulation, which the Commission did
not propose to amend, provides an exception for persons registered
as BDs with the Securities and Exchange Commission that are notice-
registered as FCMs in accordance with Commission Regulation
3.10(a)(3).
\6\ 71 FR at 64172.
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D. The Comments on the Proposal
The Commission received two comment letters on the Proposal. One
was from NFA, which expressed support for the amendment. The other was
from legal counsel representing clients who would be affected by the
Proposal in the event the Commission adopted it. This latter commenter
requested that, in the event the Commission adopted the Proposal, the
Commission make the amendment effective 60 days after publication in
the Federal Register. The additional 30 days was requested “in order
to provide an orderly time for transition and permit sufficient time
for registrants affected by the proposed amendment to determine their
future course of action if the proposed amendment is approved.”
In response, the Commission notes that, as an agency of the Federal
Government, in adopting regulations, it is subject to the provisions of
the Administrative Procedure Act. Among other things, this means that,
in the absence of certain specified circumstances, the Commission may
not make a substantive regulation effective earlier than 30 days before
the regulation is published in the Federal Register.\7\ Thus, the
Commission typically makes its substantive regulations effective 30
days after the date on which the regulation is published in the Federal
Register. With respect to the instant matter, the Commission believes
that 30 days is sufficient time to achieve compliance with the amended
regulation, given the reasons cited by the commenter. Accordingly, the
Commission has determined to adopt the amendment to Regulation
170.15(a) as proposed and to make the amendment effective 30 days after
publication in the Federal Register.
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\7\ See 5 U.S.C. 553(d).
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II. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act \8\ requires that agencies, in
issuing regulations, consider the impact of those regulations on small
businesses. The amended Regulation would affect persons that are
registered as FCMs, even if they are not required to be so registered.
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
Regulatory Flexibility Act.\9\ The Commission previously determined
that registered FCMs are not small entities for the purpose of the
Regulatory Flexibility Act.\10\
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\8\ 5 U.S.C. 601 et seq.
\9\ 47 FR 18618 (Apr. 30, 1982).
\10\ Id. at 18619.
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The Commission did not receive any public comments relative to its
analysis of the application of the Regulatory Flexibility Act to the
Proposal.
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, can 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 Proposal contained an analysis of the Commission's
consideration of these costs and benefits and solicited public comment
thereon.\12\ The Commission did not receive any public comments
relative to its cost-benefit analysis of the Proposal.
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\12\ 71 FR at 64172-73.
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List of Subjects in 17 CFR Part 170
Authority delegations (Government agencies), Commodity futures,
Reporting and recordkeeping requirements.
0
For the reasons discussed in the preamble, the Commission hereby amends
Chapter I of Title 17 of the Code of Federal Regulations as follows:
PART 170--REGISTERED FUTURES ASSOCIATIONS
0
1. The authority citation for part 170 continues to read as follows:
Authority: 7 U.S.C. 6p, 12a and 21, as amended by the Commodity
Futures Modernization Act of 2000, Appendix E of Pub. L. 106-554,
114 Stat. 2763 (2000).
0
2. Section 170.15 is amended by revising paragraph (a) to read as
follows:
Sec. 170.15 Futures commission merchants.
(a) Except as provided in paragraph (b) of this section, each
person registered as a futures commission merchant must become and
remain a member of at least one futures association that is registered
under section 17 of the Act and that provides for the membership
therein of such futures commission merchant, unless no such futures
association is so registered.
* * * * *
Issued in Washington, DC, on January 16, 2007, by the
Commission.
Eileen A. Donovan,
Acting Secretary of the Commission.
[FR Doc. E7-805 Filed 1-19-07; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: June 29, 2007