2018-00467

Federal Register, Volume 83 Issue 9 (Friday, January 12, 2018)

[Federal Register Volume 83, Number 9 (Friday, January 12, 2018)]

[Rules and Regulations]

[Pages 1538-1548]

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

[FR Doc No: 2018-00467]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 3 and 9

RIN 3038-AE15

Technical Amendments to Rules on Registration and Review of

Exchange Disciplinary, Access Denial, or Other Adverse Actions

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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

``Commission'') is adopting certain amendments to its rules that,

respectively, govern registration of intermediaries and relate to the

Commission's review of exchange disciplinary, access denial, or other

adverse actions. Generally speaking, these amendments are technical in

nature. The amendments to both areas of the rules integrate existing

advisory guidance. The amendments to the rules on review of exchange

disciplinary, access denial, or other adverse actions also incorporate

swap execution facilities (``SEFs'') and update provisions currently

applicable to designated contract markets (``DCMs''). These final rules

also remove numerous outdated cross-references, and add citations to

applicable parallel provisions contained in other Commission

regulations pertaining to SEFs and DCMs. Additionally, the final rules

address the publication of final disciplinary and access denial actions

taken by the SEFs and DCMs on their exchange websites.

DATES: This final rule is effective March 13, 2018.

FOR FURTHER INFORMATION CONTACT: Rachel Berdansky, Deputy Director,

202-418-5429 or [email protected]; David Steinberg, Associate

Director, 202-418-5102 or [email protected]; Division of Market

Oversight, Commodity Futures Trading Commission, Three Lafayette

Centre, 1151 21st Street NW, Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

A. Description of Part 9

B. DCM Final Rules and Part 8 Removal

C. SEF Final Rules

II. Summary of the Proposal

A. Amendments to Part 9: Rules Relating to Review of Exchange

Disciplinary, Access Denial or Other Adverse Actions

B. Amendment to Regulation 3.31: Deficiencies, Inaccuracies, and

Changes To Be Reported

III. Comments on the Proposal

IV. Final Rules and Notice and Order

A. Final Rules

B. Deletion of References to Commission Form 3-R

C. Notice and Order

V. Related Matters

A. Regulatory Flexibility Act

B. Paperwork Reduction Act

C. Cost-Benefit Considerations

D. Antitrust Considerations

[[Page 1539]]

I. Background

A. Description of Part 9

On December 20, 1978, the Commission adopted part 9 rules relating

to the Commission's review of exchange disciplinary, access denial, or

other adverse actions.\1\ These rules detail the process and procedures

for Commission review, including the appellate process in cases where a

person applies to the Commission for review. The rules also address the

procedures and standards governing filing and service, motions, and

settlement; the process that exchanges must follow in providing notice

of the final disciplinary action to the subject of the action and to

the Commission; and the publication of such notice. As discussed below,

DCMs and SEFs are already required to comply with the part 9

regulations.

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\1\ 43 FR 59343 (Dec. 20, 1978).

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B. DCM Final Rules and Part 8 Removal

In June 2012, the Commission adopted final regulations for DCMs

(``DCM Final Rules'').\2\ Commission regulation 38.2 of the DCM Final

Rules provides that DCMs ``shall comply with all applicable regulations

under Title 17 of the Code of Federal Regulations,'' except for certain

exempt provisions.\3\ Part 9 applies to DCMs by defining ``exchange''

in Commission regulation 9.2(c) for purposes of the rules as ``any

board of trade which has been designated as a contract market.'' \4\

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\2\ Core Principles and Other Requirements for Designated

Contract Markets, 77 FR 36612 (June 19, 2012).

\3\ Id. at 36697; 17 CFR 38.2. Part 9 is not included in the

list of exempt provisions.

\4\ 17 CFR 9.2(c).

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Additionally, in the DCM Final Rules, the Commission adopted

regulations in Subpart N--Disciplinary Procedures of part 38 to amend

the disciplinary procedures applicable to DCMs.\5\ Several of the

regulations adopted in subpart N of part 38 are similar to the text of

the disciplinary procedures found in former part 8--exchange procedures

for disciplinary, summary, and membership denial actions.\6\ The

Commission removed part 8 from the regulations in order to avoid any

confusion from having two sets of disciplinary procedures for DCMs.\7\

As a result of this removal, the current part 9 rules, which contain

cross-references to part 8 throughout, are being updated in the final

rules to instead cite to parallel provisions now contained in part 37

for SEFs and part 38 for DCMs.

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\5\ 17 CFR 38.700 through 38.712.

\6\ 43 FR 41950 (Sept. 19, 1978); 17 CFR 38.700 through 38.712.

For example, part 8 contained regulations 8.05 (Enforcement staff);

8.08 (Disciplinary committee); and 8.20 (Final decision). Subpart N

of part 38 has corresponding provisions: 38.701 (Enforcement staff);

38.702 (Disciplinary panels); and 38.709 (Final decisions).

\7\ Although Commission regulation 38.2 of the DCM Final Rules

specifies that DCMs are not required to comply with part 8, the

Commission removed part 8 to avoid any confusion resulting from the

regulations containing two sets of exchange disciplinary procedures

as part of the Adaptation of Regulations to Incorporate Swaps

Rulemaking. 17 CFR 38.2; and removal of part 8 at 77 FR 66304 (Nov.

2, 2012).

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C. SEF Final Rules

On June 4, 2013, the Commission adopted new rules in part 37 for

SEFs (``SEF Final Rules'').\8\ In regulation 37.2 of the SEF Final

Rules, the Commission specified that SEFs shall comply with the

requirements of part 9.\9\ Accordingly, for clarity purposes, the final

rules amend certain part 9 definitions and language which have not yet

been addressed, to integrate them into the post-Dodd-Frank regulatory

regime.

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\8\ Core Principles and Other Requirements for Swap Execution

Facilities, 78 FR 33476 (June 4, 2013).

\9\ See id. 33479; 17 CFR 37.2.

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II. Summary of the Proposal

A. Amendments to Part 9: Rules Relating to Review of Exchange

Disciplinary, Access Denial or Other Adverse Actions

On January 23, 2017, the Commission published a Notice of Proposed

Rulemaking (``NPRM'' or ``Proposal'') to amend certain part 3 and part

9 rules.\10\ As discussed in the NPRM, most of the amendments are

purely ministerial--for instance, some of the proposed changes updated

definitions in Commission regulation 9.2 to conform them to the

Commodity Exchange Act (``CEA'' or ``Act'') as amended by the Dodd-

Frank Act as well as other sections of the Commission's

regulations.\11\

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\10\ 82 FR 7738 (Jan. 23, 2017).

\11\ Id. at 7740.

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The Commission proposed to amend the definitions of four terms in

regulation 9.2. First, the Commission proposed to amend the definition

of ``disciplinary action'' by removing the reference to ``member of an

exchange'' and inserting ``person'' in its place.\12\ The Commission

explained in the NPRM that it is necessary to expand the ``disciplinary

action'' definition to account for instances where an exchange imposes

sanctions against a person that is not a member of the exchange.\13\

The proposed language to include ``person'' in the ``disciplinary

action'' definition is consistent with the statutory language found in

Core Principle 2 for DCMs and section 8c(b) of the CEA, as amended by

the Dodd-Frank Act.\14\ Second, the Commission proposed to amend the

definition of ``exchange'' in regulation 9.2(c) to include SEFs. This

change makes it clear that the Commission has the discretion to review

adverse actions imposed by a SEF and clarify that SEFs are subject to

all of the part 9 requirements.\15\ Third, the Commission proposed to

amend regulation 9.2(f) to expand the definition of ``member of an

exchange'' to include any person who has trading privileges on an

exchange. This change is necessary to conform the part 9 definition of

``member'' to the meaning set forth in section 1a(34) of the CEA and in

1.3(q) of the Commission's regulations.\16\ Fourth, the Commission

proposed to amend the definition of ``summary action'' in regulation

9.2(k) by adding references to part 37 for SEFs and replacing the part

8 references with the relevant provisions from part 38.\17\

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\12\ The Commission also proposed to amend the disciplinary

action definition by removing the reference to regulation 8.03(i).

\13\ 82 FR 7741 (Jan. 23, 2017).

\14\ Section 735 of the Dodd-Frank Act amends section 5 of the

CEA, including DCM Core Principle 2. Paragraph (B)--Capacity of

Contract Market--of Core Principle 2 specifically requires that the

board of trade shall have the capacity to detect, investigate, and

apply appropriate sanctions to any person that violates any rule of

the contract market. Section 8c(b) of the CEA, 7 U.S.C. 12c(b),

provides that the Commission may, in its discretion and in

accordance with such standards and procedures as it deems

appropriate, review any decision by an exchange whereby a person is

suspended, expelled, disciplined, or denied access to the exchange.

In addition, section 8c(b) of the CEA provides that the Commission

may, in its discretion and upon application of any person who is

adversely affected by any other exchange action, review such action.

\15\ Id. The Commission notes that regulation 37.2 requires,

among other things, that a SEF shall comply with the part 9

regulations. 17 CFR 37.2. Additionally, footnote 40 of the SEF Final

Rules states ``the term `exchange' used in part 9 of the

Commission's regulations should be interpreted to include a SEF for

purposes of applying the requirements of part 9 to a SEF.'' 78 FR

33476, 33479 (June 4, 2013).

\16\ Section 1a(34) of the CEA provides that the term ``member''

means, among other things, an individual, association, partnership,

corporation, or trust having trading privileges on the registered

entity. See also 17 CFR 1.3(q). By amending the definition of

``member of an exchange'' to include all persons with trading

privileges, the Commission is clarifying that the appellate process

and Commission review, as defined in part 9, applies to all persons

with trading privileges.

\17\ Specifically, the proposed definition of ``summary action''

means a disciplinary action resulting in the imposition of a penalty

on a person for violation of rules of the exchange permitted under

the provisions of part 37, appendix B, Core Principle 2, section

(a)(10)(vi) or part 38, appendix B, Core Principle 13, section

(a)(4) (penalty for impeding progress of hearing); part 37, appendix

B, Core Principle 2, section (a)(14) or part 38, appendix B, Core

Principle 13, section (a)(7) (emergency disciplinary actions); part

37, appendix B, Core Principle 2, section (a)(13) (summary fines for

violations of rules regarding timely submission of records); or part

38, appendix B, Core Principle 13, section (a)(6) (summary fines for

violations of rules regarding timely submission of records, decorum,

or other similar activities).

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[[Page 1540]]

The Commission also proposed to amend regulation 9.11(a) to remove

the requirement that an exchange provide written notice to the

Commission of a final disciplinary action or access denial action and

replace it with a requirement to provide notice to the National Futures

Association (``NFA''). As explained in the NPRM, the Commission

delegated authority to the NFA in 1999 to receive and process exchange

disciplinary and access denial information (``Part 9 Delegation'').\18\

Consequently, the NFA currently serves as the official custodian of

records for exchange disciplinary filings. The Commission noted in the

NPRM that it intends to amend the Part 9 Delegation order, consistent

with the requirement that exchanges provide exchange disciplinary and

access denial information to the NFA.\19\ In 1999, concurrent with the

Part 9 Delegation, the Commission also published an advisory permitting

exchanges to file Sec. 9.11 notices with the Commission or the NFA

(``Part 9 Advisory'').\20\ The Commission proposed to codify the Part 9

Advisory and formally replace the regulation 9.11 requirement that

written notice be provided to the Commission by amending Sec. 9.11 to

require that notice be provided to the NFA via the NFA's BASIC system

and eliminate the option of filing the notice with the Commission.

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\18\ 82 FR 7741 (Jan. 23, 2017). The NFA created the Background

Affiliation Status Information Center (``BASIC'') system through

which the public can access information pertaining to the types of

violations committed, penalties imposed, the effective date of the

action, and, in some cases, the text from the exchange's decision.

\19\ Id.

\20\ 64 FR 39915 (July 23, 1999) (``Part 9 Advisory'').

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The Commission proposed an amendment to regulation 9.11(b)(3)(ii)

by adding the type of product (as applicable) involved in the adverse

action as an additional element required to be included in the contents

of the notice. The Commission stated in the NPRM that requiring

exchanges to provide this information in the Sec. 9.11 notice will

provide the Commission, market participants, the public, and other

exchanges with greater transparency concerning where market abuses

originate and whether the abuses are concentrated among certain product

types.\21\ The Commission also proposed to amend regulation

9.11(b)(3)(ii) by codifying the clarification contained in the Part 9

Advisory that an exchange indicate in its notice of disciplinary or

access denial actions whether the violation underlying the notice

resulted in financial harm to any customers.\22\

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\21\ For example, a product trading on a DCM might be specified

as a July 2016 Eurodollar future; while a product trading on a SEF

may be a CDX North American High Yield Series 26 5 year.

\22\ 64 FR 39917 (July 23, 1999).

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The Commission also proposed to amend regulation 9.11(c) by

deleting instructions for filing notice with the Commission and

replacing them with instructions for filing notice with the NFA given

the proposed changes to regulation 9.11(a) discussed above. The NPRM

provided that filing of the notice with the NFA is accomplished when an

authorized exchange employee verifies the accuracy of the information

entered into BASIC.

The Commission proposed to amend regulation 9.11(d), which sets

forth the effect of delivery and filing by mail, by deleting

instructions related to filing notices with the Commission by mail

since proposed regulation 9.11(c) calls for notice filings to be made

to the NFA via BASIC instead of with the Commission by mail.

Pursuant to Commission regulation 9.12(b), an exchange that

determines that a disciplinary action will become effective prior to

the expiration of 15 days after written notice to the person that is

the subject of such action must provide notification in writing either

personally or by telegram or other means of written telecommunication.

The exchange also must immediately notify the Commission by telegram or

other means of written telecommunication. The Commission proposed to

modernize regulation 9.12(b) by replacing references to ``telegram or

other means of written telecommunication'' with the term ``email'' and

provide a Commission email address for Commission notification.

Commission regulation 9.13 provides that whenever an exchange

suspends, expels or otherwise disciplines, or denies any person access

to the exchange, it must make its findings public by disclosing at

least the information contained in the Commission regulation 9.11(b)

notice. An exchange also must make such findings public as soon as the

disciplinary action or access denial action becomes effective by

posting a notice in a conspicuous place on its premises. As noted in

the NPRM, posting a notice of disciplinary action on the premises of an

exchange does little to publicize the action.\23\ Accordingly, the

Commission proposed to modernize regulation 9.13 by requiring the

notice to be posted on an exchange's website to which its members,

market participants, and the public regularly have access.\24\ The

Commission also proposed to amend regulation 9.13 by requiring the

notice to be maintained and readily available on an exchange's

website.\25\ As a result, the existing requirement to maintain and make

available for public inspection a record of the information contained

in the disciplinary or access denial notice would be eliminated.

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\23\ 82 FR 7743 (Jan. 23, 2017).

\24\ The Commission noted in the NPRM that many DCMs have

already adopted more modern methods to publicize notices of

disciplinary action. 82 FR 7743 (Jan. 23, 2017). For example, the

CME Group DCMs (Chicago Board of Trade (``CBOT''), Chicago

Mercantile Exchange (``CME''), Commodity Exchange, Inc.,

(``COMEX''), and New York Mercantile Exchange, Inc. (``NYMEX'')) and

ICE Futures U.S. notify subscribers of exchange disciplinary

postings via email. The Commission also noted that the amendment

generally tracks the Securities and Exchange Commission's (``SEC'')

standards for Release of Disciplinary Complaints, Decisions and

Other Information in Financial Industry Regulatory Authority, Inc.

(``FINRA'') Rule 8313, in which FINRA, with SEC approval, has

established its standard for releasing to the public a copy of FINRA

issued disciplinary complaints, decisions, and other disciplinary

information. See FINRA Rule 8313 ``Release of Disciplinary

Complaints, Decisions and Other Information,'' available at http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=3892. See also SEC Release

No. 34-69825; File No. SR-FINRA-2013-018 (June 21, 2013).

\25\ Some DCMs currently maintain records of disciplinary action

on their websites. For example, CBOE Futures Exchange, LLC maintains

a disciplinary decision database on its website that allows the

public to review disciplinary decisions dating back to 2012. The

Commission notes that in the securities industry, the New York Stock

Exchange maintains disciplinary notices as far back as 1972.

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The Commission also noted in the NPRM that it anticipates that upon

the effective date of the final part 9 rules, it will include links on

its SmartCheck website to each exchange's website for posting notice of

disciplinary action or access denial action.\26\

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\26\ 82 FR 7743 (Jan. 23, 2017). In November 2014, the CFTC

launched the SmartCheck website. It connects investors to tools to

check the registration, license, and disciplinary history of certain

financial professionals. This collection of tools allows the

responsible investor to confirm the credentials of investment

professionals, uncover any past disciplinary history, and stay ahead

of scam artists with news and alerts.

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B. Amendment to Regulation 3.31: Deficiencies, Inaccuracies, and

Changes To Be Reported

Pursuant to Commission regulation 3.31, an applicant or registrant

as a futures commission merchant (``FCM''), retail foreign exchange

dealer (``RFED''), swap dealer (``SD''), major swap participant

(``MSP''), commodity trading advisor (``CTA''), commodity pool operator

(``CPO''), introducing broker

[[Page 1541]]

(``IB''), or floor trader (``FT'') that is a non-natural person or

leverage transaction merchant (``LTM'') must promptly correct any

deficiency or inaccuracy in Form 7-R or Form 8-R which has rendered the

information contained therein non-current or inaccurate. These

corrections must be made in accordance with the instructions of each

form to create a Form 3-R record of such change.

In 1999, concurrent with the Part 9 Delegation and Part 9 Advisory,

the Commission issued an advisory pertaining to part 3 of the

Commission's regulations (``Part 3 Advisory''). The Part 3 Advisory

relieves registrants and applicants for registrant status from filing

the Form 3-R if the information to be reported is solely the result of

an exchange disciplinary or access denial action.\27\ In 2012, the

Commission eliminated the requirement that registrants and individuals

use Form 3-R to update their existing Form 7-R or 8-R and provided that

an update to a registrant's online Form 7-R or 8-R would automatically

create a record of changes equivalent to a completed Form 3-R.\28\ The

Commission proposed to codify the Part 3 Advisory by amending

regulation 3.31(a)(1) with language that relieves applicants or

registrants from the obligation to update their Form 7-R or 8-R if the

information to be reported is solely the result of an exchange

disciplinary or access denial action.

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\27\ The Part 3 Advisory also explains that the Commission has:

(1) Permitted exchanges (via the Part 9 Advisory) to file either

electronic or written Sec. 9.11 notices with the NFA instead of the

Commission and (2) delegated to the NFA (via the Part 9 Delegation)

the duty to receive and process exchange disciplinary and access

denial action information filed by the exchanges in accordance with

Commission regulation 9.11. The Commission further explained that,

as a result of the Part 9 Advisory and Part 9 Delegation, the NFA

possesses the exchange disciplinary and access denial action

information that registrants and applicants for registrant status

would otherwise be required to include in Form 3-R. Therefore, to

avoid duplicative reporting, the Part 3 Advisory advises all

individuals and entities subject to Commission regulation 3.31 that

they are relieved from Commission regulation 3.31 reporting

obligations resulting from an exchange disciplinary or access denial

action and reported by an exchange pursuant to a Sec. 9.11 notice.

64 FR 39912 (July 23, 1999).

\28\ 77 FR 51898 (Aug. 28, 2012).

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III. Comments on the Proposal

The comment period for the Proposal ended on March 24, 2017. The

Commission received one comment letter.\29\ The Minneapolis Grain

Exchange (``MGEX'') generally supported the Proposal while offering

some suggestions for certain provisions. MGEX agreed with the

Commission's general approach to modernize permitted methods of

communication. For example, MGEX cited the language in proposed

regulation 9.11(c) that would require an exchange only to verify that

information entered into NFA's BASIC system instead of mailing a notice

to the Commission as a positive change. MGEX also favorably cited

proposed regulation 9.12(b) that would permit an exchange to email

notice of an early effective date of disciplinary action instead of

mailing it or by telegram. MGEX noted these changes reduce burdens and

suggested that the Commission make similar changes to proposed

regulations 9.11(c) and (d) to allow an exchange to email a

disciplinary or access denial notice to the person subject to the

action.

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\29\ See https://comments.cftc.gov/PublicComments/CommentList.aspx?id=1776.

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MGEX agreed that an exchange should publish notices of certain

disciplinary actions on its website. However, MGEX requested that an

exchange have flexibility regarding how it fulfills this obligation. In

particular, MGEX requested that regulation 9.13 be amended to ensure

that an exchange has flexibility over the format, style, and location

of the notice on its website, as well as any ancillary website relating

to the publication of such notices. MGEX stated that an exchange should

be able to archive notices on its website after a reasonable period of

time. MGEX noted that archived notices should be accessible, but an

exchange should have discretion to maintain them separately on its

website. In addition, MGEX indicated that there may be situations where

removing a notice from its website would be appropriate and exchanges

should be provided with this discretion. In support of its position,

MGEX stated that the regulatory environment or exchange rules could

change over time such that certain notices no longer provide

educational or informative value. MGEX commented that having notices

that are predicated on antiquated rules may actually confuse members,

market participants, or the public. Finally, MGEX requested guidance

that regulation 9.13 will be limited to disciplinary actions that were

finalized after the effective date of any final rulemaking.

IV. Final Rules and Notice and Order

A. Final Rules

The Commission, in consideration of the MGEX comment, is adopting

the part 9 rules as proposed subject to the minor modifications

described below. The Commission agrees with MGEX's suggestion to amend

regulations 9.11(c) and (d) to allow an exchange to use email as a

permitted method of delivering notice of the disciplinary or access

denial action to the person subject to the action. Accordingly, the

Commission is modifying 9.11(c) to allow delivery of the notice to the

person's last known email address. The Commission is also amending

9.11(d) to provide that delivery of the disciplinary notice will be

complete upon transmission of the email.

The Commission also agrees with MGEX that an exchange should have

flexibility over the format, style, and location of the notice on its

website including any indexing or search functionality. The Commission

believes that adopting the rule as proposed provides sufficient

flexibility for exchanges in this regard, although the Commission notes

that an exchange must ensure that access to all disciplinary notices

remain readily accessible regardless of whether the exchange decides to

archive notices after a reasonable period of time.

In response to MGEX's comment requesting that exchanges should be

given discretion in certain situations to remove a disciplinary notice

from its website, the Commission acknowledges MGEX's concern that the

regulatory environment or exchange rules could change over time and

having notices that are predicated on antiquated rules may confuse

members, market participants, or the public. However, the Commission

believes that all disciplinary and access denial notices must be

maintained on the exchange's website without the possibility of

removal. Access to information regarding all exchange disciplinary and

access denial actions provides valuable guidance and information to

exchange members, market participants, and the public regardless of

whether the regulatory environment or an exchange rule has changed. For

example, the notices allow customers to consider member firms' and

traders' disciplinary histories when considering whether to engage in

business with them. This includes conduct by firms and traders that

violated an exchange rule at the time the rule was in effect. The final

rule also enables customers to consider an exchange's propensity to

sanction firms and traders for rule violations when considering whether

to trade on the exchange. In the limited circumstances where an

exchange believes that a disciplinary notice may confuse its members,

market participants, or the public as a result of a regulatory

environment or exchange rule change, an exchange could address this

concern by posting an attachment to

[[Page 1542]]

the disciplinary notice that explains the nature of any such change.

The Commission agrees with MGEX that the rulemaking should not be

applied retroactively to final exchange disciplinary actions.

Therefore, exchanges only will be required to publish disciplinary

actions that are finalized after the effective date of the final rules.

As discussed above, the Commission proposed to amend regulation

9.2(f) to expand the definition of ``member of an exchange'' to include

any person who has trading privileges on an exchange. The Commission

explained that this change is necessary to conform the part 9

definition of ``member'' to the meaning set forth in section 1a(34) of

the CEA and in 1.3(q) of the Commission's regulations. The Commission

is adopting the amendment to regulation 9.2(f) as proposed. The

Commission notes that 9.2(f)(1) preserves the prior definition of

``member of an exchange,'' while the inclusion of ``any person who has

trading privileges on an exchange'' under 9.2(f)(2) conforms the

``member of an exchange'' definition with the meaning set forth in

section 1a(34)(B) of the CEA and regulation 1.3(q)(1)(ii).

The Commission is also adopting the amendment to regulation

3.31(a)(1) as proposed. Therefore, the final rule relieves applicants

and registrants from the obligation to update their Form 7-R or 8-R if

the information to be reported is solely the result of an exchange

disciplinary or access denial action.

B. Deletion of References to Commission Form 3-R

The Commission is making an additional technical change to

regulation 3.31. As reflected in the amended text of the rule, the

Commission is eliminating the references to Form 3-R from subsections

(a)(1), (a)(3), (b), and (c)(1) of regulation 3.31 by deleting from

these subsections the phrase ``to create a Form 3-R record of change.''

\30\ The Commission no longer requires market participants to use the

Form 3-R.\31\ Additionally, by separate Notice, the Commission formally

proposed to cancel the Form 3-R and transfer the administrative burdens

associated with that form to Forms 7-R and 8-R.\32\ Accordingly, the

Commission is updating regulation 3.31 to reflect the retirement of

Form 3-R. For these same reasons, the Commission is making a similar

technical change to regulation 3.11. As reflected in the amended text

of the rule, the Commission is deleting the reference to Form 3-R from

subsection (b) of regulation 3.11. The Commission notes that these

changes to regulations 3.11 and 3.31 are purely technical and do not

affect the obligations of the individuals and entities subject to these

rules.

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\30\ The phrase being deleted from subsection (a)(1) of

regulation 3.31 is ``to create a Form 3-R record of such change.''

\31\ Registration of Intermediaries, 77 FR 51898 (Aug. 28,

2012).

\32\ Agency Information Collection Activities: Proposed

Collection Revision, Comment Request: Adoption of Revised

Registration Form 8-R and Cancellation of Form 3-R, 82 FR 19663,

19664 (Apr. 28, 2017).

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C. Notice and Order

In a separate document published elsewhere in this issue of the

Federal Register, the Commission issued an updated Notice and Order to

replace the Part 9 Delegation from 1999 regarding the specific duties

delegated by the Commission to the NFA for receiving and processing

exchange disciplinary and access denial information. Among other

things, the Notice and Order is being updated to account for the

amendment to regulation 9.11(a) that will require exchanges to file

disciplinary and access denial actions with the NFA. As discussed

above, prior to this amendment, exchanges were only encouraged to file

the notifications with the NFA, but not required. In addition, the

updated Notice and Order includes SEFs now filing the required notices

with the NFA as SEFs did not exist when the Commission issued the Part

9 Delegation and Advisory in 1999.

Consistent with the Part 9 Delegation, the updated Notice and Order

delegates to the NFA the authority to perform the following functions:

(1) To process exchange disciplinary information filed by an exchange

or the Commission in the BASIC system; (2) to provide the Commission

with access to a Management Report summarizing all recent exchange

disciplinary information and to provide the Commission with the

capability to generate standardized reports on the BASIC system; (3) to

assist the Commission in enforcing exchange compliance with regulation

9.11 filing requirements; and (4) to serve as the official custodian of

a database containing records of all exchange disciplinary and access

denial actions filed with the NFA for inclusion in the BASIC system.

V. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA'') requires federal agencies,

in promulgating rules, to consider the impact of those rules on small

entities.\33\ The Commission did not receive any comments with respect

to the RFA. The part 9 rules adopted herein will affect all SEFs and

DCMs. The Commission previously established certain definitions of

``small entities'' to be used by the Commission in evaluating the

impact of its regulations on small entities in accordance with the

RFA.\34\ The Commission previously determined that DCMs and SEFs are

not small entities for purposes of the RFA.\35\

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\33\ 5 U.S.C. 601 et seq.

\34\ See 47 FR 18618 through 18621 (Apr. 30, 1982).

\35\ See 47 FR 18618, 18619 (Apr. 30, 1982) (DCMs); 78 FR 33548

(June 4, 2013) (SEFs).

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The part 3 rules adopted herein will affect certain applicant or

registrant FCMs, RFEDs, SDs, MSPs, CTAs, CPOs, IBs, FTs who are non-

natural persons, and LTMs who will no longer have to file a Form 7-R or

8-R if the information to be reported is solely the result of an

exchange disciplinary or access denial action. The Commission

previously determined that FCMs, RFEDs, SDs, MSPs, CPOs, and LTMs are

not small entities for purposes of the RFA.\36\ Therefore, the

requirements of the RFA do not apply to those entities. With respect to

CTAs, FTs, and IBs, the Commission has found it appropriate to consider

whether such registrants should be deemed small entities for purposes

of the RFA on a case-by-case basis, in the context of the particular

Commission regulation at issue.\37\ As certain of these registrants may

be small entities for purposes of the RFA, the Commission has

considered whether the final rules will have a significant impact on

these registrants.

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\36\ See Policy Statement and Establishment of Definitions of

``Small Entities'' for Purposes of the Regulatory Flexibility Act,

47 FR 18618 (Apr. 30, 1982) (FCMs and CPOs); Leverage Transactions,

54 FR 41068 (Oct. 5, 1989) (LTMs); Regulation of Off-Exchange Retail

Foreign Exchange Transactions and Intermediaries, 75 FR 55410, 55416

(Sept. 10, 2010) (RFEDs); and Registration of Swap Dealers and Major

Swap Participants, 77 FR 2613, 2620 (Jan. 19, 2012) (SDs and MSPs).

\37\ See 47 FR 18620 (Apr. 30, 1982) (CTAs); Registration of

Floor Traders; Mandatory Ethics Training for Registrants; Suspension

of Registrants Charged With Felonies, 58 FR 19575, 19588 (Apr. 15,

1993) (FTs); and Introducing Brokers and Associated Persons of

Introducing Brokers, Commodity Trading Advisors and Commodity Pool

Operators; Registration and Other Regulatory Requirements, 48 FR

35248, 35276 (Aug. 3, 1983) (IBs).

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The amendment to Commission regulation 3.31 is not substantive in

nature. In 1999, the Commission published the Part 3 Advisory which

relieved all applicants and registrants from filing a Form 3-R if the

information to be reported is solely the result of an exchange

disciplinary or

[[Page 1543]]

access denial action.\38\ Beyond conforming the regulation to an

established agency policy provided for in the Part 3 Advisory, the

conforming amendments to regulation 3.31 will not affect the current

processes or impose any new costs on small entities. The final rule

codifies the filing relief set forth in the Part 3 Advisory and will

not impose any new regulatory obligations on any registrant, including

CTAs, FTs, and IBs.

---------------------------------------------------------------------------

\38\ 64 FR 39912 (July 23, 1999).

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The Commission does not, therefore, expect small entities to incur

any additional costs as a result of the final rules. Consequently, the

Commission finds that no significant economic impact on small entities

will result from the final rules.

Accordingly, the Chairman, on behalf of the Commission pursuant to

5 U.S.C. 605(b), certifies that the final rules will not have a

significant economic impact on a substantial number of small entities.

B. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (``PRA'') 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.\39\ An agency may not conduct or

sponsor, and a person is not required to respond to, a collection of

information unless it displays a currently valid control number issued

by the Office of Management and Budget (``OMB''). The final rules

contain provisions that qualify as collections of information, for

which the Commission has already sought and obtained control numbers

from the OMB. The titles for these collections of information are

``Part 38--Core Principles and Other Requirements for Designated

Contract Markets'' (OMB Control Number 3038-0052) and ``Part 37--Core

Principles and Other Requirements for Swap Execution Facilities'' (OMB

Control Number 3038-0074).

---------------------------------------------------------------------------

\39\ 44 U.S.C. 3501 et seq.

---------------------------------------------------------------------------

As explained in the NPRM, the Commission did not seek to amend

information collections 3038-0052 or 3038-0074 because the Commission

believes that the rule modifications proposed would not impose any new

information collection requirements that require approval from OMB

under the PRA.\40\ The Commission invited public comment on the

accuracy of its determination that no additional recordkeeping or

information collection requirements or changes to existing collection

requirements would result from the Proposal.\41\ The Commission did not

receive any such comments. Accordingly, the Commission believes the

final rules will not impact the current burden estimates for

collections 3038-0052 and 3038-0074. The Commission will nevertheless,

by separate action, publish in the Federal Register a notice and

request for comment on the additional elements to be included as part

of exchange notices, and submit to OMB an information collection

request to amend the relevant information collection, in accordance

with 44 U.S.C. 3506(c)(2)(A) and 5 CFR 1320.8(d). As noted previously,

by separate Notice published in the Federal Register, the Commission

provided notice that the Form 3-R was being cancelled, and that the PRA

burdens associated with Form 3-R under collections 3038-0023 and 3038-

0072 were being reassigned to Forms 7-R and 8-R.\42\

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\40\ 82 FR 7745-46 (Jan. 23, 2017).

\41\ For collection 3038-0052, see OMB Control No. 3038-0052,

available at http://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber= 3038-0052. For collection 3038-0074,

see OMB Control No. 3038-0074, available at http://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber= 3038-0074.

\42\ 82 FR 19663 (Apr. 28, 2017).

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C. Cost-Benefit Considerations

1. Introduction

Section 15(a) of the CEA requires the Commission to consider the

costs and benefits of its actions before promulgating a regulation

under the CEA or issuing certain orders.\43\ Section 15(a) further

specifies that the 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 the markets; (3) price discovery; (4) sound risk

management practices; and (5) other public interest considerations. The

Commission considers the costs and benefits resulting from its

discretionary determinations with respect to the section 15(a) factors.

---------------------------------------------------------------------------

\43\ 7 U.S.C. 19(a).

---------------------------------------------------------------------------

The Commission considers the costs and benefits associated with the

final rules, including updating the pre-existing regulatory framework

to incorporate SEFs, removing references to part 8 of the Commission's

regulations, and revising the reporting and notice requirements for

DCMs and SEFs. The Commission compares the costs and benefits of this

rulemaking against a baseline of the status quo, the current

requirements under part 3 and part 9. As explained in the NPRM, and as

adopted, the rules are primarily technical in nature that clarify the

obligations under the current rules and generally do not impose any new

costs on DCMs, SEFs, or market participants.\44\ Regulation

9.11(b)(3)(ii) will require the exchanges to specify in the

disciplinary notices the product involved in the disciplinary action

and whether the rule violation resulted in financial harm to any

customers. The Commission acknowledges that these additional elements

in the disciplinary notices may result in additional costs, but any

such costs would be de minimis. Accordingly, the Commission addresses

below the costs associated with Commission regulation 9.13 requirement

for DCMs and SEFs to publish and maintain disciplinary notices on their

respective websites.

---------------------------------------------------------------------------

\44\ 82 FR 7746 (Jan. 23, 2017).

---------------------------------------------------------------------------

In the Proposal, the Commission sought comment concerning all

aspects of the costs and benefits. The Commission did not receive any

comments that specifically addressed the Cost-Benefit Considerations

section of the Proposal. However, MGEX commented that the proposed

amendment to regulation 9.11(c) that would allow an exchange to only

have to verify that information has been entered into NFA BASIC instead

of mailing a notice to the Commission, and the amendment to 9.12(b)

that would permit an exchange to satisfy its obligations to deliver

notice of the disciplinary or access denial action by email reduces the

burden to exchanges, albeit in nominal ways. As discussed above, the

Commission is amending regulations 9.11(c) and (d) to allow exchanges

to satisfy their delivery obligations of the disciplinary or access

denial action to the person subject to the action by email.

Finally, in light of NFA's role and experience in performing

registration functions on behalf of the Commission and as the custodian

of related records (including exchange disciplinary filings), the

Commission believes that it is appropriate to remove the requirement

that an exchange provide written notice to the Commission of a final

disciplinary action or access denial action and replace it with a

requirement to provide notice to the NFA. NFA performs registration

processing functions with respect to applicants and registrants and an

individual's or firm's disciplinary history is a factor that must be

considered in any fitness determination. Delegating to the NFA the

responsibility for processing such filings and generating reports with

the

[[Page 1544]]

information amassed, should ensure that the NFA has the necessary

information to continue to make appropriate registration

determinations. The Commission also believes this delegation will

enhance efficiency by permitting the Commission to carry out its

statutory responsibilities under the CEA, while also freeing up

Commission resources to be directed to other parts of its regulatory

mandate.

2. Commission Regulation 9.13--Publication of Notice

Commission regulation 9.13 requires all DCMs and SEFs to maintain

and make readily accessible final notices of exchange disciplinary and

access denial actions on their websites.\45\ This new requirement

replaces the existing requirement in Commission regulation 9.13 that

exchanges publish the notice in a conspicuous place on the exchange's

premises.

---------------------------------------------------------------------------

\45\ 17 CFR 9.13.

---------------------------------------------------------------------------

a. Costs

The Commission continues to believe that requiring exchanges to

post final disciplinary and access denial notices to their websites

will slightly increase the costs for DCMs and SEFs. The Commission

notes that the additional costs incurred by DCMs and SEFs will be

offset in part due to the amendment in Commission regulation 9.13 that

removes the requirement of posting disciplinary and access denial

notices on the premises of the respective DCM or SEF. In order to

estimate the additional costs, the Commission queried the NFA's BASIC

system to determine the total number of disciplinary and access denial

actions filed by DCMs and SEFs in 2016.\46\

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\46\ The Commission's cost estimates in the NPRM were based on

the 452 disciplinary and access denial actions filed by DCMs in

2015. Because SEFs did not post any such actions with BASIC in 2015,

the cost estimates for SEFs were based on the disciplinary and

access denial actions filed by DCMs in 2015, excluding the four DCMs

with the largest number of reported disciplinary and access denial

actions. The Commission explained that the average number of

disciplinary and access denial actions by the other 11 DCMs provide

a more appropriate comparison with respect to estimating the number

of actions filed by SEFs annually. This average resulted in an

estimate of eight disciplinary and access denial actions filed in

BASIC for each SEF annually. The Commission noted that as the SEFs

mature, in terms of the number of participants and volume, the

number of disciplinary and access denial actions may increase

accordingly. 82 FR 7746 (Jan. 23, 2017).

---------------------------------------------------------------------------

Total number of reported disciplinary and access denial actions in

BASIC by all DCMs: 296.

Total number of reported disciplinary and access denial actions in

BASIC by all SEFs: 15.

The total number of exchange disciplinary and access denial actions

per year for all DCMs and SEFs is estimated to be 311 (296 actions for

DCMs plus 15 actions for SEFs equals 311 total actions per year). The

Commission anticipates each DCM and SEF will spend an additional 15

minutes per disciplinary notice to post on the exchange's website above

the current requirement of posting the notice on the exchange's

premises. Accordingly, the aggregate new burden of Commission

regulation 9.13 is estimated to be 77.75 hours per year for the 15 DCMs

and 24 SEFs (15 minutes multiplied by 311 anticipated actions per year

equals 77.75 burden hours).

The Commission expects that a compliance officer employed by the

exchange will post the disciplinary or access denial action notices to

the exchange website. According to recent Bureau of Labor Statistics

National Occupational Employment and Wage Estimates, the mean hourly

wage of an employee under occupation code 13-1041, ``Compliance

Officers,'' that is employed by the ``Securities and Commodity

Exchanges'' industry is $46.01. Because DCMs and SEFs can be large,

specialized entities that may engage employees with wages above the

mean, the Commission has conservatively chosen to use a mean hourly

wage of $50 per hour.\47\ Accordingly, the burden associated with

posting the disciplinary notices on exchange websites is approximately

$3,887.50 per year for all of the 15 DCMs and 24 SEFs, ($50 multiplied

by the anticipated 77.75 burden hours equals $3,887.50 per year).\48\

---------------------------------------------------------------------------

\47\ Bureau of Labor Statistics, Occupational Employment and

Wages: 13-1041 Compliance Officers, (May 2014), available at http://www.bls.gov/oes/current/oes131041.htm.

\48\ As noted in the NPRM, the Commission acknowledges that

requiring exchanges to post final notices of disciplinary and access

denial actions on their websites may necessitate additional

bandwidth. The Commission anticipates that any increased costs due

to added bandwidth will be insignificant in its calculation of the

total annual burden associated with the final rules. 82 FR 7747

(Jan. 23, 2017).

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b. Benefits

The Commission continues to believe that greater access to

information regarding exchange disciplinary and access denial actions

provides valuable guidance and information to exchange members, market

participants, and the public. Releasing disciplinary information to the

public serves to deter and prevent future misconduct and to improve

overall compliance standards in the futures and swaps industry. It also

allows customers to consider member firms' and traders' disciplinary

histories when considering whether to engage in business with them. In

addition, firms may use such information to educate their traders and

associated persons as to compliance matters, highlighting potential

violations and related sanctions. Further, any firm or individual

facing allegations of rule violations may access existing disciplinary

decisions to gain greater insight on related facts and sanctions. The

Commission believes that the added deterrence of publishing

disciplinary notices on exchange websites and the enhanced

investigative and educational benefits of making such information

public will ultimately decrease the incidents of wrongdoing and market

abuses which benefits both market participants and the general public.

c. Section 15(a) Factors

As noted above, section 15(a) of the CEA requires the Commission to

consider the effects of its actions in light of the following five

factors:

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

Commission believes that market participants and the public will

benefit from the ministerial and conforming amendments since they

eliminate obsolete, vestigial provisions and references that otherwise

could be construed to give rise to confusing inconsistencies between

the Commission's regulations and the provisions of the CEA.

Furthermore, the Commission believes that the amendment to regulation

9.13, which requires exchanges to publish notice of final disciplinary

and access denial actions on exchange websites, increases transparency

of exchange disciplinary actions and serves as a deterrence of future

market abuses. These enhancements allow for operational efficiencies in

oversight, increased deterrence from market abuses, and greater

transparency of the exchange disciplinary process. Therefore, the

Commission anticipates that the amendment to regulation 9.13 will

result in improved protection of market participants and the public.

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

markets. The requirement that exchanges publish disciplinary notices

and access denial actions on their websites is intended to improve the

operational efficiency and financial integrity of the futures and swaps

markets by enabling the public and those who access an exchange website

to be made aware of any disciplinary and access denial actions imposed

by the exchange. By publishing

[[Page 1545]]

the notice on the exchange's website, the Commission believes that the

efficiency and financial integrity of the markets will be bolstered by

the deterrent effect achieved by posting the notice in a publicly

accessible medium.

(3) Price discovery. The Commission did not identify any impact on

price discovery as a result of the proposed regulations, and did not

believe there would be one, but sought comment as to any potential

impact. The Commission did not receive any comments on this issue.

Accordingly, the Commission believes that the final regulations will

not impact price discovery.

(4) Sound risk management practices. The Commission did not

identify any impact on sound risk management practices as a result of

the proposed regulations, and did not believe there would be one, but

sought comment as to any potential impact. The Commission did not

receive any comments on this issue. Accordingly, the Commission

believes that the final regulations will not impact sound risk

management practices.

(5) Other public interest considerations. The Commission has not

identified any other public interest considerations.

D. Antitrust Considerations

Section 15(b) of the CEA requires the Commission to take into

consideration the public interest to be protected by the antitrust laws

and endeavor to take the least anticompetitive means of achieving the

objectives of the CEA in issuing any order or adopting any Commission

rule or regulation. The Commission does not anticipate that the

amendments adopted herein would promote or result in anticompetitive

consequences or behavior.

List of Subjects

17 CFR Part 3

Administrative practice and procedure, Brokers, Commodity futures,

Major swap participants, Reporting and recordkeeping requirements, Swap

dealers.

17 CFR Part 9

Administrative practice and procedure, Commodity exchanges,

Commodity futures.

For the reasons stated in the preamble, the Commodity Futures

Trading Commission amends 17 CFR chapter I as follows:

PART 3--REGISTRATION

0

1. The authority citation for part 3 is revised to read as follows:

Authority: 5 U.S.C. 552, 552b; 7 U.S.C. 1a, 2, 6a, 6b, 6b-1,

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.

0

2. In Sec. 3.11, revise paragraph (b) to read as follows:

Sec. 3.11 Registration of floor brokers and floor traders.

* * * * *

(b) Duration of registration. A person registered as a floor broker

or floor trader in accordance with paragraph (a) of this section, and

whose registration has neither been revoked nor withdrawn, will

continue to be so registered unless such person's trading privileges on

all contract markets and swap execution facilities have ceased:

Provided, that if a floor broker or floor trader whose trading

privileges on all contract markets and swap execution facilities have

ceased for reasons unrelated to any Commission action or any contract

market or swap execution facility disciplinary proceeding and whose

registration is not revoked, suspended or withdrawn is granted trading

privileges as a floor broker or floor trader, respectively, by any

contract market or swap execution facility where such person held such

privileges within the preceding sixty days, such registration as a

floor broker or floor trader, respectively, shall be deemed to continue

and no new Form 7-R, Form 8-R or change to Form 7-R or Form 8-R need be

filed solely on the basis of the resumption of trading privileges. A

floor broker or floor trader is prohibited from engaging in activities

requiring registration under the Act or from representing such person

to be a registrant under the Act or the representative or agent of any

registrant during the pendency of any suspension of such registration

or of all such trading privileges. Each contract market and swap

execution facility that has granted trading privileges to a person who

is registered, or has applied for registration, as a floor broker or

floor trader, must provide notice in accordance with Sec. 3.31(d)

after such person's trading privileges on such contract market or swap

execution facility have ceased.

* * * * *

0

3. In Sec. 3.31, revise paragraphs (a)(1), (a)(3)(i), (b), and (c)(1)

to read as follows:

Sec. 3.31 Deficiencies, inaccuracies, and changes, to be reported.

(a)(1) Each applicant or registrant as a futures commission

merchant, retail foreign exchange dealer, swap dealer, major swap

participant, commodity trading advisor, commodity pool operator,

introducing broker, floor trader that is a non-natural person or

leverage transaction merchant shall, in accordance with the

instructions thereto, promptly correct any deficiency or inaccuracy in

Form 7-R or Form 8-R that no longer renders accurate and current the

information contained therein, with the exception of any change that

requires withdrawal from registration under Sec. 3.33 or any change

resulting from an exchange disciplinary or access denial action. Each

such correction shall be prepared and filed in accordance with the

instructions thereto.

* * * * *

(3) * * *

(i) If the new principal is not a natural person, the registrant

shall update such Form 7-R.

* * * * *

(b) Each applicant or registrant as a floor broker, floor trader or

associated person, and each principal of a futures commission merchant,

retail foreign exchange dealer, swap dealer, major swap participant,

commodity trading advisor, commodity pool operator, introducing broker,

floor trader that is a non-natural person, or leverage transaction

merchant must, in accordance with the instructions thereto, promptly

correct any deficiency or inaccuracy in the Form 8-R or supplemental

statement thereto.

(c)(1) After the filing of a Form 8-R or updating a Form 8-R by or

on behalf of any person for the purpose of permitting that person to be

an associated person of a futures commission merchant, retail foreign

exchange dealer, commodity trading advisor, commodity pool operator,

introducing broker, or a leverage transaction merchant, that futures

commission merchant, retail foreign exchange dealer, commodity trading

advisor, commodity pool operator, introducing broker or leverage

transaction merchant must, within thirty days after the occurrence of

either of the following, file a notice thereof with the National

Futures Association indicating:

(i) The failure of that person to become associated with the

futures commission merchant, retail foreign exchange dealer, commodity

trading advisor, commodity pool operator, introducing broker, or

leverage transaction merchant, and the reasons therefor; or

(ii) The termination of the association of the associated person

with the futures commission merchant, retail foreign exchange dealer,

commodity trading advisor, commodity pool operator,

[[Page 1546]]

introducing broker, or leverage transaction merchant, and the reasons

therefor.

* * * * *

PART 9--RULES RELATING TO REVIEW OF EXCHANGE DISCIPLINARY, ACCESS

DENIAL OR OTHER ADVERSE ACTIONS

0

4. The authority citation for part 9 is revised to read as follows:

Authority: 7 U.S.C. 1a, 2, 6b-1, 6c, 7, 7a-2, 7b-3, 8, 9, 9a,

12, 12a, 12c, 13b, 16a, 18, 19, and 21.

0

5. In Sec. 9.1, revise paragraphs (b) and (c) to read as follows:

Sec. 9.1 Scope of rules.

* * * * *

(b) Matters excluded. This part does not apply to and the

Commission will not accept notices of appeal, or petitions for stay

pending review, of:

(1) Any arbitration proceeding, regardless of whether the

proceeding involved a controversy between members of an exchange;

(2) Except as provided in Sec. Sec. 9.11(a), (b)(3)(i) through

(v), and (c), and 9.12(a) and 9.13 (concerning the notice, effective

date and publication of a disciplinary or access denial action), any

summary action permitted under the provisions of part 37, appendix B,

Core Principle 2, paragraph (a)(13) of this chapter or part 38,

appendix B, Core Principle 13, paragraph (a)(6) of this chapter

imposing a minor penalty for the violation of exchange rules relating

to decorum or attire, or relating to the timely submission of accurate

records required for clearing or verifying each day's transactions or

other similar activities; and

(3) Any exchange action arising from a claim, grievance, or dispute

involving cash market transactions which are not a part of, or directly

connected with, any transaction for the purchase, sale, delivery or

exercise of a commodity for future delivery, a commodity option, or a

swap.

(4) The Commission will, upon its own motion or upon motion filed

pursuant to Sec. 9.21(b), promptly notify the appellant and the

exchange that it will not accept the notice of appeal or petition for

stay of matters specified in this paragraph. The determination to

decline to accept a notice of appeal will be without prejudice to the

appellant's right to seek alternate forms of relief that may be

available in any other forum.

(c) Applicability of these part 9 rules. Unless otherwise ordered,

these rules will apply in their entirety to all appeals, and matters

relating thereto.

0

6. In Sec. 9.2, revise paragraphs (b), (c), (f), and (k) to read as

follows:

Sec. 9.2 Definitions.

* * * * *

(b) Disciplinary action means any suspension, expulsion or other

penalty imposed on a person by an exchange for violations of rules of

the exchange, including summary actions.

(c) Exchange means a swap execution facility or any board of trade

which has been designated as a contract market.

* * * * *

(f) Member of an exchange means:

(1) Any person who is admitted to membership or has been granted

membership privileges on an exchange; any employee, officer, partner,

director or affiliate of such member or person with membership

privileges including any associated person; and any other person under

the supervision or control of such member or person with membership

privileges; or

(2) Any person who has trading privileges on an exchange.

* * * * *

(k) Summary action means a disciplinary action resulting in the

imposition of a penalty on a person for violation of rules of the

exchange permitted under the provisions of part 37, appendix B, Core

Principle 2, paragraph (a)(10)(vi) of this chapter or part 38, appendix

B, Core Principle 13, paragraph (a)(4) of this chapter (penalty for

impeding progress of hearing); part 37, appendix B, Core Principle 2,

paragraph (a)(14) of this chapter or part 38, appendix B, Core

Principle 13, paragraph (a)(7) of this chapter (emergency disciplinary

actions); part 37, appendix B, Core Principle 2, paragraph (a)(13) of

this chapter (summary fines for violations of rules regarding timely

submission of records); or part 38, appendix B, Core Principle 13,

paragraph (a)(6) of this chapter (summary fines for violations of rules

regarding timely submission of records, decorum, or other similar

activities).

0

7. Revise Sec. 9.3 to read as follows:

Sec. 9.3 Provisions referenced.

Except as otherwise provided in this part, the following provisions

of the Commission's rules relating to reparations contained in part 12

of this chapter apply to this part: Sec. 12.3 (Business address;

hours); Sec. 12.5 (Computation of time); Sec. 12.6 (Extensions of

time; adjournments; postponements); Sec. 12.7 (Ex parte communications

in reparation proceedings); and Sec. 12.12 (Signature).

0

8. In Sec. 9.4, revise paragraphs (a), (b), and (c) to read as

follows:

Sec. 9.4 Filing and service; official docket.

(a) Filing with the Proceedings Clerk; proof of filing; proof of

service. Any document that is required by this part to be filed with

the Proceedings Clerk must be filed by delivering it in person or by

mail to: Proceedings Clerk, Office of Proceedings, Commodity Futures

Trading Commission, Three Lafayette Centre, 1155 21st Street NW,

Washington, DC 20581. To be timely filed under this part, a document

must be delivered or mailed to the Proceedings Clerk within the time

prescribed for filing. A party must use a means of filing which is at

least as expeditious as that used in serving that document upon the

other parties. Proof of filing must be made by attaching to the

document for filing a statement of service as provided in Sec.

10.12(a)(6) of this chapter.

(b) Formalities of filing--(1) Number of copies. Unless otherwise

specifically provided, an original and one conformed copy of all

documents filed with the Commission in accordance with the provisions

of this part must be filed with the Proceedings Clerk.

(2) Title page. All documents filed with the Proceedings Clerk must

include at the head thereof, or on a title page, the name of the

Commission, the title of the proceeding, the docket number (if one has

been assigned by the Proceedings Clerk), the subject of the particular

document and the name of the person on whose behalf the document is

being filed.

(3) Paper, spacing, type. All documents filed with the Proceedings

Clerk must be typewritten, must be on one grade of good white paper no

less than 8 or more than 8\1/2\ inches wide and no less than 10\1/2\ or

more than 11\1/2\ inches long, and must be bound on the top only. They

must be double-spaced, except for long quotations (3 or more lines) and

footnotes which should be single-spaced.

(4) Signature. The original copy of all papers must be signed in

ink by the person filing the same or by his or her duly authorized

agent or attorney.

(c) Service--(1) General requirements. All documents filed with the

Proceedings Clerk must, at or before the time of filing, be served upon

all parties. A party must use a means of service which is at least as

expeditious as that used in filing that document with the Proceedings

Clerk. One copy of all motions, petitions or applications made in the

course of the proceeding, all notices of appeal, all briefs, and

letters to the Commission or an employee thereof must be served by a

party upon all other parties.

[[Page 1547]]

(2) Manner of service. Service may be either personal or by mail.

Service by mail is complete upon deposit of the document in the mail.

Where service is effected by mail, the time within which the person

served may respond thereto will be increased by three days.

(3) Designation of person to receive service. The first document

filed in a proceeding by or on behalf of any party must state on the

first page the name and postal address of the person who is authorized

to receive service for the party of all documents filed in the

proceeding. Thereafter, service of documents must be made upon the

person authorized unless service on a different authorized person or on

the party himself or herself is ordered by the Commission, or unless

pursuant to Sec. 9.8 the person authorized is changed by the party

upon due notice to all other parties. Parties must file and serve

notification of any changes in the information provided pursuant to

this subparagraph as soon as practicable after the change occurs.

* * * * *

0

9. In Sec. 9.8, revise paragraph (a)(1) to read as follows:

Sec. 9.8 Practice before the Commission.

(a) * * *

(1) By non-attorneys. An individual may appear pro se (on his or

her own behalf); a general partner may represent the partnership; a

bona fide officer of a corporation, trust or association may represent

the corporation, trust or association.

* * * * *

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10. In Sec. 9.9, revise paragraphs (b)(3) and (4) to read as follows:

Sec. 9.9 Waiver of rules; delegation of authority.

* * * * *

(b) * * *

(3) The General Counsel, or his or her designee, may submit to the

Commission for its consideration any matter which has been delegated

pursuant to paragraph (b)(1) of this section.

(4) Nothing in this section will be deemed to prohibit the

Commission, at its election, from exercising the authority delegated to

the General Counsel, or his or her designee, under this section.

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11. Revise Sec. 9.11 to read as follows:

Sec. 9.11 Form, contents and delivery of notice of disciplinary or

access denial action.

(a) When required. Whenever an exchange decision pursuant to which

a disciplinary action or access denial action is to be imposed has

become final, the exchange must, within thirty days thereafter, provide

written notice of such action to the person against whom the action was

taken and notice to the National Futures Association (``NFA'') through

the NFA's Background Affiliation Status Information Center (``BASIC'')

system: Provided, That a designated contract market is not required to

notify the NFA of any summary action, as permitted under the provisions

of part 38, appendix B, Core Principle 13, paragraph (a)(6) of this

chapter, which results in the imposition of minor penalties for the

violation of exchange rules relating to decorum or attire. No final

disciplinary or access denial action may be made effective by the

exchange except as provided in Sec. 9.12.

(b) Contents of notice. For purposes of this part:

(1) The written notice of a disciplinary action or access denial

action provided to the person against whom the action was taken by a

designated contract market must be a copy of a written decision which

accords with:

(i) Part 38, appendix B, Core Principle 13, paragraph (a)(3) of

this chapter in the case of settlement offers;

(ii) Section 38.708 of this chapter in the case of decisions; or

(iii) Part 38, appendix B, Core Principle 13, paragraph (a)(5)(iv)

of this chapter in the case of appeal decisions (including copies of

any materials incorporated by reference) or other written notice which

must include items listed in paragraphs (b)(3)(i)--(vi) of this

section.

(2) The written notice of a disciplinary action or access denial

action provided to the person against whom the action was taken by a

swap execution facility must be a copy of a written decision which

accords with:

(i) Part 37, appendix B, Core Principle 2, paragraph (a)(9) of this

chapter in the case of settlement offers;

(ii) Section 37.206(d) of this chapter in the case of decisions; or

(iii) Part 37, appendix B, Core Principle 2, paragraph (a)(11)(iv)

of this chapter in the case of appeal decisions (including copies of

any materials incorporated by reference) or other written notice which

must include items listed in paragraphs (b)(3)(i) through (vi) of this

section.

(3) The notice of a disciplinary action or access denial action

provided to the NFA must include only the items listed in the following

paragraphs (b)(3)(i) through (v):

(i) The name of the person against whom the disciplinary action or

access denial action was taken;

(ii) A statement of the reasons for the disciplinary action or

access denial action, detailing the exchange product which was

involved, as applicable, and whether the violation that resulted in the

action also resulted in financial harm to any customers together with a

listing of any rules which the person who was the subject of the

disciplinary action or access denial action was charged with having

violated or which otherwise serve as the basis of the exchange action;

(iii) A statement of the conclusions and findings made by the

exchange with regard to each rule violation charged or, in the event of

settlement, a statement specifying those rule violations which the

exchange has reason to believe were committed;

(iv) The terms of the disciplinary action or access denial action;

(v) The date on which the action was taken and the date the

exchange intends to make the disciplinary or access denial action

effective; and

(vi) Except as otherwise provided in Sec. 9.1(b), a statement

informing the party subject to the disciplinary action or access denial

action of the availability of Commission review of the exchange action

pursuant to section 8c of the Act and this part.

(c) Delivery and filing of the notice. Delivery of the notice must

be made personally to the person who was the subject of the

disciplinary action or access denial action, by mail to such person at

that person's last known address, or by email to the person's last

known email address. Filing of the notice with the NFA is accomplished

when an authorized exchange employee verifies the accuracy of the

information entered into BASIC.

(d) Effect of delivery by mail or email. Delivery by mail to the

person disciplined or denied access will be complete upon deposit in

the mail of a properly addressed and postpaid document. Where delivery

to the person disciplined or denied access is effected by such mail,

the time within which a notice of appeal or petition for stay may be

filed will be increased by three days. Delivery by email will be

complete upon transmission of the email.

(e) Certification. Copies of the notice and the submission of any

additional information provided pursuant to this section must be

certified as true and correct by a duly authorized officer, agent or

employee of the exchange. Notice filed with the NFA is deemed certified

when an authorized exchange employee verifies the accuracy of the

information entered into BASIC.

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12. Revise Sec. 9.12 to read as follows:

[[Page 1548]]

Sec. 9.12 Effective date of disciplinary or access denial action.

(a) Effective date. Any disciplinary or access denial action taken

by an exchange will not become effective until at least fifteen days

after the written notice prescribed by Sec. 9.11 is delivered to the

person disciplined or denied access; Provided, however, That the

exchange may cause a disciplinary action to become effective prior to

that time if:

(1) As permitted by part 37, appendix B, Core Principle 2,

paragraph (a)(14) of this chapter or part 38, appendix B, Core

Principle 13, paragraph (a)(7) of this chapter (emergency disciplinary

actions), the exchange reasonably believes, and so states in its

written decision, that immediate action is necessary to protect the

best interests of the marketplace; or

(2) As permitted by part 37, appendix B, Core Principle 2,

paragraph (a)(10)(vi) of this chapter or part 38, appendix B, Core

Principle 13, paragraph (a)(4) of this chapter (hearings), the exchange

determines, and so states in its written decision, that the actions of

a person who is within the exchange's jurisdiction has impeded the

progress of a disciplinary hearing; or

(3) As permitted by part 37, appendix B, Core Principle 2,

paragraph (a)(13) of this chapter (summary fines for violations of

rules regarding timely submission of records) or part 38, appendix B,

Core Principle 13, paragraph (a)(6) of this chapter (summary fines for

violations of rules regarding timely submission of records, decorum, or

other similar activities), the exchange determines that a person has

violated exchange rules relating to decorum or attire, or timely

submission of accurate records required for clearing or verifying each

day's transactions or other similar activities; or

(4) The person against whom the action is taken has consented to

the penalty to be imposed and to the timing of its effectiveness.

(b) Notice of early effective date. If the exchange determines in

accordance with paragraph (a)(1) of this section that a disciplinary

action will become effective prior to the expiration of fifteen days

after written notice thereof, it must notify the person disciplined in

writing, either personally or by email to the person's last known email

address, stating the reasons for the determination. The exchange must

also immediately notify the Commission by email to [email protected]

Where notice is delivered by email, the time within which the person so

notified may file a petition for stay pursuant to Sec. 9.24(a)(2) will

be increased by one day.

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13. Revise Sec. 9.13 to read as follows:

Sec. 9.13 Publication of notice.

Whenever an exchange suspends, expels or otherwise disciplines, or

denies any person access to the exchange, it must make public its

findings by disclosing at least the information contained in the notice

required by Sec. 9.11(b). An exchange must make such findings public

as soon as the disciplinary action or access denial action becomes

effective in accordance with the provisions of Sec. 9.12 by posting a

notice on its website to which its members and the public regularly

have access. Such notice must be maintained and readily available on

the exchange's website.

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14. In Sec. 9.24, revise paragraph (a)(2) to read as follows:

Sec. 9.24 Petition for stay pending review.

(a) * * *

(2) Within ten days after a notice of summary action has been

delivered in accordance with Sec. 9.12(b) to a person who is the

subject of a summary action permitted by part 37, appendix B, Core

Principle 2, paragraph (a)(14) of this chapter or part 38, appendix B,

Core Principle 13, paragraph (a)(7) of this chapter (emergency

disciplinary actions), that person may petition the Commission to stay

the effectiveness of the summary action pending completion of the

exchange proceeding.

* * * * *

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15. Revise Sec. 9.31 to read as follows:

Sec. 9.31 Commission review of disciplinary or access denial action

on its own motion.

(a) Request for additional information. Where a person disciplined

or denied access has not appealed the exchange decision to the

Commission, upon review of the notice specified in Sec. 9.11, the

Division of Market Oversight or the Division of Swap Dealer and

Intermediary Oversight may request that the exchange file with the

Division the record of the exchange proceeding, or designated portions

of the record, a brief statement of the evidence and testimony adduced

to support the exchange's findings that a rule or rules of the exchange

were violated and such recordings, transcripts and other documents

applicable to the particular exchange proceeding as the Division may

specify. The exchange must promptly advise the person who is the

subject of the disciplinary or access denial action of the Division's

request. Within thirty days after service of the Division's request,

the exchange must file the information requested with the Division in

the manner requested by the Division and, upon request, deliver that

information to the person who is the subject of the disciplinary or

access denial action. Delivery to the person who is the subject of the

disciplinary or access denial action must be in the manner prescribed

by Sec. 9.11(c). A person subject to the disciplinary action or access

denial action requesting a copy of the information furnished to the

Division must, if the exchange rules so provide, agree to pay the

exchange reasonable fees for printing the copy.

(b) Review on motion of the Commission. The Commission may

institute review of an exchange disciplinary or access denial action on

its own motion. Other than in extraordinary circumstances, such review

will be initiated within 180 days after the NFA has received the notice

of exchange action provided for in Sec. 9.11. If the Commission should

institute review on its own motion, it will issue an order permitting

the person who is the subject of the disciplinary or access denial

action an opportunity to file an appropriate submission, and the

exchange an opportunity to file a reply thereto.

Issued in Washington, DC, on January 9, 2018, by the Commission.

Christopher J. Kirkpatrick,

Secretary of the Commission.

Note: The following appendix will not appear in the Code of

Federal Regulations.

Appendix to Technical Amendments to Rules on Registration and Review of

Exchange Disciplinary, Access Denial or Other Adverse Actions--

Commission Voting Summary

On this matter, Chairman Giancarlo and Commissioners Quintenz

and Behnam voted in the affirmative. No Commissioner voted in the

negative.

[FR Doc. 2018-00467 Filed 1-11-18; 8:45 am]

BILLING CODE 6351-01-P

 

 

Last Updated: January 12, 2018