[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]





17 CFR Part 170

RIN 3038-AC29

Membership in a Registered Futures Association

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.


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].


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”).


\1\ 17 CFR 170.15. The Commission's regulations can be accessed

at http://www.access.gpo.gov/[fxsp0]nara/cfr/[fxsp0]waisidx--06/


\2\ 7 U.S.C. 21(p). The Act can be accessed at http://www.access.gpo.gov/




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\


\3\ See 7 U.S.C. 5(b).


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.


\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


\6\ 71 FR at 64172.


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.


\7\ See 5 U.S.C. 553(d).


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\


\8\ 5 U.S.C. 601 et seq.

\9\ 47 FR 18618 (Apr. 30, 1982).

\10\ Id. at 18619.


The Commission did not receive any public comments relative to its

analysis of the application of the Regulatory Flexibility Act to the


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.


\11\ 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, 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.


\12\ 71 FR at 64172-73.


List of Subjects in 17 CFR Part 170

Authority delegations (Government agencies), Commodity futures,

Reporting and recordkeeping requirements.


For the reasons discussed in the preamble, the Commission hereby amends

Chapter I of Title 17 of the Code of Federal Regulations as follows:



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).


2. Section 170.15 is amended by revising paragraph (a) to read as


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


Eileen A. Donovan,

Acting Secretary of the Commission.

[FR Doc. E7-805 Filed 1-19-07; 8:45 am]


Last Updated: June 29, 2007