2010-29024

FR Doc 2010-29024[Federal Register: November 23, 2010 (Volume 75, Number 225)]

[Proposed Rules]

[Page 71379-71390]

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

[DOCID:fr23no10-17]

[[Page 71379]]

=======================================================================

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

COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 3, 23 and 170

RIN 3038--AC95

 

Registration of Swap Dealers and Major Swap Participants

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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

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

``CFTC'') is proposing to adopt regulations that would establish the

process for registering swap dealers (``SDs'') and major swap

participants (``MSPs,'' and collectively with SDs, ``swaps entities'').

The proposed regulations also would require swaps entities to become

members of the National Futures Association (``NFA'') and to confirm

that persons associated with them are not subject to a statutory

disqualification under the Commodity Exchange Act (``CEA'')

(``Proposal''). The Commission is making the Proposal in accordance

with Section 4s of the CEA, which was recently added to the CEA by the

Dodd-Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank

Act'').

DATES: Comments must be received on or before January 24, 2011.

ADDRESSES: You may submit comments, identified by RIN 3038-AC95, 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.

All comments must be submitted in English, or if not, accompanied

by an English translation. Comments will be posted as received to

http://www.cftc.gov. You should submit only information that you wish

to make available publicly. If you wish the Commission to consider

information that is exempt from disclosure under the Freedom of

Information Act,\1\ a petition for confidential treatment of the exempt

information may be submitted according to the procedures set forth in

Commission Regulation 145.9.\2\ 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 http://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 and other applicable laws, and may be

accessible under the Freedom of Information Act.

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

\1\ 5 U.S.C. 552.

\2\ Commission regulations referred to herein are found at 17

CFR Ch. 1 (2010), as amended by 75 FR 55409 (Sep. 10, 2010). They

are accessible on the Commission's Web site.

FOR FURTHER INFORMATION CONTACT: Barbara S. Gold, Associate Director,

Christopher W. Cummings, Special Counsel, or Elizabeth Miller,

Attorney-Advisor, Division of Clearing and Intermediary Oversight, 1155

21st Street, NW., Washington, DC 20581. Telephone number: 202-418-5450

and electronic mail: [email protected], [email protected] or

_____________________________________-

[email protected]

SUPPLEMENTARY INFORMATION:

I. Background

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

Title VII of the Dodd-Frank Act \4\ amended the CEA\5\ to establish a

comprehensive new regulatory framework for swaps and security-based

swaps. The goal of this legislation was to reduce risk, increase

transparency, and promote market integrity within the financial system

by, among other things: (1) Providing for the registration and

comprehensive regulation of SDs and MSPs; (2) imposing clearing and

trade execution requirements on standardized derivative products; (3)

creating robust recordkeeping and real-time reporting regimes; and (4)

enhancing the Commission's rulemaking and enforcement authorities with

respect to, among others, all registered entities and intermediaries

subject to the Commission's oversight. The regulations in the Proposal

concern the process for registering SDs and MSPs.

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

\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 may be accessed at http://www.cftc.gov./

LawRegulation/OTCDERIVATIVES/index.htm.

\4\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may

be cited as the ``Wall Street Transparency and Accountability Act of

2010.''

\5\ 7 U.S.C. 1 et seq. (2006).

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

A. Relevant Definitions

In furtherance of the foregoing legislative goals, Section 721(a)

of the Dodd-Frank Act amended the definitions of various existing terms

in the CEA and added definitions of numerous new terms to the CEA.

Relevant to the Proposal are the definitions of the new terms ``swap

dealer,'' ``major swap participant,'' and ``associated person of a swap

dealer or major swap participant.'' The Commission currently is

developing regulations to implement the new ``swap dealer'' and ``major

swap participant'' definitions (``Definitional Rulemakings'').\6\ In

light of the statutory mandate in new Section 4s(b)(5) of the CEA that

``Rules under this section shall provide for the registration of swap

dealers and major swap participants not later than 1 year after the

date of enactment of the [Dodd-Frank] Act,'' the Commission is

proposing rules that will establish a process for the registration of

swaps entities by this one-year deadline--i.e., by July 21, 2011.\7\

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

\6\ See Sections 721(b) and (c) of the Dodd-Frank Act, which

provide the Commission with authority to define these new terms.

\7\ See also Paragraph C of this Section I, below.

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

1. Swap Dealer

New Section 1a(49) of the CEA defines the term ``swap dealer'' as

follows:

(A) IN GENERAL.--The term `swap dealer' means any person who--

(i) holds itself out as a dealer in swaps;

(ii) makes a market in swaps;

(iii) regularly enters into swaps with counterparties as an

ordinary course of business for its own account; or

(iv) engages in any activity causing the person to be commonly

known in the trade as a dealer or market maker in swaps,

provided however, in no event shall an insured depository institution

be considered to be a swap dealer to the extent it offers to enter into

a swap with a customer in connection with originating a loan with that

customer.\8\

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

\8\ New Section 1a(49) further provides:

(B) INCLUSION.--A person may be designated as a swap dealer for

a single type or single class or category of swap or activities and

considered not to be a swap dealer for other types, classes, or

categories of swaps or activities.

(C) EXCEPTION.--The term `swap dealer' does not include a person

that enters into swaps for such person's own account, either

individually or in a fiduciary capacity, but not as a part of a

regular business.

(D) DE MINIMIS EXCEPTION.--The Commission shall exempt from

designation as a swap dealer an entity that engages in a de minimis

quantity of swap dealing in connection with transactions with or on

behalf of its customers. The Commission shall promulgate regulations

to establish factors with respect to the making of this

determination to exempt.

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

[[Page 71380]]

2. Major Swap Participant

New Section 1a(33) of the CEA defines the term ``major swap

participant'' as follows:

(A) IN GENERAL.--The term `major swap participant' means any person

who is not a swap dealer, and--

(i) maintains a substantial position in swaps for any of the major

swap categories as determined by the Commission, excluding--

(I) positions held for hedging or mitigating commercial risk; and

(II) positions maintained by any employee benefit plan (or any

contract held by such a plan) as defined in paragraphs (3) and (32) of

section 3 of the Employee Retirement Income Security Act of 1974 (29

U.S.C. 1002) for the primary purpose of hedging or mitigating any risk

directly associated with the operation of the plan;

(ii) whose outstanding swaps create substantial counterparty

exposure that could have serious adverse effects on the financial

stability of the United States banking system or financial markets; or

(iii)(I) is a financial entity that is highly leveraged relative to

the amount of capital it holds and that is not subject to capital

requirements established by an appropriate Federal banking agency; and

(II) maintains a substantial position in outstanding swaps in any

major swap category as determined by the Commission.\9\

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

\9\ This section further provides:

(B) DEFINITION OF SUBSTANTIAL POSITION.--For purposes of

subparagraph (A), the Commission shall define by rule or regulation

the term `substantial position' at the threshold that the Commission

determines to be prudent for the effective monitoring, management,

and oversight of entities that are systemically important or can

significantly impact the financial system of the United States. In

setting the definition under this subparagraph, the Commission shall

consider the person's relative position in uncleared as opposed to

cleared swaps and may take into consideration the value and quality

of collateral held against counterparty exposures.

(C) SCOPE OF DESIGNATION.--For purposes of subparagraph (A), a

person may be designated as a major swap participant for 1 or more

categories of swaps without being classified as a major swap

participant for all classes of swaps.

(D) EXCLUSIONS.--The definition under this paragraph shall not

include an entity whose primary business is providing financing, and

uses derivatives for the purpose of hedging underlying commercial

risks related to interest rate and foreign currency exposures, 90

percent or more of which arise from financing that facilitates the

purchase or lease of products, 90 percent or more of which are

manufactured by the parent company or another subsidiary of the

parent company.

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

3. Associated Person of a Swap Dealer or Major Swap Participant

New Section 1a(4) of the CEA defines the term ``associated person

of a swap dealer or major swap participant'' as follows:

(A) IN GENERAL.-- The term `associated person of a swap dealer or

major swap participant' means a person who is associated with a swap

dealer or major swap participant as a partner, officer, employee, agent

(or any person occupying a similar status or performing similar

functions), in any capacity that involves--

(i) the solicitation or acceptance of swaps; or

(ii) the supervision of any person or persons so engaged.\10\

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

\10\ New section 1a(4) further provides:

(B) EXCLUSION.-- Other than for purposes of section 4s(b)(6),

the term `associated person of a swap dealer or major swap

participant' does not include any person associated with a swap

dealer or major swap participant the functions of which are solely

clerical or ministerial.

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

B. Registration Requirements for SDs and MSPs

New Section 4s(a) of the CEA \11\ sets forth the registration

requirements for SDs and MSPs as follows:

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

\11\ Section 4s(a) was added to the CEA by Section 731 of the

Dodd-Frank Act.

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

(a) REGISTRATION.--

(1) SWAP DEALERS.-- It shall be unlawful for any person to act as a

swap dealer unless the person is registered as a swap dealer with the

Commission.

(2) MAJOR SWAP PARTICIPANTS.-- It shall be unlawful for any person

to act as a major swap participant unless the person is registered as a

major swap participant with the Commission.

New Section 4s(b) \12\ directs the Commission to adopt rules that

provide for the registration of SDs and MSPs. New Section 4s does not

direct the Commission to adopt rules that provide for the registration

of associated persons of SDs or MSPs. However, new Section 4s(b)(6)

makes it unlawful for a swaps entity to permit a person to associate

with it if the person is subject to a statutory disqualification as

follows:

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

\12\ Section 4s(b) similarly was added to the CEA by Section 731

of the Dodd-Frank Act.

Except to the extent otherwise specifically provided by rule,

regulation, or order, it shall be unlawful for a swap dealer or

major swap participant to permit any person associated with a swap

dealer or major swap participant who is subject to a statutory

disqualification to effect or be involved in effecting swaps on

behalf of the swap dealer or major swap participant, if the swap

dealer or major swap participant knew, or in the exercise of

reasonable care should have known, of the statutory

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

disqualification.

For the purpose of the Proposal, the Commission intends that a

statutory disqualification is a disqualification under Section 8a(2) or

8a(3) of the CEA.\13\

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

\13\ 7 U.S.C. 12a(2) and 12a(3). These sections of the CEA

contain an extensive list of matters that constitute grounds to

refuse to register a person, including, without limitation, felony

convictions, commodities or securities law violations, and bars or

other adverse actions taken by financial regulators.

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

Section 4s further directs the Commission to adopt rules that

provide for the regulation of SDs and MSPs with respect to, among

others, the following areas: Capital and margin, reporting and

recordkeeping, daily trading records, business conduct standards,

documentation standards, trading duties, chief compliance officer,\14\

and, with respect to uncleared swaps, segregation \15\ (collectively,

``Section 4s Requirements''). The Section 4s Requirements are being

addressed by other rulemakings. Their impact on the registration

process is discussed below at Paragraph C of this Section I.

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

\14\ New Sections 4s(e) through (k), respectively, added to the

CEA by Dodd-Frank Section 731.

\15\ New Section 4s(l), added to the CEA by Dodd-Frank Section

724(c).

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

Additionally, Section 716 of the Dodd-Frank Act prohibits an

insured depository institution (``IDI'') from receiving Federal

assistance if it is also an SD that engages in swaps activities that

are not covered by the exclusion in Section 716(d).\16\ Under Section

716(c), an IDI can retain its access to Federal assistance if it

transfers covered activities to a non-IDI affiliate (a ``Push-Out

Affiliate'') that is an SD or MSP, if the affiliate complies with the

requirements of Section 716(c), including such requirements as the

Commission may establish.\17\ The Push-

[[Page 71381]]

Out Affiliate, however, would not have access to Federal assistance.

The Commission is not proposing any specific requirements at this time

for any Push-Out Affiliate. The Commission does intend, however, that

any Push-Out Affiliate that comes within the statutory definition of an

SD or an MSP be subject to registration and regulation as an SD or as

an MSP, as the case may be.

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

\16\ Specifically, the prohibition against Federal assistance to

swaps entities is set forth in paragraph (a) of Section 716 as

follows:

(a) PROHIBITION ON FEDERAL ASSISTANCE.-- Notwithstanding any

other provision of law (including regulations), no Federal

assistance may be provided to any swaps entity with respect to any

swap, security-based swap, or other activity of the swaps entity.

Dodd-Frank Section 716(d) carves out certain swap activities of

an IDI that is an SD, and therefore a ``swaps entity,'' from the

prohibition against ``Federal assistance.'' In particular, the

prohibition against Federal assistance does not apply to the extent

the IDI SD engages in: (1) Hedging and other risk-mitigating

activities of the IDI; or (2) acting as an SD for swaps and

security-based swaps involving rates (e.g., interest rate swaps) or

reference assets that are permissible investments. Engaging in non-

cleared credit default swaps, however, would subject an IDI SD to

the prohibition against Federal assistance.

\17\ Section 716(c) provides for the Push-Out Affiliate

exception as follows:

(c) AFFILIATES OF INSURED DEPOSITORY INSTITUTIONS.--The

prohibition on Federal assistance contained in subsection (a) does

not apply to and shall not prevent an insured depository institution

from having or establishing an affiliate which is a swaps entity, as

long as such insured depository institution is part of a bank

holding company, or savings and loan holding company, that is

supervised by the Federal Reserve and such swaps entity affiliate

complies with sections 23A and 23B of the Federal Reserve Act and

such other requirements as the Commodity Futures Trading Commission

* * * may determine to be necessary and appropriate.

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

Part 3 of the Commission's regulations governs registration under

the CEA. Currently, Part 3 is not applicable to swaps entities. To

fulfill the statutory mandates of the Dodd-Frank Act, and as is

discussed more fully below, the Commission is proposing amendments to

Regulations 3.2, 3.4, 3.10, 3.21, 3.30, 3.31 and 3.33, and adoption of

new Regulation 23.21. To further accomplish these aims, the Commission

also is proposing adoption of new Regulations 23.22 and 170.16.\18\

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

\18\ New Regulation 23.22 would pertain to requirements

applicable to SDs and MSPs with regard to associated persons and new

Regulation 170.16 would require SDs and MSPs to become members of

NFA. As is discussed in Item II.C.2.b. below, the Commission

specifically is requesting comment on certain matters related to

these proposed requirements.

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

C. Phased Implementation

As is noted above, the Dodd-Frank Act requires the Commission to

promulgate rules providing for the registration of SDs and MSPs not

later than July 21, 2011.\19\ Section 754 of the Dodd-Frank Act,

however, permits the other separate rulemakings establishing specific

criteria in the SD and MSP definitions that determine who must

register, as well as the Section 4s Requirements, to become effective

after July 21, 2011.\20\ In order to meet the prescribed deadline to

adopt rules providing for registration of swaps entities, even though

the Definitional Rulemakings will not be effective until a later date

and the criteria of many of the Section 4s Requirements will not be

known with certainty until a later date, the Commission is proposing a

provisional registration procedure for the transitional period between

the July 21, 2011 date by which regulations establishing a process for

swaps entities' registration must be in place and the effective dates

of the Definitional Rulemakings and the rulemakings implementing the

Section 4s Requirements. This approach is intended to ensure continuity

of the business operations of existing swaps entities, and to avoid

undue market disruption.

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

\19\ New Section 4s(b)(5) of the CEA.

\20\ Section 754 provides that:

Unless otherwise provided in this title, the provisions of this

subtitle [Subtitle A--Regulation of Over-the-Counter Swaps Markets]

shall take effect on the later of 360 days after the date of

enactment of this subtitle [i.e., July 15, 2011], or, to the extent

a provision of this subtitle requires a rulemaking, not less than 60

days after publication of the final rule or regulation implementing

such provision of this subtitle.

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

Moreover, to provide sufficient processing time for the initial set

of applicants so that persons may be registered at the earliest

possible date, persons would be able to begin applying for registration

ahead of the July 21 date, beginning on April 15, 2011.\21\ This

process, which would be entirely voluntary, would permit a person that

anticipates that it may be considered to be a ``swap dealer'' or

``major swap participant'' to apply for and obtain registration--albeit

on a provisional basis--as soon as possible. SDs and MSPs who had not

applied for registration by July 21 would be required to apply for

registration not later than the effective date of the applicable

Definitional Rulemaking.\22\ In light of the possibility that the

rulemakings regarding the operations and activities of swaps entities

will have later compliance deadlines than the effective date of the

Definitional Rulemakings, provisionally registered swaps entities would

be permitted to come into compliance with the Section 4s Requirements

within the compliance deadlines set forth in the respective final

implementing rulemakings.\23\ The Commission intends that upon the

filing of an application these swaps entities would be provisionally

registered, and would remain registered so long as they timely

established compliance with the various Section 4s Requirements and met

the standard fitness requirements. Swaps entities applying for

registration after July 21, 2011 would be subject to the same

provisional registration process but would have to demonstrate

compliance with any applicable regulation for which a compliance

deadline had passed by the time of the initial filing.

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

\21\ This advance application procedure is authorized by Section

712(f) of the Dodd-Frank Act, which states in relevant part:

[N]otwithstanding the effective date of any provision of this

Act, the Commodity Futures Trading Commission * * * may, in order to

prepare for the effective dates of the provisions of this Act * * *

register persons under the provision of this Act * * * provided,

however, that no [such] action * * * shall become effective prior to

the effective date applicable to such action under the provisions of

this Act.

\22\ See Dodd-Frank Act Sections 721(b) and (c).

\23\ For the purpose of this Federal Register release, the term

``compliance'' includes ``ability to comply,'' to the extent that a

regulation subsequently adopted requires demonstration of the

ability to comply. See proposed Regulation 3.10(a)(1)(v)(A).

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

Once all of the Section 4s Requirements are adopted and effective,

provisional registrants would become fully registered SDs and MSPs,

provided that they demonstrate compliance with all applicable

regulations. SDs and MSPs who failed to demonstrate compliance would

cease to be registered, would be required to withdraw their

registration application and would be prohibited from engaging in any

subsequent new activity within the SD or MSP definition, as the case

may be.\24\ After all of the rulemakings implementing the Section 4s

Requirements became effective, no provisional registrations would be

granted.

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

\24\ See Section II.B.2., Regulation 3.10, for a fuller

discussion of this matter.

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

By proposing a system of phased implementation, the Commission has

endeavored to accomplish the registration of SDs and MSPs in a manner

that is both efficient and minimally disruptive to on-going business.

The Commission seeks comment on this or alternative approaches to

registration, including extension of the effective date of the

registration rules until such time as rules further defining the terms

``swap dealer'' and ``major swap participant,'' and rulemakings

implementing the Section 4s Requirements, become effective.

D. Request for Comment on Allocation of Responsibilities

Currently, when a person registers with the Commission, they apply

electronically via NFA's online registration system.\25\ NFA conducts a

fitness review of the applicant, including background checks of

principals and associated persons, and proficiency testing of

associated persons. Presently, all registered futures commission

merchants (``FCMs''), introducing brokers (``IBs''), retail foreign

exchange dealers (``RFEDs''), commodity pool operators (``CPOs'') and

those registered commodity trading advisors (``CTAs'') who manage or

exercise discretion over client accounts must be members of NFA in

order to conduct futures business with the

[[Page 71382]]

public.\26\ Associated persons of NFA Members must become NFA

Associates.\27\ On an ongoing basis, NFA audits registrants for

compliance with regulatory requirements applicable to the particular

registration category.

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

\25\ NFA is registered as a futures association in accordance

with Section 17 of the CEA, 7 U.S.C. 21.

\26\ See NFA Bylaw 1101.

\27\ See NFA Bylaw 301(b).

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

In the case of SDs and MSPs, the Commission proposes that an

application for registration would commence with the filing of Form 7-R

by means of NFA's online registration system.\28\ SDs and MSPs would

also file accompanying Forms 8-R for the entity's principals by means

of NFA's online registration system to verify that the principal is not

subject to a statutory disqualification.\29\ NFA would conduct a

background check, and would provide to the SD or MSP and to the

Commission any information that would indicate the principal is unfit

or subject to a statutory disqualification. Currently, the structure

for oversight of existing registrants' activities is that the

Commission has delegated to NFA responsibility for conducting all

aspects of the registration process and for monitoring for compliance

with all subsequent requirements.\30\ Along these lines, then, the

Commission is proposing to adopt Regulation 170.16 to include SDs and

MSPs among the registrants that are required to become and remain

members of at least one registered futures association.\31\

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

\28\ Form 7-R is the form filed with NFA by entities--e.g.,

FCMs, IBs, RFEDs, CPOs and CTAs. The information called for includes

the firm's full legal name and form of organization, business

address, business records location, branch office location,

principals, contact information and any disciplinary history. Form

7-R is filed electronically and not as a paper form.

\29\ Form 8-R is the form that is filed with NFA by the entity

applicant on behalf of certain natural persons. It calls for the

person's name, address and other identifying information, any

criminal history, any regulatory disciplinary history, employment,

and educational history. The entity submits the Form 8-R and the

person confirms the accuracy of the information. Form 8-R also is

filed electronically and not as a paper form.

\30\ See, e.g., 75 FR 55310 (Sep. 10, 2010), delegating

registration functions for RFEDs, which includes the determination

of compliance with net capital requirements, to NFA.

\31\ Although Section 17 of the CEA provides that ``[a]ny

association of persons may be registered with the Commission as a

registered futures association,'' to date, NFA is the sole

association that has applied for and has been issued registration as

a futures association with the Commission.

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

The Commission believes that there are three options with respect

to who should be responsible for determining initial and ongoing

compliance by swaps entities with respect to the Section 4s

Requirements and all other applicable requirements. Option number one

would involve the Commission being directly responsible for ensuring

compliance by swaps entities with all requirements applicable to them

under the CEA and Commission regulations. Option number two would

involve NFA (or any other association that may subsequently be

registered as a futures association) being responsible for ensuring

compliance, subject to Commission oversight. Option number three would

involve certain compliance oversight activities being performed by the

Commission and others being delegated to NFA (or a subsequently

registered futures association). The Commission requests comment on

these options. In the case of option number three, commenters should

specify which oversight activities should be performed by the

Commission and which should be delegated to, or performed by NFA (or

another registered futures association).

E. Extraterritorial Application of Swap Dealer and Major Swap

Participant Registration Requirements

New Section 2(i) of the CEA, which was added by Section 722(d) of

the Dodd-Frank Act, states that provisions of the CEA that were enacted

by Title VII of the Dodd-Frank Act (which includes the definition of

swap dealer, and the registration requirement) shall not apply to

activities outside the United States unless those activities ``have a

direct and significant connection with activities in, or effect on,

commerce of the United States,'' or contravene rules or regulations the

Commission may promulgate to prevent evasion.

In view of Sections 2(i) and 4s(a)(1), the Commission must

determine under which circumstances a person who engages in the

activities set forth in new Section 1a(49) of the CEA (``swap dealing

activities'') outside the U.S. shall be required to register as an SD.

By its terms, Section 2(i) sets a floor that must be met for the swap

provisions of the CEA to apply abroad. Thus, a person whose swap

dealing activity has no connection or effect of any kind, direct or

indirect, whether through affiliates or otherwise, to U.S. commerce

would not be required to register as a swap dealer. The Commission also

recognizes the role that considerations of international comity play in

determining the proper scope of extraterritorial application of federal

statutes.\32\

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

\32\ See generally, Hartford Fire Insurance Co. v. California,

509 U.S. 764, 113 S.Ct. 2891, 125 L.Ed.2d 612 (1993); 1 Restatement

(Third) of Foreign Relations Law of the United States Sec. Sec.

402-403 (1987).

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

The Commission generally would not require a person to register as

a swap dealer if their only connection to the U.S. was that the person

uses a U.S.-registered swap execution facility, designated clearing

organization or designated contract market in connection with their

swap dealing activities,\33\ or reports swaps to a U.S.-registered swap

data repository.\34\ On the other hand, a person outside the U.S. who

engages in swap dealing activities and regularly enters into swaps with

U.S. persons would likely be required to register as a swap dealer.

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

\33\ Cf. 17 CFR 3.10 (foreign broker not required to register as

FCM if it: (1) Limits its customers to customers located outside the

U.S.; (2) confines its commodity interest activities to areas

outside the U.S.; and (3) submits its trades for clearing on an

omnibus basis through a registered FCM; also, registration exemption

for any foreign person acting in the capacity of an IB, CTA or CPO

solely with respect to customers located outside the U.S., provided

that all commodity interest transactions are submitted for clearing

to a registered FCM).

\34\ Such persons, however, may be subject to other requirements

imposed on swap dealers, such as reporting obligations. Further, the

provisions of the CEA and the Commission's regulations applicable to

``any person'' will apply as well, such as those prohibiting fraud

and manipulation.

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

The Commission requests comment as to what level of swap dealing

activity outside the U.S. would qualify as having a direct and

significant connection with activities in or effect on commerce of the

U.S., thereby requiring a person outside the U.S. to register as an SD.

In particular, in view of the global nature of the swap markets and the

ability to transfer swap-related risks within affiliated groups, the

Commission requests comment on when swap dealing activity with or by

non-U.S. affiliates of U.S. persons has a ``direct and significant

connection with activities in, or effect on'' U.S. commerce for

purposes of Section 2(i) of the CEA. For example, to what extent do

persons outside the U.S. who engage in swap dealing activity with non-

U.S. affiliates of U.S. persons (such as the non-U.S. subsidiary of a

corporate parent headquartered in the U.S.) engage in swap dealing

activity that has a direct and significant connection with activities

in, or effect on, U.S. commerce?

Registration of MSPs raises different jurisdictional issues,

because the definition of MSP specifically focuses on the degree of

risk that an entity's swaps pose to U.S. counterparties and the U.S.

market. Thus, the analysis of whether a non-U.S. entity should register

as an MSP would turn upon, among other things, swap positions with U.S.

counterparties (including the use of a U.S. clearing agency or swap

execution facility) or that involve U.S. mails or any means or

instrumentality of interstate commerce. The Commission

[[Page 71383]]

requests comment on these interpretive issues.

II. Section-by-Section Analysis

A. Structure and Approach

As noted above, the Dodd-Frank Act requires SDs and MSPs to be

registered as such with the Commission, and it requires the Commission

to adopt rules providing for registration of SDs and MSPs, as well as

rules regulating their activities. To the extent practicable, the

Commission intends to place requirements that are unique to SDs and

MSPs in a new Part 23 of its regulations. However, as is noted above,

the Commission's existing registration process for futures, commodity

options and retail forex intermediaries, as well as for floor traders

and floor brokers, is extensively set forth in Part 3 of the

regulations. Replication in new Part 23 of all of the registration

process requirements appropriate for SDs and MSPs would be unwieldy and

potentially confusing. Accordingly, while two proposed new regulations

would be in new Part 23, and one proposed new regulation would be in

Part 170, most of the proposed changes in this rulemaking concern

amendments to existing provisions of Part 3.\35\

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

\35\ In this regard, however, it has not been necessary for the

Commission to propose any amendments to the following Part 3

regulations in order to subject SDs and MSPs to registration with

the CFTC: 3.1, 3.11, 3.12, 3.13, 3.22, 3.40-3.47, 3.50-3.64, 3.70,

and 3.75. This is because these regulations either apply to

``applicants'' or ``registrants'' generally, such that they would

also apply to swaps entities, or they apply to other specific

registration categories (such as floor broker or floor trader), such

that they would not pertain to swaps entities.

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

B. Proposed Amendments to Existing Regulations

Some of the proposed amendments to Part 3 consist entirely of

adding appropriate references to SDs and MSPs in existing

regulations.\36\ These proposed amendments will not be separately

discussed. Other proposed amendments, however, involve substantive

changes to existing regulations because of the particular attributes or

characteristics of SDs, MSPs and swaps. They are separately discussed

below.

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

\36\ See the proposed amendments to Regulations: 3.4(a); 3.10

title and paragraphs (a)(1)(i), (b)(1) and (d); 3.21(c); 3.30(a);

3.31(a)(1) and (c); and 3.33(a), (b) introductory text and (e).

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

1. Regulation 3.2--Registration Processing by the National Futures

Association; Notification and Duration of Registration

Regulation 3.2 generally provides for performance by NFA of

registration, temporary licensing and denial, revocation or suspension

of registration. Paragraph (c) of this regulation currently requires

NFA to notify various registration applicants when a temporary license

has been granted under provisions of Regulation 3.40. The Commission

proposes to amend Regulation 3.2(c) to add paragraph (c)(3), which

would provide that NFA will notify an applicant for registration as an

SD or MSP (pursuant to the provisional application procedure described

below, in the discussion of proposed amendments to Regulation 3.10)

that the applicant has been granted provisional registration.

2. Regulation 3.10--Registration of Futures Commission Merchants,

Retail Foreign Exchange Dealers, Introducing Brokers, Commodity Trading

Advisors, Commodity Pool Operators and Leverage Transaction Merchants

Regulation 3.10 sets forth the basic registration scheme for

various firms. The Proposal would amend the regulation to accommodate

SD and MSP registration. It would require an applicant for registration

as an SD or MSP to commence the registration process by filing Form 7-R

with NFA.\37\ This is the same form currently used by an entity

applying for registration as an FCM, IB, RFED, CPO, or CTA. Like those

other registrants, an SD's or MSP's Form 7-R would be accompanied by a

Form 8-R and a fingerprint card for each principal.\38\ NFA would then

conduct the same background check it performs with respect to other

applicants for registration.\39\

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

\37\ See the proposed amendment to Regulation 3.10(a)(1)(i). SDs

and MSPs would thus be subject to the requirement in Regulation

3.10(a)(2) to file a Form 8-R for each natural person who is a

principal of the firm, along with a fingerprint card for that

person.

\38\ See Section 8a(1) of the CEA. The term ``principal'' is

defined in Regulation 3.1(a) to include generally: An officer,

director, partner or similar person exercising control over an

entity's activities; a person who owns or has power to vote ten

percent or more of the entity's securities; or a person who has

contributed ten percent or more of the entity's capital.

\39\ In the event that final registration rules are adopted and

published pursuant to the Proposal, the Commission would issue an

order officially delegating these application and background check

functions to NFA. The delegation order would require NFA to notify

the Commission if it found information regarding an applicant

indicating that the applicant was unfit or that it was subject to a

statutory disqualification.

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

Concurrently with or subsequent to the filing of the Form 7-R, the

applicant for SD or MSP registration would be required to demonstrate

their compliance with such regulations as the Commission adopts

implementing the Section 4s Requirements.\40\ Moreover, filing of Form

7-R by an SD or MSP would authorize the Commission to conduct on-site

inspection to ascertain compliance with those obligations.\41\ However,

this filing would not require the Commission to conduct such

inspection. As is stated above, the Commission specifically is

requesting comment on whether it or NFA (by delegation and subject to

Commission oversight) should be directly responsible for ensuring

compliance with the Section 4s Requirements.

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

\40\ See proposed Regulation 3.10(a)(1)(v)(A).

\41\ See proposed Regulation 3.10(a)(1)(v)(B).

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

As is noted above, the Commission is proposing a provisional

registration process for the transitional period between adoption of

regulations providing for registration of swaps entities, and the

latest date by which applicants must comply with the final rulemakings

for the Section 4s Requirements. This provisional registration process

and the transition to full compliance would be incorporated into

Regulation 3.10(a)(1)(v)(C). As proposed, a swaps entity would be able

to file a Form 7-R at any time beginning April 15, 2011, which filing

would cause the person to be provisionally registered. From and after

the effective date(s) of the Definitional Rulemakings, a person within

the SD or MSP definition must file a Form 7-R, and until such time as

the last of the rulemakings implementing the Section 4s Requirements

becomes effective, such person will also be provisionally registered.

As each of the Section 4s Requirements rulemakings becomes effective, a

provisionally registered SD or MSP would be required to demonstrate

compliance within the timeframe required by such rulemaking. Once all

of the Section 4s Requirement rulemakings are effective and an

applicant has timely demonstrated compliance, the applicant would be

notified that its provisional registration has become a full

registration. If the applicant failed to demonstrate compliance within

the prescribed period of time, it would be so notified and required to

withdraw its registration application and its provisional registration

would cease. In the event the applicant failed to withdraw its

registration application within 30 days following receipt of notice

that its application was deficient, the application would be deemed

withdrawn and its provisional registration would cease. The regulation

would provide that the Commission could extend the time to cure the

deficiency upon written request from

[[Page 71384]]

the applicant. Upon withdrawal--whether on the part of the applicant or

upon receipt of notice of deficiency--the applicant would be prohibited

from subsequently engaging in any new activity described in Section

1a(33) or 1a(49) of the CEA. Finally, the regulation would make clear

that it would not affect the terms of any swap transaction to which the

applicant is a party entered into prior to the notice of

deficiency.\42\

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

\42\ See Proposed Regulation 3.10(a)(1)(v)(D)(3). Section 739 of

the Dodd-Frank Act, in language to be codified as new Section

22(a)(5)(A) of the CEA, states:

EFFECT ON SWAPS--Unless specifically reserved in the applicable

swap, neither the enactment of the Wall Street Transparency and

Accountability Act of 2010, nor any requirement under that Act or an

amendment made by that Act, shall constitute a termination event,

force majeure, illegality, increased costs, regulatory change, or

similar event under a swap (including any related credit support

arrangement) that would permit a party to terminate, renegotiate,

modify, amend, or supplement 1 or more transactions under the swap.

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

The same process would apply for persons applying for registration

as an SD or MSP on or after July 21, 2011. Filing of Form 7-R would

commence provisional registration, and would subject the applicant to

immediate compliance with any rulemaking affecting it as an SD or MSP,

insofar as the rulemaking was effective and compliance required at the

time the applicant filed its Form 7-R. As additional rulemakings phase

in, the provisionally registered SD or MSP would be required to meet

the applicable compliance deadlines. Failure to do so would result in

cessation of registration under the terms and conditions discussed in

the preceding paragraph of this Federal Register release.

Swaps entities, like other registrants, would be required to review

and update at least annually the information they had provided to NFA

in their application. Additionally, swaps entities would be required to

review and update at least annually the information they had provided

to the Commission.\43\

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

\43\ See the proposed amendment to Regulation 3.10(d).

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

3. Regulation 3.21--Exemption From Fingerprinting Requirement in

Certain Cases

Regulation 3.21 generally provides for submission of a copy of a

fingerprint card previously submitted to the Federal Bureau of

Investigation (``FBI''), instead of a new fingerprint card, and it

provides for exemption from the fingerprint requirement for outside

directors of a firm who are not directly involved in the firm's

activities subject to Commission regulation. As is currently true with

other firms registering with the Commission, in lieu of submitting a

fingerprint card in connection with the firm's registration, under the

Proposal an outside director of an SD or MSP would be able to submit a

notice stating that the outside director is not engaged in soliciting

business for the firm, handling its transactions, keeping its records

or supervising those who are so engaged.\44\

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

\44\ See the proposed amendment to Regulation 3.21(c).

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

4. Regulation 3.31--Deficiencies, Inaccuracies and Changes To Be

Reported

Regulation 3.31 generally sets forth the requirements and

responsibility for correcting and updating the information submitted by

applicants for registration on Form 7-R and Form 8-R. Each applicant

for registration or registrant as a swaps entity would be required to

promptly correct any inaccuracy or deficiency of the information in a

Form 7-R or Form 8-R it has filed. Each principal of a swaps entity

would likewise be responsible for correcting anything that renders the

information in a Form 8-R filed on behalf of such person inaccurate or

incomplete.

5. Regulation 3.33--Withdrawal From Registration

Regulation 3.33 generally sets forth the forms, procedures and

requirements for withdrawal from registration, and when such withdrawal

becomes effective. In order to withdraw from registration, under the

Proposal the Form 7-W that a swaps entity would file would specify the

nature and extent of any swap counterparty actual, anticipated or

threatened claims against the registrant.\45\ Additionally, an SD's

Form 7-W would specify that the person will not engage in any new

activity described in the definition of the term ``swap dealer'' \46\

and an MSP's Form 7-W would specify that the person will not engage in

any new activity described in the definition of the term ``major swap

participant.'' \47\

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

\45\ See the proposed amendment to Regulation 3.33(b)(6)(vi).

\46\ See proposed Regulation 3.33(b)(6)(viii).

\47\ See proposed Regulation 3.33(b)(6)(ix).

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

As the Commission noted in adopting Regulation 3.33 (then

designated as Regulation 1.10f):

Rule 1.10f provides that a request for withdrawal must contain

information which is intended to inform the Commission of the status

of the registrant making the withdrawal request, to substantiate the

registrant's eligibility to withdraw from registration, and to

enumerate any outstanding claims of its customers.\48\

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

\48\ [Footnote in original] As used in Sec. 1.10f, the term

``customer'' includes the customers of FCMs and the clients of CTAs,

as well as the customers of any category of registrant that may be

established in the future. Section 1.10f also refers to ``commodity

pool participants''--i.e., those persons who have a direct financial

interest in a commodity pool. See Sec. 4.10(c), 46 FR 26004, 26014

(May 8, 1981).

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

Withdrawal of a registration under Sec. 1.10f will become

effective 30 days after receipt by the Registration Unit of the

Commission's Division of Trading and Markets of a properly completed

request.\49\ The purpose of the 30 day period is to give the

Commission time to review the information provided by the registrant

to determine if there is any reason why withdrawal should not be

allowed. \50\

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

\49\ [Footnote in original] A request will be considered to be

``received'' when it is delivered to the address specified in the

rule.

\50\ 46 FR 48915 (Oct. 5, 1981).

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

C. New Part 23

As is stated above, the Commission expects that, to the extent

practicable, various Section 4s Requirements will be included in new

Part 23. At this juncture, by this Federal Register release, the

Commission is proposing that Subpart B of Part 23 include the general

requirements for the registration of SDs and MSPs and their obligations

with respect to persons associated with them.\51\

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

\51\ The Commission intends that regulations applicable to the

SD and MSP definitions will be placed in Subpart A of Part 23, and

accordingly is proposing to reserve Regulations 23.1 through 23.20

for that purpose.

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

1. Proposed Regulation 23.21--Registration of Swap Dealers and Major

Swap Participants

Proposed Regulation 23.21 has three paragraphs. Paragraph (a)

states that anyone coming within the statutory definition of the term

``swap dealer'' in Section 1a(49) of the CEA and the Commission's

regulations issued thereunder is subject to the registration provisions

under the CEA, and to Part 3 of the Commission's regulations, and

paragraph (b) states that anyone coming within the statutory definition

of the term ``major swap participant'' in Section 1a(33) of the CEA and

the Commission's regulations issued thereunder is subject to the

registration provisions under the CEA, and to Part 3 of the

Commission's regulations. Paragraph (c) deals with Push-Out Affiliates,

and requires that any Push-Out Affiliate that comes within the

statutory definition of an SD or an MSP be registered as an SD or as an

MSP, as the case may be. As is stated above, this requirement would

apply to Push-Out Affiliates in existence on July 21, 2011,

[[Page 71385]]

as well as to those that are organized and are active subsequent

thereto.

2. Proposed Regulation 23.22--Requirements Applicable in the Case of an

Associated Person of a Swap Dealer or Major Swap Participant

a. The Proposed Regulation

Proposed Regulation 23.22 incorporates the statutory prohibition in

new Section 4s(b)(6) against swaps entities permitting persons subject

to a statutory disqualification to be associated with them. For the

purposes of this regulation, paragraph (a) defines the term ``person''

as a shorthand substitute for the statutory term ``associated person of

a swap dealer or major swap participant.'' Paragraph (b) restates the

statutory prohibition.

b. Request for Comment

Associated persons of existing Commission registrants (e.g., FCMs,

IBs, RFEDs, CPOs or CTAs) are required to be registered. The term

``associated person'' in the context of existing Commission registrants

is not defined in the CEA. That term is defined in the Commission's

regulations. Specifically, Regulation 1.3(aa) provides that ``[T]his

term [i.e., associated person] means any natural person who is

associated with'', e.g., an FCM, IB, CPO or CTA in any capacity that

involves solicitation or the supervision of any person or persons so

engaged (emphasis added). ``Associated person'' has typically referred

to a salesperson of a registrant. Thus, a corporation, partnership or

other legal entity has never been considered an associated person. The

use of the term ``natural person'' in the current associated person

definition is intended to distinguish between the rights and

responsibilities of persons acting as associated persons of a

registrant and persons acting as IBs.\52\ However, in the absence of

any language in the Dodd-Frank Act restricting associated persons of

swaps entities to natural persons, the Commission is not proposing such

a definition. The Commission nonetheless requests comment on whether it

should by regulation in fact restrict associated persons of swaps

entities to natural persons.

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

\52\ See Regulation 166.4, which provides in pertinent part that

``[e]ach branch office of each Commission registrant must use the

name of the firm of which it is a branch for all purposes, and must

hold itself out to the public under such name.'' and 48 FR 35248,

35252 (Aug. 3, 1983), in which the Commission explained the history

of the regulation. See also CFTC Staff Letters 84-10, Comm. Fut. L.

Rep. (CCH) ]22,252 (May 29, 1984) and 84-26, Comm. Fut. L. Rep.

(CCH) ]22,472 (Dec. 6, 1984), in which Commission staff further

explained and interpreted this requirement. An entity that solicits

for a registrant, but that is not a branch office of the registrant,

must register as an IB.

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

The Commission also requests comment on implementing the statutory

prohibition against SDs and MSPs permitting persons subject to a

statutory disqualification to be associated with them. Currently, in

connection with registration applications for associated persons of

existing registrants, NFA conducts a thorough background check in order

to determine whether an individual is subject to statutory

disqualification. This process includes submission of fingerprint

cards, which are sent to the FBI to determine if the applicant has a

criminal record. As for associated persons of swaps entities, the

Commission is proposing that the responsibility of ensuring that such

persons are not subject to statutory disqualification would fall upon

the SD or MSP employing them. The Commission seeks comment on how SDs

and MSPs could conduct background checks or otherwise fulfill this

requirement. Possible alternatives include voluntary or required

submission of identification information and fingerprint cards to NFA

for the type of fitness review NFA conducts for existing registrants.

D. New Regulation 170.16

Part 170 of the Commission's regulations pertains to registered

futures associations.\53\ It concerns standards governing Commission

review of applications for registration as a futures association, the

registration statement that a futures association must submit to the

Commission, and membership in a registered futures association.\54\

With respect to the last subject area, Regulation 170.15 requires that,

with the exception of certain ``notice-registered'' FCMs,\55\ each

person registered as an FCM ``must become and remain a member of'' at

least one registered futures association that provides for FCM

membership (unless no such registered futures association exists). The

Commission is proposing that, like FCMs, SDs and MSPs be required to

become and remain members of a registered futures association. Proposed

Regulation 170.16 would thus closely follow the existing requirement

for FCMs in Regulation 170.15.

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

\53\ As is noted above, NFA is the sole association that has

applied for and has been issued registration as a futures

association with the Commission.

\54\ Application forms for NFA membership are incorporated in

Form 7-R.

\55\ Regulation 3.10(a)(3) provides for notice registration of

an FCM (or IB) in the case of certain persons registered as

securities brokers or dealers in connection with trading security

futures products.

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

III. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA'') \56\ requires that

agencies consider whether the rules they propose will have a

significant economic impact on a substantial number of small entities

and if so, provide a regulatory flexibility analysis respecting the

impact. The Commission has already established certain definitions of

``small entities'' to be used in evaluating the impact of its rules on

such small entities in accordance with the RFA.\57\ SDs and MSPs are

new categories of registrant. Accordingly, the Commission has not

previously addressed the question of whether such persons are, in fact,

small entities for purposes of the RFA.

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

\56\ 5 U.S.C. 601 et seq.

\57\ 47 FR 18618 (Apr. 30, 1982).

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

The Commission previously has determined that FCMs should not be

considered to be small entities for purposes of the RFA. The

Commission's determination was based in part upon their obligation to

meet the minimum financial requirements established by the Commission

to enhance the protection of customers' segregated funds and protect

the financial condition of FCMs generally.\58\ Like FCMs, SDs will be

subject to minimum capital and margin requirements, and are expected to

comprise the largest global financial firms. The Commission is required

to exempt from designation entities that engage in a de minimis level

of swaps dealing in connection with transactions with or on behalf of

customers. Accordingly, for purposes of the RFA for this and future

rulemakings, the Commission is hereby proposing that SDs not be

considered ``small entities'' for essentially the same reasons that

FCMs have previously been determined not to be small entities.

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

\58\ Id. at 18619.

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

The Commission has also previously determined that large traders

are not ``small entities'' for RFA purposes.\59\ The Commission

considered the size of a trader's position to be the only appropriate

test for purposes of large trader reporting.\60\ MSPs maintain

substantial positions in swaps, creating substantial counterparty

exposure that could have serious adverse effects on the financial

stability of the United States banking system or financial markets.

Accordingly, for purposes of the RFA for this and future rulemakings,

the Commission is hereby proposing

[[Page 71386]]

that MSPs not be considered ``small entities'' for essentially the same

reasons that large traders have previously been determined not to be

small entities.

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

\59\ 47 FR at 18620.

\60\ Id.

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

The Commission is carrying out Congressional mandates by proposing

these rules. The Commission is incorporating registration of SDs and

MSPs into the existing registration structure applicable to other

registrants. In so doing, the Commission has attempted to accomplish

registration of SDs and MSPs in the manner that is least disruptive to

ongoing business and most efficient and expeditious, consistent with

the public interest, and accordingly believes that these registration

rules will not present a significant economic burden on any entity

subject thereto. Accordingly, the Chairman, on behalf of the

Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the

proposed 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) \61\ 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. This proposed rulemaking would

result in new collection of information requirements within the meaning

of the PRA. The Commission therefore is submitting this proposal to the

Office of Management and Budget (OMB) for review. If adopted, responses

to this collection of information would be mandatory. The Commission

will protect proprietary information according to the Freedom of

Information Act and 17 CFR Part 145, ``Commission Records and

Information.'' In addition, Section 8(a)(1) of the CEA strictly

prohibits the Commission, unless specifically authorized by the CEA,

from making public ``data and information that would separately

disclose the business transactions or market positions of any person

and trade secrets or names of customers.'' The Commission is also

required to protect certain information contained in a government

system of records according to the Privacy Act of 1974.\62\

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

\61\ 44 U.S.C. 3501 et seq.

\62\ 5 U.S.C. 552a.

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

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. OMB has not yet assigned a control

number to the new collection.

1. Information Provided/by Reporting Entities/Persons

The burden associated with the proposed new rules implementing

registration of SDs and MSPs is estimated to be 752 hours, which will

result from (1) application for registration by SDs and MSPs and

submission of required information on behalf of their respective

principals; (2) initially, no withdrawals from registration by SDs or

MSPs and a relatively small decrease in the number of their respective

principals; and (3) initially, no reported corrections. Burden means

the total time, effort, or financial resources expended by persons to

generate, maintain, retain, disclose or provide information to or for a

federal agency.

The respondent burden for this collection is estimated to average

0.5 hours per response for the Form 7-R; 0.4 hours per response for the

Form 8-R; 3 minutes per response for the Form 7-W; 6 minutes per

response for the Form 8-T; and 3 minutes per response for the Form 3-R.

These estimates include the time needed to review instructions;

develop, acquire, install, and utilize technology and systems for the

purposes of collecting, validating, and verifying information,

processing and maintaining information and disclosing and providing

information; adjust the existing ways to comply with any previously

applicable instructions and requirements; train personnel to be able to

respond to a collection of information; and transmit or otherwise

disclose the information. While staff believes that there may likely be

approximately 200 swap dealers, we have taken a conservative approach

in estimating that there will be 250 SDs for PRA purposes. The

estimated burden was thus calculated as follows:

Form 7-R

Respondents/Affected Entities: 300.

Estimated number of responses: 300.

Estimated total annual burden on respondents: 0.5 hours.

Frequency of collection: On occasion and annually.

Burden statement: 300 respondents x 0.5 hours = 150 Burden Hours.

Form 8-R

Respondents/Affected Entities: 5 principals per each of 300 SDs and

MSPs.

Estimated number of responses: 1,500.

Estimated total annual burden on respondents: 0.4 hours.

Frequency of collection: On occasion.

Burden statement: 1,500 respondents x 0.4 hours = 600 Burden Hours.

Form 8-T

Respondents/Affected Entities: 1 principal per each of 20 SDs and

MSPs.

Estimated number of responses: 20.

Estimated total annual burden on respondents: 6 minutes.

Frequency of collection: On occasion.

Burden statement: 20 respondents x 0.1 hours = 2 Burden Hours.

2. Information Collection Comments

The Commission invites the public and other Federal agencies to

comment on any aspect of the reporting and recordkeeping burdens

discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission

solicits comments in order to: (1) Evaluate whether the proposed

collection of information is necessary for the proper performance of

the functions of the Commission, including whether the information will

have practical utility; (2) evaluate the accuracy of the Commission's

estimate of the burden of the proposed collection of information; (3)

determine whether there are ways to enhance the quality, utility, and

clarity of the information to be collected; and (4) minimize the burden

of the collection of information on those who are to respond, including

through the use of automated collection techniques or other forms of

information technology.

Comments may be submitted directly to the Office of Information and

Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at

[email protected] Please provide the Commission with a copy

of submitted comments so that all comments can be summarized and

addressed in the final rule preamble. Refer to the Addresses section of

this notice of proposed rulemaking for comment submission instructions

to the Commission. A copy of the supporting statements for the

collections of information discussed above may be obtained by visiting

RegInfo.gov. OMB is required to make a decision concerning the

collection of information between 30 and 60 days after publication of

this document in the Federal Register. Therefore, a comment is best

assured of having its full effect if OMB receives it within 30 days of

publication.

C. Cost-Benefit Analysis

Section 15(a) of the CEA \63\ requires the Commission to consider

the costs and benefits of its action before issuing a rulemaking under

the CEA. By its terms, Section 15(a) does not require the Commission to

quantify the costs and benefits of a rule or to determine

[[Page 71387]]

whether the benefits of the rulemaking outweigh its costs; rather, it

simply requires that the Commission ``consider'' the costs and benefits

of its actions. 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 futures

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

(5) other public interest considerations. The Commission may in its

discretion give greater weight to any one of the five enumerated areas

and could in its discretion determine that, notwithstanding its costs,

a particular rule is necessary or appropriate to protect the public

interest or to effectuate any of the provisions or accomplish any of

the purposes of the CEA.

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

\63\ 7 U.S.C. 19(a).

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

Summary of Proposed Requirements. The proposed rules would create a

process to implement the registration requirements for swaps entities

under the CEA pursuant to the Dodd-Frank Act generally through

amendments to the existing regulatory framework.

Costs. With respect to costs, the Commission has determined that

the costs of the new registration requirements imposed on SDs and MSPs

will consist primarily of the fees that NFA will charge: (1) For

application for registration of SDs and MSPs, which are expected to be

$500 per application; (2) to process fingerprints and background

information for principals, which are expected to be $85 per person;

and (3) for NFA membership, which are expected to be $7,500 for an SD

and $5,600 for an MSP annually. Time and expense to registrants

relating to the registration process alone are expected to be

relatively minimal as the forms are not complicated. Time and expense

relating to the new registration requirements are therefore not

expected to be a barrier to entry of registrants or to adversely affect

the liquidity of any markets.

For purposes of this rulemaking, the costs of the new registration

requirements do not include costs to registrants resulting from any

need to create or augment an internal compliance and reporting

infrastructure as a result of the Section 4s Requirements that are

being addressed by other Commission rulemakings. The Commission

therefore views the costs of the new registration requirements to be

insubstantial when viewed in the context of the broader purpose of

Congress to promote systemic safety for the financial markets as

embodied in the Dodd-Frank Act.

Benefits. With respect to benefits, the Commission has determined

that the benefits of registering swaps entities are significant.

Registration will enable the Commission to identify the universe of SDs

and MSPs, which will enable these entities to be monitored for

compliance with the Dodd-Frank Act and the rules being implemented by

the Commission thereunder. This will enable the protection of market

participants and the public, promote efficiency and transparency of

markets, promote sound risk management practices and promote the public

interest, as described in the rules being proposed by the Commission

implementing the substantive provisions of the Dodd-Frank Act.

Similarly, the Commission has determined that the benefits of requiring

swaps entities to become and remain members of a registered futures

association are significant. Membership will provide the Commission

with flexibility with regard to its oversight of compliance with the

Dodd-Frank Act and Commission regulations.

Public Comment. The Commission invites public comment on its cost-

benefit considerations. Commenters are also invited to submit any data

or other information that they may have quantifying or qualifying the

costs and benefits of the Proposal with their comment letters.

List of Subjects

17 CFR Part 3

Definitions, Customer protection, Licensing, Registration, Swaps.

17 CFR Part 23

Swaps, Swap dealers, Major swap participants, Registration.

17 CFR Part 170

Authority delegations (Government agencies), Commodity futures,

Swaps, Reporting and recordkeeping requirements.

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 is amended to read as follows:

Authority: 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. No. 111-203, 124

Stat. 1376 (Jul. 21, 2010).

2. Section 3.2 is amended by adding paragraph (c)(3) to read as

follows:

Sec. 3.2 Registration processing by the National Futures Association;

notification and duration of registration.

* * * * *

(c) * * *

(3) Upon filing of an application for registration pursuant to

Sec. 3.10(a)(1)(v) of this part by a swap dealer or major swap

participant the National Futures Association shall notify the swap

dealer or major swap participant that it is provisionally registered

pending completion of a fitness review by the National Futures

Association.

* * * * *

3. Section 3.4 is amended by revising paragraph (a) to read as

follows:

Sec. 3.4 Registration in one capacity not included in registration in

any other capacity.

(a) Except as may be otherwise provided in the Act or in any rule,

regulation, or order of the Commission, each futures commission

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

participant, floor broker, floor trader, associated person (other than

an associated person of a swap dealer or major swap participant),

commodity trading advisor, commodity pool operator, introducing broker,

and leverage transaction merchant must register as such under the Act.

Registration in one capacity under the Act shall not include

registration in any other capacity; Provided, however, That a

registered floor broker need not also register as a floor trader in

order to engage in activity as a floor trader.

* * * * *

4. Section 3.10 is amended by:

a. Revising the heading;

b. Revising paragraph (a)(1);

c. Adding paragraph (a)(1)(v); and

d. Revising paragraphs (b) and (d) to read as follows:

Sec. 3.10 Registration of futures commission merchants, retail

foreign exchange dealers, introducing brokers, commodity trading

advisors, commodity pool operators, swap dealers, major swap

participants and leverage transaction merchants.

(a) * * *

(1)(i) Except as provided in paragraph (a)(3) of this section,

application for registration as a futures commission merchant, retail

foreign exchange dealers, introducing broker, commodity trading

advisor, commodity pool operator, swap dealer, major swap participant

or leverage transaction merchant must be on Form 7-R, completed and

filed with the National Futures Association in accordance with the

instructions thereto.

(ii) Applicants for registration as a futures commission merchant

or

[[Page 71388]]

introducing broker must accompany their Form 7-R with a Form 1-FR-FCM

or Form 1-FR-IB, respectively, in accordance with the provisions of

Sec. 1.10 of this chapter: Provided, however, That an applicant for

registration as a futures commission merchant or introducing broker

which is registered with the Securities and Exchange Commission as a

securities broker or dealer may accompany its Form 7-R with a copy of

its Financial and Operational Combined Uniform Single Report under the

Securities Exchange Act of 1934, Part II or Part II A, in accordance

with the provisions of Sec. 1.10(h) of this chapter.

(iii) Applicants for registration as a commodity pool operator must

accompany their Form 7-R with the financial statements described in

Sec. 4.13(c) of this chapter.

(iv) Applicants for registration as a leverage transaction merchant

must accompany their Form 7-R with a Form 2-FR in accordance with the

provisions of Sec. 2-FR of this chapter.

(v)(A) Applicants for registration as a swap dealer or major swap

participant must demonstrate, concurrently with or subsequent to the

filing of their Form 7-R with the National Futures Association,

compliance with regulations adopted by the Commission pursuant to

sections 4s(e), 4s(f), 4s(g), 4s(h), 4s(i), 4s(j) and 4s(k) of the Act,

and, as applicable, section 4s(l) of the Act; Provided, however, that

for the purposes of this paragraph (a)(1)(v) the term ``compliance''

includes the term ``the ability to comply,'' to the extent that a

particular regulation may require demonstration of the ability to

comply with a requirement.

(B) The filing of the Form 7-R by the applicant swap dealer or

major swap participant authorizes the Commission to conduct on-site

inspection of the applicant to determine compliance with the

regulations referred to in paragraph (a)(1)(v)(A) of this section.

(C)(1) Any person may apply to be registered as a swap dealer or

major swap participant by filing a form 7-R at any time from April 15,

2011 until such time as regulations adopted by the Commission further

defining the terms ``swap dealer'' and ``major swap participant''

become effective.

(2) From and after such time as regulations adopted by the

Commission further defining the terms ``swap dealer'' and ``major swap

participant'' become effective, each swap dealer or major swap

participant must apply to be registered as a swap dealer or major swap

participant by filing a form 7-R.

(3) Any person who applies to be registered as a swap dealer or

major swap participant before such time as all of the regulations

specified in paragraph (a)(1)(v)(A) of this section have become

effective will be granted provisional registration as a swap dealer or

major swap participant, as the case may be, upon filing a Form 7-R and

such documentation as may be required to demonstrate compliance with

such of the regulations specified in paragraph (a)(1)(v)(A) of this

section as are effective as of the date of such filing; Provided,

however, that: Where the applicant has been granted provisional

registration as a swap dealer or major swap participant, it must

provide such documentation as may be required to demonstrate compliance

with the remaining regulations specified in paragraph (a)(1)(v)(A) of

this section by no later than the respective effective date of each

such regulation.

(D)(1) Where an applicant for registration as a swap dealer or

major swap participant that has been granted provisional registration

has timely demonstrated compliance with the regulations specified in

paragraph (a)(1)(v)(A) of this section in accordance with paragraph

(a)(1)(v)(C) of this section, the applicant will be notified that its

provisional registration has ceased to be provisional and it has become

fully registered as a swap dealer or major swap participant.

(2) Where an applicant for registration as a swap dealer or major

swap participant that has been granted provisional registration has

failed to timely demonstrate compliance with any of the regulations

specified in paragraph (a)(1)(v)(A) of this section in accordance with

paragraph (a)(1)(v)(C) of this section the applicant will be notified

that its application is deficient, whereupon it must withdraw its

registration application, it must not engage in any new activity

described in the definition of ``swap dealer'' in section 1a(49) of the

Act or the definition of ``major swap participant'' in section 1a(33)

of the Act as such terms may be further defined by Commission

regulations, and its provisional registration shall cease; Provided,

however, that in the event the applicant fails to withdraw its

registration application or cure the deficiency within 30 days

following receipt of notice that its application is deficient, its

application will be deemed withdrawn and thereupon its registration

shall cease; Provided further, however, that upon written request by

the applicant submitted to the Director of the Division of Clearing and

Intermediary Oversight, the Commission may in its discretion extend the

time within which the deficiency may be cured.

(3) Unless specifically reserved in the applicable swap, no

withdrawal, deemed withdrawal, cessation or revocation of registration

as a swap dealer or major swap participant pursuant to paragraph

(a)(1)(v)(D)(2) of this section or paragraph (b) of this section shall

constitute a termination event, force majeure, an illegality, increased

costs, a regulatory change, or a similar event under a swap (including

any related credit support arrangement) that would permit a party to

terminate, renegotiate, modify, amend or supplement one or more

transactions under the swap.

* * * * *

(b) Duration of registration. (1) A person registered as a futures

commission merchant, retail foreign exchange dealer, introducing

broker, commodity trading advisor, commodity pool operator, swap

dealer, major swap participant or leverage transaction merchant in

accordance with paragraph (a) of this section will continue to be so

registered until the effective date of any revocation or withdrawal of

such registration. Such person will immediately be prohibited from

engaging in new activities requiring registration under the Act or from

representing himself to be a registrant under the Act or the

representative or agent of any registrant during the pendency of any

suspension of such registration.

* * * * *

(d) On a date to be established by the National Futures

Association, and in accordance with procedures established by the

National Futures Association, each registrant as a futures commission

merchant, retail foreign exchange dealer, introducing broker, commodity

trading advisor, commodity pool operator, swap dealer, major swap

participant or leverage transaction merchant shall, on an annual basis,

review and update registration information maintained with the National

Futures Association and additionally, in the case of a swap dealer or

major swap participant, with the Commission. The failure to complete

the review and update within thirty days following the date established

by the National Futures Association shall be deemed to be a request for

withdrawal from registration, which shall be processed in accordance

with the provisions of Sec. 3.33(f).

5. Section 3.21 is amended by:

a. Revising paragraph (c) introductory text; and paragraph

(c)(1)(iv);

b. Adding paragraph (c)(1)(v);

c. Revising paragraph (c)(2)(i); and

[[Page 71389]]

d. Revising paragraph (c)(4)(i) to read as follows:

Sec. 3.21 Exemption from fingerprinting requirement in certain cases.

* * * * *

(c) Outside directors. Any futures commission merchant, retail

foreign exchange dealer, introducing broker, commodity trading advisor,

commodity pool operator, swap dealer, major swap participant or

leverage transaction merchant that has a principal who is a director

but is not also an officer or employee of the firm may, in lieu of

submitting a fingerprint card in accordance with the provisions of

Sec. Sec. 3.10(a)(2) and 3.31(a)(2), file a ``Notice Pursuant to Sec.

3.12(c) of the Commission's Regulations'' with the National Futures

Association. Such notice shall state, if true, that such outside

director:

(1) * * *

(iv) The solicitation of leverage customers' orders for leverage

transactions,

(v) The solicitation of a swap agreement;

(2) * * *

(i) Commodity interest or swap transactions;

* * * * *

(4) * * *

(i) The name of the futures commission merchant, retail foreign

exchange dealer, swap dealer, major swap participant, introducing

broker, commodity trading advisor, commodity pool operator, leverage

transaction merchant, or applicant for registration in any of these

capacities of which the person is an outside director;

* * * * *

6. Section 3.30 is amended by revising paragraph (a) to read as

follows:

Sec. 3.30 Current address for purpose of delivery of communications

from the Commission or the National Futures Association.

(a) The address of each registrant, applicant for registration, and

principal, as submitted on the application for registration (Form 7-R

or Form 8-R) or as submitted on the biographical supplement (Form 8-R)

shall be deemed to be the address for delivery to the registrant,

applicant or principal for any communications from the Commission or

the National Futures Association, including any summons, complaint,

reparation claim, order, subpoena, special call, request for

information, notice, and other written documents or correspondence,

unless the registrant, applicant or principal specifies another address

for this purpose: Provided, that the Commission or the National Futures

Association may address any correspondence relating to a biographical

supplement submitted for or on behalf of a principal to the futures

commission merchant, retail foreign exchange dealer, commodity trading

advisor, commodity pool operator, swap dealer, major swap participant,

introducing broker, or leverage transaction merchant with which the

principal is affiliated and may address any correspondence relating to

an associated person to the futures commission merchant, retail foreign

exchange dealer, commodity trading advisor, commodity pool operator,

swap dealer, major swap participant, introducing broker, or leverage

transaction merchant with which the associated person or the applicant

for registration is or will be associated as an associated person.

* * * * *

7. Section 3.31 is amended by revising paragraphs (a)(1), (b) and

(c)(2) 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, 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 which no longer

renders accurate and current the information contained therein. Each

such correction shall be made on Form 3-R and shall be prepared and

filed in accordance with the instructions thereto. Provided, however,

that where a registrant is reporting a change in the form of

organization from or to a sole proprietorship, the registrant must file

a Form 7-W regarding the pre-existing organization and a Form 7-R

regarding the newly formed organization.

* * * * *

(b)(1) Each applicant for registration or registrant as a floor

broker, floor trader or associated person, and each principal of a

futures commission merchant, retail foreign exchange dealer, commodity

trading advisor, commodity pool operator, introducing broker, 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 which renders no longer accurate and

current the information contained in the Form 8-R or supplemental

statement. Each such correction must be made on Form 3-R and must be

prepared and filed in accordance with the instructions thereto.

(2) Each applicant for registration or registrant as a swap dealer

or major swap participant and each principal of a swap dealer or major

swap participant, must, in accordance with the instructions thereto,

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

supplemental statement thereto which renders no longer accurate and

current the information contained in the Form 8-R or supplemental

statement. Each such correction must be made on Form 3-R and must be

prepared and filed in accordance with the instructions thereto.

(c) * * *

(2) Each person registered as, or applying for registration as, a

futures commission merchant, retail foreign exchange dealer, commodity

trading advisor, commodity pool operator, swap dealer, major swap

participant, introducing broker or leverage transaction merchant must,

within thirty days after the termination of the affiliation of a

principal with the registrant or applicant, file a notice thereof with

the National Futures Association.

* * * * *

8. Section 3.33 is amended by:

a. Revising paragraph (a) introductory text;

b. Revising paragraph (b) introductory text and paragraphs

(b)(6)(vi) through (b)(6)(vii);

c. Adding paragraphs (b)(6)(viii) and (b)(6)(ix); and

d. Revising paragraph (e) to read as follows:

Sec. 3.33 Withdrawal from registration.

(a) A futures commission merchant, retail foreign exchange dealer,

introducing broker, commodity trading advisor, commodity pool operator,

swap dealer, major swap participant, leverage transaction merchant,

floor broker or floor trader may request that its registration be

withdrawn in accordance with the requirements of this section if:

* * * * *

(b) A request for withdrawal from registration as a futures

commission merchant, retail foreign exchange dealer, introducing

broker, commodity trading advisor, commodity pool operator, swap

dealer, major swap participant, or leverage transaction merchant must

be made on Form 7-W, and a request for withdrawal from registration as

a floor broker or floor trader must be made on Form 8-W,

[[Page 71390]]

completed and filed with National Futures Association in accordance

with the instructions thereto. The request for withdrawal must be made

by a person duly authorized by the registrant and must specify:

(6) * * *

(vi) The nature and extent of any pending customer, retail forex

customer, option customer, leverage customer, swap counterparty or

commodity pool participant claims against the registrant, and, to the

best of the registrant's knowledge and belief, the nature and extent of

any anticipated or threatened customer, option customer, leverage

customer, swap counterparty or commodity pool participant claims

against the registrant;

(vii) In the case of a futures commission merchant or a retail

foreign exchange dealer which is a party to a guarantee agreement, that

all such agreements have been or will be terminated in accordance with

the provisions of Sec. 1.10(j) of this chapter not more than thirty

days after the filing of the request for withdrawal from registration;

(viii) In the case of a swap dealer, that the person will not

engage in any new activity described in the definition of the term

``swap dealer'' in section 1a(49) of the Act, as such term may be

further defined by Commission regulations; and

(ix) In the case of a major swap participant, that the person will

not engage in any new activity described in the definition of the term

``major swap participant'' in section 1a(33) of the Act, as such term

may be further defined by Commission regulations.

* * * * *

(e) A request for withdrawal from registration as a futures

commission merchant, retail foreign exchange dealer, introducing

broker, commodity trading advisor, commodity pool operator, swap

dealer, major swap participant or leverage transaction merchant on Form

7-W, and a request for withdrawal from registration as a floor broker

or floor trader on Form 8-W, must be filed with the National Futures

Association and a copy of such request must be sent by the National

Futures Association within three business days of the receipt of such

withdrawal request to the Commodity Futures Trading Commission,

Division of Clearing and Intermediary Oversight, Three Lafayette

Centre, 1155 21st Street, NW., Washington, DC 20581. In addition, any

floor broker or floor trader requesting withdrawal from registration

must file a copy of his Form 8-W with each contract market that has

granted him trading privileges. Within three business days of any

determination by the National Futures Association under Sec. 3.10(d)

to treat the failure by a registrant to file an annual Form 7-R as a

request for withdrawal, the National Futures Association shall send the

Commission notice of that determination.

* * * * *

9. Part 23 is added to read as follows:

PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS

Subpart A--[Reserved]

Sec.

23.1-23.20 [Reserved]

Subpart B--Registration

23.21 Registration of swap dealers and major swap participants.

23.22 Prohibition against statutory disqualification in the case of

an associated person of a swap dealer or major swap participant.

23.23-23.40 [Reserved]

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. No. 111-203, 124

Stat. 1376 (Jul. 21, 2010).

Subpart A--[Reserved]

Sec. Sec. 23.1-23.20 [Reserved]

Subpart B--Registration

Sec. 23.21 Registration of swap dealers and major swap participants.

(a) Each person who comes within the definition of the term ``swap

dealer'' in section 1a(49) of the Act, as such term may be further

defined by Commission regulations, is subject to the registration

provisions under the Act and to part 3 of this chapter.

(b) Each person who comes within the definition of the term ``major

swap participant'' in section 1a(33) of the Act, as such term may be

further defined by Commission regulations, is subject to the

registration provisions under the Act and to part 3 of this chapter.

(c) Each affiliate of an insured depository institution described

in section 716(c) of the Dodd-Frank Wall Street Reform and Consumer

Protection Act (Pub. L. 111-203 Sec. 716(c), 124 Stat. 1376 (2010)) is

required to be registered as a swap dealer if the affiliate is a swap

dealer, or as a major swap participant if the affiliate is a major swap

participant.

Sec. 23.22 Prohibition against statutory disqualification in the case

of an associated person of a swap dealer or major swap participant.

(a) Definition. For purposes of this section, the term ``person''

means an ``associated person of a swap dealer or major swap

participant'' as defined in section 1a(4) of the Act.

(b) Fitness. No swap dealer or major swap participant may permit a

person who is subject to a statutory disqualification under section

8a(2) or 8a(3) of the Act to effect or be involved in effecting swaps

on behalf of the swap dealer or major swap participant, if the swap

dealer or major swap participant knows, or in the exercise of

reasonable care should know, of the statutory disqualification.

Sec. Sec. 23.23-23.40 [Reserved]

PART 170--REGISTERED FUTURES ASSOCIATIONS

1. The authority citation for part 170 is revised to read as

follows:

Authority: 7 U.S.C. 6p, 12a and 21.

2. Section 170.16 is added to read as follows:

Sec. 170.16 Swap dealers and major swap participants.

Each person registered as a swap dealer or a major swap participant

must become and remain a member of at least one futures association

that is registered under section 17 of the Act and that provides for

the membership therein of such swap dealer or major swap participant,

as the case may be, unless no such futures association is so

registered.

Issued in Washington, DC, on November 10, 2010, by the

Commission.

David A. Stawick,

Secretary of the Commission.

Statement of Chairman Gary Gensler

Registration of Swap Dealers and Major Swap Participants

I support the proposed rulemaking to establish a process for the

registration of swap dealers and major swap participants. This

proposal would implement Congress's mandate that these entities be

subject to registration and regulation for their swaps business.

Registration will enable the Commission to monitor swap dealers and

major swap participants for compliance with the Dodd-Frank Act and

Commission rulemakings. Through regulation of the dealers, the

Commission will be able to protect market participants and the

public and promote sound risk management practices. The proposal

includes a requirement that swaps dealers and major swap

participants register with a registered futures association, such as

the National Futures Association. This would provide the Commission

with flexibility with regard to its oversight of swap dealers and

major swap participants for compliance with the Dodd-Frank Act.

[FR Doc. 2010-29024 Filed 11-22-10; 8:45 am]

BILLING CODE 6351-01-P

 

Last Updated: November 23, 2010