2012-14654

Federal Register, Volume 77 Issue 116 (Friday, June 15, 2012)[Federal Register Volume 77, Number 116 (Friday, June 15, 2012)]

[Proposed Rules]

[Pages 35892-35897]

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

[FR Doc No: 2012-14654]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 3 and 23

RIN 3038-AD66

Dual and Multiple Associations of Persons Associated With Swap

Dealers, Major Swap Participants and Other Commission Registrants

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)

is proposing regulations that would make clear that each swap dealer

(SD), major swap participant (MSP), and other Commission registrant

with whom an associated person (AP) is associated is required to

supervise the AP and is jointly and severally responsible for the

activities of the AP with respect to customers common to it and any

other SD, MSP or other Commission registrant (Proposal).

DATES: Comments must be received on or before August 14, 2012.

ADDRESSES: You may submit comments, identified by RIN 3038-AD66 and

``Dual and Multiple Associations of Persons Associated with Swap

Dealers, Major Swap Participants and other Commission Registrants,'' by

any of the following methods:

Agency Web Site, via its Comments Online process: http://comments.cftc.gov. Follow the instructions on the Web site for

submitting comments.

Mail: Send to David A. Stawick, Secretary, Commodity

Futures Trading Commission, 1155 21st Street NW., Washington, DC 20581.

Hand delivery/Courier: Same as Mail above.

Federal eRulemaking Portal: http://www.regulations.gov/search/index.jsp. Follow the instructions for submitting comments.

Please submit your comments using only one method. All comments

must be submitted in English, or if not, accompanied by an English

translation. Comments will be posted as received to www.cftc.gov and

the information you submit will be publicly available. If, however, you

submit information that ordinarily is exempt from disclosure under the

Freedom of Information Act, you may submit a petition for confidential

treatment of the exempt information according to the procedures set

forth in Commission Regulation 145.9.\1\ The Commission reserves the

right, but shall have no obligation, to review, pre-screen, filter,

redact, refuse or remove any or all of your submission from

www.cftc.gov that it may deem to be inappropriate for publication, such

as obscene language. All submissions that have been redacted or removed

that contain comments on the merits of the rulemaking will be retained

in the public comment file and will be considered as required under the

Administrative Procedure Act \2\ and other applicable laws, and may be

accessible under the Freedom of Information Act.

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\1\ Commission regulations referred to herein are found at 17

CFR Ch. 1 (2011). They are accessible on the Commission's Web site,

http://www.cftc.gov.

\2\ 5 U.S.C. 500 et seq.

FOR FURTHER INFORMATION CONTACT: Israel J. Goodman, Attorney-Advisor,

or Barbara S. Gold, Associate Director, Division of Swap Dealer and

Intermediary Oversight, 1155 21st Street NW., Washington, DC 20581.

Telephone number: 202-418-6700 and electronic mail: [email protected]

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or [email protected]

SUPPLEMENTARY INFORMATION:

[[Page 35893]]

I. Introduction

A. Background

On July 21, 2010, President Obama signed the Dodd-Frank Act.\3\

Section 731 of the Dodd-Frank Act amended the Commodity Exchange Act

(CEA) \4\ by adding Section 4s, which, among other things, prohibits

any person from acting as a ``swap dealer'' or ``major swap

participant'' unless the person is registered with the Commission.\5\

To effectuate the Congressional directive that an SD or MSP apply for

registration in such form and manner as prescribed by the

Commission,\6\ on November 23, 2010, the Commission proposed

regulations to establish a registration process for SDs and MSPs

(Proposed Registration Regulations),\7\ and on January 19, 2012, the

Commission adopted regulations that establish a registration process

for SDs and MSPs (Final Registration Regulations).\8\

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\3\ 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 also may be accessed on the Commission's Web site,

http://www.cftc.gov.

\4\ 7 U.S.C. 1 et seq.

\5\ CEA Sections 4s(a).

\6\ CEA Section 4s(b).

\7\ 75 FR 71379.

\8\ 77 FR 2613. Additionally, through a separate Notice and

Order, the Commission delegated to the National Futures Association

(NFA) the authority to perform the full range of registration

functions with respect to SDs and MSPs. 77 FR 2708 (Jan. 19, 2012).

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However, Section 731 did not direct the Commission to adopt

regulations that provide for the registration of APs of SDs and

MSPs.\9\ Thus, unlike APs of other Commission registrants, who are

generally required to register with the Commission,\10\ APs of SDs and

MSPs are not required to register as such.\11\ Although APs of SDs and

MSPs are not subject to registration with the Commission, an SD or MSP

is prohibited from permitting any person associated with it to effect

or be involved in effecting swaps on its behalf if such person is

subject to a statutory disqualification.\12\

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\9\ See 77 FR at 2613 (noting that CEA Section 4s does not

direct the Commission to adopt regulations that provide for the

registration of APs of SDs or MSPs).

\10\ See, e.g., CEA Section 4k and Commission Regulation

3.12(a).

\11\ As is the case for other categories of Commission

registrants, the term ``associated person,'' when used with respect

to an SD or MSP, means a natural person (as opposed to an entity,

such as a partnership or corporation). See 77 FR 2614-15, whereby

the Commission adopted in new Regulation 1.3(aa)(6) a definition of

the term ``associated person'' of an SD or MSP to mean a 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:

(i) The solicitation or acceptance of swaps (other than in a

clerical or ministerial capacity); or

(ii) The supervision of any person or persons so engaged.

\12\ See CEA Section 4s(b)(6) and Regulation 23.22(b).

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The Commission adopted the Final Registration Regulations after

considering the comments it received from the public on the Proposed

Registration Regulations. One commenter recommended that the Commission

expand the scope of the provisions on dual and multiple associations

currently found in Regulation 3.12(f), or adopt a new regulation, ``to

address the situations in which an individual conducts swaps-related

activity on behalf of more than one Swap Entity [SD and/or MSP] or

conducts swaps activity on behalf of a Swap Entity and is also

registered as an AP of a different firm.'' \13\ When adopting the Final

Registration Regulations, the Commission stated that ``[w]hile the

Commission agrees with the commenter's recommendation, it anticipates

promptly addressing this issue in a future rulemaking.'' \14\ The

Proposal addresses this issue.

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\13\ Comment letter from the National Futures Association at

page 10 (Jan. 24, 2011).

\14\ 77 FR at 2616.

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B. Regulation 3.12(f)

Regulation 3.12 concerns the registration of those persons who must

register as an AP of a Commission registrant. Regulation 3.12(c)

provides that application is made through the filing of a Form 8-R,

accompanied by a specified certification from the registrant who will

be employing the AP--i.e., the AP's ``sponsor.'' The term ``sponsor''

is defined in Regulation 3.1(c) to mean ``the futures commission

merchant, retail foreign exchange dealer, introducing broker, commodity

trading advisor, commodity pool operator or leverage transaction

merchant which makes the certification required by Sec. 3.12 of [Part

3] for the registration of an associated person of such sponsor.''

Regulation 3.12(f)(1)(i) permits dual and multiple associations of

a person registered as an AP.\15\ Regulation 3.12(f)(1)(iii) provides

that each sponsor of the AP is required to supervise the AP, and that

each sponsor is jointly and severally responsible for the AP's

activities with respect to any customers common to it and any other

sponsor with which the AP is associated. The Commission adopted this

joint and several responsibility provision in 1992 in connection with

amendments to Regulation 3.12(f) that eliminated then-existing

restrictions on dual and multiple associations in many

circumstances.\16\ The provision was intended to address concerns that

permitting dual and multiple associations would lead to situations

where each sponsor might disclaim responsibility for the AP's

activities--that is, that each sponsor would claim that the dually

associated AP was not acting on its behalf but, rather, for the other

sponsor, and therefore the other sponsor should be held responsible for

the conduct in question.\17\

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\15\ Section 3.12(f)(1)(i) provides that a person who is already

registered as an AP in any capacity may become associated with

another sponsor if the new sponsor files with the NFA a Form 8-R, as

discussed below.

\16\ 57 FR 23136 (June 2, 1992) (the 1992 Amendments). The

Commission first adopted a prohibition on dual and multiple

associations in 1980, with respect to APs of futures commission

merchants (FCMs), explaining that it was necessary ``[i]n view of

the obvious difficulties of supervision in such a situation and in

view of the inherent possibilities for conflicts of interest that

might arise if an AP were to have more than one sponsor.'' 45 FR

80485, 80489 (Dec. 5, 1980) (footnote omitted).

The Commission subsequently amended and broadened the scope of

Regulation 3.12(f) such that, prior to the 1992 Amendments,

Regulation 3.12(f) prohibited a person from associating as an AP

with: (1) More than one FCM or more than one introducing broker

(IB); (2) an FCM and an IB or a leverage transaction merchant (LTM);

and (3) an IB and an LTM. Subject to certain exceptions, the

regulations also prohibited a person from associating as an AP with:

(1) An FCM and a commodity trading advisor (CTA); (2) an FCM and a

commodity pool operator (CPO); (3) an IB and a CTA; and (4) an IB

and a CPO. See 56 FR 37026, 37033 (Aug. 2, 1991). In proposing to

eliminate most of these restrictions, the Commission explained that,

in its experience, these regulations had been ``difficult to

understand and follow, even for experienced practitioners'' and

that, in certain cases, they could have perverse effects, such as

limiting the choice of which FCM a customer could use to carry his

managed account. Id. Moreover, the Commission explained, the

concerns raised by dual and multiple associations could be better

addressed through an alternative approach, as further discussed

below. Id.

\17\ See 56 FR at 37033; see, e.g., In Re Global Telecom, et

al., [2005-2007 Transfer Binder] Comm. Fut. L. Rep. (CCH) ] 30,143

(CFTC Oct. 4, 2005) (holding an FCM liable for the activities of its

APs who were also APs of a CTA, and noting that holding otherwise

would ``bring about the very situation the rule is aimed at

preventing--one in which a futures customer who contracts with two

entities to receive two products or services is left with nobody

minding the store'').

In connection with the 1992 Amendments, the Commission also

amended Regulation 3.12(f) to require that the new sponsor file with

the NFA a Form 3-R signed by the AP's existing sponsor and that

included, among other things, an acknowledgement by each sponsor

that, in addition to each sponsor's responsibility to supervise the

AP, each sponsor was jointly and severally responsible for the

conduct of the AP with respect to customers common to it and any

other sponsor. 57 FR at 23146. By signing the Form 3-R, each sponsor

would make clear that it was aware of the new association and that

it was jointly and severally responsible for the AP's conduct. Id.

at 23141. As further discussed in Part II.B of this Federal Register

release, the Commission subsequently amended Regulation 3.12(f) to

eliminate the requirement for each sponsor to sign a Form 3-R and to

specifically acknowledge joint and several responsibility therein.

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[[Page 35894]]

However, and, as explained above, the Dodd-Frank Act does not

direct the Commission to provide for--and, thus, the Commission has not

adopted regulations requiring--the registration of APs of SDs and MSPs.

As a result, the provisions of current Regulation 3.12(f)(1), which

apply to a sponsoring registrant with respect to its APs who are

required to register as such, do not apply to SDs and MSPs and their

APs.

II. The Proposed Regulations

A. Proposed Regulations 3.12(f)(5) and 23.22(c)

The Proposal would provide for dual and multiple associations of

persons associated with SDs, MSPs and other Commission registrants

(i.e., FCMs, retail foreign exchange dealers (RFEDs), IBs, CTAs, CPOs,

and LTMs). Specifically, proposed Regulation 3.12(f)(5)(i)(A) would

apply where a person associated as a registered AP of one or more

(other) Commission registrants seeks to become associated as an AP of

one or more SDs or MSPs; proposed Regulation 3.12(f)(5)(i)(B) would

apply where a person associated as an AP of one or more SDs or MSPs

seeks to become associated as a registered AP of one or more other

Commission registrants; and proposed Regulation 23.22(c) would apply

where a person associated as an AP of an SD or MSP seeks to become

associated as an AP of one or more other SDs or MSPs.\18\ The Proposal

would make clear that each SD, MSP and other Commission registrant with

whom the AP is associated is required to supervise the AP and is

jointly and severally responsible for the activities of the AP with

respect to customers common to it and any other SD, MSP or other

Commission registrant. These proposed regulations are based on the form

and text of current Regulation 3.12(f)(1).\19\

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\18\ Two separate regulations addressing dual and multiple

associations of APs of SDs and MSPs are necessary because, as noted

above, the term ``sponsor'' and the provisions of current Regulation

3.12(f) do not, by their terms, apply to SDs and MSPs with respect

to their APs (who are not subject to a registration requirement).

\19\ Thus, for example, proposed Regulation 3.12(f)(5)(i)(B)

provides that where an AP of an SD or MSP seeks to register an as AP

of another Commission registrant, the new sponsor must meet the

requirements of Regulation 3.60(b)(2)(i)(A) and (B), as is required

of a new sponsor under current Regulation 3.12(f)(1). However,

proposed Regulation 3.12(f)(5)(i)(A) provides that an SD or MSP

seeking to associate with an already registered AP must meet the

requirements of Regulation 3.60(b)(2)(i)(A), but not also the

requirements of Regulation 3.60(b)(2)(i)(B). This is because the

requirements of the former regulation concern specified adjudicatory

proceedings which would be applicable to SDs and MSPs while the

requirements of the latter regulation concern financial requirements

which are not applicable to SDs and MSPs.

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B. Request for Comments

The Commission requests comments on all aspects of the Proposal. In

particular, the Commission is requesting comment on whether it should

adopt a provision (in both Regulation 3.12(f)(5) and Regulation

23.22(c)) that would provide a mechanism to notify SDs, MSPs and

existing sponsors of registered APs when one of their APs seeks to

become associated with another SD or MSP (or, in the case of an AP of

an SD or MSP, seeks to register as an AP of another Commission

registrant). These provisions would serve the purpose of putting any

other SD, MSP or other registrant associated with the AP on notice that

it is (or will become) subject to the supervisory and joint and several

responsibility requirements of Regulation 3.12(f) that would be

applicable to it as a result of the regulations proposed herein. Under

current Regulation 3.12(f)(1), which does not address dual and multiple

associations with SDs and MSPs, a person registered as an AP may become

an AP of another sponsor if the new sponsor files a Form 8-R with NFA,

and NFA, in turn, is required to notify any existing sponsor of the AP

that the person has applied to become associated with another sponsor.

Thus, the current regulations provide a mechanism through which

sponsors are put on notice that their registered APs will subject them

to additional supervisory and joint and several responsibility

requirements under Regulation 3.12(f).\20\ Employment as an AP of an SD

or MSP, however, does not require registration with the Commission and,

thus, the filing of a Form 8-R with NFA. Therefore, NFA would not

otherwise be aware of a particular person's current or planned

association with an SD or MSP and would not be in a position to notify

other SDs, MSPs or existing sponsors. To the extent commenters believe

it is necessary to adopt regulations aimed at providing such notice,

the Commission also is seeking comment specifically on how to do so.

One potential mechanism would be to require any SD, MSP or other

Commission registrant seeking to associate with an AP who is also

associated with another SD or MSP to notify the other SD or MSP that

the AP is or intends to become associated with the SD, MSP or other

Commission registrant.

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\20\ See 67 FR 38869 (June 6, 2002). The Commission adopted

Regulation 3.12(f)(1)(ii) in 2002, in connection with other

amendments to Regulation 3.12 to accommodate NFA's implementation of

an online registration system. Prior to that time, a potential

sponsor of an already registered AP was required to file a Form 3-R

that included a certification signed by it and any existing sponsor

acknowledging their supervisory obligations and their joint and

several responsibility with respect to the AP's activities. In

eliminating these requirements, the Commission explained that

continuing to require a signature from each sponsor would result in

unnecessary costs and delays under the new electronic filing system,

and that the acknowledgment was not needed because Commission

regulations make clear that each sponsor is required to supervise

the AP and is jointly and severally responsible for his or her

conduct. Instead, as adopted, Regulation 3.12(f)(1)(ii) requires NFA

to notify existing sponsors of the AP of the application. Id. at

38870-71.

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III. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) \21\ requires Federal

agencies, in promulgating regulations, to consider the impact of those

regulations on small entities. The Commission has previously

established certain definitions of ``small entities'' to be used by the

Commission in evaluating the impact of its rules on small entities in

accordance with the RFA.\22\ The Commission previously has determined

that FCMs, registered CPOs,\23\ LTMs and RFEDs are not small entities

for purposes of the RFA, and, thus, the requirements of the RFA do not

apply to those entities.\24\ In addition, in connection with its

adoption of the Final Registration Regulations, the Commission

determined that SDs and MSPs are not small entities for purposes of the

RFA.\25\ Therefore, the requirements of the RFA do not apply to SDs and

MSPs. With respect to CTAs and IBs, the Commission previously has

stated that it would evaluate within the context of a particular rule

proposal whether all or some of the affected CTAs and IBs would be

considered to be small entities and, if so, the economic impact on them

of the particular regulation.\26\ The Commission notes that the

Proposal would only impact,

[[Page 35895]]

potentially, registered CTAs and registered IBs,\27\ and the number of

such impacted entities, if any, should likely be very small.\28\

Accordingly, the Chairman, on behalf of the Commission, hereby

certifies pursuant to 5 U.S.C. 605(b) that the Proposal will not have a

significant economic impact on a substantial number of small entities.

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\21\ 5 U.S.C. 601 et seq.

\22\ 47 FR 18618 (Apr. 30, 1982).

\23\ To the extent the Proposal (specifically, proposed

Regulation 3.12(f)(5)) would have an impact on CPOs, it would only

impact registered CPOs, since Regulation 3.12(f), by its terms,

would not apply where an AP's new or existing association is with a

person who is not registered with the Commission.

\24\ See 47 FR at 18619-20 (discussing FCMs and CPOs); 54 FR

19556, 19557 (May 8, 1989) (discussing LTMs); 75 FR 55410, 55416

(Sept. 19, 2010) (discussing RFEDs).

\25\ See 77 FR at 2620 (adopting the Final Registration

Regulations).

\26\ See 47 FR at 18619 (discussing CTAs); 48 FR 35248, 35276-77

(Aug. 3, 1983) (discussing IBs).

\27\ This is because, as noted above, Regulation 3.12(f) would

not apply where an AP's new or existing association is with a person

(e.g., a CTA or an IB) who is not registered with the Commission.

\28\ See Amendments to Commodity Pool Operator and Commodity

Trading Advisor Regulations Resulting from the Dodd-Frank Act, 76 FR

11701, 11703 (Mar. 3, 2011) (noting with regard to RFA

considerations that the regulations proposed therein would only

impact registered CTAs). As of February 7, 2011, less than three

percent of all registered APs (or less than 1500 APs) were

associated on a dual or multiple basis with Commission registrants.

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B. Paperwork Reduction Act

The Paperwork Reduction Act (PRA) \29\ 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 Proposal would expressly obligate each SD, MSP and other

Commission registrant to supervise their APs who have dual and multiple

associations and make each SD, MSP and other Commission registrant

jointly and severally responsible for the activities of such APs with

respect to customers common to it and any other SD, MSP or other

Commission registrant. The Proposal contains no provision that would

impose a ``burden'' or ``collection of information'' as those terms are

defined in the PRA.\30\

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\29\ 44 U.S.C. 3501 et seq.

\30\ See 44 U.S.C. 3502(2) and (3).

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C. Cost-Benefit Considerations

In response to the Proposed Registration Regulations, a commenter

requested that the Commission address ``situations in which an

individual conducts swaps-related activity on behalf of more than one

Swap Entity [SD and/or MSP] or conducts swaps activity on behalf of a

Swap Entity and is also registered as an AP of a different firm.'' The

Proposal addresses that issue, and in the following paragraphs, the

Commission is considering the costs and benefits of the proposal in

accordance with CEA section 15(a).\31\

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\31\ 7 U.S.C. 19(a).

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As described in the text above, the Commission is proposing to

specify the responsibilities applicable with respect to dual and

multiple associations of APs of SDs and MSPs, and particularly, that

such associations are permitted, but that they implicate the joint and

several supervisory and responsibility provisions applicable with

respect to such associations under existing Regulation 3.12(f).

As noted above, existing regulations addressing dual and multiple

associations of APs do not address APs of SDs and MSPs and the

obligations of those persons with whom they are associated concerning

common customers. Thus, the primary benefits of the Proposal include

the same benefits noted by the Commission when it adopted the

supervisory and joint and several responsibility provisions under

current Regulation 3.12(f), namely, the prevention of circumstances

where an SD, MSP or other Commission registrant seeks to avoid

responsibility for the activities of an AP who has dual or multiple

associations by asserting the conduct in question was not within the

purview of its supervisory responsibilities with respect to the AP.

Therefore, the Commission believes the Proposal will provide protection

to market participants and the public by ensuring that such APs will be

adequately supervised, and those charged with supervising them will be

held responsible for failing to do so. The Commission does not believe

that compliance with the Proposal will impose any significant, new cost

on SDs or MSPs but, as discussed below, the Commission seeks comment on

the same, including the potential insurance and litigation costs

associated with joint and several responsibility for APs of SDs and

MSPs with dual and multiple associations.

Consideration of Costs and Benefits Relative to the Alternative of Not

Taking Any Action

Under current Commission regulations, SDs and MSPs are not subject

to the joint supervisory and responsibility requirements applicable to

other Commission registrants with respect to the activities of their

APs who have dual or multiple associations.\32\ This current situation

provides a reference point from which to compare the costs and benefits

of the proposed regulations to the alternative of not taking any

action--that is, where SDs and MSPs, though required to register, would

not be subject to the supervisory or joint and several responsibility

provisions under (proposed) Regulation 3.12(f) or Regulation 23.22(c),

as applicable, for the activities of their APs that are also APs of

other SDs, MSPs, or other Commission registrants.\33\ Under such a

scenario, the costs to the public of inaction would, in qualitative

terms, be that: (1) APs of SDs and MSPs that have dual or multiple

associations would not be subject to the same regulatory regime as APs

of other Commission registrants that have dual or multiple

associations; and (2) SDs and MSPs (or other Commission registrants)

employing an AP with dual or multiple associations would not be

prevented from attempting to disclaim responsibility for the activities

of the AP by asserting that the AP was not acting on its behalf, but

rather on behalf of another SD or MSP with whom the AP was associated

(with respect to their common customers). In contrast, the amendment to

Regulation 3.12(f) and the adoption of Regulation 23.22(c) would yield

a substantial if unquantifiable benefit to the public relative to

inaction by preventing SDs, MSPs and other Commission registrants from

seeking to avoid supervision of and responsibility for the activities

of their APs who have dual or multiple associations with respect to the

common customers of the SDs, MSPs and other Commission registrants.

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\32\ As noted above, these requirements, which are set forth in

existing Regulation 3.12(f)(1)(iii), apply to the activities of such

APs with respect to the common customers of the APs' employing

registrants.

\33\ Similarly, and as noted above, these proposed requirements

would apply to the activities of such APs with respect to the common

customers of the APs' employing SDs, MSPs and/or other Commission

registrants.

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Section 15(a) Factors

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

evaluated in light of the following five broad areas of market and

public concern: (1) Protection of market participants and the public;

(2) efficiency, competitiveness, and financial integrity of the futures

markets; (3) price discovery; (4) sound risk management practices; and

(5) other public interest considerations.

(1) The protection of market participants and the public.

As discussed above, the Commission believes the Proposal will

provide protection to market participants and the public by expressly

obligating each SD, MSP or other Commission registrant to supervise its

APs who have dual or multiple associations and by subjecting each SD,

MSP and other Commission registrant to joint and several responsibility

for the activities of such APs with respect to customers common to it

and any other SD, MSP or other Commission registrants. More

specifically, the Proposal will prevent SDs, MSPs and other Commission

registrants from disclaiming responsibility for the activities of their

[[Page 35896]]

APs who have dual and multiple associations.

(2) The efficiency, competitiveness, and financial integrity of the

futures markets.

The Commission does not expect the Proposal to have an impact on

the efficiency, competitiveness and financial integrity of the futures

market.

(3) The market's price discovery functions.

The Commission does not expect the Proposal to have an impact on

the market's price discovery functions.

(4) Sound risk management practices.

The Commission does not expect the Proposal to have an impact on

risk management practices by SDs, MSPs and other Commission

registrants.

(5) Other public interest considerations.

The Commission has not identified any other public interest

considerations in light of which it should consider the costs and

benefits of the Proposal. The Commission specifically requests comment

on its cost and benefit considerations of the Proposal, as discussed

above.

The Commission requests comment on all aspects of its proposed

consideration of costs and benefits, including identification and

assessment of any costs and benefits not discussed above, such as costs

associated with determining if a potential AP is already associated

with another SD, MSP or other Commission registrant. In addition, the

Commission requests that commenters provide data and any other

information or statistics that the commenters relied on to reach any

conclusions on the Commission's proposed considerations of costs and

benefits.

List of Subjects

17 CFR Part 3

Associated persons, Brokers, Commodity futures, Customer

protection, Major swap participants, Registration, Swap dealers.

17 CFR Part 23

Associated persons, Commodity futures, Customer protection, Major

swap participants, Registration, Reporting and recordkeeping

requirements, Swap dealers.

For the reasons presented above, the Commission proposes to amend

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

PART 3--REGISTRATION

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, 6s, 8, 9, 9a, 12, 12a,

13b, 13c, 16a, 18, 19, 21, and 23, as amended by Title VII of the

Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L.

111-203, 124 Stat. 1376 (July 21, 2010).

2. Section 3.12 is amended by adding new paragraph (f)(5) to read

as follows:

Sec. 3.12 Registration of associated persons of futures commission

merchants, retail foreign exchange dealers, introducing brokers,

commodity trading advisors, commodity pool operators and leverage

transaction merchants.

* * * * *

(f) * * *

(5)(i)(A) A person who is already registered as an associated

person in any capacity whose registration is not subject to conditions

or restrictions may become associated as an associated person of a swap

dealer or major swap participant if the swap dealer or major swap

participant meets the requirements set forth in Sec. 3.60(b)(2)(i)(A)

of this part.

(B) A person who is already associated as an associated person of a

swap dealer or major swap participant may become registered as an

associated person of a futures commission merchant, retail foreign

exchange dealer, introducing broker, commodity trading advisor,

commodity pool operator, or leverage transaction merchant if the

futures commission merchant, retail foreign exchange dealer,

introducing broker, commodity trading advisor, commodity pool operator,

or leverage transaction merchant with which the person intends to

associate meets the requirements set forth in Sec. 3.60(b)(2)(i)(A)

and (B) of this part.

(ii) Each sponsor and each swap dealer and/or major swap

participant with whom the person is associated shall supervise that

associated person, and each sponsor and each swap dealer and/or major

swap participant is jointly and severally responsible for the conduct

of the associated person with respect to the:

(A) Solicitation or acceptance of customer orders,

(B) Solicitation of funds, securities or property for a

participation in a commodity pool,

(C) Solicitation of a client's or prospective client's

discretionary account,

(D) Solicitation or acceptance of leverage customers' orders for

leverage transactions,

(E) Solicitation or acceptance of swaps, and

(F) Associated person's supervision of any person or persons

engaged in any of the foregoing solicitations or acceptances, with

respect to any customers common to it and any futures commission

merchant, retail foreign exchange dealer, introducing broker, commodity

trading advisor, commodity pool operator, leverage transaction

merchant, swap dealer, or major swap participant with which the

associated person is associated.

* * * * *

PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS

3. The authority citation for Part 23 continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c, 6p, 6s, 9, 9a, 13b,

13c, 16a, 18, 19, 21 as amended by Title VII of the Dodd-Frank Wall

Street Reform and Consumer Protection Act, Pub. L. 111-203, 124

Stat. 1376 (July 21, 2010).

4. Section 23.22 is amended by adding paragraph (c) to read as

follows:

Sec. 23.22 Associated persons of swap dealers and major swap

participants.

* * * * *

(c) Dual and multiple associations. (1) A person who is already

associated as an associated person of a swap dealer or major swap

participant may become associated as an associated person of another

swap dealer or major swap participant if the other swap dealer or major

swap participant meets the requirements set forth in Sec.

3.60(b)(2)(i)(A) of this chapter.

(2) Each swap dealer and major swap participant associated with

such associated person shall supervise that associated person, and each

swap dealer and major swap participant is jointly and severally

responsible for the conduct of the associated person with respect to

the:

(i) Solicitation or acceptance of customer orders,

(ii) Solicitation of funds, securities or property for a

participation in a commodity pool,

(iii) Solicitation of a client's or prospective client's

discretionary account,

(iv) Solicitation or acceptance of leverage customers' orders for

leverage transactions,

(v) Solicitation or acceptance of swaps, and

(vi) Associated person's supervision of any person or persons

engaged in any of the foregoing solicitations or acceptances, with

respect to any customers common to it and any other swap dealer or

major swap participant.

[[Page 35897]]

Issued in Washington, DC, on June 11, 2012, by the Commission.

David A. Stawick,

Secretary of the Commission.

[FR Doc. 2012-14654 Filed 6-14-12; 8:45 am]

BILLING CODE 6351-01-P

Last Updated: June 15, 2012