e9-31032

[Federal Register: December 30, 2009 (Volume 74, Number 249)]

[Rules and Regulations]

[Page 69004-69009]

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

[DOCID:fr30de09-2]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1

RIN 3038-AB87

Electronic Filing of Financial Reports and Notices

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rules.

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

``CFTC'') is amending certain of its regulations in connection with

electronic filing of financial reports and related notices. The

amendments broaden the language in the Commission's regulations

applicable to electronic filings of financial reports to clarify that,

to the extent a futures commission merchant (``FCM'') submits a Form 1-

FR to the Commission electronically, it may do so using any user

authentication procedures established or approved by the Commission.

The amendments also permit registrants to electronically submit filings

in addition to financial reports, including an election to use a non-

calendar fiscal year, requests for extensions of time to file

uncertified financial reports and ``early warning'' notices required

under Commission regulations. In connection with the filing of

financial reports, the amendments specify, consistent with other

requirements and existing practice, that a statement of income and loss

is included as a required part of the non-certified 1-FR filings for

FCMs and introducing brokers (``IBs''). The amendments also require

more immediate, but less prescriptive, documentation regarding a firm's

capital condition when a firm falls below its required minimum adjusted

net capital. Finally, the final regulations include several other minor

amendments to correct certain outdated references and to make other

clarifications to existing regulations.

DATES: Effective Date: January 4, 2010.

FOR FURTHER INFORMATION CONTACT: Thelma Diaz, Associate Director,

Division of Clearing and Intermediary Oversight, 1155 21st Street, NW.,

Washington, DC 20581. Telephone number: 202-418-5137; facsimile number:

202-418-5547; and electronic mail: <A HREF="mailto:tdia[email protected]">[email protected]</A>, or Lawrence T.

Eckert, Special Counsel, Division of Clearing and Intermediary

Oversight, 140 Broadway, New York, New York 10005. Telephone number

(646) 746-9704; and electronic mail: <A HREF="mailto:[email protected]">[email protected]</A>.

SUPPLEMENTARY INFORMATION:

I. Background

On October 13, 2009, the Commission published for comment in the

Federal Register proposed amendments to Regulations 1.10 and 1.12 (the

``Proposals'').\1\ Commission Regulation 1.10 sets forth the financial

reporting requirements for FCMs and IBs \2\ and Regulation 1.12

requires FCMs, IBs and applicants for registration thereof to provide

notice of a variety of predefined events as or before they occur.\3\

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\1\ 74 FR 52434 (Oct 13, 2009). The Commission's regulations

cited in this rulemaking may be found at 17 CFR Ch. 1 (2009).

\2\ For simplicity, references in this Federal Register release

to IBs in connection with financial reporting and notice

requirements are intended to refer to IBs that are not operating

pursuant to a guarantee agreement.

\3\ For example, Regulation 1.12(a) requires immediate

telephonic notice, to be confirmed in writing by facsimile, when a

registrant's (or applicant's) adjusted net capital falls below that

required by Regulation 1.17. Other provisions of Regulation 1.12

require notification to the Commission for certain ``early warning''

events. Regulation 1.12(b), for example, requires notification by a

registrant or applicant if such entity's adjusted net capital drops

below a specified threshold.

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The Proposals consisted of several amendments regarding electronic

filing of financial reports and notices by FCMs and IBs as well as

amendments to certain other financial reporting requirements.

Specifically, the Commission proposed amendments to: (1) Broaden

language in the Commission's regulations concerning authentication

procedures applicable to electronic filing of financial reports in

order to enable internet-based filing of such reports in anticipation

of expected changes to ``WinJammer<SUP>TM</SUP>,'' an application used

by FCMs that file their non-certified financial reports electronically

with the Commission; (2) expand the types of filings that FCMs and IBs

may submit electronically to include required ``early warning'' notices

and certain other notices and filings under Regulations 1.10 and 1.12;

(3) provide for less prescriptive, but more immediate, documentation to

be filed regarding a firm's undercapitalized condition; (4) expressly

include an income statement in the required periodic unaudited

financial reports of FCMs and IBs; and (5) make several other minor

amendments to correct certain outdated references and to make other

clarifications to existing regulations.

The 30-day public comment period on the Proposals expired on

November 12, 2009. The Commission received one written comment on the

Proposals, submitted by the National Futures Association (``NFA''). NFA

noted its agreement and support of the Commission's Proposals and

commended the Commission for its review of its electronic filing

requirements and proposal of changes to reflect technological advances

and current practices. As discussed below, NFA also encouraged the

Commission to consider certain additional amendments to further expand

the use of electronic filing in certain circumstances. NFA did not

suggest delaying the implementation of the Proposals while these

additional suggestions made by NFA are under consideration by the

Commission. The Commission further notes that certain provisions

included in the additional amendments offered by NFA for consideration

may require publication in the Federal Register for prior notice and

comment before they may be adopted. For the reasons set forth below,

the Commission has therefore determined to adopt the amendments as

proposed.

II. Rule Amendments

A. Electronic Filing Issues

1. Amendments to Regulation 1.10

Commission Regulation 1.10(c) generally sets forth the provisions

governing where and how financial reports required to be filed by FCMs

and IBs under Regulation 1.10 must be filed. Regulation 1.10(c)(1)

indicates with whom reports should be filed and Regulation 1.10(c)(2)

addresses the method for submitting such reports. Electronic submission

of certified financial reports currently is addressed separately in

Regulation 1.10(b)(2)(iii).

[[Page 69005]]

This section provides that FCMs must file certified financial reports

in paper form and IBs must file such reports electronically in

accordance with electronic filing procedures established by NFA.

For clarification and ease of reading, the Commission is moving

Regulation 1.10(b)(2)(iii) into a new subparagraph of Regulation

1.10(c)(2). Regulation 1.10(c)(2) is being amended as discussed below

and divided into 2 new subparagraphs: New subparagraph (c)(2)(i)

addresses electronic filing by FCMs with the Commission and new

subparagraph (c)(2)(ii) addresses electronic filings with NFA by IBs

and by applicants for registration as IBs and FCMs.

Regulation 1.10(c)(2) currently provides that non-certified

financial reports may be submitted to the Commission ``in electronic

form using a Commission assigned Personal Identification Number, and

otherwise in accordance with instructions issued by the Commission * *

*.'' The adopted amendments to Regulation 1.10(c)(2) broaden the

language in the regulation relating to user authentication by no longer

limiting user authentication to the use of a personal identification

number (``PIN''). As described in the proposing release, the use of

such a PIN is no longer consistent with the internet-based enhancements

under development for Winjammer. The revisions to Regulation 1.10(c)(2)

also permit any filing or other notice submitted under the regulation

to be transmitted electronically, rather than limiting such submission

to financial reports as under the current regulation. Such other

notices would include, for example, an election to use a fiscal year

other than a calendar year under Regulation 1.10(e) and a request for

an extension of time to file uncertified financial reports under

Regulation 1.10(f). Regulation 1.10(d)(4)(iii), which deals with

electronic filing of Form 1-FR, is being amended by deleting references

to the use of a PIN.

As amended, Regulation 1.10(c)(2)(i) provides that all filings or

other notices or applications prepared by a futures commission merchant

``[except with respect to the filing of certified financial reports

which must be filed in paper form], and pursuant to [Regulation 1.10]

may be submitted to the Commission in electronic form using a form of

user authentication assigned in accordance with procedures established

by or approved by the Commission, and otherwise in accordance with

instruction issued by or approved by the Commission, if the futures

commission merchant or a designated self-regulatory organization has

provided the Commission with the means necessary to read and to process

the information contained in such report.''

Amended Regulation 1.10(c)(2)(ii) provides that ``[except with

respect to the filing of certified FOCUS reports by a registered broker

or dealer with the SEC], all filings or other notices or applications

prepared by an introducing broker or applicant for registration as an

introducing broker or futures commission merchant * * * must be filed

electronically in accordance with electronic filing procedures

established by the National Futures Association * * *.''

In its comment letter, NFA indicated that it would support the

Commission further broadening the permitted use of electronic filing to

include FCM certified financial statements. The current requirement in

Regulation 1.10 for FCM certified financial statements to be filed in

paper form is due in part to the fact that such statements are not

prepared in a standard format that lends itself easily to electronic

input. NFA suggested that notwithstanding this lack of standardization,

the Commission could consider permitting the submission of such

statements in portable document format (``pdf''). The Commission notes,

however, that this suggestion requires further review because the pdf

format is not conducive to the application of automated review of the

data by the Commission. Further review would also be beneficial in

light of continuing developments in technology that may at a later date

result in increased benefits of electronic filing of certified

financial statements for the filers, the Commission and the DSRO

recipients. The adoption of the amendments as proposed will not impede

such further review, and will make available to these same parties

other recognized enhancements to the current requirements for

electronic filing.

2. Amendments to Regulation 1.12

Commission Regulation 1.12 requires FCMs, IBs and applicants for

registration thereof to provide notice of a variety of predefined

events as or before they occur.\4\ The Commission proposed to amend

Regulation 1.12(i), which sets forth the procedures for filing notices

under Regulation 1.12, to allow FCMs and IBs to submit electronically

filings otherwise required to be submitted in writing via facsimile.\5\

In its comment letter, NFA supported this change, but suggested that

the Commission consider requiring, rather than simply permitting,

registrants to electronically file such notices. Although the

Commission strongly encourages, and believes that most registrants will

choose to utilize, electronic filing as a more efficient and

expeditious means to file notices, the Commission nonetheless

appreciates that there may be times when a registrant would prefer, or

is otherwise unable, to file electronically. For example, a registrant

may have a regulatory deadline under the Commission's regulations but

be unable to satisfy such deadline through electronic means due to

temporary technological issues with WinJammer\TM\, NFA's EasyFile

system or the registrants' own systems. Moreover, moving from a

permissive to mandatory filing requirement may require publication in

the Federal Register in order to obtain public comment on such a

proposal. In light of these concerns, the Commission has determined to

adopt the amendment as proposed.

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\4\ See footnote 3, above.

\5\ IBs file notices under Regulation 1.12 with NFA pursuant to

NFA rules. NFA has indicated that it intends to make changes to the

EasyFile system and/or NFA rules, as may be necessary to facilitate

the electronic filing by IBs of notices or other information

permitted to be submitted electronically by the Proposal but

currently filed with NFA in paper form.

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The amendment adopted adds a new subparagraph 1.12(i)(3) to the

Commission's regulations which provides that ``[e]very notice or report

required to be provided in writing under [Regulation 1.12] may, in lieu

of facsimile, be filed via electronic transmission using a form of user

authentication assigned in accordance with procedures established by or

approved by the Commission, and otherwise in accordance with

instructions issued by or approved by the Commission.'' An electronic

submission is required to clearly indicate the registrant or applicant

on whose behalf such filing is made and the use of such user

authentication in submitting such filing would constitute and become a

substitute for the manual signature of the authorized signer.

B. Income Statement Filing Requirement

Commission Regulation 1.10(d) sets forth the content requirements

for financial reports filed with the Commission: The Commission

proposed to amend Regulation 1.10(d)(1) to require ``statements of

income (loss)'' to be included as part of FCM and IB non-certified

financial report filings. The Commission noted that this amendment is

consistent with Regulation 1.10(d)(2)(ii), which requires FCMs and

[[Page 69006]]

IBs to include an income statement as part of their certified financial

reports, and is a practice currently followed by most registrants. NFA

voiced its support of this amendment in its comment letter noting its

agreement that the income statement provides the Commission with

important information for monitoring the financial condition of firms.

The Commission is adopting the amendment as proposed.

As noted in the Proposals, this amendment does not affect the

ability of a broker-dealer to file with the Commission in accordance

with Regulation 1.10(h) the FOCUS report under the Securities and

Exchange Act of 1934, including the income statement currently provided

in that report.\6\

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\6\ Under SEC Regulation 17a-5 and rules of applicable self-

regulatory organizations, certain securities brokers or dealers may

include as part of their quarterly FOCUS report filings a

consolidated Statement of Income (Loss) for the relevant quarter

rather than a Statement of Income (Loss) for the month for which the

report is being filed (i.e., March, June, September or December).

Such broker-dealers that also are registered as FCMs would file

these same reports with the Commission. The Commission wishes to

make clear that an otherwise complete FOCUS report filing made with

the Commission that includes such a consolidated Statement of Income

(Loss) will be deemed an acceptable filing in accordance with

Commission Regulation 1.10(h).

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C. Net Capital Undercapitalization Documentation

Regulation 1.12(a) requires a registrant or applicant for

registration as an FCM or IB that knows or should have known that its

adjusted net capital is less than the minimum required by the

Commission or by its designated self-regulatory organization (``DSRO'')

to provide notice of such event immediately by telephone and confirm

such telephonic notice in writing by facsimile. Regulations 1.12(a)(2)

(applicable to FCMs) and 1.12(a)(3) (applicable to IBs) further require

that, within 24 hours thereafter, the registrant (or applicant) must

file certain specific financial records with the Commission.\7\

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\7\ Specifically, Regulation 1.12(a)(2) requires an FCM (or

applicant) to file with the Commission: (1) A statement of financial

condition; (2) a statement of the computation of its minimum capital

requirements; (3) the statements of segregation requirements and

funds in segregation for customers trading on U.S. commodity

exchanges and for customers' dealer options accounts; and (4) the

statement of secured amounts and funds held in separate accounts for

foreign futures and foreign options customers. Regulation 1.12(a)(3)

requires an IB (or applicant) to file a statement of financial

condition and a statement of the computation of its minimum capital

requirements.

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The Commission also is amending Regulations 1.12(a)(2) and (a)(3)

to require more immediate, but less prescriptive, reporting to the

Commission when a registrant or applicant falls below its minimum net

capital requirement. NFA supported this amendment, stating its

agreement with the Commission that it is more beneficial for the

Commission to receive prompt information concerning a firm's capital

condition than to receive such information in a specific prescribed

format. Under the amended regulation, a firm must continue to provide

immediate telephonic notice, confirmed in writing, in the event that

its adjusted net capital falls below its required minimum. Amended

Regulation 1.12(a)(2) requires that together with such initial

telephonic notice and written confirmation, a firm must provide

``documentation in such form as necessary to adequately reflect the

firm's capital condition as of any date such person's adjusted net

capital is less than the minimum required.'' \8\ The Commission

envisions that such adequate documentation would at a minimum specify

the firm's adjusted net capital requirement and actual adjusted net

capital for any date during which the firm fell below its regulatory

requirement. The amended regulation also requires a firm to provide

similar documentation to that initially provided for any other days the

Commission may request.\9\ By requiring documentation as of ``any''

date that adjusted net capital is less than the required minimum, the

amended regulation makes clear that where a firm is undercapitalized on

more than one day, documentation related to all such time must be

provided.

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\8\ This amendment is consistent with SEC Regulation 17a-11

which requires a broker or dealer whose net capital falls below its

required minimum to give notice of the deficiency that same day,

specifying the broker or dealer's net capital requirement and its

current amount of net capital.

\9\ Regulation 1.10(b)(4) already provides that representatives

of the Commission may upon written notice require Form 1-FR or other

financial information at such times as specified by the

representative.

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Regulation 1.12(a)(3), which provides documentation requirements

for IBs that provide the Commission with notice of their

undercapitalized condition, has been deleted because Regulation

1.12(a)(2) as amended applies to IBs as well as to FCMs. Regulation

1.12(i)(1) also is being amended by deleting certain language related

to the method of filing documentation that is no longer required to be

submitted to the Commission in light of the amendments to Regulation

1.12(a)(2) discussed above.

D. Miscellaneous Amendments to Regulations

The Commission proposed a number of minor amendments to Regulations

1.10 and 1.12 to correct certain outdated references and to otherwise

clarify existing regulations. NFA noted their support of certain of

these amendments that eliminated requirements that provided for

duplicative filing with NFA and the Commission (enumerated as items (1)

and (2), below). The Commission received no comments on the other

amendments. The Commission is, therefore, adopting each of the

amendments as proposed and, as outlined below:

(1) Regulation 1.10(c)(1) is amended to clarify that FCM and IB

applicants for registration need file financial reports required as

part of the application process only with NFA and not also with a

regional office of the Commission;

(2) Regulation 1.12(i)(1) is amended to clarify that an applicant

for registration as an FCM need file any notices required under

Regulation 1.12 only with NFA and not also with the Commission. The

amended regulation makes clear that any notice or report filed with NFA

will be deemed to be filed with, and to be the official record of, the

Commission;

(3) The following minor wording amendments are being made to

Regulation 1.10(c)(1) for the purposes of consistency with other

provisions of the regulations and/or general clarification:

(A) The reference to ``[a] report filed by an [IB] pursuant to

paragraph (b)(2)(i) or (b)(2)(ii)'' is amended to clarify that ``a

report'' in this context is meant to refer to Form 1-FR;

(B) The reference to subparagraphs (b)(2)(i) and (b)(2)(ii) is

being amended for simplicity to refer only to paragraph (b)(2) in

general; and

(C) The language of paragraph 1.10(c)(1) is being amended to

clarify that it is intended to cover not only ``reports'' but all

reports and other ``information;''

(4) Regulations 1.10(b)(2)(i) and 1.10(b)(2)(ii) are being amended

to delete language referring to an option to file financial statements

on a calendar-year basis which is no longer contained in the

Commission's regulations;

(5) Regulation 1.10(b)(3), which permits an FCM or IB to satisfy

the Commission's Form 1-FR filing requirements if it satisfies certain

financial reporting standards and reporting requirements of its DSRO,

is being amended to delete outdated language referring to DSRO

regulations applicable ``after the effective date of these regulations

by the Commission''; and

(6) Language within regulation 1.10(h) that references ``NFA'' is

amended for consistency purposes by spelling out ``National Futures

Association.''

[[Page 69007]]

III. Related Matters

A. Administrative Procedure Act

The Administrative Procedure Act (``APA'') provides that the

required publication of a substantive rule shall be made not less than

30 days before its effective date, unless the agency is permitted to

implement an earlier effective date under one of the exceptions

recognized by the APA.\10\ The exceptions set forth in the APA are as

follows: (1) A substantive rule which grants or recognizes an exemption

or relieves a restriction; (2) interpretative rules and statements of

policy; or (3) as otherwise provided by the agency for good cause found

and published with the rule.\11\

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\10\ 5 U.S.C. 553(b) and (d).

\11\ 5 U.S.C. 553-(d).

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The amendments being made to Rules 1.10 and 1.12 will ``grant or

recognize an exemption or relieve a restriction'' in that they

generally serve to permit and enable registrants to file notices and

reports electronically that previously were required to be filed in

paper form. In addition, the amendments include a number of non-

substantive amendments to correct certain outdated references and to

otherwise clarify existing regulations.

With regard to the amendments relating to the timing of

documentation required by firms that become undercapitalized, the

Commission has a clear interest in receiving such information

immediately and believes, therefore, that there is ``good cause'' to

make such requirement effective in fewer than 30 days. With respect to

the amendments requiring an income statement, the Commission believes

that there is also ``good cause'' to make this provision effective on

January 4, 2010, consistent with the other rule amendments. It would

not be logical for the income statement requirement to be implemented

at a time later than the effective date of the remaining rules, as the

information in the income statement is an integral part of a

registrant's financial statements. Further, as the SEC and several

self-regulatory organizations already require dual registrants and

other FCMs to include the income statement in their financial

statements, the income statement is already formatted as part of the

Form 1-FR reports that registrants currently file with the Commission,

and the data required to complete it is generally already available

from other parts of the form. In fact, substantially all FCMs and IBs

already complete the income statement as part of their required

periodic non-certified financial report filings.

Accordingly, the Commission has determined to make these amendments

effective on January 4, 2010, consistent with the anticipated

availability of the updated WinJammer<SUP>TM</SUP> system.

B. Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,

requires that agencies, in rulemaking, consider the impact of those

regulations on small businesses. This rulemaking would affect FCMs and

IBs. The Commission has previously determined that, based upon the

fiduciary nature of FCM/customer relationships, as well as the

requirement that FCMs meet minimum financial requirements, FCMs should

be excluded from the definition of small entity.

With respect to IBs, the Commission stated that it is appropriate

to evaluate within the context of a particular rule proposal whether

some or all IBs should be considered to be small entities and, if so,

to analyze the economic impact on such entities at that time.\12\ These

amendments will not place any additional burdens on IBs that are small

businesses because all such parties, if any, already are subject to the

financial reporting and notice requirements under Regulations 1.10 and

1.12 and already file financial reports through NFA's electronic filing

system. Additionally, although the Commission is amending its

regulations to add a requirement to include statements of income and

loss as part of non-certified financial report filings, substantially

all IBs already are filing this data in practice and, in any event,

must compute the relevant income and loss data (although not currently

required to be provided in a separate income statement) in order to

complete Commission Form 1-FR or the SEC FOCUS report, as applicable,

under the Commission's regulations.\13\ The Commission's Proposals

solicited public comment on this analysis.\14\ No comments were

received. Accordingly, pursuant to Section 3(a) of the RFA, 5 U.S.C.

605(b), the Chairman, on behalf of the Commission, certifies that the

action taken herein will not have a significant economic impact on a

substantial number of small entities.

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\12\ See 48 FR 35248, 35275-78 (Aug. 3, 1983).

\13\ See Commission Regulations 1.10(b)(2) and 1.10(h)

(requiring IBs to file with the Commission Form 1-FR-FCM or, as an

alternative in the case of a registered broker or dealer with the

SEC, the FOCUS report).

\14\ 74 FR at 52438.

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C. Paperwork Reduction Act

This rulemaking provides an alternative method of collection for a

required collection of information under Part 1 of the Commission's

rules, but is not anticipated to change the burden under such

collection as the actual financial reporting requirements have not

changed significantly. As required by the Paperwork Reduction Act of

1995 (44 U.S.C. 3507(d)), the Commission submitted a copy of this

section to the Office of Management and Budget (``OMB'') for its

review. No comments were received in response to the Commission's

invitation in its notice of proposed rulemaking to comment on any

change in the potential paperwork burden associated with these rule

amendments.\15\

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\15\ Id.

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D. Cost-Benefit Analysis

Section 15(a) of the Act, as amended by Section 119 of the

Commodity Futures Modernization Act, 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) as amended 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.

Section 15(a) further specifies that costs and benefits shall be

evaluated in light of five broad areas of market and public concern:

Protection of market participants and the public; efficiency,

competitiveness, and financial integrity of futures markets; price

discovery; sound risk management practices; and 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 Commission's proposal contained an analysis of its

consideration of these costs and benefits and solicited public comment

thereon.\16\ No comments were received with respect to this analysis.

Therefore, pursuant to such consideration, the Commission has decided

to adopt these amendments as discussed above.

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\16\ 74 FR at 52439.

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[[Page 69008]]

List of Subjects in 17 CFR Part 1

Brokers, Commodity futures, Reporting and recordkeeping

requirements.

0

In consideration of the foregoing and pursuant to the authority

contained in the Commodity Exchange Act and, in particular, Sections

4f, 4g and 8a(5) thereof, 7 U.S.C. 6f, 6g and 12a(5), the Commission

hereby amends 17 CFR part 1 as follows:

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

0

1. The authority citation for part 1 continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h,

6i, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a, 12c, 13a,

13a-1, 16, 16a, 19, 21, 23 and 24, as amended by the Commodity

Futures Modernization Act of 2000, appendix E of Pub. L. 106-554,

114 Stat. 2763 (2000).

0

2. Section 1.10 is amended by removing paragraph (b)(2)(iii) and

revising paragraphs (b)(2)(i), (b)(2)(ii)(A), (b)(3), (c)(1) and

(c)(2), (d)(1)(ii), (d)(4)(iii), and (h) as follows:

Sec. 1.10 Minimum financial requirements for futures commission

merchants and introducing brokers.

* * * * *

(b) * * *

(2)(i) Except as provided in paragraphs (b)(3) and (h) of this

section, and except for an introducing broker operating pursuant to a

guarantee agreement which is not also a securities broker or dealer,

each person registered as an introducing broker must file a Form 1-FR-

IB semiannually as of the middle and the close of each fiscal year.

Each Form 1-FR-IB must be filed no later than 17 business days after

the date for which the report is made.

(ii)(A) In addition to the financial reports required by paragraph

(b)(2)(i) of this section, each person registered as an introducing

broker must file a Form 1-FR-IB as of the close of its fiscal year

which must be certified by an independent public accountant in

accordance with Sec. 1.16 no later than 90 days after the close of

each introducing broker's fiscal year: Provided, however, that a

registrant which is registered with the Securities and Exchange

Commission as a securities broker or dealer must file this report not

later than the time permitted for filing an annual audit report under

Sec. 240.17a-5(d)(5) of this title.

* * * * *

(3) The provisions of paragraphs (b)(1) and (b)(2) of this section

may be met by any person registered as a futures commission merchant or

as an introducing broker who is a member of a designated self-

regulatory organization and conforms to minimum financial standards and

related reporting requirements set by such designated self-regulatory

organization in its bylaws, rules, regulations, or resolutions and

approved by the Commission pursuant to Section 4f(b) of the Act and

Sec. 1.52: Provided, however, That each such registrant shall promptly

file with the Commission a true and exact copy of each financial report

which it files with such designated self-regulatory organization.

* * * * *

(c) Where to file reports. (1) Form 1-FR filed by an introducing

broker pursuant to paragraph (b)(2) of this section need be filed only

with, and will be considered filed when received by, the National

Futures Association. Other reports or information provided for in this

section will be considered filed when received by the regional office

of the Commission with jurisdiction over the state in which the

registrant's principal place of business is located and by the

designated self-regulatory organization, if any; and reports or other

information required to be filed by this section by an applicant for

registration will be considered filed when received by the National

Futures Association. Any report or information filed with the National

Futures Association pursuant to this paragraph shall be deemed for all

purposes to be filed with, and to be the official record of, the

Commission.

(2)(i) Except as provided in the last sentence of this

subparagraph, all filings or other notices prepared by a futures

commission merchant pursuant to this section may be submitted to the

Commission in electronic form using a form of user authentication

assigned in accordance with procedures established by or approved by

the Commission, and otherwise in accordance with instructions issued by

or approved by the Commission, if the futures commission merchant or a

designated self-regulatory organization has provided the Commission

with the means necessary to read and to process the information

contained in such report. A Form 1-FR required to be certified by an

independent public accountant in accordance with Sec. 1.16 which is

filed by a futures commission merchant must be filed in paper form and

may not be filed electronically.

(ii) Except as provided in paragraph (h) of this section, all

filings or other notices or applications prepared by an introducing

broker or applicant for registration as an introducing broker or

futures commission merchant pursuant to this section must be filed

electronically in accordance with electronic filing procedures

established by the National Futures Association. In the case of a Form

1-FR-IB that is required to be certified by an independent public

accountant in accordance with Sec. 1.16, a paper copy of any such

filing with the original manually signed certification must be

maintained by the introducing broker or applicant for registration as

an introducing broker in accordance with Sec. 1.31.

* * * * *

(d)(1) * * *

(ii) Statements of income (loss) and a statement of changes in

ownership equity for the period between the date of the most recent

statement of financial condition filed with the Commission and the date

for which the report is made;

* * * * *

(4) * * *

(iii) In the case of a Form 1-FR filed via electronic transmission

in accordance with procedures established by or approved by the

Commission, such transmission must be accompanied by the user

authentication assigned to the authorized signer under such procedures,

and the use of such user authentication will constitute and become a

substitute for the manual signature of the authorized signer for the

purpose of making the oath or affirmation referred to in this

paragraph.

* * * * *

(h) Filing option available to a futures commission merchant or an

introducing broker that is also a securities broker or dealer. Any

applicant or registrant which is registered with the Securities and

Exchange Commission as a securities broker or dealer may comply with

the requirements of this section by filing (in accordance with

paragraphs (a), (b), (c), and (j) of this section) a copy of its

Financial and Operational Combined Uniform Single Report under the

Securities Exchange Act of 1934, Part II, Part IIA, or Part II CSE

(FOCUS Report), in lieu of Form 1-FR; Provided, however, That all

information which is required to be furnished on and submitted with

Form 1-FR is provided with such FOCUS Report; and Provided, further,

That a certified FOCUS Report filed by an introducing broker or

applicant for registration as an introducing broker in lieu of a

certified Form 1-FR-IB must be filed according to National Futures

Association rules, either in paper form or electronically, in

accordance with procedures established

[[Page 69009]]

by the National Futures Association, and if filed electronically, a

paper copy of such filing with the original manually signed

certification must be maintained by such introducing broker or

applicant in accordance with Sec. 1.31.

* * * * *

0

3. Section 1.12 is amended by:

0

a. Revising paragraphs (a)(2) and (i)(1);

0

b. Removing paragraph (a)(3); and

0

c. Adding paragraph (i)(3) as follows:

Sec. 1.12 Maintenance of minimum financial requirements by futures

commission merchants and introducing brokers.

(a) * * *

(2) Provide together with such notice documentation in such form as

necessary to adequately reflect the applicant's or registrant's capital

condition as of any date such person's adjusted net capital is less

than the minimum required. The applicant or registrant must provide

similar documentation for other days as the Commission may request.

* * * * *

(i)(1) Every notice and written report required to be given or

filed by this section (except for notices required by paragraph (f) of

this section) by a futures commission merchant or a self-regulatory

organization must be filed with the regional office of the Commission

with jurisdiction over the state in which the registrant's principal

place of business is located, with the principal office of the

Commission in Washington, DC, with the designated self-regulatory

organization, if any; and with the Securities and Exchange Commission,

if such registrant is a securities broker or dealer. Every notice and

written report required to be given or filed by this section by an

applicant for registration as a futures commission merchant must be

filed with the National Futures Association (on behalf of the

Commission), with the designated self-regulatory organization, if any,

and with the Securities and Exchange Commission, if such applicant is a

securities broker or dealer. Any notice or report filed with the

National Futures Association pursuant to this paragraph shall be deemed

for all purposes to be filed with, and to be the official record of,

the Commission.

* * * * *

(3) Every notice or report required to be provided in writing to

the Commission under this section may, in lieu of facsimile, be filed

via electronic transmission using a form of user authentication

assigned in accordance with procedures established by or approved by

the Commission, and otherwise in accordance with instructions issued by

or approved by the Commission. Any such electronic submission must

clearly indicate the registrant or applicant on whose behalf such

filing is made and the use of such user authentication in submitting

such filing will constitute and become a substitute for the manual

signature of the authorized signer.

Issued in Washington, DC, on December 24, 2009, by the

Commission.

David A. Stawick,

Secretary of the Commission.

[FR Doc. E9-31032 Filed 12-29-09; 8:45 am]

Last Updated: December 30, 2009