[Federal Register Volume 72, Number 126 (Monday, July 2, 2007)]
[Rules and Regulations]
[Pages 35918-35920]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-12767]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 3

RIN 3038-AC37


Registration of Intermediaries

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or 
``CFTC'') has amended Commission Regulation 3.10 to require certain 
registered intermediaries, i.e., futures commission merchants 
(``FCMs''), introducing brokers (``IBs''), commodity pool operators 
(``CPOs''), commodity trading advisors (``CTAs'') and leverage 
transaction merchants (``LTMs''), to complete an online annual review 
of their registration information maintained with the National Futures 
Association (``NFA''). This amendment is intended to ensure that NFA 
will have accurate and current information about such registrants. The 
Commission also has made a technical and conforming amendment to 
Commission Regulation 3.33(f) in order to remove an unnecessary 
reference to Regulation 3.10(d).

EFFECTIVE DATE: August 1, 2007.

FOR FURTHER INFORMATION CONTACT: Helene D. Schroeder, Special Counsel, 
Compliance and Registration Section, Division of Clearing and 
Intermediary Oversight, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581, 
telephone number: (202) 418-5450; facsimile number: (202) 418-5528; and 
electronic mail: [email protected].

SUPPLEMENTARY INFORMATION: 

[[Page 35919]]

I. Background

    Part 3 of the Commission's regulations sets forth the regulations 
relating to the registration of intermediaries and other futures 
industry professionals.\1\ The Commission adopted Part 3 pursuant to 
the authority set forth in Sections 4c, 4d, 4f(a)(1), 4m, 4n(1) and 19 
of the Commodity Exchange Act (``Act'').\2\ These statutory provisions 
require the registration of firms seeking to act as intermediaries for 
exchange-traded futures and commodity options. Section 4f(a)(1) 
contains the framework for the registration of FCMs and IBs.\3\ Section 
4n(1) governs the registration of CPOs and CTAs.\4\ Sections 4c \5\ and 
19 of the Act,\6\ respectively, grant the Commission plenary authority, 
including registration authority, over commodity options and leverage 
transactions.
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    \1\ 17 CFR Part 3. The Commission's regulations can be accessed 
at http://www.access.gpo.gov/nara/cfr/waisidx_06/17cfrv1_06.html.
    \2\ 7 U.S.C. 1 et seq. (2000). The Act can be accessed at http://www.access.gpo.gov/uscode/title7/chapter1_.html.
    \3\ 7 U.S.C. 6f(a)(1).
    \4\ 7 U.S.C. 6n(1).
    \5\ 7 U.S.C. 6c.
    \6\ 7 U.S.C. 23. Commission Regulation 31.5, 17 CFR 31.5 (2007), 
was promulgated under this provision and along with Regulation 3.10, 
17 CFR 3.10, governs the registration of LTMs.
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    Commission Regulation 3.10(a) specifies that an application for 
registration as an FCM, IB, CPO, CTA or LTM must be on a Form 7-R, 
completed and filed with NFA in accordance with the instructions 
thereto.\7\ Commission Regulation 3.31(a)(1) requires such 
intermediaries to correct promptly deficiencies or inaccuracies 
contained in the person's Form 7-R or any Form 8-R filed on behalf of a 
principal or an associated person.\8\
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    \7\ 17 CFR 3.10(a).
    \8\ 17 CFR 3.31(a)(1).
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    In 2002, NFA altered its registration procedures by shifting from 
paper-based registration to an online or electronic registration 
system. Pursuant to these new procedures, NFA requires, with limited 
exceptions,\9\ that all registration (and membership) forms, including 
the completed Form 7-R and 3-R, must be filed with NFA electronically 
through NFA's Online Registration System (``ORS''). Shortly after the 
new procedures were implemented, the Commission deleted Regulation 
3.10(d), pursuant to which intermediary firms would conduct an annual 
review of a pre-printed copy of the registrant's 7-R.\10\
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    \9\ For example, NFA requires that any securities broker or 
dealer that is registered with the Securities and Exchange 
Commission that becomes a notice-registered FCM or IB must submit a 
hardcopy version of its Form 7-R.
    \10\ See 67 FR 38869 (June 6, 2002).
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II. Proposal

    In order to ensure that the registration information it maintains 
is accurate and up-to-date, NFA developed an online registration update 
protocol for firms to review and update their registration records. In 
addition to providing an updated list of persons authorized to enter 
data in ORS, the protocol would require registrants to provide updated 
disciplinary, branch office and firm contact information.\11\
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    \11\ Under the protocol, a firm could modify the title given for 
a particular principal of a firm, but it could not identify a new 
principal, as this would require separate application.
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    To facilitate NFA's efforts in implementing this new protocol, on 
April 26, 2007, the Commission published in the Federal Register a 
proposal to require firms to conduct an annual review of registration 
information. (``Proposal'').\12\ The Proposal, which included a 
proposed new paragraph (d) of Regulation 3.10 (``Proposed Amendment'') 
was designed to ensure that NFA would be in possession of current and 
accurate information regarding intermediaries.\13\ Specifically, the 
Proposed Amendment would require that each FCM, IB, CPO, CTA and LTM, 
in accordance with procedures established by NFA, complete an online 
annual review of the registration information maintained by NFA. 
Pursuant to procedures established by NFA, registrants would be 
required to correct any deficiencies or inaccuracies contained therein.
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    \12\ 72 FR 20788.
    \13\ Paragraph (d) of Regulation 3.10 had been reserved.
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    The Proposed Amendment also would provide that the failure to 
complete the review and update within 30 days of the date established 
by NFA for completion would be deemed to be a request for withdrawal 
from registration. As further provided therein, NFA would be required 
to process the request in accordance with the existing procedures for 
withdrawal of registration set forth in Commission Regulation 3.33(f).
    The Commission's Proposal also included a technical and conforming 
amendment to Commission Regulation 3.33(f) in order to remove 
unnecessary language that referenced Regulation 3.10(d).

III. Comments Regarding the Proposal

    The Commission received only one comment letter on its Proposal, 
and this comment, which was from NFA, expressed full support for the 
amendment. In light of this fact, and the foregoing, the Commission has 
determined to adopt the amendments to Regulations 3.10 and 3.33(f) as 
set forth in the Proposal.

IV. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \14\ requires that 
agencies, in proposing regulations, consider the impact of those 
regulations on small businesses. The amendment to Regulation 3.10 will 
affect persons that are registered as FCMs, IBs, CPOs, CTAs and LTMs. 
The Commission has previously established certain definitions of 
``small entities'' to be used by the Commission in evaluating the 
impact of its regulations on such entities in accordance with the 
RFA.\15\ The Commission previously determined that registered FCMs, 
CPOs and LTMs are not small entities for the purpose of the RFA.\16\
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    \14\ 5 U.S.C. 601 et seq.
    \15\ 47 FR 18618 (Apr. 30, 1982).
    \16\ 47 FR 18618, 18619.
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    With respect to the remaining persons, CTAs and IBs, the Commission 
stated in the Proposal that it did not believe that the economic impact 
of the Proposed Amendment would be significant. First, the information 
that would be required under the Proposed Amendment already is required 
to be collected under the existing registration framework, to wit, 
Regulation 3.31(a)(1). Second, the Proposed Amendment and NFA's new 
protocol would focus each registrant on the specific areas that must be 
reviewed and, if needed, updated. Third, the Proposed Amendment would 
permit review and updating via electronic means in keeping with the 
current registration procedures. Accordingly, in accordance with 
Section 3(a) of the RFA,\17\ the Chairman, on behalf of the Commission, 
certified that the Proposed Amendment would not have a significant 
economic impact on a substantial number of small entities.
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    \17\ 5 U.S.C. 605(b).
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    The Commission invited the public to comment regarding its analysis 
of the application of the RFA to the Proposal. The Commission did not 
receive any such comments.

B. Cost-Benefit Analysis

    Section 15(a) of the Act \18\ requires the Commission to consider 
the costs and benefits of its action before issuing a new regulation 
under the Act. By its terms, Section 15(a) does not require the 
Commission to quantify the costs and

[[Page 35920]]

benefits of a new regulation or to determine whether the benefits of 
the proposed regulation outweigh its costs. Rather, Section 15(a) 
simply requires the Commission to ``consider the costs and benefits'' 
of its action.
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    \18\ 7 U.S.C. 19(a).
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    Section 15(a) further specifies that costs and benefits shall be 
evaluated in light of five broad areas of market and public concern: 
(1) Protection of market participants and the public; (2) efficiency, 
competitiveness, and financial integrity of futures markets; (3) price 
discovery; (4) sound risk management practices; and (5) other public 
interest considerations. The Commission, in its discretion, may choose 
to give greater weight to any one of the five enumerated areas and 
determine that, notwithstanding its costs, a particular regulation is 
necessary or appropriate to protect the public interest or to 
effectuate any of the provisions or to accomplish any of the purposes 
of the Act. The Commission has evaluated the costs and benefits of its 
Proposal, in particular, new Regulation 3.10(d) in light of the 
specific considerations identified in Section 15(a) of the Act.
    Regulation 3.10(d) concerns the registration of intermediaries, in 
particular, FCMs, IBs, CPOs, CTAs and LTMs. Specifically, it will 
require these intermediaries to complete an online annual review of 
their registration information, including disciplinary information, 
firm contacts and lists of authorized users. By ensuring that NFA, the 
self-regulatory organization that oversees the activities of these 
registrants, will have accurate and current information regarding 
registrants, Regulation 3.10(d) will maximize the protection of market 
participants and the public.
    Such intermediaries already are under an ongoing obligation to 
provide updated information to NFA pursuant to Commission Regulation 
3.31(a)(1). Regulation 3.10(d) will require these registrants to comply 
with an online review protocol established by NFA. This protocol will 
provide a straightforward process for registrants to electronically 
update their registration information. It will focus and guide 
registrants on the particular areas that need updating. By facilitating 
NFA's efforts to adopt this protocol, Regulation 3.10(d) will result in 
efficiency enhancements for registrants and NFA.
    Regulation 3.10(d) also will have no effect on the following three 
enumerated areas: (1) Efficiency, competitiveness or the financial 
integrity of futures markets; (2) price discovery; and (3) sound risk 
management practices.
    After considering these factors, the Commission has determined to 
adopt the amendment to Regulation 3.10 set forth below.

C. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (``PRA'') imposes certain 
obligations on federal agencies, including the Commission, in 
connection with their conducting or sponsoring any collection of 
information as defined by the PRA.\19\ In its Proposal, the Commission 
noted that the Proposed Amendment would require intermediaries to 
conduct an annual review of their registration information maintained 
with NFA and that this information is part of an approved collection of 
information. The Commission further noted that the Proposed Amendment 
would not result in any material modifications to this approved 
collection. Accordingly, for purposes of the PRA, the Commission 
certified that the Proposed Amendment did not impose any new reporting 
or recordkeeping requirements.
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    \19\ 44 U.S.C. 3501 et seq.
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    The Commission did not receive any comments regarding its analysis 
relative to the PRA.

List of Subjects in 17 CFR Part 3

    Administrative practice and procedure, Brokers, Commodity futures, 
Reporting and recordkeeping requirements.


0
For the reasons discussed in the preamble, the Commission amends 17 CFR 
part 3 as follows:

PART 3--REGISTRATION

0
1. The authority citation for part 3 continues to read as follows:

    Authority: 5 U.S.C. 522, 522b; 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c, 
6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 8, 9, 9a, 12, 12a, 13b, 
13c, 16a, 18, 19, 21, 23.


0
2. Section 3.10 is amended by adding paragraph (d) to read as follows:


Sec.  3.10  Registration of futures commission merchants, introducing 
brokers, commodity trading advisors, commodity pool operators and 
leverage transaction merchants.

* * * * *
    (d) On a date to be established by the National Futures 
Association, and in accordance with procedures established by the 
National Futures Association, each registrant as a futures commission 
merchant, introducing broker, commodity trading advisor, commodity pool 
operator or leverage transaction merchant shall, on an annual basis, 
review and update registration information maintained with the National 
Futures Association. The failure to complete the review and update 
within thirty days following the date established by the National 
Futures Association shall be deemed to be a request for withdrawal from 
registration, which shall be processed in accordance with the 
provisions of Sec.  3.33(f).

0
3. Section 3.33 is amended by revising paragraph (f) introductory text 
to read as follows:


Sec.  3.33  Withdrawal from registration.

* * * * *
    (f) A request for withdrawal from registration will become 
effective on the thirtieth day after receipt of such request by the 
National Futures Association, or earlier upon written notice from the 
National Futures Association (with the written concurrence of the 
Commission) of the granting of such request, unless prior to the 
effective date:
* * * * *

    Issued in Washington, DC, on June 26, 2007, by the Commission.
Eileen Donovan,
Acting Secretary of the Commission.
 [FR Doc. E7-12767 Filed 6-29-07; 8:45 am]
BILLING CODE 6351-01-P