[Federal Register Volume 72, Number 216 (Thursday, November 8, 2007)]
[Rules and Regulations]
[Pages 63102-63104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-21953]


=======================================================================
-----------------------------------------------------------------------

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: Final rule.

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

SUMMARY: The Commodity Futures Trading Commission (``Commission'' or 
``CFTC'') has amended Commission Regulations 3.12 and 3.31 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. The 
amendments modify existing requirements and specify that such 
intermediaries must file termination notices within 30 days, rather 
than 20 days, after the termination of the association with any AP or 
principal.

DATES: Effective Date: January 1, 2008.

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 as an AP 
thereof under the Act.\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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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'') \6\ 
specifies that members must file termination notices with respect to 
registered persons, including varied securities representatives and 
principals thereof, within 30, rather than 20, days.\7\
---------------------------------------------------------------------------

    \6\ In July, 2007, NASD was succeeded by the Financial Industry 
Regulatory Authority Inc.
    \7\ The termination notice filed for securities industry 
registration is the Form U-5.
---------------------------------------------------------------------------

    Following a review of its rules and a survey of its members, NFA 
filed a petition (``Petition'') with the Commission seeking 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. The Petition was 
based upon concerns raised by NFA members that were dually registered 
as FCMs or IBs and securities broker-dealers (``BDs''). 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, securities industry requirements permit them to file within 
30 days. They further asserted 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, by the legal and/or 
registration departments of a firm, and possibly by an attorney 
representing the terminated AP.

II. The Proposal

    In light of the Petition, the disparate regulatory requirements 
applicable to firms that are dual registrants, the burden that 
complying with the 20-day period presented, and in an effort to 
streamline regulatory requirements and harmonize them with the filing 
deadlines applicable to BDs, the Commission published in the Federal 
Register a proposal (``Proposal'') to extend the period of time in 
which a registered FCM, IB, CPO, CTA or LTM must file a termination 
notice in line with NFA's proposal. The Proposal included proposed 
amendments to Regulations 3.12(b) and 3.31(c)(1) and (2) that would 
allow termination notices to be filed within 30, rather than 20, days 
after the association with the AP or principal is terminated.

III. Comments Regarding the Proposal

    The Commission received three comments addressing its Proposal. The 
first comment was from a committee (``Committee'') of a Bar 
Association, the second comment was from an association of broker/
dealer and investor advisor firms and the third comment was from an 
industry trade association. All three commenters expressed support for 
the Proposal and, in particular, applauded the Commission's efforts to 
harmonize, align and ease requirements applicable to firms that are 
subject to conflicting

[[Page 63103]]

securities and futures regulatory requirements. The Committee 
additionally noted that the Proposal would provide additional time for 
the review of the content of termination notices by multiple parties, 
and it encouraged the Commission to promptly adopt the Proposal.
    In light of the comments received, the Commission has decided to 
adopt the amendments to Regulations 3.12(b) and 3.31(a)(1) and (2) as 
set forth in the Proposal.

IV. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \8\ requires that 
agencies, in proposing regulations, consider the impact of those 
regulations on small businesses. The amendments 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.\9\ The Commission 
previously determined that registered FCMs, CPOs and LTMs are not small 
entities for the purpose of the RFA.\10\ With respect to the remaining 
persons, CTAs and IBs, the Commission stated in its Proposal that it 
did not believe that the proposed amendments to its regulations would 
place any additional burdens upon such persons inasmuch as these 
registrants already are subject to the requirement to file termination 
notices. The Commission also stated its belief that the proposed 
amendments actually would lessen the relevant regulatory burdens on 
CTAs and IBs inasmuch as they would provide these intermediaries with 
additional time in which to file termination notices. Accordingly, and 
based on Section 3(a) of the RFA,\11\ the Acting Chairman, on behalf of 
the Commission, certified that the proposed amendments would not have a 
significant economic impact on a substantial number of small entities. 
The Commission invited the public to comment regarding its analysis, 
and no commenter specifically addressed the small business issue.
---------------------------------------------------------------------------

    \8\ 5 U.S.C. 601 et seq.
    \9\ 47 FR 18618 (Apr. 30, 1982).
    \10\ 47 FR 18618, 18619.
    \11\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

B. Cost-Benefit Analysis

    Section 15(a) of the Act \12\ 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.
---------------------------------------------------------------------------

    \12\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

    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 amendments concern the filing of termination notices by 
registered intermediaries, in particular, FCMs, IBs, CPOs, CTAs and 
LTMs. Specifically, the amendments will 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 amendments will have no effect on the protection of market 
participants and the public because they will not alter or modify the 
type or nature of information that must be filed with the Commission. 
Rather, they will provide registrants with additional time in which to 
file information that is already required to be filed and will conform 
the futures industry requirements to the securities industry's time 
allowance for filing termination notices. The amendments will enhance 
the efficiencies experienced by intermediaries because they will lessen 
burdens that make it difficult for intermediaries to comply with the 
time allowance provided for futures firms filing termination notices. 
Further, the amendments will 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. The Commission invited public comment on its cost-benefit 
analysis, but did not receive any comments addressing the issue.

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.\13\ In its Proposal, the Commission 
noted that the proposed amendments to the regulations would not require 
a new collection of information on the part of any entities subject to 
them. Specifically, the Commission stated that the proposed amendments 
would 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 and that, therefore, the estimated burden 
associated with the collection is not expected to increase or decrease 
as a result. Accordingly, for purposes of the PRA, the Commission 
certified that the proposed amendments would not impact the total 
annual reporting or recordkeeping burden associated with the above-
referenced collection of information, which was previously approved by 
OMB. The Commission did not receive any comments regarding its analysis 
relative to the PRA.
---------------------------------------------------------------------------

    \13\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

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 3.12 is 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 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.

[[Page 63104]]

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), 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.
* * * * *

0
3. Section 3.31 is 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 November 1, 2007, by the 
Commission.
David A. Stawick,
Secretary of the Commission.
 [FR Doc. E7-21953 Filed 11-7-07; 8:45 am]
BILLING CODE 6351-01-P