[Federal Register Volume 72, Number 156 (Tuesday, August 14, 2007)]
[Proposed Rules]
[Pages 45392-45394]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-15869]



[[Page 45392]]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 3

RIN 3038-AC45


Termination of Associated Persons and Principals of Futures 
Commission Merchants, Introducing Brokers, Commodity Trading Advisors, 
Commodity Pool Operators and Leverage Transaction Merchants

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or 
``CFTC'') is proposing to amend Commission Regulations 3.12 and 3.31 
(``Proposed Amendments'') to extend the period during which a 
registered futures commission merchant (``FCM''), introducing broker 
(``IB), commodity trading advisor (``CTA''), commodity pool operator 
(``CPO'') or leverage transaction merchant (``LTM'') must file a notice 
with the National Futures Association (``NFA'') to report the 
termination of any associated person (``AP'') or principal of the 
registered intermediary. Under existing regulations, such 
intermediaries must file notices within 20 days after the termination 
of the AP or principal. The Commission's proposal (``Proposal'') would 
provide 30, rather than 20, days for the filing of a termination 
notice.

DATES: Comments must be received on or before September 13, 2007.

ADDRESSES: Comments on the Proposal should be sent to David A. Stawick, 
Secretary, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581. Comments may be 
sent by facsimile transmission to (202) 418-5521, or by e-mail to 
[email protected]. Reference should be made to ``Proposal Regarding 
the Termination of Associated Persons and Principals of Futures 
Commission Merchants, Introducing Brokers, Commodity Trading Advisors, 
Commodity Pool Operators and Leverage Transaction Merchants.'' Comments 
also may be submitted by connecting to the Federal eRulemaking Portal 
at http://www.regulations.gov and following the comment submission 
instructions.

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:

I. Background

    Section 4k of the Commodity Exchange Act (``Act'') \1\ makes it 
unlawful for persons to be associated in certain specified capacities 
with an FCM, IB, CPO or CTA unless the person is registered with the 
entity or intermediary as an AP thereof.\2\ Section 19 of the Act 
grants the Commission plenary authority over leverage transactions, and 
this authority includes the registration of APs of an LTM.\3\
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    \1\ 7 U.S.C. 1 et seq. (2000). The Act can be accessed at http://www.access.gpo.gov/uscode/title7/chapter1_.html.
    \2\ 7 U.S.C. 6k(1)-(3).
    \3\ 7 U.S.C. 23.
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    Commission Regulation 3.12(a) makes it unlawful for any person to 
be associated with an FCM, IB, CTA, CPO or LTM in the capacity of an AP 
unless the person has registered under the Act as an AP of that 
sponsoring intermediary.\4\ Pursuant to Commission Regulation 3.12(c), 
application for registration as an AP must be on a Form 8-R and 
accompanied by the applicant's fingerprints as well as a sponsor 
certification that meets the requirements set forth in that Regulation.
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    \4\ 17 CFR 3.12(a). The Commission's regulations can be accessed 
at http://www.access.gpo.gov/nara/cfr/waisidx_06/17cfrv1_06.html.
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    Commission Regulations 3.12(b) and 3.31(c)(1) provide for the 
termination of an AP's registration. Specifically, Section 3.31(c)(1) 
requires the sponsoring FCM, IB, CPO, CTA or LTM to file a Form 8-T 
notice \5\ with NFA within 20 days of either of the following events: 
(1) The person fails to become associated with the sponsoring FCM, IB, 
CTA, CPO or LTM; or (2) the association with the sponsoring firm is 
otherwise terminated. Commission Regulation 3.31(c)(2) provides for the 
termination of any principal of an FCM, IB, CPO, CTA or LTM, and it 
also requires the filing of a Form 8-T within 20 days after the 
termination of the principal's affiliation.
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    \5\ Commission Regulation 3.31(c)(3) permits the filing of a 
Uniform Termination Notice for Securities Industry Registration 
(Form U-5) in lieu of a Form 8-T to report the termination of any AP 
or principal of the sponsoring intermediary.
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    NFA Registration Rule 214(a) likewise specifies that such 
termination notices must be filed within 20 days after the termination 
of the affiliation of the AP or principal, and it imposes a $100 fee 
upon sponsoring firms that fail to file termination notices on a timely 
basis. By contrast, Article V, Section 3(a) of the Bylaws of the 
National Association of Securities Dealers, Inc. (``NASD'') specifies 
that NASD members must file termination notices with respect to 
registered persons, including varied securities representatives and 
principals thereof, within 30, rather than 20, days.\6\
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    \6\ The termination notice filed by NASD members is the Form U-
5.
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II. NFA's Petition

    NFA recently sought input from its members regarding possible 
enhancements to its online registration process. Several large NFA 
members that are dually registered as FCMs or IBs and securities 
broker-dealers (``BDs'') identified as a particular problem the 
aforementioned disparate regulatory timelines for filing termination 
notices. The dual registrants asserted that it is an undue regulatory 
burden for them to file within the 20-day period for some APs, while 
for the majority of their APs the NASD allows a 30-day period. The dual 
registrants also maintained that the 20-day period is difficult to 
comply with when a termination notice contains disclosure information 
that must be reviewed at the branch office level and then by the legal 
and/or registration departments of a firm. They also stated that, on 
occasion, an attorney representing an AP will review the notice prior 
to filing.
    In light of the difficulties identified by dual registrants, NFA 
petitioned the Commission to amend Regulation 3.31(c)(1) to increase 
the number of days in which a firm must file a termination notice from 
20 to 30 days. NFA claims that such an extension will provide 
sponsoring firms the time needed to properly review the termination 
notices and will conform the futures industry requirements to the 
securities industry's time allowance. Given the disparate regulatory 
requirements applicable to firms that are dual registrants and the 
burden that complying with the 20-day period presents, the Commission 
believes it is appropriate to propose amendments to the relevant 
regulatory requirements.

III. Proposal

    In accordance with the foregoing, the Proposed Amendments would 
extend the period of time in which a registered FCM, IB, CPO, CTA or 
LTM must file a notice with NFA to report the termination of any AP or 
principal of the registered intermediary. Under existing regulations, 
such intermediaries must file notices within 20 days after the 
termination of the AP or principal. The Proposed Amendments would

[[Page 45393]]

allow termination notices to be filed within 30 days after the AP or 
principal is terminated. These Proposed Amendments are intended to 
conform the futures industry requirements to the securities industry's 
time allowance.

IV. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \7\ requires that 
agencies, in proposing regulations, consider the impact of those 
regulations on small businesses. The Proposed Amendments would 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.\8\ The 
Commission previously determined that registered FCMs, CPOs and LTMs 
are not small entities for the purpose of the RFA.\9\ With respect to 
the remaining persons, CTAs and IBs, the Commission does not believe 
that the Proposed Amendments would place any additional burdens upon 
such persons inasmuch as these registrants already are subject to the 
requirement to file termination notices. Moreover, because the Proposed 
Amendments would provide these intermediaries with additional time in 
which to file termination notices, the Amendments actually would lessen 
the relevant regulatory burden. Accordingly, and based on Section 3(a) 
of the RFA,\10\ the Acting Chairman, on behalf of the Commission, 
certifies that the Proposed Amendments would not have a significant 
economic impact on a substantial number of small entities. However, the 
Commission invites the public to comment on this certification.
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    \7\ 5 U.S.C. 601 et seq.
    \8\ 47 FR 18618 (Apr. 30, 1982).
    \9\ 47 FR 18618, 18619.
    \10\ 5 U.S.C. 605(b).
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B. Cost-Benefit Analysis

    Section 15(a) of the Act \11\ 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 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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    \11\ 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 Proposed Amendments concern the filing of termination notices 
by registered intermediaries, in particular, FCMs, IBs, CPOs, CTAs and 
LTMs. Specifically, the Proposed Amendments would extend the period 
during which these registered intermediaries must file a notice with 
NFA to report the termination of any AP or principal of the sponsoring 
intermediary.
    The Proposed Amendments should have no effect on the protection of 
market participants and the public because they would not alter or 
modify the type or nature of information that must be filed with the 
Commission. Rather, they would provide registrants with additional time 
in which to file information that is already required to be filed and 
would conform the futures industry requirements to the securities 
industry's time allowance for filing termination notices.
    The Proposed Amendments should enhance the efficiencies experienced 
by intermediaries because they would lessen burdens that make it 
difficult for intermediaries to comply with the time allowance provided 
for futures firms filing termination notices.
    The Proposed Amendments should have no effect on the following 
three enumerated areas: (1) 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 
publish the Proposed Amendments discussed above. The Commission invites 
public comment on its application of the cost-benefit provision. 
Commenters also are invited to submit any data that they may have 
quantifying the costs and benefits of the Proposed Amendments with 
their comment letters.

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.\12\ The Proposed Amendments will not 
require a new collection of information on the part of any entities 
subject to the Proposed Amendments. Specifically, the Proposed 
Amendments will modify existing regulatory requirements by extending 
the period during which registered intermediaries are required to file 
notices with NFA to report the termination of APs and principals of the 
registered intermediary. Although the Proposed Amendments would alter 
the timeframe during which information is required to be collected, the 
estimated burden associated with the collection is not expected to 
increase or decrease as a result. All affected entities already must 
comply with a requirement to file termination notices. Accordingly, for 
purposes of the PRA, the Commission certifies that the Proposed 
Amendments will not impact the total annual reporting or recordkeeping 
burden associated with the above-referenced collection of information, 
which has been approved previously by OMB.
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    \12\ 44 U.S.C. 3501 et seq.
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    Pursuant to the PRA, the Commission has submitted a copy of this 
certification to the Office of Management and Budget (``OMB'') for its 
review. Copies of the information collection submission to OMB are 
available from the CFTC Clearance Officer, 1155 21st Street, NW., 
Washington, DC 20581 (202) 418-5160.

List of Subjects in 17 CFR Part 3

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

    For the reasons discussed in the preamble, the Commission proposes 
to amend 17 CFR part 3 as follows:

PART 3--REGISTRATION

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

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

    2. Section 3.12 is proposed to be amended by revising paragraph (b) 
to read as follows:


Sec.  3.12  Registration of associated persons of futures commission 
merchants, introducing brokers, commodity trading advisors, commodity 
pool operators and leverage transaction merchants.

* * * * *
    (b) Duration of registration. A person registered in accordance 
with

[[Page 45394]]

paragraphs (c), (d), (f), (i), or (j) of this section and whose 
registration has not been revoked will continue to be so registered 
until the revocation or withdrawal of the registration of each of the 
registrant's sponsors, or until the cessation of the association of the 
registrant with each of his sponsors. Such person will be prohibited 
from engaging in activities requiring registration under the Act or 
from representing himself to be a registrant under the Act or the 
representative or agent of any registrant during the pendency of any 
suspension of his or his sponsor's registration. In accordance with 
Sec.  3.31(c) of this part, each of the registrant's sponsors must file 
a notice with the National Futures Association on Form 8-T or on a 
Uniform Termination Notice for Securities Industry Registration 
reporting the termination of the association of the associated person 
within thirty days thereafter.
* * * * *
    3. Section 3.31 is proposed to be amended by revising paragraphs 
(c)(1) introductory text and (c)(2) to read as follows:


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

* * * * *
    (c)(1) After the filing of a Form 8-R or a Form 3-R by or on behalf 
of any person for the purpose of permitting that person to be an 
associated person of a futures commission merchant, commodity trading 
advisor, commodity pool operator, introducing broker, or a leverage 
transaction merchant, that futures commission merchant, commodity 
trading advisor, commodity pool operator, introducing broker or 
leverage transaction merchant must, within thirty days after the 
occurrence of either of the following, file a notice thereof with the 
National Futures Association indicating:
* * * * *
    (2) Each person registered as, or applying for registration as, a 
futures commission merchant, commodity trading advisor, commodity pool 
operator, introducing broker or leverage transaction merchant must, 
within thirty days after the termination of the affiliation of a 
principal with the registrant or applicant, file a notice thereof with 
the National Futures Association.
* * * * *

    Issued in Washington, DC, on August 8, 2007, by the Commission.
David A. Stawick,
Secretary of the Commission.
 [FR Doc. E7-15869 Filed 8-13-07; 8:45 am]
BILLING CODE 6351-01-P