[Federal Register Volume 66, Number 123 (Tuesday, June 26, 2001)]
[Proposed Rules]
[Pages 34042-34081]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-15978]



[[Page 34041]]

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Part VI





Securities and Exchange Commission





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17 CFR Parts 240, 248, and 249



Registration of Broker-Dealers Pursuant to Section 15(b)(11) of the 
Securities Exchange Act of 1934; Proposed Rules

  Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / 
Proposed Rules  

[[Page 34042]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240, 248, and 249

[Release No. 34-44455; File No. S7-13-01]
RIN 3235-AI21


Registration of Broker-Dealers Pursuant to Section 15(b)(11) of 
the Securities Exchange Act of 1934

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
publishing for comment proposed rules to implement certain provisions 
of the Commodity Futures Modernization Act of 2000 (``CFMA''). First, 
the Commission is proposing amendments to its broker-dealer 
registration requirements and to Form BD. These amendments would 
implement section 203 of the CFMA, which permits futures commission 
merchants and introducing brokers that are registered with the 
Commodity Futures Trading Commission (``CFTC'') to register as broker-
dealers for the limited purpose of effecting transactions in certain 
security futures products by filing a notice with the Commission.
    Second, the Commission is proposing a conditional exemption from 
registration under section 15(a) of the Securities Exchange Act of 
1934. The proposed exemption would provide guidance on the extent to 
which a broker-dealer registered by notice may trade security futures 
products. Under the proposed exemption, a broker-dealer registered by 
notice would be able to trade any security futures products as long as 
it did not become a member of a registered national securities exchange 
or national securities association.
    Third, the Commission is proposing amendments to Regulation S-P, 
which was adopted under the Gramm-Leach-Bliley Act. These amendments 
would revise certain provisions of Regulation S-P in light of section 
124 of the CFMA, which makes the privacy provisions of the Gramm-Leach-
Bliley Act applicable to activity regulated by the CFTC. These 
amendments would also allow futures commission merchants and 
introducing brokers registered by notice with the Commission as broker-
dealers to comply with Regulation S-P by complying with the CFTC's 
financial privacy rules.

DATES: Comments must be submitted on or before July 26, 2001.

ADDRESSES: Interested persons should submit three copies of their 
written data, views, and opinions to Jonathan G. Katz, Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549-0609. Comments also may be submitted electronically at the 
following e-mail address: [email protected]. All comment letters 
should refer to File No. S7-13-01; this file number should be used on 
the subject line if e-mail is used. Comment letters will be available 
for public inspection and copying at the Commission's Public Reference 
Room, 450 Fifth Street, NW., Washington, DC 20549. Electronically 
submitted comment letters will be posted on the Commission's website 
(http://www.sec.gov). Personal identifying information, such as names 
or e-mail addresses, will not be edited from electronic submission. 
Submit only information that you wish to make publicly available.

FOR FURTHER INFORMATION CONTACT: Catherine McGuire, Chief Counsel, 
Theodore R. Lazo, Special Counsel, Brice D. Prince, Attorney, or 
Christina K. McGlosson, Attorney, at 202/942-0073, Office of Chief 
Counsel, Division of Market Regulation, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 20549-1001.

SUPPLEMENTARY INFORMATION: The Commission today is proposing Rules 15a-
10, 15b11-1, and 15b11-2 under the Securities Exchange Act of 1934 
(``Exchange Act''),\1\ and amendments to Rule 15b2-2 under the Exchange 
Act \2\ and to Form BD to provide for the registration by notice of 
certain broker-dealers for the limited purpose of effecting 
transactions in certain security futures products. In addition, the 
Commission is proposing amendments to Regulation S-P \3\ in light of 
the CFMA's application of the privacy provisions of the Gramm-Leach-
Bliley Act (``GLBA'') to the CFTC and its regulated entities.
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    \1\ 17 CFR 240.15a-10, 240.15b11-1, and 240.15b11-2.
    \2\ 17 CFR 240.15b2-2.
    \3\ 17 CFR Part 248.
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Table of Contents

I. Introduction
    A. Security Futures Products
    B. Privacy
II. Discussion of Proposed Rulemaking
    A. Notice Registration of Broker-Dealers to Conduct Business in 
Security Futures Products
    1. Proposed Rule 15b11-1 under the Exchange Act: Procedure for 
Notice Registration
    2. Proposed Rule15b11-2 under the Exchange Act: Procedure for 
Application to Convert Registration
    3. Proposed Rule 15a-10 under the Exchange Act: Conditional 
Exemption from Full Broker-Dealer Registration for Security Futures 
Product Broker-Dealers
    4. Proposed Revisions to Rule 15b2-2 under the Exchange Act: 
Inspection of Newly Registered Brokers and Dealers
    B. Proposed Amendments to Form BD
    1. Amended Form BD
    2. Interim Schedule to Form BD
    C. Proposed Amendments to Regulation S-P
III. General Request for Comments
IV. Paperwork Reduction Act Analysis
V. Costs and Benefits of the Proposed Rulemaking
    A. Proposals Related to Security Futures Products
    B. Proposed Amendments to Regulation S-P
    C. Costs and Benefits of the Proposed Rulemaking
    1. Costs and Benefits of Proposed Rules 15a-10, 15b-11, and 
15b11-2, Proposed Amendments to Form BD, and Conforming Amendments 
to Rule 15b2-2
    a. Benefits
    b. Costs
    2. Costs and Benefits of the Proposed Amendments to Regulation 
S-P
    a. Benefits
    b. Costs
    D. Request for Comment.
VI. Consideration of the Burden on Competition, Promotion of 
Efficiency, and Capital Formation
VII. Regulatory Flexibility Act Certification
VIII. Statutory Basis

I. Introduction

A. Security Futures Products

    The CFMA permits the trading of security futures, i.e., futures 
contracts on individual securities and on narrow-based security 
indexes.\4\ The CFMA defines security futures both as ``securities'' 
under the federal securities laws,\5\ and as futures contracts for 
purposes of the Commodity Exchange Act (``CEA'').\6\ Accordingly, the 
CFMA establishes a regulatory framework under which the Commission and 
the CFTC have joint jurisdiction over the intermediaries and markets 
that trade security futures products.
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    \4\ Pub. L. No. 106-554, 114 Stat. 2763. Under Exchange Act 
section 3(a)(55)(A), the term ``security future'' is defined as a 
contract of sale for future delivery of a single security or of a 
narrow-based security index. 15 U.S.C. 78c(a)(55)(A). Under Exchange 
Act section 3(a)(56), the term ``security futures product'' is 
defined as a security future or an option on a security future. 15 
U.S.C. 78c(a)(56).
    \5\ See, e.g., Exchange Act section 3(a)(10), 15 U.S.C. 
78c(a)(10).
    \6\ The term ``security future'' is defined in CEA section 
1a(31) (7 U.S.C. 1a(31)) as a contract of sale for future delivery 
of a single security or of a narrow-based security index. Under CEA 
section 1a(33) (7 U.S.C. 1a(33)), the term ``security futures 
product'' is defined as a security future or an option on a security 
future.
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    Because they are subject to regulation both as securities and as 
futures contracts, security futures products

[[Page 34043]]

must be traded on trading facilities and through intermediaries that 
are registered with both the Commission and the CFTC. In order to avoid 
duplicative regulation, however, the CFMA establishes a system of 
notice registration under which trading facilities and intermediaries 
that are already registered with either the Commission or the CFTC may 
register with the other agency on an expedited basis for the limited 
purpose of trading security futures products. Specifically, markets and 
intermediaries that are registered with one agency may register with 
the other by submitting a written notice that is effective upon 
filing.\7\ A ``notice registrant'' is then subject to the primary 
oversight by one agency, and is exempted under the CFMA from all but 
the core provisions of the laws administered by the other agency.
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    \7\ See Exchange Act sections 6(g) and 15(b)(11) (15 U.S.C. 
78f(g) and 78o(b)(11)) and CEA sections 5f and 4f(a)(2) (7 U.S.C. 
7b-1 and 6f(a)(2)).
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    Exchange Act section 15(b)(11) provides for the notice registration 
of broker-dealers for the limited purpose of effecting transactions in 
certain security futures products (``Security Futures Product Broker-
Dealers''). We are proposing Rules 15b11-1, 15b11-2, and 15a-10 under 
the Exchange Act to establish the procedure for notice registration of 
Security Futures Product Broker-Dealers. Proposed Rule 15b11-1 would 
provide the terms and conditions under which futures commission 
merchants and introducing brokers that are registered with the CFTC 
(collectively, ``CFTC Registrants'') could use the notice registration 
provisions.\8\ In addition, Proposed Rule 15b11-1 would provide that a 
CFTC Registrant eligible for notice registration must file the notice 
on Form BD. Proposed Rule 15b11-2 would provide that a Security Futures 
Product Broker-Dealer could apply to become registered under Exchange 
Act section 15(b)(1), and therefore conduct business in securities 
other than security futures products, by filing an amendment to its 
Form BD.
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    \8\ When used in this release, the terms ``futures commission 
merchant'' and ``introducing broker'' have the meanings in CEA 
sections 1a(20) and 1a(23) (7 U.S.C. 1a(20) and 1a(23)), 
respectively.
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    Proposed Rule 15a-10 would permit Security Futures Product Broker-
Dealers to trade security futures products regardless of the market on 
which they are listed or traded. Under the proposed rule, a Security 
Futures Product Broker-Dealer would be permitted, subject to certain 
conditions, to act as a broker or a dealer in security futures products 
traded on any national securities exchange, national securities 
association, or alternative trading system \9\ without being subject to 
the registration requirements of Exchange Act section 15(a)(1).\10\
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    \9\ The term ``alternative trading system'' is defined in 
section 300(a) of Regulation ATS (17 CFR 242.300(a)).
    \10\ 15 U.S.C. 78o(a)(1). Section 15(a)(1) provides that a 
broker or dealer must be registered pursuant to section 15(b) in 
order to ``effect any transaction in, or to induce or attempt to 
induce the purchase or sale of, any security (other than an exempted 
security or commerical paper, bankers' acceptances, or commercial 
bills) . . . .''
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    In addition, we are proposing amendments to Form BD. The proposed 
amendments would elicit information as to whether Security Futures 
Product Broker-Dealers satisfy the conditions for notice registration. 
The proposed amendments are also intended to inform the Commission 
about all registered broker-dealers' activities in security futures 
products.
    We are also proposing to amend Exchange Act Rule 15b2-2,\11\ which 
provides that broker-dealers must be inspected by a self-regulatory 
organization within six months of becoming registered. The proposed 
amendment would provide an exception from this requirement for Security 
Futures Product Broker-Dealers.
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    \11\ 17 CFR 240.15b2-2.
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B. Privacy

    Section 124 of the CFMA amended the CEA to provide that Title V of 
the GLBA applies to the CFTC and certain of the entities that it 
regulates. We adopted Regulation S-P to implement Title V of the GLBA 
in June 2000, before the CFMA was enacted.\12\ As a result, certain 
provisions of Regulation S-P do not reflect section 124 of the CFMA, 
which amended the CEA. In light of these amendments, we are proposing 
amendments to update Regulation S-P.
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    \12\ 17 CFR part 248. See Securities Exchange Act Release No. 
42905 (June 22, 2000), 65 FR 40334.
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II. Discussion of Proposed Rulemaking

A. Notice Registration of Broker-Dealers to Conduct Business in 
Security Futures Products

    Security futures are expressly defined as securities under the 
Exchange Act.\13\ As a result, for purposes of the Exchange Act, any 
person who is engaged in the business of effecting transactions in 
security futures products for the account of another is a broker.\14\ 
Similarly, any person who is engaged in the business of buying and 
selling security futures products for the person's own account is a 
dealer.\15\ With limited exceptions, brokers and dealers are required 
by Exchange Act section 15(a) to register with the Commission.\16\
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    \13\ Exchange Act section 3(a)(10), 15 U.S.C. 78c(a)(10).
    \14\ See Exchange Act section 3(a)(4), 15 U.S.C. 78c(a)(4).
    \15\ See Exchange Act section 3(a)(5), 15 U.S.C. 78c(a)(5).
    \16\ 15 U.S.C. 78o(a).
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    The CFMA amended the broker-dealer registration requirements with 
respect to certain security futures products by adding section 
15(b)(11) to the Exchange Act.\17\ Section 15(b)(11)(A) provides that a 
broker or dealer required to register with the Commission only because 
it effects transactions in security futures products on an exchange 
registered pursuant to Exchange Act section 6(g) (``Security Futures 
Product Exchange'')\18\ may register by filing a written notice with 
the Commission.\19\ We are proposing Exchange Act Rules 15b11-1, 15b11-
2, and 15a-10 to establish the procedure for submitting that notice to 
the Commission, and to provide guidance on the extent to which a 
Security Futures Product Broker-Dealer may act as a broker or a dealer 
in security futures products.
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    \17\ 15 U.S.C. 78o(b)(11).
    \18\ Exchange Act section 6(g) (15 U.S.C. 78f(g)) provides that 
designated contract markets and derivatives transaction execution 
facilities that are registered with the CFTC under CEA sections 5 
and 5a (7 U.S.C. 7 and 7a), respectively, may register by notice 
with the Commission to trade security futures products as a Security 
Futures Product Exchange. We have proposed rules to establish the 
procedures for such notice registration. See Securities Exchange Act 
Release No. 44279 (May 8, 2001), 66 FR 26978.
    \19\ Section 15(b)(11)(A) further states that the written notice 
filed with the Commission must be in such form and contain such 
information concerning such broker or dealer and any persons 
associated with such broker or dealer as the Commission by rule, may 
prescribe as necessary or appropriate in the public interest or for 
the protection of investors.
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1. Proposed Rule 15b11-1 under the Exchange Act: Procedure for Notice 
Registration
    Proposed Rule 15b11-1 would specify how a CFTC Registrant could 
register with the Commission by notice to effect transactions in 
security futures products. Specifically, the proposed rule would 
provide that a CFTC Registrant must file Form BD to become a Security 
Futures Product Broker-Dealer pursuant to Exchange Act section 
15(b)(11)(A).\20\
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    \20\ Form BD is filed with the Central Registration Depository 
(``CRD''), which is operated and maintained by the National 
Association of Securities Dealers, Inc. (``NASD''). When a Form BD 
is filed with the CRD, the information on the form is entered into 
the CRD and then transmitted electronically to the Commission. Even 
though Form BD is not filed directly with the Commission, it is 
considered a ``report'' filed with the Commission for purposes of 
Exchange Act sections 15(b), 17(a), 18(a), 32(a) (15 U.S.C. 78o(b), 
78q(a), 78r(a), 78ff(a)), and other applicable provisions of the 
Exchange Act.
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    Form BD is the uniform application form for traditional broker-
dealer

[[Page 34044]]

registration used by the Commission, state securities regulators, and 
self-regulatory organizations.\21\ Form BD requires an applicant to 
provide information concerning the nature of its business, as well as 
information regarding its principals, controlling persons, and 
employees. In addition, Form BD is designed to permit the Commission to 
determine whether the applicant meets the statutory requirements to 
engage in the securities business.
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    \21\ Form BD is the form filed by an applicant to become 
registered pursuant to Exchange Act section 15(b)(1). See Exchange 
Act Rule 15b1-1, 17 CFR 240.15b1-1. In addition, intrastate nonbank 
municipal securities dealers required to register under section 
15B(a) must file an application for registration with the Commission 
on Form BD, as must government securities brokers and dealers 
required to register under Exchange Act section 15C(a). See Exchange 
Act Rules 15Ba2-2 and 15C2-1, 17 CFR 240.15Ba2-2 and 240.15Ca2-1.
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    Under Exchange Act section 15(b)(11), however, Security Futures 
Product Broker-Dealers will not be subject to the same statutory 
requirements as other applicants for broker-dealer registration. In 
particular, a complete application for notice registration will be 
effective upon filing.\22\ In addition, a Security Futures Product 
Broker-Dealer will be exempt from certain provisions of the Exchange 
Act with respect to transactions in security futures products.\23\ In 
light of this alternative registration and regulatory scheme, section 
15(b)(11) provides several conditions for notice registration. First, 
the Security Futures Product Broker-Dealer must be registered with the 
CFTC as a futures commission merchant or as an introducing broker.\24\ 
Second, the Security Futures Product Broker-Dealer must be a member of 
the National Futures Association (``NFA'') or another national 
securities association registered pursuant to Exchange Act section 
15A(k).\25\ Third, the Security Futures Product Broker-Dealer must 
limit its business in securities to security futures products that are 
listed or traded on Security Futures Product Exchanges, except to the 
extent that it is permitted to conduct business in other types of 
securities without registering as a broker-dealer.\26\ Proposed Rule 
15b11-1(b) would require a broker-dealer registering by notice to 
indicate where appropriate on Form BD that it meets the conditions for 
notice registration.\27\
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    \22\ See Exchange Act section 15(b)(11)(A)(ii), 15 U.S.C. 
78o(b)(11)(A)(ii). However, an application for notice registration 
will not take immediate effect if it is subject to suspension or 
revocation under Exchange Act section 15(b)(4). 15 U.S.C. 78o(b)(4). 
In addition, under Rule 202.3(b)(1) of the Commission's Procedural 
Rules (17 CFR 202.3), applications on Form BD that are not complete 
``may be returned with a request for correction or held until 
corrected before being accepted as a filing.''
    \23\ Exchange Act section 15(b)(11)(B), 15 U.S.C. 78o(b)(11)(B). 
Specifically, a Security Futures Product Broker-Dealer will be 
exempt from sections 8, 11, 15(c)(3), 15(c)(5), 15B, 15C, and 17(d)-
(i) of the Exchange Act (15 U.S.C. 78h, 78k, 78o(c)(3), 78o(c)(5), 
78o-4, 78o-5, and 78q(d)(i)).
    \24\ As noted above, section 15(b)(11) provides that notice 
registration is available only to broker-dealers that fall within 
the registration requirements of section 15 by effecting 
transactions in security futures products on a Security Futures 
Product Exchange. CEA section 4d)(a)(1) (7 U.S.C. 6d(a)(1)) provides 
that futures commission merchants and introducing brokers must be 
registered with the CFTC before ``soliciting orders or accepting 
orders for the purchase or sale of any commodity for future 
delivery, or involving any contracts of sale of any commodity for 
future delivery, on or subject to the rules of any contract market 
or derivatives transaction execution facility.''
    \25\ 15 U.S.C. 78o-3(k). Under section 15A(k), a futures 
association registered under CEA section 17 (7 U.S.C. 21) will 
become a registered national securities association for the limited 
purpose of regulating the activity of members who are Security 
Futures Product Broker-Dealers as long as the limited purpose 
national securities association implements certain rules and 
procedures. See Exchange Act section 15A(k)(2)(A)-(D) (15 U.S.C. 
78o-3(k)(2)(A)-(D)). Our subsequent discussion refers specifically 
to the NFA, which is the only organization currently eligible to 
become a limited purpose national securities association. However, 
the discussion would apply equally to any other limited purpose 
national securities association.
    \26\ For example, Exchange Act Rules 3a43-1 and 3a44-1 (17 CFR 
240.3a43-1 and 240.3a44-1) allow futures commission merchants that 
are registered with the CFTC to effect transactions in government 
securities that are incidental to their futures-related business 
without being considered government securities brokers or government 
securities dealers. As explained in more detail below, we are also 
proposing Rule 15a-10 under the Exchange Act, which would 
conditionally permit Security Futures Product Broker-Dealers to 
trade security futures products regardless of the market on which 
they are listed or traded without having to register under Exchange 
Act 15(b)(1) (15 U.S.C. 78o(b)(1)).
    \27\ As explained below, we are proposing to amend Form BD in 
order to elicit the information necessary to determine whether the 
broker-dealer meets the conditions for notice registration.
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    Under Exchange Act section 15(b)(11)(A)(iv), the registration of a 
Security Futures Product Broker-Dealer will terminate by operation of 
law if it is no longer registered with the CFTC or is no longer a 
member of the NFA.\28\ In addition, Security Futures Product Broker-
Dealers will be subject to Exchange Act Rule 15b3-1,\29\ which requires 
a registered broker-dealer to promptly file an amendment to its Form BD 
if any of the information contained in the form is or becomes 
inaccurate for any reason.\30\ A Security Futures Product Broker-Dealer 
would be obligated under Rule 15b3-1 to amend its Form BD if it no 
longer met the statutory conditions for notice registration.
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    \28\ In addition, Exchange Act section 15(b)(11(A)(iii) provides 
that the registration of a Security Futures Product Broker-Dealer 
will be suspended immediately if its membership with the NFA is 
suspended.
    \29\ 17 CFR 240.15b3-1.
    \30\ The CFTC has issued a proposal to amend CEA Rule 3.10 (17 
CFR 3.10) to provide for the notice registration of futures 
commission merchants and introducing brokers. Notice Registration as 
a Futures Commission Merchant or Introducing Broker for Certain 
Securities Broker-Dealers, 66 FR 27476 (May 17, 2001). Under the 
CFTC's proposal, broker-dealers that are registered by notice with 
the CFTC would not be subject to Rule 3.10(d), which requires 
futures commission merchants and introducing brokers to file 
annually updated registration forms. We believe, however, that it is 
appropriate for Security Futures Product Broker-Dealers to keep the 
information in Form BD current. In addition, we believe that 
requiring Security Futures Product Broker Dealers to comply with 
Exchange Act Rule 15b3-1 is consistent with our authority under 
Exchange Act section 17(a) (15 U.S.C. 78q(a)) to prescribe reporting 
and recordkeeping requirements for broker-dealers, which is one of 
our sources of authority for rule 15b3-1.
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    We request comment on Proposed Rule 15b11-1. Should CFTC 
Registrants be permitted to register by notice as Security Futures 
Product Broker-Dealers on a form other than Form BD? Can the Commission 
rely on information that CTFC Registrants file with the CFTC and the 
NFA if it needs information regarding Security Futures Product Broker-
Dealers?
    In addition, we note in general that Security Futures Product 
Broker-Dealers will be broker-dealers for purposes of the Exchange Act. 
As a result, they will be subject to the rules under the Exchange Act 
that apply to broker-dealers except for rules adopted under the 
sections of the Exchange Act from which Security Futures Product 
Broker-Dealers are exempted by Exchange Act section 15(b)(11)(B). We 
invite commenters to identify other rules that should not be applicable 
to Security Futures Product Broker-Dealers. Should the Commission amend 
any of its rules or use its exemptive authority to except or exempt 
Security Futures Product Broker-Dealers from any rule?
2. Proposed Rule 15b11-2 under the Exchange Act: Procedure for 
Application to Convert Registration
    Proposed Rule 15b11-2 would permit a Security Futures Product 
Broker-Dealer to apply to become registered under Exchange Act section 
15(b)(1) by filing an amendment to its Form BD.\31\ The proposed rule 
would specify how a Security Futures Product Broker-Dealer may apply to 
become a full broker-dealer.\32\ For example, a Security Futures 
Product Broker-Dealer that

[[Page 34045]]

wanted to conduct business in securities other than security futures 
products could amend its Form BD to indicate that it planned to conduct 
additional securities business. This amended Form BD, therefore, would 
be an application for registration to conduct business as a full 
broker-dealer.\33\
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    \31\ Broker-dealers registered under Exchange Act section 
15(b)(1) (15 U.S.C. 78o(b)(1)) are referred to as ``full broker-
dealers.''
    \32\ Alternatively, we could have required a Security Futures 
Product Broker-Dealer to submit a new Form BD and pursue a separate 
registration if it chose to apply to become a full broker-dealer. 
Because this alternative could be more costly and time consuming for 
applicants, we are not proposing to require it.
    \33\ As discussed below, we are proposing to amend Form BD to 
add an item in which a Security Futures Product Broker-Dealer could 
indicate that it was amending its Form BD to apply for registration 
as a full broker-dealer.
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    Under Proposed Rule 15b11-2, the amendment to Form BD would be 
considered an application to become a full broker-dealer. The notice 
registration of a broker-dealer that filed an application by amendment 
under Proposed Rule 15b11-2 would remain effective while its 
application to become a full broker-dealer was pending. However, the 
broker-dealer would not be permitted to engage in securities business 
other than that permitted under section 15(b)(11) until it had 
satisfied all of the conditions under section 15(b) to become a full 
broker-dealer.\34\
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    \34\ Among other requirements, a full broker-dealer must either 
be a member of national securities association registered pursuant 
to Exchange Act section 15A(a) (15 U.S.C. 78o-3(a)) or limit its 
securities activities to a Registered National Securities Exchange 
of which it is a member. Exchange Act section 15(b)(8), 15 U.S.C. 
78o(b)(8).
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    Proposed Rule 15b11-2 would also provide that when the broker-
dealer's registration pursuant to section 15(b)(1) became effective it 
would no longer be a Security Futures Product Broker-Dealer. 
Accordingly, the broker-dealer would no longer be eligible for the 
exemptions in section 15(b)(11)(B). As a result, the broker-dealer 
would be subject to all of the provisions of the Exchange Act and the 
regulations thereunder applicable to its activity, including its 
activity in security futures products. We request comment on Proposed 
Rule 15b11-2.
3. Proposed Rule 15a-10 under the Exchange Act: Conditional Exemption 
from Full Broker-Dealer Registration for Security Futures Product 
Broker-Dealers
    Exchange Act section 15(b)(11)(A) provides that notice registration 
is available for ``a broker or dealer required to register only because 
it effects transactions in security futures products on an exchange 
registered pursuant to section 6(g) [of the Exchange Act] (emphasis 
added).'' Accordingly, notice registration is available to a CFTC 
registrant that would meet the definition of a broker or a dealer 
simply by effecting transactions in security futures products on a 
Security Futures Product Exchange.
    We believe that the plain language of section 15(b)(11)(A) of the 
Exchange Act limits a Security Futures Product Broker-Dealer to 
effecting transactions in security futures products only on Security 
Futures Products Exchanges. Therefore, a Security Futures Product 
Broker-Dealer must be registered pursuant to Exchange Act section 
15(b)(1) as a full broker-dealer in order to effect transactions in 
security futures products that are listed or traded on a national 
securities exchange registered pursuant to Exchange Act section 6(a) 
(``Registered National Securities Exchange'') \35\ or on a national 
securities association registered pursuant to Exchange Act section 
15A(a).\36\
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    \35\ 15 U.S.C. 78f(a).
    \36\ Exchange Act section 6(h)(1) provides that ``[i]t shall be 
unlawful for any person to effect transactions in security futures 
products that are not listed on a national securities exchange or a 
national securities association registered pursuant to section 
15A(a).''
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    We note that CEA section 4f(a)(2)\37\ permits a full broker-dealer 
that registers by notice with the CFTC to trade security futures 
products on any designated contract market or derivatives trading 
execution facility, regardless of whether it is fully registered or 
registered by notice with the CFTC.\38\ However, we believe that the 
two provisions were intentionally worded in different fashions because 
of the different regulatory structures for markets and intermediaries 
under the Exchange Act and the CEA.
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    \37\ 7 U.S.C. 6f(a)(2).
    \38\ Specifically, CEA section 4f(a)(2)(A) provides that a 
broker-dealer may register by notice with the CFTC if it ``limits 
its solicitation of orders, acceptance of orders, or execution of 
orders, or placing of orders on behalf of others involving any 
contracts of sale of any commodity for future delivery, on or 
subject to the rules of any contract market or registered 
derivatives transaction execution facility to security futures 
products.''
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    In particular, we believe that these two provisions are distinct 
because the Exchange Act and the CEA provide different standards with 
respect to the ability of an intermediary to become a member of a 
market or an exchange. Specifically, Exchange Act section 6(b)(2) \39\ 
provides that a Registered National Securities Exchange must permit any 
registered broker-dealer to become a member of the exchange. Similarly, 
Exchange Act section 15A(b)(3) \40\ provides that the rules of a 
national securities association must permit any registered broker-
dealer to become a member of the association.\41\ A Security Futures 
Product Broker-Dealer will be a registered broker-dealer for purposes 
of the Exchange Act.\42\ Without the statutory limitation on their 
activities, Registered National Securities Exchanges and registered 
national securities associations would be required to permit Security 
Futures Product Broker-Dealers (which are exempt from significant 
portions of the Exchange Act) to effect transactions in security 
futures products as members.
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78f(b)(2).
    \40\ 15 U.S.C. 78o-3(b)(3).
    \41\ There are limited exceptions to sections 6(b)(2) and 
15A(b)(3). For example, Exchange Act sections 6(c)(2) and 15A(g)(2) 
(15 U.S.C. 78f(c)(2) and 78o-3(g)(2)) permit Registered National 
Securities Exchanges and national securities associations to deny 
membership to any registered broker-dealer that is subject to a 
``statutory disqualification,'' as defined in Exchange Act sections 
3(a)(39) (15 U.S.C. 78c(a)(39)). In addition, Exchange Act section 
6(c)(3)(A) (15 U.S.C. 78f(c)(3)(A) permits a Registered National 
Securities Exchange to deny membership to a registered broker-dealer 
that does not meet the exchange's standards for financial 
responsibility or operational capability.
    \42\ The term ``registered broker or dealer'' is defined (in 
relevant part) in Exchange Act section 3(a)(48) as ``a broker or 
dealer registered or required to register pursuant to section 15 or 
15B of [the Exchange Act]. . . .'' 15 U.S.C. 78c(a)(48).
---------------------------------------------------------------------------

    In contrast, the CEA permits designated contract markets and 
derivatives transaction execution facilities to set fitness standards 
for their members and does not require them to accept any specific type 
of person or entity as a member.\43\ Accordingly, a Security Futures 
Product Exchange may deny membership to broker-dealers that are 
registered by notice with the CFTC (which are exempt from significant 
portions of the CEA). In addition, Exchange Act section 6(g)(4)(A)(i) 
exempts Security Futures Product Exchanges from the requirements of 
Exchange Act section 6(b)(2).\44\
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    \43\ See CEA sections 5(d)(12) and 5a(d)(6) (7 U.S.C. 7(d)(12) 
and 7a(d)(6)).
    \44\ In its capacity as a limited purpose national securities 
association pursuant to Exchange Act section 15A(k), the NFA will be 
exempt from Exchange Act section 15A(b)(3). Under Exchange Act 
section 6(h)(1), however, the NFA is not permitted to list or trade 
security futures products.
---------------------------------------------------------------------------

    The CFMA's system of joint regulation of security futures products 
is intended to prevent competitive advantages from arising solely out 
of differences between futures regulation and securities regulation. We 
believe that this concept is reflected in the fact that the CFMA 
provides different standards for CFTC Registrants that register by 
notice with the Commission than for broker-dealers that register by 
notice with the CFTC. Regulatory disparities would result if Security 
Futures Product Broker-Dealers were able to effect transactions in 
security futures products as members of Registered National Securities 
Exchanges or registered national securities associations along with 
fully registered (and fully regulated) broker-dealers. We believe that 
the different standards established by the CFMA for

[[Page 34046]]

notice registration of intermediaries address this potential for 
regulatory disparity.
    However, we also believe that it would be consistent with the 
purposes of the CFMA for the Commission to permit Security Futures 
Product Broker-Dealers to trade security futures products that are 
listed or traded on Security Futures Product Exchanges as well as on 
Registered National Securities Exchanges, registered national 
securities associations, or alternative trading systems. The CFMA's 
regulatory scheme provides that Security Futures Product Broker-Dealers 
are subject to primary regulation by the CFTC and regulation on core 
securities law issues by the Commission. At the same time, the CFMA 
preserves the Commission's primary regulatory authority over broker-
dealers that are members of Registered National Securities Exchanges 
and national securities associations registered pursuant to Exchange 
Act section 15A(a).\45\ In light of this regulatory scheme, we believe 
that a Security Futures Product Broker-Dealer that is not a member of a 
Registered National Securities Exchange or a registered national 
securities association should be permitted to effect transactions in 
any type of security futures product. In addition, we believe that 
permitting Security Futures Product Broker-Dealers to effect 
transactions in security futures products traded on all markets should 
promote competition. Accordingly, we are proposing Exchange Act Rule 
15a-10 to conditionally permit Security Futures Product Broker-Dealers 
to trade in security futures products regardless of the market on which 
the products are listed or traded.
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 78o-3(a).
---------------------------------------------------------------------------

    Specifically, Proposed Exchange Act Rule 15a-10 would provide a 
conditional exemption from the registration requirements of Exchange 
Act section 15(a)(1) for Security Futures Product Broker-Dealers. 
However, the exemption in Proposed Rule 15a-10 would not apply to a 
Security Futures Product Broker-Dealer that became a member of a 
Registered National Securities Exchange or a registered national 
securities association. Accordingly, the proposed rule would prevent a 
Security Futures Product Broker-Dealer from effecting transactions in 
security futures products as a member of a Registered National 
Securities Exchange or a registered national securities association 
unless it was a full broker-dealer. As a result, Proposed Rule 15a-10 
would permit Security Futures Product Broker-Dealers to effect 
transactions in security futures products that are listed or traded on 
a Registered National Securities Exchange, on registered national 
securities associations, or on alternative trading systems by effecting 
the transactions through a full broker-dealer.\46\
---------------------------------------------------------------------------

    \46\ A Security Futures Product Broker-Dealer relying on 
Proposed Rule 15a-10 could act in the capacity of a futures 
commission merchant, but would have to effect and clear the 
transactions through a full broker-dealer.
---------------------------------------------------------------------------

    We request comment on Proposed Rule 15a-10. Is it appropriate to 
permit Security Futures Product Broker-Dealers to effect transactions 
in security futures products that are listed or traded on Registered 
National Securities Exchanges, registered national securities 
associations, or alternative trading systems?
4. Proposed Revisions to Rule 15b2-2 under the Exchange Act: Inspection 
of Newly Registered Brokers and Dealers
    Exchange Act section 15(b)(2)(C) generally requires the Commission 
or a self-regulatory organization to inspect a newly registered broker-
dealer within six months of its registration. The purpose of this 
inspection is to determine whether the broker-dealer is operating in 
conformity with the federal securities laws. Exchange Act Rule 15b2-2 
\47\ implements section 15(b)(2)(C).
---------------------------------------------------------------------------

    \47\ 17 CFR 240.15b2-2.
---------------------------------------------------------------------------

    In adopting Rule 15b2-2, we noted that section 15(b)(2)(C) was 
added to the Exchange Act because of concern over the financial and 
operational difficulties that new broker-dealers may encounter in their 
early months of operation.\48\ Accordingly, Rule 15b2-2 contains an 
exception for broker-dealers that were already registered when the rule 
took effect.
---------------------------------------------------------------------------

    \48\ Securities Exchange Act Release No. 18556 (March 10, 1982), 
47 FR 11267.
---------------------------------------------------------------------------

    CFTC Registrants currently are and will continue to be subject to 
examinations by the CFTC.\49\ In addition, the CFMA provides a specific 
scheme for the examination of Security Futures Product Broker-Dealers 
by the Commission under which the Commission consults with the CFTC 
with respect to its examinations of Security Futures Product Broker-
Dealers.\50\ Moreover, under the terms of the CFMA the Commission 
generally defers to the CFTC with respect to financial and operational 
matters involving Security Futures Product Broker-Dealers. In 
particular, Exchange Act section 15(b)(11)(B)(iii) exempts Security 
Futures Product Broker-Dealers from Exchange Act section 15(c)(3) \51\ 
and the rules thereunder, which provide the financial responsibility 
standards for broker-dealers.\52\
---------------------------------------------------------------------------

    \49\ See CEA section 4g(a) (7 U.S.C. 6g(a)).
    \50\ Section 204 of the CFMA amended Exchange Act section 17(b) 
to provide that the Commission must notify the CFTC before it 
examines a Security Futures Product Broker-Dealer. Section 17(b) 
also requires the Commission to provide the CFTC with any reports 
that the Commission prepares in connection with an examination of a 
Security Futures Product Broker-Dealer. In addition, section 17(b) 
specifically provides that Security Futures Product Broker-Dealers 
are not subject to routine periodic examinations by the Commission.
    \51\ 15 U.S.C. 78o(c)(3).
    \52\ See, e.g., Exchange Act Rule 15c3-1 (17 CFR 240.15c3-1) 
(Net capital requirements for brokers or dealers).
---------------------------------------------------------------------------

    In light of the statutory scheme of joint regulation, we believe 
that it is not necessary at this time to apply Rule 15b2-2 to Security 
Futures Product Broker-Dealers. Accordingly, we are proposing to amend 
Rule 15b2-2 to provide that it does not apply to Security Futures 
Product Broker-Dealers.
    We request comment on the proposed amendments to Rule 15b2-2. Is it 
appropriate to provide an exception from the rule for Security Futures 
Product Broker-Dealers?

B. Proposed Amendments to Form BD

1. Amended Form BD
    We are proposing to amend Form BD so that it may be used to provide 
notice of registration as a broker-dealer by a CFTC Registrant pursuant 
to Exchange Act section 15(b)(11)(A). Specifically, we are proposing to 
add new items 2E through 2H. These items would require a CFTC 
Registrant that is registering as a broker-dealer by notice to indicate 
that it is filing a notice registration, and to indicate that it 
satisfies the statutory conditions for notice registration. Proposed 
items 2E through 2H would also enable the Commission, other regulators, 
and the public to identify Security Futures Product Broker-Dealers 
registering pursuant to section 15(b)(11)(A). This identification will 
allow the Commission to determine the Security Futures Product Broker-
Dealers' compliance with other applicable requirements.\53\ In 
addition, we are proposing to add new Item 5B, by which a Security 
Futures Product Broker-Dealer can indicate that it is applying to 
convert its registration status to become a full broker-dealer.
---------------------------------------------------------------------------

    \53\ As noted above, Security Futures Product Broker-Dealers are 
exempt from a number of provisions of the Exchange Act. However, 
Security Futures Product Broker-Dealers must limit their securities 
business to security futures products and to securities activities 
that do not require full broker-dealer registration. See Exchange 
Act section 15(b)(11)(A) (15 U.S.C. 78o(b)(11)(A)).

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

[[Page 34047]]

    We are also proposing to amend Form BD so that all broker-dealers 
may use it to notify the Commission of their security futures products 
activities. Broker-dealers would notify the Commission of their 
security futures products activities by checking new Item 12Z.\54\ 
Depending on the volume of their business in security futures products, 
broker-dealers already registered with the Commission may have to amend 
their Forms BD to complete new Item 12Z. Specifically, the proposed new 
item would require both full broker-dealers and Security Futures 
Product Broker-Dealers to indicate that they are doing business in 
securities futures products if that business accounts for (or if they 
expect it to account for) 1 percent or more of their annual 
revenue.\55\ In addition to these new items, we are also proposing 
amendments to the instructions for Form BD, which would describe the 
procedure for becoming a Security Futures Product Broker-Dealer. We 
request comment on the proposed amendments to Form BD.
---------------------------------------------------------------------------

    \54\ Current Item 12Z would be renumbered as Item 12AA.
    \55\ Item 12 of Form BD requires broker-dealers to indicate the 
types of business that account for (or that they expect to account 
for) 1% or more of their annual revenue from the securities or 
investment advisory business.
---------------------------------------------------------------------------

2. Interim Schedule to Form BD
    Form BD is filed with the CRD, which is operated and maintained by 
the NASD. Our staff has consulted with the staff of the NASD regarding 
the general need to amend Form BD in order to provide for notice 
registration. We understand that amending Form BD will require 
programming and systems changes to the CRD, and that it is possible 
that the NASD may not be able to complete the necessary programming and 
systems changes before August 21, 2001, the earliest date on which 
trading in security futures products may begin. We recognize, however, 
that we must have a process for notice registration established by 
August 21, 2001.
    As a result, we anticipate that it may be necessary to adopt an 
interim form of notice under section 15(b)(11) until the appropriate 
amendments to Form BD can be incorporated into the CRD. Currently, we 
expect that if we do have to adopt an interim form of notice, it would 
be an interim schedule to the current Form BD. A CFTC Registrant that 
wanted to become a Security Futures Product Broker-Dealer would 
therefore file both the existing Form BD and the interim schedule. We 
further expect that the interim schedule would contain items and 
questions substantially similar to the questions and items that we are 
proposing to incorporate into Form BD.

C. Proposed Amendments to Regulation S-P

    Title V of the GLBA directed the Commission and certain other 
federal agencies to adopt rules regarding the disclosure of customers' 
personal financial information by the financial institutions subject to 
the agencies' respective jurisdictions. Under this authority, we 
adopted Regulation S-P, which generally requires broker-dealers, 
investment companies, and registered investment advisers to: (1) Notify 
customers of their privacy policies and practices; (2) describe the 
conditions under which they may disclose customer information to 
nonaffiliated third parties; and (3) provide a method for their 
customers to prevent such disclosure of that information.\56\ Title V 
does not apply to the CFTC or any of its regulated entities.\57\
    As a result of the CFMA, however, some of the entities that the 
CFTC regulates are now subject to Title V of the GLBA.\58\ Accordingly, 
the CFTC has adopted its own set of financial privacy rules.\59\ 
Because we adopted Regulation S-P before the CFMA was enacted, certain 
of its provisions do not include the CFTC or its regulated entities. 
Therefore, we are proposing to update Regulation S-P.
---------------------------------------------------------------------------

    \56\ 17 CFR Part 248. See Securities Exchange Act Release No. 
42905 (June 22, 2000), 65 FR 40334.
    \57\ Specifically, section 504 of the GLBA does not include the 
CFTC in the list of agencies required to adopt financial privacy 
rules. In addition, section 509(2) of the GLBA does not include the 
CFTC in the definition of the term ``Federal functional regulator. 
Moreover, section 509(3)(B) of the GLBA specifically excludes from 
the definition of the term ``financial institution'' any person or 
entity with respect to any financial activity that is subject to the 
jurisdiction of the CFTC under the CEA.
    \58\ Specifically, section 124 of the CFMA added section 5g to 
the CEA (7 U.S.C. 7b-2), which makes Title V of the GLBA applicable 
to activity regulated by the CFTC. CEA section 5g(a) provides that 
notwithstanding section 509(3)(B) of the GLBA, futures commission 
merchants, commodity trading advisors, commodity pool operators and 
introducing brokers subject to the jurisdiction of the CFTC are to 
be treated as ``financial institutions'' for purposes of Title V of 
the GLBA. CEA section 5g(b) provides that the CFTC is to be treated 
as a ``Federal functional regulator'' under section 509(2) of the 
GLBA, and directs the CFTC to issue its own financial privacy 
regulations under Title V of the GLBA.
    \59\ Privacy of Customer Information, 66 FR 21236 (April 27, 
2001) (``CFTC Privacy Release'').
---------------------------------------------------------------------------

    Specifically, we are proposing to amend the definition of the term 
``Federal functional regulator'' in section 248.3(m) of Regulation S-P 
\60\ to add the CFTC to the list of regulators contained in the current 
definition. We are also proposing to amend the definition of the term 
``financial institution'' in section 248.3(n) of Regulation S-P \61\ to 
eliminate the exclusion for persons or entities with respect to 
financial activities subject to the jurisdiction of the CFTC under the 
CEA.
---------------------------------------------------------------------------

    \60\ 17 CFR 248.3(m).
    \61\ 17 CFR 248.3(n).
---------------------------------------------------------------------------

    In addition, we are proposing to amend section 248.2 of Regulation 
S-P \62\ to provide that Security Futures Product Broker-Dealers 
subject to and in compliance with the CFTC's financial privacy rules 
would also be in compliance with Regulation S-P. This proposed 
amendment to Regulation S-P would mirror a similar provision in the 
financial privacy rules that the CFTC has adopted.\63\
---------------------------------------------------------------------------

    \62\ 17 CFR 248.2.
    \63\ See CFTC Privacy Release, 66 FR at 21252.
---------------------------------------------------------------------------

III. General Request for Comments

    Any interested person wishing to submit comments on Proposed Rules 
15a-10, 15b11-1, and 15b11-2, and the proposed amendments to Rule 15b2-
2, Form BD, and Regulation S-P is requested to do so. In addition to 
the specific requests for comment throughout the release, we request 
comments on all aspects of the proposal. Further, we invite comment on 
other matters that might have an effect on the proposals contained in 
this release.

IV. Paperwork Reduction Act Analysis

    Certain provisions of our proposals regarding notice registration 
of broker-dealers contain ``collection of information'' requirements 
within the meaning of the Paperwork Reduction Act of 1995 (44 U.S.C. 
section 3501 et seq.) (``PRA''). The Commission has submitted the 
proposal to the Office of Management and Budget (``OMB'') for review in 
accordance with the PRA requirements in effect at this time. The title 
for this collection of information: ``Application for Registration as a 
Broker or Dealer,'' which the Commission is proposing to amend, 
contains a currently approved collection of information under OMB 
control number 3235-0012. The information required by Form BD is 
mandatory and the responses are not kept confidential. 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.
    The proposed amendments to Form BD are intended to provide the 
Commission with information about Security Futures Product Broker-
Dealers, particularly with respect to

[[Page 34048]]

their satisfaction of the statutory conditions for notice registration. 
The proposed amendments are also intended to elicit specific 
information about the activities of broker-dealers regarding security 
futures products.\64\ In addition the Commission and self-regulatory 
organizations use the information in Form BD for investigatory 
purposes. Moreover, members of the public use the information in Form 
BD to obtain relevant, up-to-date information about broker-dealers.
---------------------------------------------------------------------------

    \64\ The Commission uses the information disclosed by applicants 
in Form BD to: (i) Determine whether broker-dealer applicants meet 
the standards for registration set forth in the provisions of the 
Exchange Act; (ii) develop and maintain a central information 
resource where members of the public may obtain relevant, current 
information about broker-dealers, municipal securities dealers, and 
government securities brokers or government securities dealers, and 
where the Commission and other securities regulators may obtain 
information for investigatory purposes; and (iii) develop 
statistical information concerning broker-dealers, municipal 
securities dealers, and government securities brokers or government 
securities dealers.
---------------------------------------------------------------------------

    As discussed above, the proposed amendments to Form BD are 
primarily intended to implement Exchange Act section 15(b)(11).\65\ 
Specifically, the proposed amendments would provide a mechanism for 
futures commission merchants and introducing brokers that are 
registered with the CFTC to register by notice with the Commission as 
broker-dealers in order to effect transactions in security futures 
products.
---------------------------------------------------------------------------

    \65\ 15 U.S.C. 78o(b)(11).
---------------------------------------------------------------------------

    There are approximately 200 futures commission merchants registered 
with the CFTC; Commission staff estimates that 89 of those are also 
full broker-dealers. In addition, there are approximately 1,610 
introducing brokers registered with the CFTC; Commission staff 
estimates that 322 of those are also full broker-dealers.\66\ 
Therefore, the Commission staff estimates that approximately 1,399 
futures commission merchants and introducing brokers ((200-89 futures 
commission merchants) + (1610-322 introducing brokers)) may potentially 
become Security Futures Product Broker-Dealers.
---------------------------------------------------------------------------

    \66\ These estimates are based on conversations between 
Commission staff and CFTC staff.
---------------------------------------------------------------------------

    We have previously estimated that the average time necessary to 
complete the initial Form BD is approximately 2.75 hours.\67\ The time 
necessary to complete Form BD will vary depending on the nature and 
complexity of the Security Futures Product Broker-Dealer's business. 
However, we believe that it will take less time for a Security Futures 
Product Broker-Dealer to complete Form BD than it does for an applicant 
for registration as a full broker-dealer because Security Futures 
Product Broker-Dealers are already required to submit registration 
information to the CFTC on Form 7-R that is substantially similar to 
the information required by Form BD. As a result, a Security Futures 
Product Broker-Dealer should be able to complete Form BD in large part 
by transposing information that already appears on its Form 7-R. 
Accordingly, we estimate that the average time necessary to complete 
Form BD by a Security Futures Product Broker-Dealer will be 2 hours. 
Therefore, we estimate that total annual burden hours for all Security 
Futures Product Broker-Dealers filing Form BD is 2,798 hours (2.0 hours 
 x  1399 potential registrants).
---------------------------------------------------------------------------

    \67\ Securities Exchange Act Release No. 41594 (July 2, 1999), 
64 FR 37586.
---------------------------------------------------------------------------

    Security Futures Product Broker-Dealers will be required to file 
amendments to Form BD when information originally reported on Form BD 
changes or becomes inaccurate. We have previously estimated that the 
average time necessary to complete an amendment to Form BD is 
approximately 20 minutes.\68\ For fiscal year 2000, the Commission 
received approximately 26,000 amendments from a potential total of 
approximately 8,000 registered broker-dealers. Assuming approximately 
1,399 new broker-dealers as a result of notice registration, the number 
of registered broker-dealers would increase by approximately 17.5% from 
8,000 to 9,399. Accordingly, we estimate that there will be 17.5% more 
amendments to Form BD, or 4,550 (26,000 amendments  x  17.5%), as a 
result of notice registration. Therefore, we estimate that the total 
annual burden hours for filing Form BD amendments by broker-dealers 
registered by notice is 1,501 (4550 amendments per year  x  0.33 hours 
per amendment).
---------------------------------------------------------------------------

    \68\ Securities Exchange Act Release No. 41594 (July 2, 1999), 
64 FR 37586.
---------------------------------------------------------------------------

    In 1999, we estimated that the total annual cost burden to 
registered broker-dealers for filing Form BD and Form BD amendments was 
approximately $195,000.\69\ Providing for an annual inflation rate of 
approximately 3%, we currently estimate that the annual cost to 
registered broker-dealers for filing Form BD and Form BD amendments is 
approximately $206,876. As noted above, we estimate that the number of 
registered broker-dealers will increase by approximately 17.5% as a 
result of notice registration. We believe that the cost burden for 
broker-dealers registered by notice should be the same as it is for 
full broker-dealers. Accordingly, we estimate that the annual cost for 
filing Form BD and Form BD amendments will be approximately 17.5% of 
the current annual cost. As a result, we estimate that the total annual 
cost burden for filing Form BD and Form BD amendments by Security 
Futures Product Broker-Dealers will be approximately $36,203 ($206,876 
x  17.5%).
---------------------------------------------------------------------------

    \69\ Securities Exchange Act Release No. 41594 (July 2, 1999), 
64 FR 37586.
---------------------------------------------------------------------------

    Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits 
comments to--(i) Evaluate whether the proposed collections of 
information are necessary for the proper performance of the functions 
of the agency, including whether the information shall have practical 
utility; (ii) Evaluate the accuracy of the agency's estimate of the 
burden of the proposed collections of information; (iii) Enhance the 
quality, utility, and clarity of the information to be collected; (iv) 
Minimize the burden of the collections of information on those who are 
to respond, including through the use of automated collection 
techniques or other forms of information technology.
    Persons desiring to submit comments on the collection of 
information requirements proposed above should direct them to the 
following persons: (1) Desk Officer for the Securities and Exchange 
Commission, Office of Information and Regulatory Affairs, Office of 
Management and Budget, Room 10102, New Executive Office Building, 
Washington, DC 20503; and Jonathan G. Katz, Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609 
with reference to File No. S7-13-01. OMB is required to make a decision 
concerning the collections of information between 30 and 60 days after 
publication, so a comment to OMB is best assured of having its full 
effect if OMB receives it within 30 days of publication. The Commission 
has submitted the proposed collections of information to OMB for 
approval. Requests for the materials submitted to OMB by the Commission 
with regard to these collections of information should be in writing, 
refer to File No. S7-13-01, and be submitted to the Securities and 
Exchange Commission, Records Management, Office of Filings and 
Information Services, 450 Fifth Street, NW, Washington, DC 20549.

V. Costs and Benefits of the Proposed Rulemaking

    The Commission is considering the costs and benefits of Proposed 
Rules 15a-10, 15b11-1, and 15b11-2, and the proposed amendments to Form 
BD, Rule

[[Page 34049]]

15b2-2 and Regulation S-P. We are sensitive to the costs and benefits 
that might arise from compliance with our rules and amendments, and we 
understand that some of the proposals we are announcing today will 
impose costs on some persons or entities. The majority of our 
proposals, however, are necessary to implement provisions of the 
CFMA.\70\ We believe that these proposals will not impose any 
significant costs other than those that result from compliance with the 
CFMA.
---------------------------------------------------------------------------

    \70\ Pub. L. No. 106-554, Appendix E, 114 Stat. 2763.
---------------------------------------------------------------------------

A. Proposals Related to Security Futures Products

    We are proposing Exchange Act Rules 15b11-1 and 15b11-2 and 
amendments to Form BD to prescribe the requirements for futures 
commission merchants and introducing brokers that are registered with 
the CFTC to register as broker-dealers pursuant to Exchange Act section 
15(b)(11)(A) \71\ in order to effect transactions in security futures 
products. We are also proposing Exchange Act Rule 15a-10 to provide 
Security Futures Product Broker-Dealers with a conditional exemption 
from registration as full broker-dealers pursuant to Exchange Act 
section 15(a)(1). In addition, we are proposing conforming amendments 
to Exchange Act Rule 15b-2.\72\
---------------------------------------------------------------------------

    \71\ 15 U.S.c. 78o(b)(11)(A).
    \72\ 17 CFR 240.15b2-2.
---------------------------------------------------------------------------

    The proposed rules, form amendments, and conforming amendments 
respond to the mandate of the CFMA which, among other things, requires 
the Commission to prescribe, by rule, the process for notice 
registration to be used by Security Futures Product Broker-Dealers. Our 
proposals relating to security futures products are being made 
primarily pursuant to Exchange Act section 15(b)(11), which was added 
to the Exchange Act by the CFMA.

B. Proposed Amendments to Regulation S-P

    We are proposing amendments to update Regulation S-P to make it 
consistent with CEA section 5g.\73\ Specifically, we are proposing to 
amend the definitions of the terms ``Federal functional regulator'' and 
``financial institution.'' In addition, we are proposing to amend 
Regulation S-P to provide that Security Futures Product Broker-Dealers 
may comply with Regulation S-P by complying with the CFTC's financial 
privacy rules.
---------------------------------------------------------------------------

    \73\ 7 U.S.C. 7b-2. Section 5g was added to the CEA by the CFMA.
---------------------------------------------------------------------------

C. Costs and Benefits of the Proposed Rulemaking

1. Costs and Benefits of Proposed Rules 15a-10, 15b11-1, and 15b11-2, 
Proposed Amendments to Form BD, and Conforming Amendments to Rule 15b2-
2
    We are proposing Rule 15b11-1 to set forth the information that a 
registered futures commission merchant or introducing broker 
(collectively, ``CFTC Registrants'') must submit to register as a 
Security Futures Product Broker-Dealer. Proposed Rule 15b11-1 would 
require a CFTC Registrant registering as a Security Futures Product 
Broker-Dealer pursuant to Exchange Act section 15(b)(11)(A) \74\ to 
file Form BD with the Commission. Proposed Rule 15b11-2 would allow a 
Security Futures Product Broker-Dealer to apply to become registered as 
a full broker-dealer pursuant to Exchange Act section 15(b)(1) \75\ by 
filing an amendment to its existing Form BD. The proposed amendments to 
Form BD would conform the form to Proposed Rules 15b11-1 and 15b11-2. 
Proposed Rule 15a-10 would conditionally permit Security Futures 
Product Broker-Dealers to effect transactions in security futures 
products regardless of where they are listed or traded without being 
subject to the registration requirements of Exchange Act section 
15(a)(1).\76\ The proposed amendments to Rule 15b2-2 would provide an 
exception for Security Futures Product Broker-Dealers from the 
requirements of that rule.
---------------------------------------------------------------------------

    \74\ 15 U.S.C. 78o(b)(11)(A).
    \75\ 15 U.S.C. 78o(b)(1).
    \76\ 15 U.S.C. 78o(a)(1).
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    a. Benefits. Proposed Rule 15b11-1 provides for an expedited filing 
process for a CFTC Registrant to become registered with the Commission 
as a Security Futures Product Broker-Dealer. A Form BD submitted by a 
CFTC Registrant as a notice of registration as a Security Futures 
Product Broker-Dealer will not require approval from the Commission. In 
addition, the information that a CFTC Registrant will be required to 
submit on Form BD will be substantially similar to the information it 
must submit on its registration form with the CFTC. Therefore, we 
expect that it will take less time for a CFTC Registrant to complete 
Form BD than it would for a broker-dealer filing an initial application 
to become registered pursuant to section 15(b)(1). Proposed Rule 15b11-
2 would permit a Security Futures Product Broker-Dealer to apply for 
registration as a full broker-dealer by filing an amended Form BD with 
the Commission, rather than having to prepare a new Form BD. As a 
result, the proposed rule should simplify the registration process for 
Security Futures Product Broker-Dealers that want to become full 
broker-dealers. In addition, Proposed Rules 15b11-1 and 15b11-2 would 
provide us with the information that we need to ensure that Security 
Futures Product Broker-Dealers meet the statutory conditions for notice 
registration.
    Proposed Rule 15a-10 would conditionally exempt Security Futures 
Product Broker-Dealers from the statutory requirement that they 
register as full broker-dealers in order to effect transactions in 
security futures products that are listed or traded on a national 
securities exchange or a national securities association. This 
exemption would relieve Security Futures Product Broker-Dealers from a 
statutory limit on their ability to effect transactions in security 
futures products under their notice registrations. In addition, we are 
proposing an exception for Security Futures Product Broker-Dealers from 
the requirement in Rule 15b2-2 that they be inspected within 6 months 
of becoming registered. These proposals should increase the types of 
business that Security Futures Product Broker-Dealers may engage in 
under their notice registrations and reduce their regulatory burdens.
    In addition, our proposals regarding security futures products will 
provide us with information about Security Futures Product Broker-
Dealers that we believe is crucial to know about any broker-dealer. 
This information should in turn enhance our ability to oversee Security 
Futures Product Broker-Dealers that effect transactions in security 
futures products, which is critical to the continued integrity of our 
markets. We believe that our oversight of trading activities in 
security futures products, in conjunction with that of the CFTC, should 
benefit the public and the markets generally by helping to prevent 
fraud and manipulation.
    b. Costs. Proposed Rules 15b11-1 and 15b11-2 and the proposed 
amendments to Form BD would require CFTC Registrants to gather the 
information to file with the Commission in order to become Security 
Futures Product Broker-Dealers. However, CFTC Registrants are already 
required to provide most of the information required by Form BD to the 
CFTC on Form 7-R. In addition, Security Futures Product Broker-Dealers 
would be required to file amendments to Form BD when information 
originally reported on Form BD changes or becomes inaccurate. While the 
proposed rules

[[Page 34050]]

only address the process for notice registration, a CFTC Registrant 
that decides to effect transactions in security futures products will, 
of course, have expenses associated with being registered as a broker-
dealer.
    Full broker-dealers that are currently registered with the 
Commission would have to amend Form BD if they engaged in business in 
security futures products that accounted for (or that they expected to 
account for) 1% or more of their annual revenue. However, those broker 
dealers would have to amend their forms simply to indicate that they 
were engaged in that activity.
    We believe that the proposed rules and the proposed amendments to 
Form BD have been designed to minimize costs and should not result in 
significant costs to any person or entity. In addition, CFTC 
Registrants and full broker-dealers would only be subject to the 
proposals if they choose to engage in business in security futures 
products.
2. Costs and Benefits of the Proposed Amendments to Regulation S-P
    We are proposing amendments to Regulation S-P to update it in light 
of amendments that the CFMA made to the CEA. Specifically, the CFMA 
added section 5g to the CEA to make the privacy provisions of Title V 
of the Gramm-Leach-Bliley Act (``GLBA'') applicable to certain activity 
regulated by the CFTC. We adopted Regulation S-P pursuant to Title V of 
the GLBA and before the CFMA was enacted. We are proposing to amend the 
definition of the term ``Federal functional regulator'' in section 
248.3(m) of Regulation S-P to add the CFTC to the list of regulators 
contained in the current definition. We are also proposing to amend the 
definition of the term ``financial institution'' in section 248.3(n) of 
Regulation S-P to eliminate the exclusion relating to the CFTC and its 
regulated entities. In addition, we are proposing to amend section 
248.2 of Regulation S-P to provide that Security Futures Product 
Broker-Dealers may comply with Regulation S-P by complying with the 
CFTC's financial privacy rules.\77\
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    \77\ This proposed amendment to Regulation S-P would mirror a 
similar provision in the financial privacy rules that the CFTC has 
adopted. See Privacy of Customer Information, 66 FR 21236 (April 27, 
2001).
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    a. Benefits. The proposed amendments to Regulation S-P would 
clarify its application and reduce uncertainty that might result if the 
definitions of the terms ``federal financial regulator'' and 
``financial institution'' in Regulation S-P were not amended in light 
of section 5g of the CEA. Moreover, the proposed amendments should 
benefit Security Futures Product Broker-Dealers by making it clear that 
they will be in compliance with Regulation S-P if the comply with the 
CFTC's financial privacy rules.
    b. Costs. The proposed amendments would not affect the operation of 
Regulation S-P or impose any new requirements on any person or entity. 
As a result, we believe that the proposed amendments to Regulation S-P 
would not result in any additional costs to any person or entity.

D. Request for Comment

    To assist us in our evaluation of the costs and benefits, we 
request comment on the estimated costs and benefits that might result 
from Proposed Rules 15a-10, 15b11-1, and 15b11-2, and the proposed 
amendments to Form BD, Rule 15b2-2 and Regulation S-P. In addition, we 
request that commenters provide analysis and data relating to the 
anticipated costs and benefits associated with our proposals, including 
any other costs and benefits that have not been considered here. In 
order to fully evaluate the costs and benefits associated with our 
proposals, we request that commenters' estimates of the costs and 
benefits of the proposals be accompanied by specific empirical data 
supporting the estimates.

VI. Consideration of the Burden on Competition, Promotion of 
Efficiency, and Capital Formation

    Section 3(f) of the Exchange Act \78\ requires the Commission, when 
engaging in a rulemaking requiring the Commission to consider or 
determine whether an action is necessary or appropriate in the public 
interest, to consider also whether the action will promote efficiency, 
competition, and capital formation. Proposed Rules 15b11-1 and 15b11-2, 
the proposed amendments to Rule 15b2-2, and the proposed amendments to 
Form BD would provide CFTC Registrants with an expedited process to 
register with the Commission, which we preliminarily believe would 
serve as an efficient and cost-effective means for those entities to 
meet their registration obligations with respect to security futures 
products. In addition, Proposed Rule 15a-10 should improve the 
efficiency of the marketplace by providing CFTC Registrants the ability 
to effect transactions in security futures products on all markets on 
which the products are listed and traded. We believe that the rule is 
designed to bolster investor confidence by increasing competition in 
the markets for security futures products, and to ensure that all 
qualified market participants have the opportunity to participate in 
those markets. This should promote market efficiency, competition and 
capital formation.
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    \78\ 15 U.S.C. 78c(f).
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    Our proposal to amend Regulation S-P should promote efficiency by 
providing that Security Futures Product Broker-Dealers will have to 
comply with the financial privacy rules of only their primary 
regulator. Because the only purpose of the proposed amendments is to 
update Regulation S-P in light of the CFMA, we preliminarily believe 
that our proposals will not adversely affect capital formation.
    Section 23(a)(2) of the Exchange Act \79\ requires the Commission, 
in making rules under the Exchange Act, to consider the impact that any 
such rule would have on competition. In addition, section 23(a)(2) 
prohibits the Commission from adopting any rule that would impose a 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Exchange Act. The proposed rules and amendments 
that we are announcing today, which implement provisions of the CFMA, 
would apply equally to all affected entities. The proposals also would 
provide the mechanism for Security Futures Product Broker-Dealers to 
enter the new market for security futures products. All CFTC 
Registrants that intend to effect transactions in security futures 
products would use the same procedures to register by notice with the 
Commission, and the conditions for notice registration would apply 
equally to all CFTC Registrants. In addition, the proposals would 
permit Security Futures Product Broker-Dealers to effect transactions 
in security futures products regardless of the market on which the 
products are listed or traded, thereby allowing them to compete evenly 
with full broker-dealers. As a result, we preliminarily believe that 
the proposals would not create any anticompetitive effects and in fact 
should promote competition. Moreover, the proposed amendments to 
Regulation S-P would not impact competition because their only purpose 
is to update Regulation S-P in light of the CFMA.
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    \79\ 15 U.S.C. 78w(a).
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    The Commission requests comment on whether the proposed amendments 
are expected to promote efficiency, competition, and capital formation.

[[Page 34051]]

VII. Regulatory Flexibility Act Certification

    Section 3(a) of the Regulatory Flexibility Act \80\ requires the 
Commission to undertake an initial regulatory flexibility analysis of 
the effects of proposed rules and rule amendments on small entities, 
unless the Chairman certifies that the rules and rule amendments, if 
adopted, would not have a significant economic impact on a substantial 
number of small entities.\81\ Proposed Rules 15b11-1, 15b11-2 and 15a-
10, the proposed amendments to Rule 15b2-2, and the proposed amendments 
to Form BD would apply to CFTC Registrants (including small introducing 
brokers) that choose to effect transactions in security futures 
products. The Commission believes that some small entities could be 
affected by the proposals, but that the proposals would not have a 
significant economic impact on a substantial number of small entities.
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    \80\ 5 U.S.C. 603(a).
    \81\ 5 U.S.C. 605(b).
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    The proposed amendments to Regulation S-P would apply to Security 
Futures Product Broker-Dealers. The proposed amendments would not 
affect the operation of Regulation S-P or impose any new requirements 
on any entity. As a result, the Commission believes that the proposed 
amendments would not have a significant economic impact on a 
substantial number of small entities.
    The Acting Chairman has certified that the proposed rules and 
amendments, if adopted, would not have a significant economic impact on 
a substantial number of small entities. A copy of the certification is 
attached as Appendix A.
    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996, the Commission is also requesting information regarding 
the potential impact of the proposed rules and rule amendments on the 
economy on an annual basis. Commenters should provide empirical data to 
support their views.

VIII. Statutory Basis

    The Commission is proposing Rules 15a-10, 15b11-1, and 15b11-2 
under the Exchange Act and amendments to Rule 15b2-2 and to Form BD 
under the Exchange Act, pursuant to the Exchange Act, particularly 
sections 15(a), 15(b), and 23(a).\82\ The Commission is proposing 
amendments to Regulation S-P pursuant to section 504 of the GLBA \83\ 
and Exchange Act sections 17 and 23(a).\84\
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    \82\ 15 U.S.C. 78o(a), 78o(b), 78o-4(a)(2), 78o-5(a)(2), and 
78w(a).
    \83\ 15 U.S.C. 6804.
    \84\ 15 U.S.C. 78q and 78w(a).
---------------------------------------------------------------------------

List of Subjects

17 CFR Part 240

    Brokers, Confidential business information, Fraud, Reporting and 
recordkeeping requirements, Securities.

17 CFR Part 248

    Brokers, Consumer protection, Investment companies, Privacy, 
Reporting and recordkeeping requirements, Securities.

17 CFR Part 249

    Brokers, Reporting and recordkeeping requirements, Securities.

Text of Proposed New Rules and Amendments

    In accordance with the foregoing, Title 17, Chapter II of the Code 
of Federal Regulations is proposed to be amended as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    1. The authority citation for part 240 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78f, 78i, 78j, 78j-1, 
78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 78w, 78x, 
78ll, 78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4 
and 80b-11, unless otherwise noted.
* * * * *
    2. By adding Sec. 240.15a-10 to read as follows:


Sec. 240.15a-10  Exemption of certain brokers or dealers with respect 
to security futures products.

    (a) A broker or dealer that is registered by notice with the 
Commission pursuant to section 15(b)(11)(A) of the Act (15 U.S.C. 
78o(b)(11)(A)) will be exempt from the registration requirement of 
section 15(a)(1) of the Act (15 U.S.C. 78o(a)(1)) solely to act as a 
broker or a dealer in security futures products.
    (b) The exemption in paragraph (a) of this section is not available 
to any broker or dealer that is:
    (1) A member of a national securities exchange registered pursuant 
to section 6(a) of the Act (15 U.S.C. 78f(a)); or
    (2) A member of a national securities association registered 
pursuant to section 15A(a) of the Act (15 U.S.C. 78o-3(a)).
    3. By amending Sec. 240.15b2-2 by:
    a. At the end of paragraph (e)(2), removing the word ``or'';
    b. At the end of paragraph (e)(3), removing the period and in its 
place adding ``; or''; and
    c. Adding paragraph (e)(4).
    The addition reads as follows:


Sec. 240.15b2-2  Inspection of newly registered brokers and dealers.

* * * * *
    (e) * * *
    (4) The member is registered with the Commission pursuant to 
section 15(b)(11)(A) of the Act (15 U.S.C. 78o(b)(11)(A)).
    4. By adding Secs. 240.15b11-1 and 240.15b11-2 before the 
undesignated center heading ``Rules Relating to Over-the-Counter 
Markets'' to read as follows:


Sec. 240.15b11-1  Registration by notice of security futures product 
broker-dealers.

    (a) A broker or dealer may register by notice pursuant to section 
15(b)(11)(A) of the Act (15 U.S.C. 78o(b)(11)(A)) if it:
    (1) Is registered with the Commodity Futures Trading Commission as 
a futures commission merchant or an introducing broker, as those terms 
are defined in the Commodity Exchange Act (7 U.S.C. 1, et seq.), 
respectively;
    (2) Is a member of the National Futures Association or another 
national securities association registered under section 15A(k) of the 
Act (15 U.S.C. 78o-3(k));
    (3) Is not a member of a national securities exchange registered 
pursuant to section 6(a) of the Act (15 U.S.C. 78f(a)) or of the 
National Association of Securities Dealers, Inc. or another national 
securities association registered pursuant to section 15A(a) of the Act 
(15 U.S.C. 78o-3(a)); and
    (4) Is not required to register as a broker or dealer in connection 
with transactions in securities other than security futures products.
    (b) A broker or dealer registering by notice pursuant to section 
15(b)(11)(A) of the Act (15 U.S.C. 78o(b)(11)(A)) must file Form BD (17 
CFR 249.501) with the Central Registration Depository (operated by the 
National Association of Securities Dealers, Inc.) in accordance with 
the instructions to the form. A broker or dealer registering by notice 
pursuant to this section must indicate where appropriate on Form BD 
that it satisfies all of the conditions in paragraph (a) of this 
section.
    (c) An application for registration by notice that is filed on Form 
BD (17 CFR 249.501) with the Central Registration Depository pursuant 
to this section will be considered a ``report'' filed with the 
Commission for purposes of sections 15(b), 17(a), 18(a), 32(a) (15 
U.S.C. 78o(b), 78q(a), 78r(a), 78ff(a)) and other applicable provisions 
of the Act.

[[Page 34052]]

Sec. 240.15b11-2  Conversion of notice registration of security futures 
product broker-dealers.

    (a) A broker or dealer registered by notice pursuant to section 
15(b)(11)(A) of the Act (15 U.S.C. 78o(b)(11)(A)) may apply for 
registration pursuant to section 15(b)(1) of the Act (15 U.S.C. 
78o(b)(1)) by filing an amendment to Form BD (17 CFR 249.501) with the 
Central Registration Depository (operated by the National Association 
of Securities Dealers, Inc.) and indicating where appropriate on Form 
BD that it is making such an application.
    (b) The registration by notice of a broker or dealer that applies 
for registration pursuant to paragraph (a) of this section will remain 
in effect until the broker or dealer has satisfied all of the 
requirements for registration under section 15(b)(1) of the Act (15 
U.S.C. 78o(b)(1)). The broker or dealer may not effect transactions in 
securities except as permitted by section 15(b)(11) of the Act (15 
U.S.C. 78o(b)(11)) and Secs. 240.3a43-1, 240.3a44-1 and 240.15a-10 
until:
    (1) The Commission issues an order granting the registration of the 
broker or dealer;
    (2) The broker or dealer has been approved for membership in a 
national securities exchange registered under section 6(a) of the Act 
(15 U.S.C. 78f(a)) or a national securities association registered 
under section 15A(a) of the Act (15 U.S.C. 78o-3(a)); and
    (3) The broker or dealer has satisfied any other conditions 
necessary to make its registration effective.
    (c) When the registration of the broker or dealer pursuant to 
section 15(b)(1) of the Act (15 U.S.C. 78o(b)(1)) has become effective, 
the broker or dealer will no longer be registered pursuant to section 
15(b)(11)(A) of the Act (15 U.S.C. 78o(b)(11)(A)) and will be subject 
to all provisions of the Act and regulations thereunder applicable to 
it, including with respect to its activity in security futures 
products.

PART 248--REGULATION S-P: PRIVACY OF CONSUMER FINANCIAL INFORMATION

    5. The authority citation for Part 248 continues to read as 
follows:

    Authority: 15 U.S.C. 6801-6809; 15 U.S.C. 78q, 78w, 80a-30(a), 
80a-37, 80b-4, and 80b-11.
    6. By amending Sec. 248.2 by designating the current text as 
paragraph (a) and adding paragraph (b) to read as follows:


Sec. 248.2  Rule of construction.

* * * * *
    (b) Substituted Compliance with CFTC Financial Privacy Rules by 
Futures Commission Merchants and Introducing Brokers. Any futures 
commission merchant or introducing broker (as those terms are defined 
in the Commodity Exchange Act (7 U.S.C. 1, et seq.)) registered by 
notice with the Commission for the purpose of conducting business in 
security futures products pursuant to section 15(b)(11)(A) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o(b)(11)(A)) that is 
subject to and in compliance with the financial privacy rules of the 
Commodity Futures Trading Commission (17 CFR part 160) will be deemed 
to be in compliance with this part.
    7. By amending Sec. 248.3 by:
    a. At the end of paragraph (m)(5), removing the word ``and';
    b. At the end of paragraph (m)(6), removing the period and in its 
place adding ``; and';
    c. Adding paragraph (m)(7);
    d. Removing paragraph (n)(2)(i); and
    e. Redesignating paragraphs (n)(2)(ii) and (n)(2)(iii) as 
paragraphs (n)(2)(i) and (n)(2)(ii).
    The addition reads as follows:


Sec. 248.3  Definitions.

* * * * *
    (m) * * *
    (7) The Commodity Futures Trading Commission.
* * * * *

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

    8. The authority citation for part 249 continues to read in part as 
follows:

    Authority: 15 U.S.C. 78a, et seq., unless otherwise noted.
* * * * *
    9. By revising Form BD (referenced in Sec. 249.501) to read as set 
forth in appendix B below:

    Note: Form BD does not and the revisions will not appear in the 
Code of Federal Regulations. Revised Form BD is attached as appendix 
B to this document.


    By the Commission.
    Dated: June 20, 2001.
Margaret H. McFarland,
Deputy Secretary.

Appendix A

    Note: Appendix A to the preamble will not appear in the Code of 
Federal Regulations.

Regulatory Flexibility Act Certification

    I, Laura S. Unger, Acting Chairman of the Securities and 
Exchange Commission (``Commission''), hereby certify pursuant to 5 
U.S.C. 605(b) that Proposed Rules 15b11-1, 15b11-2, and 15a-10 under 
the Securities Exchange Act of 1934 (``Exchange Act''), the proposed 
amendments to Rule 15b2-2 under the Exchange Act, the proposed 
amendments to Form BD, and the proposed amendments to Regulation S-
P, would not, if adopted, have a significant economic impact on a 
substantial number of small entities. Proposed Rules 15b11-1, 15b11-
2, and 15a-10, and the proposed amendments to Form BD would permit 
futures commission merchants and introducing brokers registered with 
the Commodity Futures Trading Commission (``CFTC Registrants'') to 
register with the Commission by notice as broker-dealers for the 
purpose of effecting transactions in security futures products 
(``Security Futures Product Broker-Dealers''). Proposed Rule 15b11-1 
would provide that a CFTC Registrant must file its notice of 
registration as a Security Futures Product Broker-Dealer on Form BD. 
Proposed Rule 15b11-2 would provide that a notice registrant broker-
dealer could apply under section 15(b)(1) of the Exchange Act to 
become registered as a full broker-dealer by filing an amendment to 
its Form BD. Proposed Rule 15a-10 would provide Security Futures 
Product Broker-Dealers with an exemption from section 15(a)(1) of 
the Exchange Act that would conditionally permit them to effect 
transactions in security futures products regardless of the market 
on which they are listed or traded. The proposed amendment to Rule 
15b2-2 would provide an exception for Security Futures Product 
Broker-Dealers from the requirement that broker-dealers be inspected 
by a self-regulatory organization within six months of becoming 
registered. The proposed amendments to Form BD would conform the 
form to Proposed Rules 15b11-1 and 15b11-2 and would provide 
information about all registered broker-dealers' activities in 
security futures products. The only impact of these proposals would 
be on broker-dealers, futures commission merchants, and introducing 
brokers that choose to do business in security futures products. In 
addition, the only requirement of the proposals would be to provide 
information. Accordingly the proposals, if adopted, would not have a 
significant economic impact on a substantial number of small 
entities.

[[Page 34053]]

    The proposed amendments to Regulation S-P would revise the 
definitions of the terms ``Federal functional regulator'' and 
``financial institution,'' in accordance with section 124 of the 
CFMA. In addition, the proposed amendments to Regulation S-P would 
provide that a notice registrant broker-dealer could comply with 
Regulation S-P by complying with the CFTC's financial privacy rules. 
The proposed amendments to Regulation S-P would not have any effect 
on the operation of Regulation S-P or impose any new requirements on 
any entity. Accordingly the proposed amendments to Regulation S-P, 
if adopted, would not have a significant economic impact on a 
substantial number of small entities.

    Dated: June 19, 2001.
Laura S. Unger,
Acting Chairman, Appendix B.

BILLING CODE 8010-01-P

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[FR Doc. 01-15978 Filed 6-25-01; 8:45 am]
BILLING CODE 8010-01-C