[Federal Register Volume 82, Number 12 (Thursday, January 19, 2017)]
[Proposed Rules]
[Pages 6356-6367]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01148]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 1 and 23

RIN 3038-AE36


Recordkeeping

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rule.

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SUMMARY: The Commodity Futures Trading Commission (the ``Commission'') 
is proposing to amend the recordkeeping obligations set forth in 
certain provisions of the Commission's regulations. The proposed 
amendments would permit recordkeepers to leverage advances in 
information technology as a means to reduce costs associated with the 
retention and production of paper and electronic records and to 
decrease the risks of cybersecurity threats, while maintaining 
necessary safeguards to ensure the integrity, availability, and 
accessibility of records required to be kept pursuant to the Commodity 
Exchange Act (the ``CEA'') or Commission regulations. In addition to 
providing recordkeepers with greater flexibility regarding the 
retention and production of regulatory records, the proposed amendments 
would remove the requirements for electronic records to be kept in 
their native file format and for recordkeepers to enter into an 
arrangement with a third-party technical consultant with respect to 
electronically stored information.

DATES: Comments must be received on or before March 20, 2017.

ADDRESSES: You may submit comments, identified by RIN 3038-AE36, by any 
of the following methods:
     CFTC Web site: https://comments.cftc.gov. Follow the 
instructions for submitting comments through the Comments Online 
process on the Web site.
     Mail: Christopher Kirkpatrick, Secretary of the 
Commission, Commodity Futures Trading

[[Page 6357]]

Commission, Three Lafayette Centre, 1155 21st Street NW., Washington, 
DC 20581.
     Hand Delivery/Courier: Same as Mail, above.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    Please submit your comments using only one method.
    All comments must be submitted in English, or if not, accompanied 
by an English translation. Comments will be posted as received to 
www.cftc.gov. You should submit only information that you wish to make 
available publicly. If you wish the Commission to consider information 
that you believe is exempt from disclosure under the Freedom of 
Information Act (``FOIA''), a petition for confidential treatment of 
the exempt information may be submitted according to the procedures 
established in Sec.  145.9 of the Commission's regulations.\1\
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    \1\ 17 CFR 145.9. Commission regulations referred to herein are 
found at 17 CFR chapter I.
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    The Commission reserves the right, but shall have no obligation, to 
review, pre-screen, filter, redact, refuse or remove any or all of your 
submission from www.cftc.gov that it may deem to be inappropriate for 
publication, such as obscene language. All submissions that have been 
redacted or removed that contain comments on the merits of the 
rulemaking will be retained in the public comment file and will be 
considered as required under the Administrative Procedure Act and other 
applicable laws, and may be accessible under the FOIA.

FOR FURTHER INFORMATION CONTACT: Eileen T. Flaherty, Director, (202) 
418-5326, eflaherty@cftc.gov; Frank Fisanich, Chief Counsel, (202) 418-
5949, ffisanich@cftc.gov; Andrew Chapin, Associate Chief Counsel, (202) 
418-5465, achapin@cftc.gov; Katherine Driscoll, Associate Chief 
Counsel, (202) 418-5544, kdriscoll@cftc.gov; C. Barry McCarty, Special 
Counsel, (202) 418-6627, cmccarty@cftc.gov; or Jacob Chachkin, Special 
Counsel, (202) 418-5496, jchachkin@cftc.gov, Division of Swap Dealer 
and Intermediary Oversight, Commodity Futures Trading Commission, 1155 
21st Street NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION: 

I. Background

A. Regulation 1.31 Recordkeeping Requirements

    Commission regulation 1.31 sets forth recordkeeping requirements 
for all books and records required to be kept by the CEA and Commission 
regulations, and implements the Commission's inspection and examination 
authority over such records.\2\ Examination of books and records is one 
of the Commission's principal means of determining compliance with the 
CEA and Commission regulations.\3\
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    \2\ Proposed Rule Requiring that Records Subject to Inspection, 
and Copies Thereof, Be Provided to the Commission, 43 FR 50699 (Oct. 
31, 1978).
    \3\ General Regulations; Inspection of Books and Records, 46 FR 
21-01 (Jan. 2, 1981).
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    Paragraph (a) of Sec.  1.31 describes the general requirement that 
books and records must be kept for five years and be readily accessible 
during the first two years. Different retention periods apply to 
certain oral communications and records of any swap or related cash or 
forward transaction. Paragraph (a) also provides that paper records 
shall be kept in their original form and electronic records in the 
format in which they were originally created (referred to as ``native 
file format''), and defines the inspection and production rights of 
representatives of the Commission and the Department of Justice. In 
particular, Sec.  1.31(a)(2) requires that production shall be made in 
a form specified by any representative of the Commission upon the 
representative's request.
    Paragraph (b) of Sec.  1.31 allows books and records to be stored 
on electronic storage or micrographic media, such as microfiche, 
provided that the recordkeeper complies with various technical 
requirements designed to ensure the integrity, availability, and 
accessibility of the electronically stored information. For example, 
this paragraph provides that any digital storage or medium or system 
must preserve the records exclusively in a non-rewritable, non-erasable 
format, known more commonly as the ``write once, read-many,'' or 
``WORM'' requirement. In addition, paragraph (b) requires a 
recordkeeper utilizing electronic storage media to develop and maintain 
an audit system to provide accountability over both the initial entry 
and the entry of each change to any original or duplicate record. 
Further, any person who uses only electronic storage media to preserve 
some or all of its required records shall enter into an arrangement 
with a third-party technical consultant (``Technical Consultant'') 
capable of furnishing to the Commission or its representative any 
information stored electronically promptly upon request.
    Paragraph (c) of Sec.  1.31 requires recordkeepers to provide 
notice and a representation to the Commission prior to the initial use 
of an electronic storage system that the electronic storage system 
satisfies the requirements set forth in Sec.  1.31(b). Lastly, 
paragraph (d) of Sec.  1.31 requires certain paper records, such as 
trading cards and documents with written trading information, to be 
maintained in hard-copy for the applicable retention period.
    The Commission recognizes that the most recent substantive 
amendments to Sec.  1.31 were made in 2012 \4\ and, prior to that, in 
1999.\5\ The 2012 Amendment clarified the retention period for records 
of oral communications leading to the execution of any swap or related 
cash or forward transaction for swap dealers and major swap 
participants, and to require that electronic records be retained in 
their native file format. The 1999 Amendment implemented all of the 
technical provisions regarding the use of electronic storage media in 
Sec.  1.31(b) and (c), including the requirement to retain a Technical 
Consultant.
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    \4\ Adaptation of Regulations to Incorporate Swaps, 77 FR 66288 
(Nov. 2, 2012) (the ``2012 Amendment'').
    \5\ Recordkeeping, 64 FR 28735 (May 27, 1999) (the ``1999 
Amendment'').
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B. Petitions for Rulemaking

    The Commission has received petitions for rulemaking from various 
industry groups requesting that the Commission amend Sec.  1.31.\6\ 
Generally, the Petitioners state that certain requirements set forth in 
Sec.  1.31 that were reasonable and prudent when adopted have become 
outdated and irrelevant. Absent any change, the Petitioners stated that 
recordkeepers must choose between accepted electronic distributed 
storage systems, which are essential for disaster recovery and privacy 
protection, and compliance with the letter of the law.
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    \6\ Petition for Rulemaking to Amend 1.31, 4.7(b) and (c), 4.23 
and 4.33, Managed Funds Association, Investment Adviser Association, 
and Alternative Investment Management Association, dated July 21, 
2014, and Petition for Rulemaking to Amend CFTC Regulations 
4.12(c)(3), 4.23 and 4.33 Investment Company Institute, dated March 
11, 2014 (collectively, the ``Petitioners''). Regulations 4.23 and 
4.33 set forth the recordkeeping requirements for commodity pool 
operators (``CPOs'') and commodity trading advisors (``CTAs''), 
respectively. These regulations require CPOs and CTAs to keep 
certain books and records in accordance with Sec.  1.31.
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    Specifically, the Petitioners have requested the following changes 
to Sec.  1.31:
    1. Amend Sec.  1.31(a) to no longer require electronic records to 
be kept in their native file format;
    2. Amend Sec.  1.31(b) to eliminate the WORM requirement for 
electronic records; and

[[Page 6358]]

    3. Amend Sec.  1.31(b) to eliminate the requirement to enter into 
an agreement with a Technical Consultant.
    With respect to native file format, the Petitioners note that 
programs used to store records electronically routinely become outdated 
and obsolete, and/or are no longer supported by information technology 
manufacturers. As a result, as represented by the Petitioners, 
recordkeepers must bear the burden of retaining these electronic 
records while updating to other, advanced systems for newly created 
records. Accordingly, the Petitioners request that the Commission amend 
Sec.  1.31 in a manner that does not specify the format of any 
particular electronic record, so long as there is demonstrable and 
auditable integrity and fidelity in the preservation of the underlying 
data and contents.
    With respect to the WORM requirement, the Petitioners assert that 
it is based on a concept that was state of the art nearly twenty years 
ago. Records are no longer stored electronically on optical disks or 
CD-ROMs. Currently, state of the art information technology relies on 
storage subject to restricted access and includes storage logs that 
reflect every single change to a file, in addition to archived copies. 
Absent any change, the Petitioners state that recordkeepers will be 
required to maintain dual systems that preserve the WORM requirement 
but also permit them to more properly secure and manage electronic 
records. Accordingly, the Petitioners request that the Commission amend 
Sec.  1.31 to remove the WORM requirement.
    With respect to the Technical Consultant, the Petitioners state 
that the need to retain and train a third-party to serve as a surrogate 
for access and production to electronic records is no longer necessary 
given the in-house technical expertise regarding information technology 
throughout the industry. In addition to the increased costs associated 
with retaining a Technical Consultant, the Petitioners also note that 
providing additional third parties with access to sensitive, 
confidential, and proprietary information greatly increases the risk of 
cybersecurity intrusions. Accordingly, the Petitioners request that the 
Commission amend Sec.  1.31 to remove the requirement to retain a 
Technical Consultant.
    In support of their request, Petitioners note that the Securities 
and Exchange Commission (``SEC'') adopted a recordkeeping rule for 
investment companies and investment advisers consistent with the 
changes they propose.\7\ Rule 204-2(g) under the Investment Advisers 
Act of 1940 sets forth general principles that investment advisers must 
follow when arranging, accessing and reproducing their records. Similar 
provisions apply to the operators of investment companies pursuant to 
Rule 31a-2. In particular, Rule 204-2(g) does not tether advisers to 
any particular format, i.e., native file format, nor does it require 
the use of Technical Consultants. The Petitioners note that in the 1999 
Amendment the Commission expressly stated its intent to track existing 
recordkeeping provisions similar to those adopted by the SEC,\8\ and 
that, more recently in 2013, the Commission acknowledged that there are 
certain advantages to crafting regulations that ``allow the Commission 
to fulfill its regulatory mandate while, at the same time, avoiding 
unnecessary regulatory burdens on dually-regulated [entities] with 
respect to . . . Commission recordkeeping requirements.'' \9\ 
Accordingly, the Petitioners request that the Commission amend Sec.  
1.31 in a manner consistent with SEC Rule 204-2(g).
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    \7\ See Electronic Recordkeeping by Investment Companies and 
Investment Advisers, 66 FR 29224 (May 30, 2001). Given that 
intermediaries may engage in both securities and derivatives 
transactions, operators of investment companies may be required to 
register with the Commission as CPOs, and investment advisers 
similarly may be required to register as CTAs.
    \8\ 64 FR at 28735.
    \9\ See Harmonization of Compliance Obligations for Registered 
Investment Companies Required to Register as Commodity Pool 
Operators, 78 FR 52308 at 52309 (Aug. 22, 2013).
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II. The Proposal

    The Commission noted in the 1999 Amendment the importance of 
conducting an ongoing review of the standards articulated in the 
recordkeeping regulation to ensure that the requirements reflect to the 
extent possible the reality of established technological 
innovation.\10\ At the same time, the Commission recognized the value 
of consultation with the derivatives industry and its participants to 
determine how to best use available information technology that also is 
responsive to the Commission's legitimate need to have access to 
complete and accurate records when necessary.\11\
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    \10\ 64 FR at 28736.
    \11\ Id.
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    As the Petitioners highlighted, the Commission recognizes that 
recordkeeping has evolved significantly in the time since the last 
major revision to Sec.  1.31 in 1999 from a paper-based system to 
electronically stored information systems that leverage computers, 
databases, and even cloud computing. Back then, most records were 
created and maintained on paper, but recordkeepers began to explore 
better ways to store information electronically. Now the paradigm has 
shifted, and most information is produced and stored electronically on 
complex systems tailored to the needs of a given recordkeeper. These 
advances in information technology may have rendered certain technical 
elements of Sec.  1.31 obsolete or outdated.
    Accordingly, the Commission proposes to amend Sec.  1.31 to 
reorganize and update the existing recordkeeping regulation, 
eliminating certain outdated provisions while still maintaining the 
ability of the Commission to examine and inspect required records. The 
Proposal is intended to be technology neutral so as technology develops 
the regulation should withstand such changes. The updates include new 
definitions, deletion of outdated terms, and revision of certain 
provisions to reflect advances in information technology. The 
Commission notes that many of the existing provisions and principles in 
Sec.  1.31 have been retained, albeit in a revised format. The proposed 
regulation is divided into five subsections: (a) Definitions; (b) 
regulatory records policies and procedures; (c) duration of retention; 
(d) form and manner of retention; and (e) inspection and production of 
regulatory records.

A. Regulation 1.31(a): Definitions

    The Commission proposes to reorganize Sec.  1.31 by revising 
paragraph (a) to define certain terms to be referenced elsewhere within 
the revised regulation. Specifically, the Commission proposes to define 
the terms ``electronic regulatory records'', ``records entity'', and 
``regulatory records''. The Commission believes that defining these 
terms will provide greater clarity regarding the recordkeeping 
obligations applicable to all persons subject to Sec.  1.31, 
particularly for those obligations related to electronic records.
    For the ease of understanding and applying the proposed amendments 
to Sec.  1.31, the Commission proposes to define ``records entity'' to 
mean ``any person required by the Act or Commission regulations to keep 
regulatory records.'' The Commission notes that numerous Commission 
regulations set forth particular requirements for CEA Section 1a(40) 
``registered entities''--such as derivatives clearing organizations, 
designated contract markets, swap execution facilities, and swap data

[[Page 6359]]

repositories--and for registrants--such as futures commission 
merchants, introducing brokers, CPOs, CTAs, floor brokers, floor 
traders, retail foreign exchange dealers, swap dealers, and major swap 
participants--to keep certain books and records in accordance with 
Sec.  1.31. The Commission notes, however, that certain persons that 
are neither a registered entity nor a registrant may be required to 
keep certain books and records in accordance with Sec.  1.31, as 
well.\12\
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    \12\ For example, Part 18 of the Commission's regulations 
requires every trader who owns, holds or controls a reportable 
futures or option to ``keep books and records showing all details 
concerning all positions and transactions in the commodity swap. . . 
.'' 17 CFR 18.05. Traders are not limited to any Commission 
registrant or registered entity.
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    The Commission also proposes to replace existing references to 
``books and records'' within Sec.  1.31 with the term ``regulatory 
records'' and to differentiate between electronic and paper regulatory 
records. The Commission proposes to define ``regulatory records'' to 
mean ``all books and records required to be kept by the Act or 
Commission regulations.'' As a subset, the Commission proposes to 
define within Sec.  1.31(a) ``electronic regulatory records'' to mean 
``all regulatory records other than paper regulatory records 
exclusively created and maintained by a records entity on paper.'' The 
Commission has separately proposed Regulation Automated Trading and 
certain requirements regarding source code and manner of production of 
source code.\13\ This proposal does not address source code or the 
production of source code.
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    \13\ See Supplemental notice of proposed rulemaking, Regulation 
Automated Trading, 81 FR 85334 (Nov. 25, 2016).
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    The Commission recognizes that certain regulatory records are not 
created electronically and that certain records entities may elect not 
to convert any paper regulatory records into an electronic format. By 
differentiating between paper and electronic regulatory records, the 
Commission can better preserve existing recordkeeping obligations 
applicable solely to records entities that do not create anything other 
than paper regulatory records.\14\
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    \14\ Records entities who are currently in compliance with 
current Sec.  1.31 will continue to be in compliance with proposed 
Sec.  1.31, provided that they have written policies and procedures 
that meet the requirements of the Proposal.
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    The Commission also believes that the term ``books and records'' in 
the traditional sense may no longer adequately convey that Sec.  1.31 
recordkeeping obligations extend to all associated electronic data. 
However, contrary to prior revisions to Sec.  1.31 where the Commission 
specifically delineated the types of allowable media for electronic 
records storage,\15\ the Commission believes it is now appropriate to 
focus the recordkeeping obligations on the scope of required records, 
rather than a specific storage medium. Accordingly, the Commission 
proposes to further define the term ``regulatory records'' by adding 
the following descriptive language to include: Any record of any 
correction or other amendment to such books and records, provided that, 
with respect to such books and records stored electronically, 
regulatory records shall also include: (i) All data produced and stored 
electronically that describes, directly or indirectly, the 
characteristics of such books and records, including, without 
limitation, data that describes how, when, and, if relevant, by whom 
such electronically stored information was collected, created, 
accessed, modified, or formatted; and (ii) any data necessary to 
access, search, or display any such books and records.
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    \15\ See 36 FR 22286 (Nov. 24, 1971) (permitted the use of 
microfilm as a medium for maintaining certain records); 58 FR 27458 
(May 10, 1993) (permitted the use of optical disk and CD-ROM); 64 FR 
28735 (May 27, 1999) (permitted the use of other micrographic and 
electronic storage media).
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    The proposed language would more clearly state the existing 
requirement to maintain all prior versions of any regulatory record, no 
matter how modified. This is not a new recordkeeping obligation. Since 
1993 the Commission has required electronic records to be created and 
maintained in a non-erasable, non-rewritable format for the retention 
period.\16\ Because the existing regulation requires electronic records 
be preserved exclusively in a non-rewritable, non-erasable format, it 
follows that each version of an electronic record must be created and 
maintained in a non-erasable, non-rewritable format. Therefore, the 
Commission is confirming that both the initial record and all 
subsequent versions are records within the definition and must be 
created, maintained, accessible, and produced consistent with the 
regulation.\17\
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    \16\ See Sec.  1.31(b)(1)(ii)(A).
    \17\ Each version of a record must be retained for the 
applicable retention period which is based off the most recent 
version. For example, the initial record is created on Day 1 and the 
amended record is created on Year 4, Day 359. The amended record 
resets the retention period clock to Day 1 for both the initial 
record and amended record to ensure a comprehensive audit trail.
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    The proposed language also would clarify that electronically stored 
regulatory records are not limited to the data within a particular 
database or application, for example, but includes the electronic 
information that identifies the manner in which any regulatory record 
is altered. The Commission understands that this information is more 
commonly known as ``metadata,'' and, at its core, is data about data. 
Regardless of the label, the Commission understands that metadata 
generally refers to any hidden text, formatting codes, formulae, 
history, tracking, and other information associated with an electronic 
file or data. Metadata is integral to the Commission's ability to carry 
out both the inspection and investigation functions it is charged with 
under the CEA. To fully understand the data within a database, for 
example, requires knowledge of data relationships, what the information 
represents, and how it was generated. Once properly assembled and 
formatted in the form of a report, data within a database is readily 
understandable.
    The Commission does not find it necessary at this time to define 
specific, technical terms related to information technology and 
electronically stored information, such as metadata or databases, as 
these technical terms may change over time. The Commission believes 
these are terms generally understood by practitioners notwithstanding a 
lack of a universal agreement on exact definitions.
    The Commission notes that the requirement to provide data about 
data is not new. As set forth in current Sec.  1.31(a)(2), production 
of any books and records shall be made ``in a form specified by any 
representative of the Commission.'' For the purpose of facilitating 
production requests pursuant Sec.  1.31(a)(2), the Commission's 
Division of Enforcement has developed and continually updates a 
document entitled ``CFTC Data Delivery Standards.'' \18\ Such standards 
describe the technical requirements for electronic document production 
to the Commission and specifically provides for the production of 
metadata associated with electronic records.
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    \18\ The Commission publishes the CFTC Data Delivery Standards 
on its Web site at: http://www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/file/enfdatadeliverystandards052716.pdf. The Commission notes that other 
federal agencies, such as the SEC (https://www.sec.gov/divisions/enforce/datadeliverystandards.pdf), the Department of Justice 
(https://www.justice.gov/atr/case-document/file/494686/download) and 
the Department of Treasury Office of Foreign Asset Control (https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Documents/ofac_data_delivery.pdf) have similar data delivery 
standards.--
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    Finally, the Commission further proposes not to retain within the 
definition section certain definitions in the existing regulation, such 
as ``native

[[Page 6360]]

file format'', ``micrographic media'' and ``electronic storage media.'' 
The Commission believes that the proposed revisions to Sec.  1.31, 
described in greater detail below, obviate the need to retain these 
defined terms.
    Request for comment: The Commission requests comment from all 
interested parties and the general public regarding the proposed 
definitions in Sec.  1.31(a). The Commission encourages all comments 
including background information, actual market examples, best practice 
principles, and estimates of any asserted costs and expenses. Regarding 
the proposed definitions, the Commission specifically requests comment 
on the following questions:
     Should any of the proposed definitions be revised? If yes, 
please provide alternative suggestions.
     Should any of the proposed definitions be deleted?
     Should any previous definitions proposed for deletion, 
e.g., ``micrographic media,'' be included in the revised regulation?
     Should other definitions be added, such as ``metadata'', 
or ``database'', or ``paper regulatory records''?

B. Regulation 1.31(b): Regulatory Records Policies and Procedures

    The Commission proposes to revise and re-state in new Sec.  1.31(b) 
ongoing compliance obligations regarding written regulatory records 
policies and procedures currently set forth in Sec.  1.31(b)(3). 
Specifically, the Commission proposes in revised Sec.  1.31(b) to 
require all records entities to establish, maintain, and implement 
written policies and procedures reasonably designed to ensure that the 
records entity complies with its obligations under Sec.  1.31, 
including without limitation, appropriate training of officers and 
personnel of the records entity regarding their responsibility for 
ensuring compliance with the obligations of the records entity under 
this section, and regular monitoring for such compliance.\19\
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    \19\ SEC Rule 204-2(a)(17) requires each investment adviser to 
maintain as part of its recordkeeping obligations, among other 
things, a copy of the adviser's policies and procedures, and any 
records documenting the adviser's annual review of those policies 
and procedures.
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    The Commission believes that the proposed obligations regarding 
written policies and procedures are generally consistent with the 
existing regulation and accepted industry practices. Currently, Sec.  
1.31(b)(3) requires anyone using electronic storage media to develop 
and maintain written operational procedures and controls (an ``audit 
system'') designed to provide accountability over both the initial 
entry of required records to the electronic storage media and the entry 
of each change made to any original or duplicate record maintained on 
the electronic storage media. Moreover, the written operational 
procedures and controls must be made available for examination at all 
times by any representative of the Commission.
    With respect to training, the Commission does not find it necessary 
to prescribe specific requirements regarding the frequency and format 
of any training. Consistent with its approach towards mandatory ethics 
training for registrants, the Commission views the training on written 
policies and procedures as an ongoing responsibility rather than an 
episodic one.\20\ The obligation to remain current on the legal 
requirements regarding compliance with Sec.  1.31 is one that a records 
entity ignores at its peril. The Commission takes a similar view 
towards the proposed obligation for each records entity to monitor 
compliance with the entity's policies and procedures on a ``regular'' 
basis.
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    \20\ 66 FR 53510 (Oct. 23, 2001) (``Rules Relating to 
Intermediaries of Commodity Interest Transactions''). With respect 
to mandatory ethics training, the Commission replaced prescriptive 
requirements set forth in Sec.  3.34 with a Statement of Acceptable 
Practices.
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    Request for comment: The Commission requests comment from all 
interested parties and the general public regarding the proposed 
obligations regarding regulatory records policies and procedures in 
proposed Sec.  1.31(b). The Commission encourages all comments 
including background information, actual market examples, best practice 
principles, and estimates of any asserted costs and expenses. Regarding 
the written policies and procedures requirements, the Commission 
specifically requests comment on the following questions:
     Should the training requirement be scaled down, phased-in, 
or eliminated depending on the number of employees, or depending on the 
nature of the entity's business?

C. Regulation 1.31(c): Duration of Retention

    The Commission proposes to re-state and clarify in revised Sec.  
1.31(c) the existing retention period requirements for categories of 
regulatory records currently set forth in Sec.  1.31(a). Specifically, 
proposed Sec.  1.31(c)(1) would state that a records entity shall keep 
regulatory records of any swap or related cash or forward transaction 
(as defined in Sec.  23.200(i)), other than regulatory records of oral 
communications, from the date the regulatory record was created until 
the termination, maturity, expiration, transfer, assignment, or 
novation date of the transaction and for a period of not less than five 
years after such date. The Commission proposes to incorporate by 
reference the definition of the term ``related cash or forward 
transaction'' in Sec.  23.200(i).
    Similarly, proposed Sec.  1.31(c)(2) would state that a records 
entity that is required to retain oral communications shall keep 
regulatory records of such oral communications for a period of not less 
than one year from the date of such communication. This is consistent 
with the existing standard. The Commission proposes, however, to 
eliminate references to Sec. Sec.  1.35(a) and 23.202(a)(1) and (b)(1) 
with respect to ``oral communications'' as future changes to those 
regulations, or the promulgation of new types of oral communications 
requirements, would require the Commission to contemporaneously amend 
Sec.  1.31. Based on the foregoing proposed amendments, the Commission 
believes that the existing provision in Sec.  23.203(b)(2) regarding 
the retention period of swaps-related information for swap dealers and 
major swap participants is redundant and therefore should be repealed. 
For all other regulatory records not addressed in proposed Sec.  
1.31(c)(1) and (2), proposed Sec.  1.31(c)(3) would require a records 
entity to keep such records for a period of not less than five years 
from the date on which such record was created. However, proposed Sec.  
1.31(c)(4) would retain the existing retention period for regulatory 
records exclusively created and maintained on paper, i.e., records must 
be readily accessible for no less than two years. This standard is 
consistent with the SEC's standard applicable to investment advisers 
and operators of investment companies.\21\ Consistent with this change, 
the Commission proposes to remove the duplicative language from Sec.  
23.203(b)(1).
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    \21\ SEC Rule 204-2(e) states that all books and records shall 
be maintained and preserved in an easily accessible place for a 
period of not less than five years from the end of the fiscal year 
during which the last entry was made on such record, the first two 
years in an appropriate office of the investment adviser. SEC Rule 
31a-2 similarly requires the operator of an investment company to 
retain records for a minimum of six years the first two years in an 
easily accessible place.
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    Request for comment: The Commission requests comment from all 
interested parties and the general public regarding the proposed 
retention periods in Sec.  1.31(c). The Commission encourages all 
comments including background information, actual market

[[Page 6361]]

examples, best practice principles, and estimates of any asserted costs 
and expenses. Regarding the proposed retention periods, the Commission 
specifically requests comment on the following questions:
     Are the proposed recordkeeping retention periods 
appropriate? If not, what modifications to the retention periods should 
be made?
     Given the advances in information technology, such as 
cloud storage, should the Commission extend the standard five year 
retention period?
     Is there a longer or shorter period of retention that 
would be appropriate for some records, and if so please specify which 
records and such time-frames?

D. Regulation 1.31(d): Form and Manner of Retention

    The Commission proposes to revise Sec.  1.31(d) to describe 
recordkeeping requirements regarding the form and manner in which 
regulatory records are retained by records entities. These proposed 
revisions are designed to ensure the integrity and availability of all 
regulatory records. The Commission is cognizant that other provisions 
of the Act and Commission regulations distinguish between different 
classes of records entities. In particular, the Commission recognizes 
that records entities that are not registered or required to be 
registered with the Commission in any capacity, nor are one of the 
enumerated ``registered entities'' defined in Section 1a(40) of the CEA 
or so required to be registered or designated,\22\ currently are not 
required to comply with the full panoply of recordkeeping 
requirements.\23\ It is the Commission's goal to preserve this 
distinction, especially in those cases where a records entity 
exclusively maintains paper regulatory records.
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    \22\ Section 1a(40) of the Act defines a ``registered entity'' 
to mean: (a) A board of trade designated as a contract market under 
section 5; (b) a derivatives clearing organization registered under 
section 5b; (c) a board of trade designated as a contract market 
under section 5f; (d) a swap execution facility registered under 5h; 
(e) a swap data repository registered under section 21; and (f) with 
respect to a contract that the Commission determines is a 
significant price discovery contract, any electronic trading 
facility on which the contract is executed or traded.
    \23\ For example, part 20 of the Commission's regulations sets 
forth requirements regarding large trader reporting for physical 
commodity swaps. Regulation 20.1 defines a ``reporting entity'' to 
mean a clearing member of a clearing organization or a swap dealer 
in one or more paired swaps or swaptions. Pursuant to Sec.  20.6, 
only clearing organizations and reporting entities must keep all 
books and records in accordance with Sec.  1.31. Any other person 
who exceeds the reportable level in any contract ``shall keep books 
and records . . . in the record retention format that such person 
has developed in the normal course of its business operations.'' All 
books and records kept pursuant to Sec.  20.6, however, shall be 
furnished upon request to any Commission representative.
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    The Commission proposes to re-state and revise in new Sec.  1.31(d) 
certain requirements for regulatory records currently set forth in 
Sec.  1.31(b)(1) through (3). In doing so, the Commission proposes to 
adopt a general standard in Sec.  1.31(d)(1) to require each records 
entity to retain all regulatory records in a form and manner necessary 
to ensure the records' and recordkeeping systems' authenticity and 
reliability. This general requirement would not distinguish between 
paper and non-paper regulatory records.
    With respect to electronic regulatory records, the Commission 
proposes to set forth in new Sec.  1.31(d)(2)(i) through (iii) 
additional controls for records entities retaining electronic 
regulatory records. In particular, each records entity would be 
required to:
    (A) Have systems that maintain security, signature, chain of 
custody elements, and data as necessary to ensure the authenticity of 
the information contained in regulatory records and to monitor 
compliance with the Act and Commission regulations;
    (B) Have systems that ensure the records entity is able to produce 
regulatory records in accordance with this section, and ensure the 
availability of regulatory records in the event of an emergency or 
other disruption of the records entity's record retention systems; and
    (C) Create and maintain an up-to-date inventory that identifies and 
describes each system that maintains information necessary for 
accessing or producing regulatory records.
    The Commission believes that these requirements are not new and are 
consistent with certain SEC requirements.\24\ Currently, Sec.  
1.31(b)(1)(ii)(B) mandates that electronic storage media verifies 
automatically the quality and accuracy of the storage media recording 
process. Existing rules require any records entity that utilizes 
electronic storage media to organize and maintain an accurate index of 
all information such that the location of any record may be immediately 
ascertained. Among other requirements, existing Sec.  1.31(b)(3) 
requires any records entity that utilizes electronic storage media to 
keep current a copy of the physical and logical format of the 
electronic storage media, the file format of all different information 
types maintained, documentation and information necessary to access 
records and indexes maintained on the electronic media.
---------------------------------------------------------------------------

    \24\ With respect to electronic storage media, SEC Rule 204-
2(g)(3) requires investment advisers to establish written procedures 
that: (1) Maintain and preserve the records, so as to reasonably 
safeguard them from loss, alteration, or destruction; (2) limit 
access to the records to properly authorized personnel and the SEC; 
and (3) reasonably ensure that any reproduction of a non-electronic 
original record on electronic storage media is complete, true, and 
legible when retrieved. SEC Rule 31a-2(f) sets forth similar 
requirements for the operators of investment companies.
---------------------------------------------------------------------------

    Finally, based on the foregoing proposed amendments, the Commission 
believes that the existing provision in Sec.  1.35(a)(5)(i) regarding 
the form and manner in which records of commodity interest and cash 
forward transactions should be maintained is redundant and therefore 
should be repealed.
    Request for comment: The Commission requests comment from all 
interested parties and the general public regarding the proposed 
standards for form and manner of retention of regulatory records in 
Sec.  1.31(d). The Commission encourages all comments including 
background information, actual market examples, best practice 
principles, and estimates of any asserted costs and expenses. With 
respect to the authenticity and reliability of regulatory records and 
recordkeeping systems, the Commission specifically requests comment on 
the following questions:
     Should the Commission routinely publish guidelines 
regarding the technical standards for electronic regulatory records?
    With respect to potential impacts of the Proposal, the Commission 
specifically requests comment on the following questions:
     Would the Proposal require market participants to change 
their existing recordkeeping procedures under the Proposal? What, if 
any, transition or ongoing costs would result from such changes? Please 
provide details and estimates regarding any asserted costs.
     For entities who maintain digitized copies of paper 
records, what costs or other impacts would result under the Proposal?

E. Regulation 1.31(e): Inspection and Production of Regulatory Records

1. Inspection
    The Commission proposes to re-state in revised Sec.  1.31(e)(1) the 
right of inspection of the Commission and the United States Department 
of Justice (``DOJ'') in existing Sec.  1.31(a)(1). Specifically, the 
Commission proposes Sec.  1.31(e)(1) to state that all regulatory 
records shall be open to inspection by any representative of the 
Commission or the DOJ. The Commission previously determined that 
production of records is part of the Commission's inspection

[[Page 6362]]

powers.\25\ Accordingly, the Commission has determined to limit 
reference to the DOJ in Sec.  1.31 to a single reference in this 
paragraph. Any requirement for a records entity to produce regulatory 
records extends to DOJ as is currently the requirement.
---------------------------------------------------------------------------

    \25\ See 46 FR 21 (Jan. 3, 1981); see also, CFTC Letter 77-4 
(Apr. 14, 1977).
---------------------------------------------------------------------------

    Request for comment: The Commission requests comment from all 
interested parties and the general public regarding the proposed 
regulations set forth in Sec.  1.31(e)(1). The Commission encourages 
all comments including background information, actual market examples, 
best practice principles, and estimates of any asserted costs and 
expenses.
2. Production
    The Commission proposes to revise and re-state in new Sec.  
1.31(e)(2) the existing production requirement currently set forth in 
Sec.  1.31(a)(2) and (b). Currently, a records entity is required to 
produce regulatory records in a form specified by any representative of 
the Commission, including the DOJ, upon the representative's request. 
If the requested book or record is stored either on micrographic media 
or electronic storage media, production shall be immediate.\26\ 
Otherwise, all copies or originals shall be provided promptly.\27\ The 
Commission proposes to amend this requirement in new Sec.  1.31(e)(i) 
and (ii) to differentiate between the production of paper and 
electronic regulatory records, particularly with respect to the form 
and medium of requested electronic regulatory records.
---------------------------------------------------------------------------

    \26\ See Sec.  1.31(b)(2)(i) and (ii). In addition, persons 
using electronic storage media must be ready at all times to 
provide, and immediately provide at the expense of the person 
required to keep such records, copies of such records on such 
compatible data processing media as defined in Commission regulation 
15.00(d) which any representative of the Commission or the 
Department of Justice may request. Records must use a format and 
coding structure specified in the request. See Sec.  1.31(b)(3)(i).
    \27\ See Sec.  1.31(a)(2).
---------------------------------------------------------------------------

    With respect to the production of regulatory records exclusively 
created and maintained on paper, proposed Sec.  1.31(e)(2) would 
require a records entity to produce such regulatory records promptly 
upon request. With respect to regulatory records other than paper 
regulatory records, proposed Sec.  1.31(e)(3) would set forth the 
process by which a records entity must respond to a request from a 
Commission representative. In particular, Sec.  1.31(e)(3)(i) would 
require a Commission representative to specify a reasonable form and 
medium in which a records entity must produce such regulatory records. 
Proposed Sec.  1.31(e)(3)(ii) would require a records entity, at its 
own expense, to produce such regulatory records in the form and medium 
requested promptly, upon request, unless otherwise directed by the 
Commission representative.
    The Commission recognizes that production, depending on the 
records, may require the records entity to engage multiple employees, 
officers, or directors in order to satisfy the production request, 
depending upon its size and scope. Historically, Commission staff has 
exercised broad discretion regarding production schedules and 
``typically exhibits flexibility. . . .'' \28\ However, timely 
production is a Commission priority and the proposed ``prompt'' 
standard should not be interpreted as sanctioning any unnecessary 
delay. It is the Commission's understanding that most registrants 
maintain records electronically and therefore would be required under 
existing Sec.  1.31 to produce said records immediately, subject to the 
discretion of Commission staff. The prompt production standard is 
therefore consistent with the existing standard. The Commission notes 
that the standard ``promptly upon request'' is also consistent with SEC 
Rule 17a-4 applicable to broker-dealers thereby maintaining a 
harmonized standard for entities that may be dually registered with the 
SEC and the CFTC.\29\
---------------------------------------------------------------------------

    \28\ FIA comment regarding proposed amendments to Sec.  1.31. 64 
FR 28735 at 28739 (May 27, 1999).
    \29\ SEC Rule 17a-1 similarly requires national securities 
exchanges and registered clearing agencies to ``promptly furnish'' 
records to any representative of the SEC upon request.
---------------------------------------------------------------------------

    In adopting this revised regulation, the Commission is cognizant of 
the need to balance the opportunities for recordkeepers to reduce costs 
and improve efficiencies regarding recordkeeping systems with the 
Commission's need for prompt access to complete and accurate records in 
a format that the Commission can process, i.e., a useable format.\30\ 
For the purposes of production, the Commission continues to believe 
that it is not sufficient to simply reduce electronic records to a 
paper format, i.e., printing out data from a database and saving into a 
portable document file, or PDF. This type of production detracts from 
the Commission's ability to properly evaluate the integrity of the 
electronic records by accessing the associated metadata, for example. 
Based upon these principles, the Commission proposes to revise Sec.  
1.31 to permit a records entity that cannot promptly produce electronic 
regulatory records in the form and medium requested by the Commission 
the opportunity to produce records in an alternative manner sufficient 
for the Commission to adequately inspect the records. The ultimate goal 
is not necessarily to obtain records in their ``native file format,'' 
but rather in the most useable form and medium.
---------------------------------------------------------------------------

    \30\ See 77 FR at 66298 (referring to the 1999 Amendment).
---------------------------------------------------------------------------

    Finally, the Commission further proposes to adopt new Sec.  
1.31(e)(4) to preserve the existing right of a records entity to 
provide a representative of the Commission with an original regulatory 
record for reproduction by the representative in lieu of a copy 
currently set forth in Sec.  1.31(a)(2). As with the existing 
provision, the Commission proposes to require the Commission 
representative to issue a receipt for the original regulatory record to 
the records entity upon request.
    Request for comment: The Commission requests comment from all 
interested parties and the general public regarding the proposed 
inspection and production of regulatory records in Sec.  1.31(e). The 
Commission encourages all comments including background information, 
actual market examples, best practice principles, and estimates of any 
asserted costs and expenses. Regarding the production of regulatory 
records, the Commission specifically requests comment on the following 
questions:
     Should the Commission impose a different standard with 
respect to the production of paper regulatory records or other 
regulatory records?
     Are there records entities that retain only paper 
regulatory records?

F. Other Matters

1. Sec.  1.31(b)(4)--Technical Consultant
    Consistent with the foregoing amendments and in response to the 
Petitioners' request, the Commission proposes to amend Sec.  
1.31(b)(4)(i) to remove the requirement for a records entity to enter 
into an arrangement with a Technical Consultant and provide the 
Technical Consultant with access to and the ability to download 
information from the records entity's electronic storage media to any 
acceptable medium. Further, the Commission proposes to remove the 
requirement set forth in Sec.  1.31(b)(4)(ii) which requires the 
Technical Consultant to file with the Commission an acceptable 
undertaking regarding its ability and willingness to provide the 
Commission and DOJ with access to the information contained on the 
record entity's electronic storage media. The Commission concurs with 
the position taken by Petitioners that the information technology 
expertise within

[[Page 6363]]

the derivatives industry obviates the need for the Commission to 
require those records entities electing to store information 
electronically to engage a third party to ensure compliance with all 
applicable electronic recordkeeping obligations. However, to the extent 
that a records entity chose to use a third party or Technical 
Consultant, the records entity would remain responsible for compliance 
with the CEA and Commission regulations thereunder.
2. Sec.  1.31(c)--Representation to the Commission
    Consistent with the foregoing amendments and in response to the 
Petitioners' request, the Commission proposes to amend Sec.  1.31 by 
removing existing Sec.  1.31(c). This provision requires any person 
utilizing electronic storage media to provide a written representation 
to the Commission prior to the use of the system certifying that the 
system satisfies the requirements in existing paragraph (b)(1)(ii) and, 
where applicable, if the system will be using storage media other than 
optical disk or CD-ROM. Further, the written representation must 
include an affirmation from an individual consistent with Sec.  
1.10(d)(4), i.e., the information provided is true and correct to the 
best knowledge and belief of the affirming individual. The Commission 
believes that the requirement set forth in proposed Sec.  1.31(c)(2) 
regarding written policies and procedures for regulatory records 
obviates the need for any records entity to provide notice to the 
Commission regarding its compliance with Sec.  1.31. Moreover, the 
Commission recognizes that references to optical disks and CD-ROM are 
outdated.
3. Sec.  1.31(d)--Other Paper Regulatory Records
    Consistent with the foregoing amendments, the Commission proposes 
to amend Sec.  1.31 by removing current Sec.  1.31(d). This provision 
states that certain paper records, such as trading cards and paper 
copies of electronically filed certified forms, must be retained in 
hard-copy for the required time period. The Commission believes that 
revised Sec.  1.31 provides records entities with sufficient 
flexibility on how to retain regulatory records while maintaining the 
Commission's ability to access reliable regulatory information. Having 
eliminated the requirement for a records entity to retain regulatory 
records in a specific form and manner, the Commission believes that 
Sec.  1.31(d) no longer serves any regulatory purpose.
    Request for comment: The Commission requests comment from all 
interested parties and the general public regarding the proposed 
deletion of existing provisions in Sec.  1.31(b)(4), (c) and (d); and 
Sec.  1.35(a)(5)(i). The Commission encourages all comments including 
background information, actual market examples, best practice 
principles, and estimates of any asserted costs and expenses.
4. Potential Technical Amendments
    In conjunction with the Proposal, the Commission is reviewing its 
regulations for potential technical amendments related to Sec.  1.31, 
including those part 4 regulations cited by Petitioners. This review 
may or may not result in a new proposed rulemaking.
    Request for comment: The Commission requests comment from all 
interested parties and the general public regarding potential technical 
amendments to Commission regulations related to Sec.  1.31. The 
Commission specifically requests comment whether the proposed changes 
to Sec.  1.31 will resolve all outstanding issues regarding compliance 
with part 4 of the Commission's regulations identified by Petitioners. 
The Commission encourages all comments including background 
information, actual market examples, best practice principles, and 
estimates of any asserted costs and expenses.

III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \31\ requires Federal 
agencies, in promulgating regulations, to consider whether the rules 
they propose will have a significant economic impact on a substantial 
number of small entities and, if so, to provide a regulatory 
flexibility analysis regarding the economic impact on those entities.
---------------------------------------------------------------------------

    \31\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

    As discussed above, because the Proposal relates to most 
recordkeeping obligations under the CEA and the Commission's 
regulations, it may affect the full spectrum of Commission registrants, 
all persons required to register but not registered with the 
Commission, and certain persons that are neither registered nor 
required to register with the Commission. The Commission has previously 
determined that certain registrants are not small entities for purposes 
of the RFA and, therefore, the requirements of the RFA do not apply to 
those entities.\32\ For other registrants, however, the Commission has 
found it appropriate to consider whether such registrants should be 
deemed small entities for purposes of the RFA on a case-by-case basis, 
in the context of the particular Commission regulation at issue.\33\ As 
certain persons affected by the Proposal, including Commission 
registrants, may be small entities for purposes of the RFA, the 
Commission considered whether this rulemaking would have a significant 
economic impact on any such persons.
---------------------------------------------------------------------------

    \32\ See, e.g., Policy Statement and Establishment of 
Definitions of ``Small Entities'' for Purposes of the Regulatory 
Flexibility Act, 47 FR 18618 (Apr. 30, 1982) (futures commission 
merchants and commodity pool operators); Leverage Transactions, 54 
FR 41068 (Oct. 5, 1989) (leverage transaction merchants); Regulation 
of Off-Exchange Retail Foreign Exchange Transactions and 
Intermediaries, 75 FR 55410, 55416 (Sept. 10, 2010) (retail foreign 
exchange dealers); and Registration of Swap Dealers and Major Swap 
Participants, 77 FR 2613, 2620 (Jan. 19, 2012) (swap dealers and 
major swap participants).
    \33\ See 47 FR at 18620 (commodity trading advisors and floor 
brokers); Registration of Floor Traders; Mandatory Ethics Training 
for Registrants; Suspension of Registrants Charged With Felonies, 58 
FR 19575, 19588 (Apr. 15, 1993) (floor traders); and Introducing 
Brokers and Associated Persons of Introducing Brokers, Commodity 
Trading Advisors and Commodity Pool Operators; Registration and 
Other Regulatory Requirements, 48 FR 35248, 35276 (Aug. 3, 1983) 
(introducing brokers).
---------------------------------------------------------------------------

    As discussed above, the Proposal generally updates and simplifies 
existing Commission regulation 1.31 with new provisions that safeguard 
the same statutory-based principles previously identified by the 
Commission. It accomplishes this by deleting outdated terms and 
revising provisions to reflect advances in information technology, 
allowing records entities to benefit from evolving technological 
developments while maintaining necessary safeguards to ensure the 
reliability of the recordkeeping process.
    The Commission believes that the proposed rules would impose only 
limited additional costs on small entities related to the requirement 
that they establish written recordkeeping policies and procedures. 
However, this new requirement is replacing existing requirements 
applicable to such persons in many cases, including the existing 
similar requirements discussed above to (i) Maintain an audit system 
and (ii) under certain circumstances, retain a Technical Consultant. 
Further, as part of the Proposal, the Commission is proposing to remove 
existing requirements that are expected to lower costs for all records 
entities, including small entities, by removing requirements that 
certain records be kept in paper form.
    In light of the limited scope of the proposed changes and the added 
flexibility and expected cost-savings provided to small entities 
thereby, the Commission does not expect small entities that are records 
entities to incur

[[Page 6364]]

new costs, on a net basis, as a result of the Proposal. Consequently, 
the Commission finds that no significant economic impact on small 
entities will result from the Proposal.
    Accordingly, the Chairman, on behalf of the Commission, hereby 
certifies pursuant to 5 U.S.C. 605(b) that the Proposal will not have a 
significant economic impact on a substantial number of small entities.

B. Paperwork Reduction Act

1. Background
    The Paperwork Reduction Act of 1995 (``PRA'') \34\ imposes certain 
requirements on Federal agencies (including the Commission) in 
connection with their conducting or sponsoring any collection of 
information as defined by the PRA. The Proposal would result in a 
collection of information within the meaning of the PRA, as discussed 
below. The Commission therefore is submitting the Proposal to the 
Office of Management and Budget (``OMB'') for review.
---------------------------------------------------------------------------

    \34\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    The Proposal contains a collection of information for which the 
Commission has previously received a control number from OMB. The title 
for this collection of information is ``Adaptation of Regulations to 
Incorporate Swaps-Records of Transactions, OMB control number 3038-
0090''.\35\ Collection 3038-0090 is currently in force with its control 
number having been provided by OMB.
---------------------------------------------------------------------------

    \35\ See OMB Control No. 3038-0090, http://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber=3038-0090# (last visited 
Sep. 20, 2016).
---------------------------------------------------------------------------

    The responses to the Proposal's collection of information are 
mandatory. 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 issued by OMB.
    As discussed above, in respect of collections of information, the 
Proposal would replace the existing audit system requirements with a 
requirement that records entities establish written recordkeeping 
policies and procedures. Such changes would result in revisions to 
collection 3038-0090. Therefore, the Commission proposes to revise 
collection 3038-0090 as described below.
2. Modification of Collection 3038-0090--Recordkeeping Policies and 
Procedures
    The Commission estimates that the Proposal will require 
approximately 15,000 persons to develop and maintain recordkeeping 
policies and procedures. This estimate includes approximately 8,792 
registrants, 15 designated contract markets, 23 swap execution 
facilities, 4 swap data repositories, 15 designated clearing 
organizations, and 3,200 unregistered members of designated contract 
markets or swap execution facilities, with the balance reflecting the 
Commission's estimate of those persons that are required to register 
with the Commission, but have not so registered, and other persons 
neither registered nor required to register with the Commission.\36\
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    \36\ With respect to registrants and registered entities, these 
numbers are based on the number of such persons so registered with 
the Commission as of November 2, 2016. With respect to the number of 
unregistered members of designated contract markets or swap 
execution facilities, see Agency Information Collection Activities: 
Proposed Collection Revision, Comment Request: Final Rule for 
Records of Commodity Interest and Related Cash or Forward 
Transactions, 80 FR 80327 (Dec. 24, 2015).
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    Based on the above, the estimated additional hour burden for 
recordkeeping policies and procedures of 150,000 hours is calculated as 
follows:
    Number of affected persons: 15,000.
    Frequency of collection: Annually.
    Estimated annual responses per registrant: 1.
    Estimated aggregate number of annual responses: 15,000.
    Estimated annual hour burden per registrant: 10.\37\
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    \37\ This burden hour estimate reflects the Commission's 
assumption that many records entities already have policies and 
procedures that, in whole or in part, satisfy the proposed 
recordkeeping policies and procedures requirement.
---------------------------------------------------------------------------

    Estimated aggregate annual hour burden: 150,000 (15,000 registrants 
x 10 hours per registrant).\38\
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    \38\ The Commission will also submit to OMB revisions to 
Collection 3038-0090 to reflect the Proposal's replacement of the 
audit system requirements in current Commission regulation 1.31.
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3. Information Collection Comments
    The Commission invites the public and other Federal agencies to 
comment on any aspect of the proposed information collection 
requirements discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the 
Commission solicits comments in order to: (1) Evaluate whether the 
proposed collection of information is necessary for the proper 
performance of the functions of the Commission, including whether the 
information will have practical utility; (2) evaluate the accuracy of 
the Commission's estimate of the burden of the proposed collection of 
information; (3) determine whether there are ways to enhance the 
quality, utility, and clarity of the information to be collected; and 
(4) minimize the burden of the collection of information on those who 
are to respond, including through the use of automated collection 
techniques or other forms of information technology.
    Comments may be submitted directly to the Office of Information and 
Regulatory Affairs, by fax at (202) 395-6566, or by email at 
OIRAsubmissions@omb.eop.gov. Please provide the Commission with a copy 
of submitted comments so that all comments can be summarized and 
addressed in the final rule preamble. Refer to the ADDRESSES section of 
this notice of proposed rulemaking for comment submission instructions 
to the Commission. A copy of the supporting statements for the 
collection of information discussed above may be obtained by visiting 
www.RegInfo.gov. OMB is required to make a decision concerning the 
collection of information between 30 and 60 days after publication of 
this document in the Federal Register. Therefore, a comment is best 
assured of having its full effect if OMB receives it within 30 days of 
publication.

C. Cost-Benefit Considerations

    Section 15(a) of the CEA\39\ requires the Commission to consider 
the costs and benefits of its actions before issuing a regulation under 
the CEA. Section 15(a) further specifies that the costs and benefits 
shall be evaluated in light of the following five broad areas of market 
and public concern: (i) Protection of market participants and the 
public; (ii) efficiency, competitiveness and financial integrity of 
futures markets; (iii) price discovery; (iv) sound risk management 
practices; and (v) other public interest considerations. The Commission 
considers the costs and benefits resulting from its discretionary 
determinations with respect to the Section 15(a) considerations.
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    \39\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

1. Costs
    As discussed above in relation to the RFA, the Proposal generally 
updates and simplifies existing Commission regulation 1.31 by deleting 
outdated terms and revising provisions to reflect advances in 
information technology while safeguarding the statutory-based 
principles previously identified by the Commission. The Commission 
preliminarily believes that the Proposal would impose certain costs on 
records entities. These costs are those necessary to establish and 
maintain required written recordkeeping policies and procedures. The 
Commission believes that these costs will be quite limited. At

[[Page 6365]]

the same time, the Commission preliminarily believes that the Proposal 
would also reduce current recordkeeping costs under Commission 
regulation 1.31, because the Proposal would increase flexibility 
provided to records entities and also eliminate certain requirements as 
described above (e.g., removing the requirements to have an audit 
system, to maintain electronic records in limited specified formats, 
and to retain a Technical Consultant).
2. Benefits
    The Commission is committed to reviewing its regulations to ensure 
they keep pace with technological developments and industry trends, and 
reduce regulatory burden. The Commission believes that the Proposal 
will allow records entities to benefit from evolving technology while 
maintaining necessary safeguards to ensure the reliability of the 
recordkeeping process. By deleting outdated terms and revising 
provisions to reflect advances in information technology, the Proposal 
will allow records entities to utilize a wider range of currently 
available technology than previously allowed and remove requirements 
that the Commission believes are now obsolete, allowing records 
entities to reduce their costs. In addition, the Commission believes 
that the flexibility provided by the Proposal will, without further 
Commission rulemaking, allow records entities to adopt new technologies 
as such technologies evolve, allowing such persons to reduce their 
future costs.
    Moreover, the Commission expects that the added flexibility 
provided by the Proposal will encourage records entities to utilize 
electronic storage rather than maintain paper regulatory records. The 
Commission expects that this conversion will benefit the Commission, 
the DOJ, and the commodity interest industry, generally, by making the 
universe of regulatory records more accessible and searchable.
    In addition, as a result of the Proposal codifying industry 
practices to require recordkeeping policies and procedures and, in 
doing so, providing records entities with an opportunity to examine 
their own recordkeeping practices, the Commission expects that records 
entities may improve the quality of such practices and, thus, the 
accuracy and integrity of their regulatory records.
3. Section 15(a) Factors
    Section 15(a) of the CEA requires the Commission to consider the 
costs and benefits of its actions before promulgating a regulation 
under the CEA or issuing certain orders. CEA Section 15(a) further 
specifies that the costs and benefits shall be evaluated in light of 
five broad areas of market and public concern: (i) Protection of market 
participants and the public; (ii) efficiency, competitiveness, and 
financial integrity of futures markets; (iii) price discovery; (iv) 
sound risk management practices; and (v) other public interest 
considerations.
i. Protection of Market Participants and the Public
    The Proposal will continue to protect the public by maintaining 
necessary safeguards to ensure the reliability of the recordkeeping 
process while allowing records entities to benefit from evolving 
technology.
ii. Efficiency, Competitiveness, and Financial Integrity of Markets
    As discussed above, the Proposal may increase resource allocation 
efficiency by improving the way in which records are maintained. 
Otherwise, the Commission anticipates minimal change to the efficiency, 
competitiveness, and financial integrity of the markets.
iii. Price Discovery
    The Commission believes that the Proposal may increase confidence 
and participation in the markets for the reasons discussed above. 
Nevertheless, the Commission does not anticipate a significant increase 
in liquidity or a significant improvement in price discovery as a 
result of this rulemaking.
iv. Sound Risk Management Practices
    By improving recordkeeping policies and procedures, the Proposal 
may encourage records entities to analyze their recordkeeping practices 
and create or update policies and procedures related thereto.
v. Other Public Interest Considerations
    The Commission has not identified any additional public interest 
considerations.
4. Request for Comments
    The Commission invites public comment on its cost-benefit 
considerations, including the Section 15(a) factors described above. 
Commenters are also invited to submit any data or other information 
that they may have quantifying or qualifying the costs and benefits of 
the Proposal with their comment letters.
    The Commission specifically seeks comment on the following:
     For those market participants with written operational 
procedures and controls that comply with current Commission regulation 
1.31, what transition costs, if any, will the Proposal's requirement 
for written policies and procedures entail?
     Are there any costs or benefits associated with the 
Proposal that the Commission has not considered in the Proposal? Please 
provide details and estimates regarding any asserted costs or benefits.

List of Subjects

17 CFR Part 1

    Commodity futures, Reporting and recordkeeping requirements.

17 CFR Part 23

    Authority delegations (Government agencies), Commodity futures, 
Reporting and recordkeeping requirements.

    For the reasons stated in the preamble, the Commodity Futures 
Trading Commission proposes to amend 17 CFR chapter I as follows:

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

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

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 
6i, 6k, 6l, 6m, 6n, 6o, 6p, 6r, 6s, 7, 7a-1, 7a-2, 7b, 7b-3, 8, 9, 
10a, 12, 12a, 12c, 13a, 13a-1, 16, 16a, 19, 21, 23, and 24 (2012).

0
2. Revise Sec.  1.31 to read as follows:


Sec.  1.31   Regulatory records; retention and production.

    (a) Definitions. For purposes of this section:
    Electronic regulatory records means all regulatory records other 
than regulatory records exclusively created and maintained by a records 
entity on paper.
    Records entity means any person required by the Act or Commission 
regulations in this chapter to keep regulatory records.
    Regulatory records means all books and records required to be kept 
by the Act or Commission regulations in this chapter, including any 
record of any correction or other amendment to such books and records, 
provided that, with respect to such books and records stored 
electronically, regulatory records shall also include:
    (i) All data produced and stored electronically that describes, 
directly or indirectly, the characteristics of such books and records, 
including, without limitation, data that describes how, when, and, if 
relevant, by whom such electronically stored information was collected, 
created, accessed, modified, or formatted; and

[[Page 6366]]

    (ii) Any data necessary to access, search, or display any such 
books and records.
    (b) Regulatory records policies and procedures. Each records entity 
shall establish, maintain, and implement written policies and 
procedures reasonably designed to ensure that the records entity 
complies with its obligations under this section. Such policies and 
procedures shall provide for, without limitation, appropriate training 
of officers and personnel of the records entity regarding their 
responsibility for ensuring compliance with the obligations of the 
records entity under this section, and regular monitoring for such 
compliance.
    (c) Duration of retention. Unless specified elsewhere in the Act or 
Commission regulations in this chapter:
    (1) A records entity shall keep regulatory records of any swap or 
related cash or forward transaction (as defined in Sec.  23.200(i) of 
this chapter), other than regulatory records of oral communications, 
from the date the regulatory record was created until the termination, 
maturity, expiration, transfer, assignment, or novation date of the 
transaction and for a period of not less than five years after such 
date.
    (2) A records entity that is required to retain oral 
communications, shall keep regulatory records of oral communications 
for a period of not less than one year from the date of such 
communication.
    (3) A records entity shall keep each regulatory record other than 
the records described in paragraph (c)(1) or (2) of this section for a 
period of not less than five years from the date on which the record 
was created.
    (4) A records entity shall keep regulatory records exclusively 
created and maintained on paper readily accessible for no less than two 
years. A records entity shall keep electronic regulatory records 
readily accessible for the duration of the required record keeping 
period.
    (d) Form and manner of retention. Unless specified elsewhere in the 
Act or Commission regulations in this chapter, all regulatory records 
must be created and retained by a records entity in accordance with the 
following requirements:
    (1) Generally. Each records entity shall retain regulatory records 
in a form and manner that ensures the authenticity and reliability of 
such regulatory records in accordance with the Act and Commission 
regulations in this chapter.
    (2) Electronic regulatory records. Each records entity maintaining 
electronic regulatory records shall establish appropriate systems and 
controls that ensure the authenticity and reliability of electronic 
regulatory records, including, without limitation:
    (i) Systems that maintain the security, signature, chain of custody 
elements, and data as necessary to ensure the authenticity of the 
information contained in electronic regulatory records and to monitor 
compliance with the Act and Commission regulations in this chapter;
    (ii) Systems that ensure the records entity is able to produce 
electronic regulatory records in accordance with this section, and 
ensure the availability of such regulatory records in the event of an 
emergency or other disruption of the records entity's electronic record 
retention systems; and
    (iii) The creation and maintenance of an up-to-date inventory that 
identifies and describes each system that maintains information 
necessary for accessing or producing electronic regulatory records.
    (e) Inspection and production of regulatory records. Unless 
specified elsewhere in the Act or Commission regulations in this 
chapter, a records entity, at its own expense, must produce or make 
accessible for inspection all regulatory records in accordance with the 
following requirements:
    (1) Inspection. All regulatory records shall be open to inspection 
by any representative of the Commission or the United States Department 
of Justice.
    (2) Production of paper regulatory records. A records entity must 
produce regulatory records exclusively created and maintained on paper 
promptly upon request of a Commission representative.
    (3) Production of electronic regulatory records. (i) A request from 
a Commission representative for electronic regulatory records will 
specify a reasonable form and medium in which a records entity must 
produce such regulatory records.
    (ii) A records entity must produce such regulatory records in the 
form and medium requested promptly, upon request, unless otherwise 
directed by the Commission representative.
    (4) Production of original regulatory records. A records entity may 
provide an original regulatory record for reproduction, which a 
Commission representative may temporarily remove from such entity's 
premises for this purpose. Upon request of the records entity, the 
Commission representative shall issue a receipt for any original 
regulatory record received. At the request of a Commission 
representative, a records entity shall, upon the return thereof, issue 
a receipt for the original regulatory record returned by such 
representative.
0
3. In Sec.  1.35, revise paragraph (a)(5) to read as follows:


Sec.  1.35   Records of commodity interest and related cash or forward 
transactions.

    (a) * * *
    (5) Form and manner. All records required to be kept pursuant to 
paragraphs (a)(1), (2), (3), and (4) of this section, other than pre-
trade communications, shall be kept in a form and manner that allows 
for the identification of a particular transaction.
* * * * *

PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS

0
4. The authority citation for part 23 continues to read as follows:

    Authority:  7 U.S.C. 1a, 2, 6, 6a, 6b, 6b-1, 6c, 6p, 6r, 6s, 6t, 
9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21.
    Section 23.160 also issued under 7 U.S.C. 2(i); Sec. 721(b), 
Pub. L. 111-203, 124 Stat. 1641 (2010).

0
5. In Sec.  23.203, amend paragraph (b) as follows:
0
a. Revise paragraph (b)(1); and
0
b. Remove and reserve paragraph (b)(2).
    The revisions to read as follows:


Sec.  23.203  Records; retention and inspection.

* * * * *
    (b) * * * (1) The records required to be maintained by this chapter 
shall be maintained in accordance with the provisions of Sec.  1.31 of 
this chapter, except as provided in paragraph (b)(3) of this section. 
All such records shall be open to inspection by any representative of 
the Commission, the United States Department of Justice, or any 
applicable prudential regulator. Records relating to swaps defined in 
section 1a(47)(A)(v) shall be open to inspection by any representative 
of the Commission, the United States Department of Justice, the 
Securities and Exchange Commission, or any applicable prudential 
regulator.
* * * * *

    Issued in Washington, DC, on January 12, 2017, by the 
Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.

    NOTE: The following appendices will not appear in the Code of 
Federal Regulations.


[[Page 6367]]



Appendices to Recordkeeping--Commission Voting Summary and Chairman's 
Statement

Appendix 1--Commission Voting Summary

    On this matter, Chairman Massad and Commissioners Bowen and 
Giancarlo voted in the affirmative. No Commissioner voted in the 
negative.

Appendix 2--Statement of Chairman Timothy G. Massad

    I have said many times that it is important for the CFTC to ensure 
its rules are up-to-date in light of technological changes, as outdated 
rules can create unnecessary burdens. That is why I'm pleased we are 
unanimously issuing this proposed rulemaking, which is in keeping with 
that goal.
    Today's proposal will modernize recordkeeping and storage 
obligations set forth in CFTC rules, and make them technology neutral. 
By doing so, it will reduce costs for businesses and improve the 
quality of record preservation and production. Among other things, the 
proposal will provide greater flexibility when it comes to how records 
must be retained and produced. In this age where terabytes of storage 
easily fit in one's pocket, our rules should not refer to microfiche or 
require paper records.
    Today's proposal is also an example of how the Commission is 
focusing on issues related to technological change generally in our 
markets. In this regard, there is much talk today about innovations 
that may come from financial technology. While it is the role of the 
private sector to develop innovations, I believe it is our role to 
ensure that the Commission's rules do not stand in the way of their 
potential. Today's proposal is a way to do just that.
    I thank the CFTC staff for their work on this proposal and my 
fellow Commissioners for their support.

[FR Doc. 2017-01148 Filed 1-18-17; 8:45 am]
 BILLING CODE 6351-01-P